Should we run down our Foreign Exchange Reserve to import more vehicles?

Wednesday, 21 October 2015 00:00 - - {{hitsCtrl.values.hits}}

The Foreign Exchange Reserve we had has been depleted by 30%. It is also not an earned reserve but a borrowed reserve – built up by foreign borrowings which are also mostly short term borrowings and have to be repaid.

In the circumstances isn’t it the height of folly to use these borrowed reserves to import more vehicles? Further our roads are congested and more vehicles will mean more delay in getting to our destinations.

The Foreign Exchange Reserve is to be used for an unforeseen circumstance such as a sudden fall in international prices for our exports. To bust it up for vehicle imports is rash.

It is true that the rupee is not being held down in its external value by the authorities. But it is only a very short time that the rupee has been freed to fluctuate according to market supply and demand. But we don’t have the time to wait for corrective action by the market. By that time the reserve would have vanished and the rupee will face a much greater depreciation prospect than now.

Immediate action is required to discourage the import of vehicles (and other luxury goods) to conserve our Foreign Exchange Reserve. Any delay will mean that vehicle importers will open LCs immediately but take delivery later, in order to beat the ban for once a LC is opened there is a firm commitment to pay under it. So let the authorities act immediately to conserve our Foreign Exchange Reserve.

R.M.B. Senanayake