KARACHI, July 18: The phenomenal rise of the euro — the single currency of 12 European nations — have raised a big question for exporters in Pakistan: Can the euro sustain its strength — and if so how the exporters can benefit out of it?

The answers:

“I think the strength of the euro is sustainable and in fact the new currency may gain more strength in near future,” says a former president of Federation of Pakistan Chamber of Commerce & Industry S.M. Muneer who is also one of the top exporters of the country.

“Those exporters are sure to benefit from the rise of the euro whose exports go to the eurozone and they have priced their goods in euro — and not in dollar,” Muneer says.

He says he himself has so far billed his exports to eurozone in dollar. “But we will switch over to euro.”

The single European currency that was launched in the banking system as back as in January 1999 came into limelight after euro notes and coins came into circulation from January this year.

In the first three months the new currency made no big gains but from April this year it started rising.

In three months to June the euro shot up from 87 cents to 97 cents in the international market. This 11.5 per cent increase in the euro value had an impact on Pakistan exporters as well, as it weakened the rupee vs euro accordingly.

Now that the euro has risen past parity with the US dollar, the appreciation in its value since April 1 works out to be about 15 per cent. Whereas nothing can be said with certainty about whether the euro would be able to keep its head above parity with the US dollar the exporters do need to make some projections — and the economic managers should make a similar exercise also — to better manage the foreign exchange rates regime.

“Our projection is that the euro would remain stable until the US economy does not pull out of crisis,” says a leading textile exporter Rafiq Ibrahim. “Because the euro has not risen on the back of better economic performance by the countries of eurozone but due to weaknesses in the US economy.”

Ibrahim seems convinced that the euro can keep up its present health as he says that he is now trying to open euro-denominated letters of credit rather than sell his exports in dollars. He believes that other exporters would also do the same in the days to come. But Ibrahim is mindful of the fact that switching over from dollar-based LCs to euro-based LCs is not an effective way of reaping benefit through weakening of rupee against the euro.

“Because in any case the buyers are going to adjust things. When the rupee falls against the euro the eurozone buyers paying us in euro start demanding price cuts.”

So what else could be done to help exporters get some benefit.

“I think the government should continue to keep the dollar stable at Rs60,” says S. M. Muneer. “In that case the exporters may keep their earnings from dollar-denominated exports from falling and may be able to accommodate the demand of the eurozone buyers to make price cuts.”

Both S.M. Muneer and Rafiq Ibrahim believe that the rise of the euro has thrown a big challenge upon the exporters who must now look for ways to diversify their export base in terms of territory and currency.

Currently 65 per cent of export earnings come in dollar and the remaining 35 per cent in other major currencies including the euro and the UK pound sterling.

President of state-run National Bank Syed Ali Raza also says that the advent of the euro as a strong currency has given the exporters a chance to diversify exports.

“The strategy should be to diversify the exports both in terms of destination and in terms of currency,” he said. Unlike the businessmen Raza is not much optimistic about the euro keeping its present health vis-a-vis the dollar.

“It depends a lot on what happens in the US equity markets,” he said referring to the recent flurry of corporate scams that hit the US market bringing the dollar down.

“Since the eurozone economies are not very healthy, the euro may lose part of its strength if the US equity markets start behaving.”

He said he shared the views of those analysts who predict that the euro could fall back to 97-98 cents.

Ali Raza supported the idea of keeping the dollar strong for the time being though he suggested that now the dollar could be supported at Rs59 instead of Rs60.

Early this month the State Bank stopped defending the dollar at Rs60 obviously in the wake of its continued weakening in the international market. But Finance Minister Shaukat Aziz hinted at a meeting with textile exporters the other day that the interest of the exporters would be kept in mind while managing the foreign exchange regime.

But president of a major foreign bank who declined to be named seemed more optimistic about the euro. “The euro has crossed the parity (with dollar) at a time when the US is suffering from the issues of corporate governance. But the dollar-euro parity was so close that it did change the sentiments.”

The foreign banker said though the US GDP has risen modestly in the last quarter, other indicators point to a lingering weakness adding that this brings the US at par with the eurozone economies that too are not performing well.

“So on balance it is not the economic indicators that matter most now...it is rather the corporate scams in the US and a pro- euro sentiment that keep the euro strong.”

Like Ali Raza he too was of the opinion that the dollar should be defended at a certain level to keep export earnings and home remittances from falling.