December 3, 2003	Wednesday	Shawwal 8, 1424

KARACHI, Dec 2: Exporters particularly those whose exports go to eurozone are in a fix. Many buyers of eurozone are insisting that they should quote export prices in US dollar and not in the euro that has reached a historic high against the greenback. For the time being the exporters are resisting this demand and trying to convince their buyers that this is not possible. But they seem prepared to accommodate this demand from January.

Says a leading textile exporter Iqbal Ibrahim: “We would revise our foreign exchange projections in January and may start quoting prices according to the buyers’ demand.”

The eurozone buyers currently negotiating fresh contracts want Pakistani exporters to quote prices in the US dollar because the euro has risen sharply against the dollar in the past months — and this has made the eurozone imports dearer.

“The impact of a currency-shift in repricing our export and an unusual rise in cotton prices means up to 15 per cent reduction in our export earning,” said Mr. Ibrahim when reached by Dawn over telephone. “We are trying to make our buyers realize this.”

He said that the exporters, however, would have to satisfy a certain class of buyers — the most loyal or the largest ones for example — either by lowering euro-based prices or quoting a dollar-based price afresh. But why on earth a buyer should ask its supplier to quote the export price in the dollar and not in the euro? (The supplier can still keep the price level unchanged by quoting a euro-based price in its dollar equivalent). When it comes to pricing mechanism in external trade this is not as simple as it seems.

Exporters quote indicative prices to their buyers when they start negotiating a deal with them — and reconfirm the same when the buyer finally decides to place order. When they quote the indicative prices those are obviously based on forward exchange rates projected by them with the help of their bankers. Normally they keep room for an anticipated depreciation of non-dollar currencies against the rupee while making foreign exchange projections. “The euro and the pound sterling are no exceptions,” says a leather garments exporter Fawad Ijaz Khan who also heads Pakistan Leather Garments Manufacturers & Exporters Association.

“The buyers in the eurozone and those in the UK are asking us to lower the prices quoted in euro or quote dollar-based prices afresh before placing firm export orders,” he said when reached by Dawn over telephone.

Mr. Khan said it would not be difficult for the exporters to accommodate this demand. “Because the rupee depreciation against the euro and the pound sterling has more than compensated the loss they had to bear due to the fall in the dollar value.”

In the first five months of this fiscal year i.e. between July-November 2003 the rupee fell 2.3 per cent and 2 per cent against the euro and the pound sterling respectively. In contrast it rose 1.1 per cent against the US dollar and 8 per cent against Japanese yen.

Ninety per cent of Pakistan’s $11.2 billion plus exports were denominated in the US dollar in fiscal year July/June 2002/03. Seven per cent exports were denominated in euro and the remaining three per cent were priced in other currencies — mainly in the pound sterling and Japanese yen.

The rupee shed 2.3 per cent of its value against the euro and two per cent against the pound sterling in the first five months of this fiscal year i.e. between July-November 2003.

The rupee fell to 67.58 a euro in on November 25 — the last working day of that month — from 66.03 on July 1. It also fell to 97.26 a pound at end-November from 95.27 a pound on July 1.

The rupee declined against the euro and the pound sterling as the two currencies gained substantially against the United States dollar in the world markets.

Banks in Pakistan — as in other countries also — still use the US dollar as a benchmark for determining value of other currencies. So when the dollar is down against a third currency the rupee also becomes cheaper

against that currency. Likewise when the dollar moves up against a third currency the rupee also becomes dearer vis-a-vis that particular currency.

Whereas the US dollar declined against the euro and the pound sterling in global currency market in past few months it gained slightly against the Japanese yen. Naturally then the rupee also became dearer vis-a-vis the yen. It moved up to 52 paisa a yen at end-November from 48 paisa a yen on July 1 showing a gain of eight per cent.