Asian Clearing Union
Useful For Payments Settlement

By Purushottam B. Shrestha

THE Asian Clearing Union (ACU) functions as a clearing agency for the payments arrangements for current International transactions among the participating countries on a multilateral basis. The establishment of ACU was agreed at ESCAP (Economic and Social Commission for Asia and the Pacific) Bangkok, in February 1973, but came into existent only after Iran, India, Sri Lanka, Pakistan, Bangladesh and Nepal signed the agreement in December 1974. Subsequently Myanmar and Bhutan joined the ACU in 1977 and 1999 respectively the total number of membership now is eight.

Objectives

The ACU as the first experiment in monetary cooperation in Asia and the pacific region started its operations in November 1975. The major objectives of the ACU are to reduce the use of extra-regional currencies to settle such transactions by promoting the use of participant’s currencies; to effect thereby economies in the use of the participant’s foreign exchange reserve and a reduction in the cost of making payments for such transactions; to contribute to expansion of trade and promotion of monetary cooperation among the countries of the area and; and to provide short term credit facilities (SWAP) by the system to the debtor participants for a period of two calendar months.

The most important point to be noted in the case of export’s payment settlement routed through ACU mechanism is that the exporter receives his payment immediately in time but the central bank’s reimbursement against their payment is actually received only after a gap of two month’s ACU settlement period or the actual settlement of the foreign currencies between the central banks is completed only at the end of two month’s ACU settlement period. Similarly in case of an import by Nepal from other ACU member countries the central bank (importing country) does not actually need to pay the amount instantly to the exporting central bank or in other words, it will be entertaining the credit facility for an average period of two months (actual settlement period). But for this particular days or period it has to pay some interest on the balances of the amount of the import recorded by the ACU calculated on the basis of BIS rate. Likely the exporting central bank also does not receive the payment from the importing central bank immediately but receives the actual amount only at two months ACU settlement period and will be paid its interest on the balance.

The old procedural rules existing in the ACU before 1996 gave rise to many distortions or problems. Especially the exporters of the region got loss in conversion of the amount of their exported goods. This was due to the exchange rate (received from IMF) applied in the conversion of the local currencies into AMU or in other words the rates could become operative only on the third day following the day to which they are applied. So many more amendments were needed. As a result the following changes in the ACU settlement procedures came into effect from 1st January 1996.

The value of Asian Monetary Unit (AMU) which was hitherto equivalent to international monetary fund’s (IMF) special drawing rights (SDR) will be equal to U.S. Dollar and it will be denominated as "ACU Dollar" from 1st January, 1996.

The accounts opened in local currencies by the authorized commercial banks with their correspondent banks in ACU member countries for the purpose of settlements through the ACU should be closed down before 31st December, 1995 and the same should from 1.1.1996 be maintained in ACU Dollar.

The prevailing practice of fixing the exchange rate for AMU as well as of the currencies of other ACU countries by this bank would henceforth be discontinued from 1.1.1996.

Following the implementation of the revised system, all the L/C’s for import/Export between the ACU member countries would have to be opened in ACU Dollar only and L/C’s opened before 1.1.1996 but not transacted would also have to be settled in ACU.

All trade transactions between Nepal and other ACU member countries (excepting India) would have to be channeled through the ACU mechanism as usual. Although most of the trade between Nepal and India is settled in Indian Rupees and as the Indian Rupees is not convertible currency the transactions traded in IC could not be channeled through ACU mechanism. However, certain items (mainly industrial raw material) which is the convertible trade between these two countries could be routed through this mechanism.

The article VI provides for settlement of balances among participants at the end of each two monthly period of settlement. Under article VII A, the board of Directors may provide for a currency swap arrangement among the central banks subject to the necessary terms and conditions in times of their foreign exchange reserves deficit. Under this facility in the 2001 Bangladesh availed of the "ACU scheme for currency swap arrangement amounting USD 150,000,000.00. For this we shared our contribution of one per cent to Bangladesh which comes as USD 1,500,000.00. This successful usage of the currency swap arrangement shows that the facility provided by the ACU is also another incentive for attracting new members to join the ACU in the future. The activities of the ACU have expanded greatly over a period of time. While initially only a restricted list of merchandise goods could be channelled through the system except capital transactions and oil imports, later on it was made compulsory for all transactions to be routed through the ACU.

The issued data shows that in the year from 1999 to 2001 end Nepal has become the importer of the total amount of US Dollar 20,612,294.41.

