KARACHI, Aug 2: The US dollar lost 50 paisa or 0.8 per cent of its value against the rupee in the inter-bank market last month.

The dollar closed at Rs59.53/Rs59.55 for ready buying and selling on July 31 down from Rs60.03/Rs60.05 on June 29—the last working day of that month.

Senior bankers said the US unit could have lost more of its value had the State Bank not purchased a few hundred million dollars from banks to keep it strong enough for the exporters.

In fiscal year July/June 2001-02 the dollar had depreciated 6.25 per cent against the rupee in the inter-bank market. This depreciation too did not reflect the actual loss of strength in the dollar value as the SBP had deliberately kept it strong for the benefit of the exporters.

Business leaders believe that the State Bank should continue to defend the dollar at the present level for they feel that further fall of the dollar would make the exports uncompetitive.

“From exporters viewpoint the stability of exchange rate is extremely important,” says the chairman of SITE Association of Industry Dr. Arshad Vohra. “So the central bank should continue to defend the dollar at the present level. And if at any stage it becomes necessary to let the dollar slip further the exporters should be taken into confidence.”

Finance Minister Shaukat Aziz said during a meeting at Karachi Chamber of Commerce and Industry late last month that the real worth of the dollar was Rs55. He said the central bank had kept the dollar from falling to this low to let the exporters remain competitive in the world markets.

“Whereas keeping the dollar strong for the exporters has its own merits...if the dollar is allowed to find its real value in the market...and if the rupee becomes stronger that is very good for the economy,” says Dr. Vohra.

“But before it happens the government must take steps to cut down input cost of the industry.”

That seems a far cry. Even heads of state-run banks admit that the input cost of the industry is too high in Pakistan compared to India and other neighbouring countries. “That is why you have to subsidize the exporters by keeping the dollar at artificially high level,” says president of a state-run bank.

“If the Indian rupee is trading at Rs49 and ours at Rs59 we have to maintain this spread to save our exporters from losing his buyers to the Indian exporters. If we let the dollar to slip to Rs55 the gap would be too small to support our exporters.”

INFORMED PROJECTION: Whereas exporters want the government and the central bank to keep them informed about where the dollar would stand during a given period this has become near impossible for two reasons: (i) the government or the central bank cannot do much to keep exchange rate artificially stable in a quasi-free regime that exist in Pakistan; and (ii) leaked information about the exchange rate can be misused by speculators.