In the wake of a dollar crisis, a proposal to settle Letter of Credit (LC) payments in Taka is causing friction between textile millers and knitwear makers.
Bangladesh Textile Mills Association (BTMA) has opposed the demand sought by the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) to the Bangladesh Bank for making taka the currency of local back-to-back LCs in case of the dollar.
Earlier on Sunday, BKMEA sent a letter – signed by Executive President Mohammad Hatem – to the central bank Governor Abdur Rouf Talukder demanding approval for opening and settling LC payments in Bangladeshi Taka as 80% of the knit manufacturers source raw materials from local sources.
Opposing the BKMEA's proposal, BTMA expressed their position through another letter signed by BTMA President Mohammad Ali Khokon to the central bank governor claiming that the proposal once implemented, would not play any effective role in resolving the dollar crunch.
“It will create complications in the management of import-export trade for the stakeholders of the textile sector,” the letter read.
Moreover, as knitwear exporters source yarns and fabrics through inward back-to-back LC in foreign currency, so, no foreign currency flies out of the country due to the inter-bank transactions.
“It needs to be noted that the millers currently have adequate stocks of yarn and cloth,” he added.
The availability of yarn or fabric made of man-made fibre may not be enough, but a significant amount of this is being produced in the country.
“In such a situation of the dollar crisis, it is necessary to discourage the import of yarn in order to save dollars,” the letter read.
Moreover, as the EDF (export development fund) and UPAS loan payment is settled in dollars in general, textile millers must have a sufficient dollar in reserve to repay loans, the letter reads.
“In that case, if goods are supplied in local currency against back-to-back LC, receipt of foreign currency will not be possible and the existing dollar crisis may worsen due to accumulation of greenback in a group of people,” he added.
Regarding the letter, Fazlul Hoque, vice-president of the BTMA told Dhaka Tribune that the textile millers have enough yarns, especially for knit and denim.
“If we import yarn from abroad in this situation, it will worsen the dollar crisis and, for this reason, we requested the authority to discourage import,” he added.
He further said: “As we import raw material (cotton) in dollars, back-to-back LCs should also be opened in dollars otherwise it will create complexities.”
Earlier, BKMEA Executive President Mohammad Hatem said that the dollar crisis will be somewhat relaxed if the central bank approves its demand.
“A number of commercial banks are unable to meet their LC liabilities and the crisis has created instability in the interbank foreign exchange market,” the letter read, adding that it hurts the export sector of the country.
Nearly 80% of the raw materials in the knitwear sector are procured at the domestic level, so it will be easier to deal with the dollar crisis if the LCs are opened in Taka instead of US dollars at the local level, Mohammad Hatem said in the letter.
They are demanding it for a short period of time in order to deal with this temporary problem and can be withdrawn again when the situation normalizes.
However, the country's foreign-exchange reserves dipped to 34.42 billion after the latest ACU payment against imports.
