October 6, 2002	Sunday	Rajab 28, 1423

KARACHI, Oct 5: The euro has gone into reverse gear — and lost 2.3 per cent of its value against the rupee in the first quarter of this fiscal year.

This may lessen the margins of those exporters whose exports go to the eurozone. So the exporters seem a bit alarmed not only due to this but also because they are not sure whether the SBP would continue to defend the dollar for their benefit after the elections. So far the fall of the euro is concerned it seems too early to be worried as growing conflict between the US and the Arab world and trade consolidation process within the eurozone may keep it stable.

Bankers say the euro fell to Rs58.14 in the inter-bank market at end-September from Rs59.54 at end-June this year. This fall of 2.35 per cent in the value of euro mirrors the loss it had to suffer after rising above the parity level with the dollar in mid of July.

April to July were the golden days for the euro when it put on extra 14 per cent value against the dollar — and in the process it even floored the mighty green bill for some time. But since this had more to do with the psychological support for the euro rather than to real economic fundamentals the single European currency soon found itself on the back foot.

This explains the nature of decline in the value of the euro against the dollar in the international market that eventually had an impact on rupee/euro parity.

Opinions are divided here — as in the international markets — on whether the euro would move upwards or downwards in near future. So exporters are naturally alarmed — rather a bit worried: “These are not good days for us,” says a leading textile exporter Iqbal Ibrahim referring to fears of what would happen to dollar/rupee parity after a new government is installed later this month and a general rise in the input costs.

“The dollar is set to lose more value...and the euro is also falling...so our margins may be squeezed,” he said when asked by Dawn if the 2.3 per cent fall of the euro in July-September has started worrying the exporters. “Our exports to the US is dollar-denominated and the European Union now wants us to bill them in euro. So one has to take the double hit if both currencies fall against the rupee.” Whereas Iqbal Ibrahim feels that faster inflow of foreign exchange into Pakistan may compel the new government to let the dollar shed some of its value he seems less worried about the health of the euro. He shares the view that the trade consolidation within the eurozone and growing US-Iraq conflict may keep the euro stable.

Pakistan gets about one fourth of its export earnings from the US whereas its exports to the eurozone roughly accounts for one-fifth. But exporters say lately they have started penetrating deeper into the eurozone that may eventually increase its share in the country’s exports very soon.

The SBP that attained sufficient autonomy during three years of General Musharraf in power has been keeping the dollar artificially strong to help exporters by mopping up its excess supply from the inter-bank market.

Sources close to the central bank say the installation of a new government after October 10 elections would hardly be in a position to change this policy. But they caution that the dollar may be allowed to shed some of its extra weight not because of any change in the government but purely because keeping it highly over-valued can do more harm to the economy than it can benefit it through making the exports competitive.

Finance Minister Shaukat Aziz said recently that the real strength of the dollar is Rs55 (against its pampered value of Rs59 plus). That is why a number of exporters have projected the value of the US unit around Rs58 for pricing their exports in the second quarter i.e. October-December.