Myanmar eyes junta’s old tricks to fight weaker currency

YANGON — Desperate to halt the severe depreciation of its national currency, Myanmar’s democratically elected government may revive drastic measures that were employed by the military junta.

The kyat has lost about 20% of its value against the greenback in the past six months due to Myanmar’s growing fiscal and trade deficits stemming from lower prices for natural gas, the country’s main export. With the latest U.S. rate hike further strengthening the dollar, currency exchange shops in this major cThe Southeast Asian country switched to a floating exchange rate only recently, as the government in 2012 dropped a fixed exchange rate system favored by the dictatorship. The kyat had maintained relatively stable exchange rates thanks to robust foreign investment that brought much-needed outside currencies. But a worsening macroeconomic environment has exposed the country’s weak economic foundation, eroding people’s confidence in the kyat.

Myanmar relies heavily on imports, as its domestic industries remain underdeveloped. Steep currency depreciation could easily spark inflation and deal a heavy blow to the public. The country’s central bank lacks the expertise to combat a weak kyat, since the bank had long existed merely as a subordinate organization under the finance ministry’s control.

The government also is little help, as it simply does not have sufficient foreign currency reserves to prop up the home currency through market interventions. Commercial city demanded more than 1,400 kyat for $1 for the first time on Dec. 15.

Expertise, resources lacking

The Southeast Asian country switched to a floating exchange rate only recently, as the government in 2012 dropped a fixed exchange rate system favored by the dictatorship. The kyat had maintained relatively stable exchange rates thanks to robust foreign investment that brought much-needed outside currencies. But a worsening macroeconomic environment has exposed the country’s weak economic foundation, eroding people’s confidence in the kyat.

Myanmar relies heavily on imports, as its domestic industries remain underdeveloped. Steep currency depreciation could easily spark inflation and deal a heavy blow to the public. The country’s central bank lacks the expertise to combat a weak kyat, since the bank had long existed merely as a subordinate organization under the finance ministry’s control. The government also is little help, as it simply does not have sufficient foreign currency reserves to prop up the home currency through market interventions.

No good solutions?

The central bank has begun looking into import restrictions of nonessential items to try to stem the outflow of U.S. dollars and break the kyat’s fall, U Win Thaw, director-general of the Foreign Exchange Management Department of the Central Bank of Myanmar, said in a recent media interview.

The country experienced import restrictions while under military control. When the Asian currency crisis hit Myanmar in 1997, the government effectively banned used-car imports, the No. 1 cause of foreign currency outflows at the time. This created chaos. At one point, a 10-year-old Toyota Corolla fetched the local currency equivalent of more than 10 million yen ($84,980 at today’s rate).

The director-general also mentioned the possibility of restrictions on trade settlements using overseas bank accounts. When foreign currency reserves dropped to low levels in the spring, the government sharply lowered the ceiling on withdrawals from foreign-currency bank accounts. This move left local units of Japanese companies unable to pay salaries on time.

The National League for Democracy, led by Nobel Peace Prize laureate Aung San Suu Kyi, achieved a landslide victory in the general elections in November 2015. The party promised “true reform” during the campaign, but it has been unable to present any new economic policy since taking power in March.

Source: Nikkei Asian Preview

NB: The best way to find information on this website is to key in your search terms into the Search Box in the top right corner of this web page. E.g. of search terms would be “property research report”, ”condominium law”, “Puma Energy”, “MOGE”, “yangon new town”,”MECTEL”, “hydropower”, etc.

.

Looking for foreign investors to invest in your business in Myanmar