In accordance with the decision of the board of directors of the ACU at the 28th meeting in Kathmandu, Nepal on April 5-6, 1999 the permanent technical committee composed of representatives of participant central banks met in Dhaka on 16th January 2000 which specially recommended that trade in services can be included in the clearing mechanism. Payments for tourism, travel and transportation can also be routed through the ACU. Also to reduce systemic delays, efforts to be made to have uniform weekends and the facility of funding of ACU accounts may be introduced. And creation of fund to provide the union with adequate financial resources in order to motivate new members as well as the expansion of the role of ACU.

Success

The ACU has been serving a very useful purpose and has, since its establishment, steadily increased the volume of trade cleared through it. Among the developing countries, the ACU stands out as the most successful and impressive one in terms of clearing trade transactions. In the years over 26 year of its operation, ACU has not experienced any default whereas other developing country’s payment unions have faced many problems. The reason is that the ACU functions with strict but simple rules of operation, which finally guarantee in the prompt settlement of the payments. ACU attracts the traders to look forward with confidence towards increasing their business with the neighbouring markets. Colombo, Sri Lanka has been chosen as the venue for the 31st Annual Board Meeting of the Directors of the Asian Clearing Union on May 30-31, 2002, let us hope that the meeting will focus its attention on welcoming more and more countries like Maldives, China, Turkmenistan, Uzbekistan and Malaysia etc as members, on enhancing trade and economic growth in the Asia and the pacific region and endeavour to strengthen the role of the ACU.

RNAC’s Ordeal Continues

By Nishchal Nath Pandey

A COUNTRY’S international image is not only determined by the manner it conducts its foreign policy but is also dependent on a host of factors and ingredients that affect the perceptional dispositions of governments, multinational companies and tourists visiting that particular country. Therefore, if a foreign investor faces difficulty in any of the government offices that he visits, it might ruin the years of toil that the country puts in order to attract his business in the country. Likewise, the national flag carrier’s service, punctuality and the overall quality of its staff tends to influence a visiting guest’s impression of the country from the very first go. It is not necessary that a country should possess its national flag carrier but when it does, it must make it a point that it operates smoothly, that it does not wreck the long standing image of the country and moreover that it serves both the purposes of standing on its own feet and as far as possible contribute to the national economy.

Royal Nepal Airlines Corporation has a rich history, a past that it has yet to learn to be proud of. Despite the ailing economy of the kingdom and the more urgent tasks before it, the nation’s leaders were farsighted enough to put into place an airline that was not only to bring tourists and much needed foreign currency into the country but likewise supply essential commodities to the nook and corners of the kingdom. Between 1959 and 1974, USAID provided more than 8 million dollars to develop Nepal’s aviation capacity. A DC-3 aircraft was donated to the Royal Nepal Airlines in 1960 by the US government. With DC-3s, Pilatus Potters and later Avros, the airline slowly climbed the ladder of its tour that was to be hard and an onerous one. Later in the early seventies, it added two 727s into its fleet and the journey to the far away destinations began. It is true that both the Boeing 727s were bought second hand and that both contributed immensely for Nepal’s overall tourism promotion. However, when they were ultimately sold out in 1994, both had worn out completely. Moreover, 727s due to the growing international campaign against sound pollution were being banned in most of the destinations that the RNAC was operating in. Some erudite analysts which include aviation and tourism experts have maintained that the RNAC’s biggest mistake was to sell these two aircrafts while in contrast even if they were still being possessed by the airline not much could be made out of them due to the wear and tear and their disqualification in major capitals. The same can be said about the decision to purchase the two 757s in the eighties. The decision business-wise may have turned out to be extremely costly for the RNAC but the Karnali and the Gandaki are the ones that have been holding the RNAC from being closed down.

All said and done, our national airline desperately needs another wide-body aircraft today. It can either be purchased or leased to suit its purpose. But the experience of leasing has not been such a happy one although privately owned airline companies have been leasing aircrafts and at the same time making good profits out of such ventures. RNAC has paid more than 58 million dollars to lease aircrafts. As a government entity and unlike a private enterprise RNAC has had to tolerate political directions and influences that has sadly contributed only in down turning the airline’s future. Singapore Airlines, Biman Bangladesh that started operation during the same time that of the RNAC have gone far ahead in the ladder of success basically because their purpose is business and profit to the company and not to a few selfish individuals. The Corporation must be allowed to function on its own in a professional manner and the necessary financial backup ought to be provided so that it can pass the current difficult phase.

