ABOUT one-and-a-half per cent decline in the rupee value against the dollar between mid-August and mid-September has triggered a speculative buying of greenbacks in the open market.

The rupee slipped below 88 a dollar for the first time in dealings outside banks on September 16—the day when it closed at 87.92 in inter-bank market after fuel oil payments of $200 million or so.

Till the end of August, the dollar was cheaper in the open market. But now it is half a per cent costlier. So what has happened?

Bankers say, a spike in forward dollar rates is the culprit. “In just two weeks of this month, forward cover premium for three months has gone up 80 paisa. Multinational companies and importers are making advance booking of dollars fearing continuation of the rupee slide,” said treasurer of a local bank.

For the first time in last several months, growth rates of export proceeds and import payments almost equalled in August.

Earlier, exports were growing faster.

Naturally, importers began taking forward covers and exporters slowed down realisation of sale proceeds. End-quarter external debt servicing and outward repatriation of dollars by multinational companies also continued.

“But exchange rates uncertainty gripped the market when media reports suggested that Pakistan would probably come out of the stalled IMF lending programme when the two sides meet later this month,” said treasurer of another bank. “That actually led to panic forward dollar buying.”

Bankers said, during the week ending on September 16 the central bank pumped in some $300 million into the market, about half of which came in towards the weekend. They said the intervention contained the rise of the dollar to some extent. “We may continue to intervene to check uncalled for volatility,” remarked a senior central banker.

Executives of exchange companies say the recent rise of the dollar in open market is speculative in nature. “Our estimates show that around 15000 individuals are involved in illegal transfer of foreign exchange abroad in one way or the other.

Recently these tax evaders and Hawala operatives and tax evaders have become a bit more active,” insisted an official of Exchange Companies Association of Pakistan.

“Exchange companies on the other hand, have come under undue scrutiny of law enforcement agencies and market regulators. Even their lawful transactions are being intercepted.”

A leading exchange company was taking millions of dollars worth of non-dollar currencies to Dubai to sell them there and bring back the dollar equivalent back home. This is part of a normal legal practice. “When consignment of these currencies was bound for Dubai, heavy rains resulted in cancellation of the flight. To our horror we learnt that the regulators stopped the forex company from taking the consignment in the next flight. The issue was resolved only after intervention of high-ups.”

This is an example of how forex companies who sell more than $2 billion into inter-bank market every year are being treated.

Executives of these companies allege that “a few officials of regulating agencies” are actually blue-eyed boys of international financial institutions and they are out to decelerate impressive growth in home remittances. The country has been receiving over a billion dollars from overseas Pakistanis for past several months and inflow of remittances jumped up 40 per cent year-on-year to $1.3 billion in August.

“Instead of cracking down on illegal transfer of foreign exchange abroad unscrupulous elements among our regulators are belittling the role of forex companies in growth of remittances and forex reserves,” owner of a Karachi-based exchange company complained.

ECAP officials lament that despite clear instructions from President Zardari a few months ago, nothing has been done so far to provide forex companies a level playing field with banks. “Who can deny our role in boosting the country’s forex reserves when sanctions were imposed on Pakistan after May 1998? Treat us with respect and even handedness,” demanded a top ECAP official.

He said that whereas banks get big incentives for handling remittances under Pakistan Remittances Initiative scheme, exchange companies do not. And he disclosed that a Dubai-based exchange company of Indian origin is now handling remittances of the Pakistanis living there at the cost of Pakistani exchange companies. “What a cruel joke!”

A senior official of ECAP said exchange companies would soon meet President Zardari to brief him on what is happening and why “on the foreign exchange front.”