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Rate of LC margins for industrial goods import-30%

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December 13, 2000 

Dhaka-- (UNB) – As Bangladesh Bank slapped LC margins on imports to replete the country’s depleted foreign exchange reserve, business leaders yesterday demanded immediate withdrawal of the mandatory restriction to avert major setbacks to the process of economic revival.

According to a Bangladesh Bank circular issued Monday, the rate of LC margins for import of industrial goods has been fixed at 30 percent and of commercial items 50 percent.

The margins will not apply in the cases of petroleum and petroleum products, capital machinery and imports under back-to-back LC where the same will be determined according to bank-client relationship.

Until Sunday, the commercial banks have opened import LCs with margins on the basis of bank-client understanding.

“The decision was taken when the economy was gaining ground. Unfortunately it will pull back the economy,” Metropolitan Chamber of Commerce and Industry president Latifur Rahman told a hurriedly called press conference at the MCCI office.

Dhaka Chamber president Aftab ul Islam, Foreign Investors Chamber president Waliur Rahman Bhuiyan and Bangladesh Agro-Processors Association’s Maj Gen (retd) Amjad Khan Chowdhury were also present in the news conference that followed their emergency meeting on the issue.

They aired the apprehensions that following the decision, the border would be flooded with smuggled goods, directly affect revenue earnings, hit hard the consumers and the industrial upswing will be dampened at the point of upstart.

Latifur Rahman said the margin requirements that “shocked the business community” would have far-reaching adverse repercussions on the economy. Business and industry will suffer serious working capital shortages and increased cost of funds.

The manufacturing sector which already suffers from problems like low capacity utilization, infrastructure problems, energy shortages, etc. will now be faced with increased cost of funds and working capital shortages, the business magnet forecast.

He said commercial importers would also be hit hard as the local market may be handed over to smugglers. Most of them are likely to be eliminated as will not be able to compete with the goods smuggled into the country through cross-border trade.

“We strongly feel that direct and induced effects of the higher margin requirements should have been analysed more carefully keeping in view its impact on trade and industry, new investment, inflation and employment,” he told newsmen.

The MCCI president said one of the items exempted is petroleum products, which caused the highest depletion of foreign exchange during July-September 2000 period when total imports increased by US$ 53.19 million to US$ 134.49 million from US$ 81.3 million of the same period last fiscal.

“We strongly feel that a narrow restrictive approach to curb foreign exchange transactions has serious limitations in a developing country like ours, having structural rigidities in the economy and a weak manufacturing sector having large import components in their products.”

Latifur Rahman said high LC margins in such condition could be a potential adverse effect on investments also.

“I don’t think Bangladesh Bank should do what would damage the economy,” said Foreign Investors Chamber of Commerce and Industry (MCCI) president Waliur Rahman Bhuiyan.

Meanwhile, a senior official of the central bank said the restriction was imposed as an absolutely temporary precautionary measure to avoid further pressures on the foreign exchange reserves, already in a pressure. “There is nothing to worry about.”

He said the reserve stood at USD 1.357 billion yesterday which is now fluctuating between USD 1.2 billion and USD 1.3 billion. The reserve position came down as low as USD 1.2 billion immediately after a bimonthly regular payment of around USD 150 million to Asian Clearing Union (ACU).

On the other hand, imports increased abnormally during the first four months of the current fiscal, he said. The imports amounted to around Tk 4,500 crore higher during July-October period of 2000-2001 compared to the same period last fiscal.

He said the import payments would be around Tk 15,000 crore more if the situation continued.

“The restrictions will be adjusted gradually and withdrawn eventually when the imports will come down to a comfortable level,” the official told UNB.

At the present trend of the economy, he said, there would have almost no impact on inflation as it remained under control. If there is any impact it would be marginal.

He said petroleum product imports about doubled to Tk 1,403 crore during July-October period of the current fiscal from Tk 784 crore of the same period last fiscal. The import of capital machinery increased to Tk 1,400 crore from Tk 750 crore and imports under miscellaneous head to Tk 3,700 crore from Tk 2,500 crore.

“Restricting import of miscellaneous items is one of the major targets of the central bank,” said the official about the logic of the exigency.

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