Although, the corporation has an eyebrow-raising amount of liability, it has the capacity not only to pay back the debt but also earn back the lost reputation and finances. Lately, RNAC has announced that the airline will be operating in a new destination-Dubai. It is observed that Banglore, Mumbai and now even Osaka have seen a downtrend of passengers. In this context, opening up of a new route to the Middle East will cater the needs of the Nepalese labourers and at the same time bring in essential revenues as the Gulf route is supposed to be one of the most profitable ones due to the favorable "load factor". It is also true that the punctuality of RNAC flights has been much better lately and if only the flights would not be badly disrupted like that of last week after the grounding of one of its 757s in Bangkok, things could head in a positive direction.

To sum up, either we do not need a state run airline or the management must have the guts to purchase a new aircraft to save the corporation and the country’s ailing tourism industry. The national airline just cannot survive with so many sectors but just two aircrafts to hop around. It is after all the international image of the nation that gets a blow each time a flight is delayed for fourteen hours.

Tobacco Taxes Still Not High

TOBACCO products in developing countries are cheaper now than they were a decade ago-sometimes even cheaper than bread or rice-said the World Health Organisation (WHO). The organisation says low tobacco product prices have grave consequences in countries which could soon see the greatest number of tobacco-related diseases and deaths.

A new study by WHO looking at tobacco price trends between 1990 and 2000 in over 80 countries indicates that, for the most part, cigarettes have become more expensive in most industrialised countries and are more affordable than ever in many developing countries. Over 70% of the 8.4 million tobacco deaths that are projected to occur in 2020 will occur in developing countries. WHO warns that cheaper tobacco products will only fuel the tobacco epidemic further.

Developing countries where tobacco control programmes are not yet comprehensive and where prices have decreased in last decade can be found in every continent and include Viet Nam, Coata Rica, and Cote d’Ivoire, Cigarette prices tend to be higher in wealthier nations and where strong tobacco control programmes exist such as Norway, Australia and Hong Kong, China. However, in countries where the household incomes are high but tobacco control programmes are lacking, such as Japan and Switzerland, tobacco prices remain low.

In spite of overwhelming support for increases in tobacco taxes from past studies conducted by the WHO, the World Bank, the International Monetary Fund and leading economists, this new evidence shows that the price of tobacco products have not kept pace with inflation. They are now more affordable than ever.

"Increasing the price of tobacco products remains one of the most effective methods of curbing the consumption of tobacco products and thereby reducing the global deaths caused by tobacco," said Dr Derek Yach, Executive Director of Noncommunicable Diseases and Mental Health, WHO. "Higher prices may assist non-user in continuing to keep away from tobacco and thus avoid addiction. It can also induce current smokers to consume less tobacco or even persuade them to quit, or prevent ex-users from starting again. Governments receive more revenue from increased taxation. It’s a win-win situation," added Dr Yach, who is also co-author of the new study that is soon to be published in the journal Tobacco Control.

The study shows there is plenty of room to increase tobacco taxes in developing countries, making it one of the most significant policy tools available to governments trying to save their people-as well as health systems and economies-from the onslaught of tobacco. According to the World Bank, a price increase of 10% can reduce demand for tobacco products by about 4% in high-income countries and by about 8% in low-and middle-income countries. The Bank estimates that tax increases that would raise the real price of cigarettes by 10% worldwide would cause about 42 million smokers to quit and prevent a minimum of 10 million tobacco-related deaths.

But the tobacco industry vehemently opposes increases in tobacco taxes and does everything it can to prevent governments from increasing taxes. WHO calls on governments not to be deflected from their primary mission to protect public health and to resist industry pressure in taxation and other measures that help save lives.

WHO also recommends earmarking a portion of government revenues gained from tobacco taxes to fund tobacco control activities such as cessation programmes, counter-advertising or cancer research. Many countries such as Australia, Thailand, Egypt, Iran and several US states such as California already do so. Additional countries such as the UK, Saudi Arabia, and Quatar have indicated their intention to earmark a portion of tobacco taxes to fund tobacco control activities.

Additional recommendations made by WHO include: regional cooperation to harmonise tobacco prices, which cuts down the incentive to smuggle; government action to adjust cigarette prices with increases in the Consumer Price Index so that they keep up with inflation; and a strong push for strong price and tax measures in ongoing negotia-tions for a Framework Conven-tion on Tobacco Control.

(WHO)