Prospects for slimmer margins on import letters of credit (L/Cs) for Bangladesh are not good. It seems as though the authorities' rationale for increased margins is working.

Almost immediately after taking power last October, the present government restricted imports of some luxury items and increased L/C margins.

Reserves increase

Foreign exchange reserves stood at just over US$1 billion in October 2001 but according to official figures, reserves had topped US$1.5 billion by the end of May this year.

Wider L/C margins and import restrictions have been used by the authorities to counter balance extremely poor export performance. Figures show export earnings of US$4.9 billion in the 10 months to April 2002, around 7.5 per lower than in the previous year.

Remittances

One of the main reasons for the increase in foreign exchange reserves however has nothing to do with cross-border trade of goods and services. Remittances from Bangladeshis working abroad amounted to US$2.2 billion in May 2002, up around 35 per cent compared with the previous year.

Officials claim that this increase is largely due to several measures to ensure that remittances from workers abroad are channelled into Bangladesh legally.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.