Exporters resort to imports to evade rules
In a new twist to the foreign exchange crisis in the country, exporters have resorted to new import businesses to circumvent Central Bank (CB) regulations.
The CB rules say the exporters who need to import to source raw materials etc don’t need to convert their exports proceeds to rupees. This has got the exporters thinking that they can go into unrelated business – and start importing. “These are different business lines and they don’t need to declare that the LC is for such imports if they are exports. They don’t need to essentially say that they are isolated from their core lines,” a CEO of a bank told the Business Times on Monday. He said such imports are eating into other related businesses’ share as well.
“We have some import letters of credit lined up for traditional exporters who never imported raw materials. They do this to thwart the regulator’s recent direction imposed to reserve US dollars,” a senior banker said.
A second banker confirmed this, saying the exporters are blatantly violating CB directions.
He said that banks are also grappling with corresponding banks being cautious when opening letters of credit for Sri Lankan traders. Certain foreign banks have put a ban on discounting letters of credit (LC) to Sri Lanka and certain others go to the nitty gritty of the client and the bank when giving credit.
Bankers lament that the negative publicity the country has got surrounding the forex crunch has got the world rethinking these trade instruments to Sri Lanka. Already banks in Sri Lanka’s biggest trade partner India are hesitant to honour LCs, a third banker said. He added the credit downgrading by all three global rating agencies has exacerbated the already difficult situation.
This has come amid the CB selling more than half of gold reserve corresponding to 54.1 per cent of US$ 206.8 million in December as per the regulator’s weekly economic indicators.
Two weeks ago a currency swap with China boosted CB reserves to $3.1 billion. The CB will go along with the government plans to get more of these swaps from regional neighbours in the short to medium term.
Over the past month there have been strong calls to freeze the country’s debt and to go for a debt restructuring scheme. This has fallen on deaf ears. The government is more concerned about maintaining an unblemished record for servicing debt, an economist said. This move comes at a very high cost to the general public with food prices increasing by 21.1 per cent last month on a year-on-year basis – the highest ever precipitated by oil and gas price hikes.
“It is the tough call for the authorities between paying debt, defaulting or restructuring debt,” an analyst said.
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