Vehicle merchants jittery over upfront payment for LCs | Sunday Observer

Vehicle merchants jittery over upfront payment for LCs

Vehicle merchants are in deep trouble due to ad hoc policy decisions of policy makers and the ever dwindling value of the local currency plunging the industry further into the abyss, said disgruntled vehicle importers who are left in the lurch due to a deaf ear turned to their plea to revisit policy moves.

The regulation to pay Letters of Credit (LCs) upfront or at sight along with the shrinking value of the Rupee against the US Dollar and the Japanese Yen have come as a double whammy to vehicle importers whose sales volumes have been plummeting drastically in the recent times due to exorbitantly high import duties.

Prior to this move of having to make upfront payment for LCs vehicle importers were given a grace period of four to six months to make the payment. However, under the new rule importers have been called to first make an upfront payment when opening LCs with a bank denying them the benefit of a grace period that helped importers to roll over funds for other transactions.

Ceylon Motor Traders Association former Chairman Tilak Gunasekera said unless the policy makers take measures to revisit the upfront payment method for LCs the industry will go from bad to worse and this move will affect all imports across the board making imports costly.

A letter of credit is a financial document provided by a third party (with no direct interest in the transaction), mostly a bank or a financial institution, that guarantees the payment of funds for goods and services to the seller once the seller has submitted the required documents.

Commercial, Export / Import, Transferable and Non-Transferable, Revocable and Irrevocable, Stand-by, Confirmed and Unconfirmed, Revolving, Back to Back, Red Clause, Green Clause, Sight, Deferred Payment, and Direct Pay LC are some of the types of LCs used in trade.

Vehicle importers have already cautioned that the import value of certain categories of vehicles such as the Wagon R would go up by around five percent to Rs. 150,000 to 200,000 due to the depreciation of the Rupee against the Yen.

Registration of brand new dual purpose commercial, brand new cars motor cycles reconditioned slumped in January this year as against the same month last year by 25, 22 and 68 percent to 76 from 102, 862 from 1105 and 537 from 1653 respectively.

However, there has been mixed views on the drop in brand new three wheeler registration from 3327 in January 2017 to 1539 in January this year. While the decline is being welcomed by most the low income earner who makes a living on the vehicle consider it as a major blow to an income earning means. Registration of commercial reconditioned vehicles increased from 550 in January last year to 742 in January this year, brand new motor lorries from 528 to 691 up 31 percent, brand new motor cycles from 29,130 to 30,725 up 5%, brand new buses from 179 to 263 up 47% and reconditioned buses up 14% from 79 to 90.

Vehicle Importers Association of Lanka in a statement last week noted that vehicle prices will continue to move up unless the situation is arrested to bring some stability to the currency which has weakened 1.3 percent this year and 2.5 percent last year. The Rupee weakened to Rs. 157 against the US Dollar last week recording the worst depreciation so far in the history. Financial analyst forecast the rupee to further take a plunge if foremost the current political instability is not addressed and then prudential macroeconomic policies are not implemented to narrow the trade deficit that has been widening over the years. Trade deficit widened 8.5 percent during the first 11 months last year despite exports rising 9.4 percent due to imports increasing by 9 percent.