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Stronger kina will affect exporters – BusinessAdvantagePNG.com

The Bank of Papua New Guinea’s move to strengthen the value of the Papua New Guinea kina against the US dollar has taken business by surprise, with some business leaders saying it will impact on primary industry producers.

Key business leaders say that while importers will benefit, the Bank of Papua New Guinea’s move to restrict commercial transactions of the kina to between $US0.405 and US$0.4200, significantly higher than recent valuations, will adversely affect exporters.

‘I thought it was a bit unbelievable, because it’s really going to affect exporters,’ says Alan McLay, President of the Lae Chamber of Commerce and Industry, speaking to Business Advantage PNG from Goroka in Eastern Highlands Province.

‘Since I’ve been in Goroka, that’s what a lot of people are saying up here.’

‘It’s good for a lot of people who send money offshore and there’s been a lot discontent with the fall of the kina, but the problem is the country is trying to increase its exports and this is certainly not helping.’

Uncertainty

‘It caught a lot of people by surprise and caused a few difficulties for people in business, particularly for those who had to pay bills, because letters of credit and things like bank guarantees were not being met by the commercial banks,’ says Chey Scovell, Chief Executive Officer of the Manufacturers Council of PNG.

He was concerned to hear the central bank was screening applications for low amounts of foreign currency. He says some of his members reported in the days leading up the BPNG’s announcement that applications for more than $20,000 or $50,000 were held up by the commercial banks, who referred all applications to the central bank which was giving priority for the import of fresh food.

‘In the first stages, because it was not well announced and advised and there was a bit of rush, it caused a lot of uncertainty for businesses as they were unable to send money out of the country.’

‘I see it as a correction in the market to protect the kina and the Bank has every right to protect the kina. Whether it will work is hard to say.’

The Managing Director of NGIP Agmark group of companies, John Nightingale, agrees.

‘This shock revaluation is bad for agriculture, as the kina incomes of all producers of export crops have been instantly slashed by 20%,’ he wrote on the Business Advantage PNG website.

‘Whilst imported purchases will gradually come down in price, farmers will have less kina to pay for these imports. Therefore … businesses dependent on agriculture will 
not benefit.’

Message to exporters

But the CEO of the Port Moresby Chamber of Commerce and Industry, David Conn, regards the BPNG move as ‘a temporary measure designed to bring a bit of confidence back into the market’.

He also says the move was designed to send a message to exporters.

‘The impression I get,’ says Conn, ‘is that there were major exporters staying out of the market, watching the kina and then entering when they felt like it. Maybe the bank is trying to exert a bit more control on the currency and give people a bit more certainty if it’s fluctuating within that band.

‘I see it as a correction in the market to protect the kina and the Bank has every right to protect the kina. Whether it will work is hard to say.’

Bank earnings

The imposition of a trading band to restrict the price at which the kina can be bought and sold against the US dollar will also affect earnings for PNG’s banks.

Bank of South Pacific Chairman Kostas Constantinou has already advised the Port Moresby Stock Exchange that the move could have a ‘potentially material impact on 2014 earnings.’

This article was kindly provided by www.businessadvantagepng.com

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