Forex reserves hard hit by coffee's downward spiral

The collapse of coffee prices has severely dented Ethiopia’s precious foreign exchange reserves, the National Bank of Ethiopia said on Tuesday. Although the country has seen a massive rise in the reserves since the end of the war with Eritrea, economically it is still being hard hit. "The collapse of the price of coffee has affected the foreign exchange reserves very much because coffee accounts for about 60 percent of revenue," a spokesman for the bank told IRIN. "Coffee prices have slumped. They are almost half what they were so it has a big impact – half the revenue of exports." The country’s foreign exchange reserves rose by 28 percent in the last six months over the same period a year earlier. According to the bank, its reserves now stand at US $923 million. The bank – which finances much of the development work in Ethiopia - counts on the reserves to continue recovering in 2002 through resumed international grants and loans. "The foremost reason for the increase is donor funds," the spokesman said. "From the export side we have had a bad time because coffee prices have been declining so much." Substantial funds have poured into the country since the end of the two year border war with Eritrea. The majority of the funds have been in the form of loans from the World Bank, the International Monetary Fund and money from the European Union. Ethiopia's border war with Eritrea, which ended in 2000, also put pressure on the reserves, as did higher oil prices. The bank's spokesman said that with the war over, Addis Ababa hoped for improved relations with international financial institutions and donor organisations. [See also IRIN story of 23 January 2002 "Farmers at risk as coffee prices plummet" at: http://www.irinnews.org/report.asp?ReportID=19852]