BKMEA, BTMA wide apart on LC payment in taka

Two textile-sector trade bodies have locked horns in a row over a proposal for settling letter of credit (LC) payments in local currency amid dollar crunch following Bangladesh's forex-reserve fall.

Bangladesh Textile Mills Association (BTMA) in a letter to the central bank Tuesday opposed the proposed switch sought by Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA).

Earlier on Sunday, BKMEA in a letter to Bangladesh Bank Governor Abdur Rouf Talukder proposed that they be allowed for opening and settling LC payments in taka as 80 per cent of the knitters source raw materials locally.

"There is dollar shortage globally due to the economic recession and Bangladesh is no exception," it is mentioned in the letter, sent by Mohammad Hatem, executive president of BKMEA.

Commercial banks are facing difficulties in meeting dollar demands for opening and payment settlements, causing sufferings to export-oriented industries, the association noted.

"So, to mitigate the existing dollar crisis, we believe, LC opening and its payment settlement in Bangladeshi taka in lieu of dollar at local stage would help in overcoming the foreign-currency shortage to some extent," the letter reads.

Exporters are also incurring financial losses due to the procedures as the conversion gap between the US dollar and the local currency stood at Tk 7.0-8.0 per dollar, the association explains.

The BKMEA leader also said they would get relief of the currency-exchange-rate gaps if their demand is met.

The other association moves swiftly to gainsay the dollar-taka arithmetic in import payment. The BTMA leadership in a separate letter to the governor claimed that the proposal, if implemented, would not play any effective role in resolving the dollar crunch.

Citing media report, Mohammad Ali Khokon, president of BTMA, in the letter argued that the switch would rather create complexities in export-import activities of other textile-related stakeholders.

"As knitwear exporters source yarns and fabrics through back-to-back LC in foreign currency, no capital flight happens," he says, adding BTMA mills at present have sufficient stock of yarns and fabrics.

The textile mills' association also points out that though there is not sufficient availability of yarn and fabrics made of manmade fibre, a notable quantity of such yarn and fabrics is produced locally.

The BTMA president requested discouraging import of raw materials that are available locally against back-to-back foreign LC "in the name of saving foreign currency and resolving the dollar crisis".

As the EDF (export development fund) and UPAS loan payment is settled in dollar in general, textile millers must have sufficient dollar in reserve to repay loans, he says.

UPAS means Usance Payable at sight. Under this letter of credit, the exporter will get the payment at sight if the documents are credit-compliant.

"So, it would not ensure foreign-currency availability if goods are delivered against back-to-back LC payment in local currency," Mr Khokon claims.

The association, however, alleged that the greenback would be capitalized by a group of people that might worsen the dollar crisis further.

Meanwhile, Bangladesh has guillotined import lists as part of austerity measures to navigate the current global and local financial crises in the wake of pandemic and Russia's Ukraine war that is retaliated with US sanctions. The country's foreign-exchange reserves dipped to 34.42 billion after a latest ACU payment against imports.

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