It is not possible to release dollars from the central bank whenever someone wants, said Finance and Planning Minister M Saifur Rahman yesterday.

The government has to maintain foreign currency reserve to meet priority import demands for petroleum, fertiliser and food, he explained to reporters after a meeting with Bangladesh Bank (BB) governor and other high executives and the chairmen and managing directors of nationalised commercial and specialised banks.

Earlier in the week, on Saturday, the Metropolitan Chamber of Commerce and Industry (MCCI) asked the BB to release foreign currency to those creditworthy banks that are failing to meet their letter of credit (LC) obligations amid a severe scarcity of dollar.

MCCI LETTER TO BB
The MCCI letter, dated July 9, signed by its president and addressed to the BB governor, said several banks have not been able to honour their LC obligations due to a dollar crisis, causing serious damage to the country's reputation and ability for securing future import contracts.

The chamber asked the central bank to take step so that the credit-worthiness of the banks is not affected in the international market and, at the same time, foreign exchange is not frittered away for consumer and speculative imports.

The restriction on the availability of dollar to the banking sector has created an artificial market whereby the demand for dollar now far exceeds the supply, MCCI President Kutubuddin Ahmed observed in the letter.

"If the creditworthiness of the country's importers and, more importantly, the financial institutions is undermined in the international arena, there are serious implications for the country's ability to secure future import contracts," he cautioned.

At best, the affected banks will have to pay more to secure increasingly expensive foreign bank LC confirmations, the MCCI chief remarked, but the damage to the country's image would be hard to repair.

While the nationalised commercial banks (NCBs) may be able to operate within the prescribed exchange rate bands, private and foreign commercial banks tend to be driven by market forces, the letter pointed out.

It also observed that taka's depreciation might be good for exporters but has clear inflationary implications for imported goods. Where such imports are for 'non-essential' items, this may not be considered a problem from the country's perspective, but if inflation starts to affect day-to-day essentials, the social impact is more significant.

"Limited letters of credit from the banking sector has led to 'hoarding' of certain imported commodities. Hoarding has led to price escalation of certain commodities, which has the potential to seriously affect the well-being of the people," it continued.

The chamber thought the government should consider some short- and long-term actions proposed by the chamber before determining the policy measures to face the complexity of foreign currency exchange.

As a short-term measure, the chamber suggested selective release of foreign currency to creditworthy banks that are failing to meet their LC obligations.

It also asked the central bank to relax regulations on supplier's credit to ease the immediate demand for foreign currency.

"In the longer term, there need to be measures to ensure that we avoid a recurrence of the current crisis," the chamber said.

According to it, there need to be more proactive initiatives to ensure that the huge amount of foreign workers' remittance is made through legitimate banking channels and to enable the commercial banks to efficiently recycle the fund to meet the country's import requirements.

The government can also continue to work with the private sector to incentivise exporters, the chamber suggested.

SAIFUR DENIES DOLLAR CRISIS
But, Finance Minister Saifur Rahman yesterday rejected the claim of dollar crisis.

The government must keep its foreign exchange reserve at a certain level to facilitate import of essential goods including petroleum, Saifur told the press after a meeting with BB Governor Dr Salehuddin Ahmed and high officials of the BB and the NCBs at his secretariat office.

The government also requires an additional $546 million to pay off the increased price of petroleum, he said, adding, [so,] "It is not possible to release dollars from the central bank whenever someone wants it."

According to the minister, the reckless and profit-making attitude of some of the small banks has put them in the trouble. They have over-committed themselves for LCs, but the good banks do not have any such problem, he pointed out.

Saifur asked the central bank to examine these banks' capacity of earning foreign exchange and the amount of LCs they have opened, meeting sources said.

He also criticised the lending policies of these banks, saying they are investing in heavy industry, which in the past used to be done through foreign investment or credit line, putting pressure on the foreign exchange reserve.

Saifur advised the banks to invest more on export-oriented projects and enterprises that would create jobs instead of investing in the heavy industry.

He also suggested them not to open LCs for unnecessary imports and asked them to appoint good lawyers for realising default loans.

At the meeting that reviewed the national and international finance situation Saifur also advised the NCB officials to look into any possible negative impact of the recent London bomb attacks on foreign currency remittance.