CM September 2020

INTERNATIONAL
TRADE
Monthly round-up of the latest stories
in global trade by Andrea Kirkby.
A tale of
TWO COUNTRIES…
IF you’re selling into parts of the Middle
East be careful of the currency you use.
Take Lebanon. It appears that the
country’s financial meltdown has thrown
the Lebanese into a frantic search for dollars
as their local currency’s value has evaporated.
From reports, deals are being negotiated on a
daily basis as the Lebanese pound continues
a downward spiral. Everyone wants to, but
cannot, pay in US dollars held in accounts
frozen by the Government in need of foreign
exchange.
Since 1997, the local currency, the pound,
was pegged at around 1,500 to the dollar;
but this rate created what was essentially
a Ponzi scheme where the banks loaned to
successive Governments who borrowed to
finance massive public debt and pay for vital
imports like fuel — but also luxury goods.
The problem is that the deposits to fund the
lending came mainly from expats attracted to
high interest rates which has collapsed along
with direct foreign investments.
Now, thousands have fallen into poverty
– wages are worthless and prices are
skyrocketing. Many retailers have shut down,
unable to import or price goods with the
fluctuating rates. Some have either closed or
only take payment in dollars.
The peg remains in place officially,
even as the black-market price of a dollar
has spiralled to at least five times that.
Meanwhile, the authorities imposed rationing
on exchange bureaus, limiting how many
dollars a person can buy and setting a rate
higher than the peg but lower than the black
market.
And the situation in Iran is no better. Its rial
is now at its weakest against the US dollar –
life is not only expensive, but the economy
is in trouble following coronavirus and US
sanctions. Just like Lebanon, the official and
black-market rates are poles apart – 215,000
rials versus an official rate of 42,000 to the
dollar
The central bank has had to inject millions
of dollars to stabilise the rial, but this is
introducing further inflationary pressures
into the market. And foreign currency is hard
to earn – Iran’s oil exports once stood at 2.5m
barrels a day in April 2018 but is around 100-
200,000 now.
As to the people, few can now escape
hardship – the higher echelons and ordinary
workers are equally feeling the impact of the
sinking rial.
The point is very simple. The Lebanese and
Iranian economies are in dire straits; tread
carefully and protect your currency position
when sealing deals.
Now, thousands have fallen into
poverty – wages are worthless
and prices are skyrocketing.
Many retailers have shut down,
unable to import or price goods
with the fluctuating rates.
EUROZONE RECESSION 'WILL BE DEEPER THAN FORECAST'
BUT if the UK is in trouble, so the
eurozone is also in the mire reckons the
European Commission. It thinks that the
union’s GDP will shrink by 8.7 percent
this year before growing 6.1 percent in
2021. France, Italy and Spain appear to be
struggling the most.
The Commission revised its previous
forecasts because lifting coronavirus
lockdown measures in eurozone countries
was taking longer than it had initially
thought.
Growth forecasts for France, Italy and
Spain were specifically cut after they
were hit hard by coronavirus; the
commission now expects downturns of
more than 10 percent this year in each
of the three nations. In comparison,
Germany has suffered less with
coronavirus and so should see a 6.3
percent contraction. The bounce back
will depend entirely on any new waves
of infections, unemployment, corporate
insolvencies, and an EU-UK Brexit trade
deal.
It’s getting quite dull to say this but
consider which EU nations you export to
and think about refocussing if necessary.
Advancing the credit profession / www.cicm.com / September 2020 / PAGE 30