Burma’s Kyat Currency Slumps As Imports Flood In

Piles of Burmese kyat currency are counted in Rangoon. (Photo: Jpaing / The Irrawaddy)

Burma’s currency has plunged more than 7 percent over the past month to the lowest since it was floated last year, raising concern about economic stability in Asia’s newest democracy.

The drop coincides with a construction boom in Burma’s commercial capital, Rangoon, which is fuelling demand for dollars as builders import equipment and materials, part of a scramble by investors to tap one of the world’s last frontier markets after an easing of sanctions by Western countries.

Money changers such as Kyaw Naing say people are hoarding dollars, expecting further rises, in the first major bout of currency speculation since Burma emerged from military rule in March 2011 and introduced political and economic reforms.

“We are getting fewer customers now because people don’t want to sell their dollars, because they know the value will rise even higher,” Kyaw Naing said, holding a fistful of the kyat currency in his hole-in-the-wall stall in Rangoon.

The sliding kyat is welcome relief for rice farmers and other exporters but has prompted concern over the stability of Burma’s tiny, long-isolated economy, posing one of the biggest challenges yet for policy makers who introduced a managed float of the currency in April 2012.

“It’s quite clear that the plunging kyat has already had a strong impact on the import industry and it will affect consumers,” said a senior official from the Ministry of Commerce, noting Burma’s average April-May import bill of $30 million a day was about 17 percent higher than last year.

A disastrous “Burmese Way to Socialism” introduced after a 1962 coup followed by sweeping nationalization and decades of military mismanagement have left Burma heavily dependent on imports for basic needs, from edible oils to condensed milk and medicine, official data shows.

“The plunging kyat has had a strong negative impact on importers of all goods – medicines, electronic appliances, computers, edible oil, diesel, you name it,” said Soe Tun, a director of several businesses including Farmer, the country’s biggest car showroom.

Western academics and economists advising the government, however, say the currency has been overvalued and needs to fall to help farmers, the vast majority of whom have yet to benefit from the country’s reforms. Seventy percent of Burma’s 60 million people live on farms.

The International Monetary Fund said in a report in May last year that the kyat was overvalued by as much as 40 percent.

But bankers and importers caution against such a large swing in a fragile economy emerging from decades of misrule and isolation.

“Stability of the exchange rate is critical to confidence in the economy,” said Hal Bosher, chief executive of Yoma Bank, a private lender with branches across Burma.

“NO NEED TO INTERVENE”

Currency reform is a delicate task in Burma. In 1987, the sudden cancellation of certain banknote denominations by late dictator General Ne Win wiped out many people’s savings and helped trigger a pro-democracy uprising the following year that was crushed by the military, killing thousands.

For 35 years until last year, the kyat was pegged to the International Monetary Fund’s special drawing rights at 6.4 kyat per US dollar, a rate about 125 times stronger than the black-market rate of 800 to 820 kyat used for most transactions.

On April 2 last year, a new reference rate was set, initially 818 per dollar, as the first phase of a plan to create a market rate, simplifying foreign trade and investment.

The kyat gradually weakened, losing about 8 percent to 890 per dollar by May 8 this year. The next day, it dropped to 900 and kept falling, hitting 946 to the dollar on Thursday.

A senior central bank official said a stronger dollar and currency speculation were behind the weaker kyat, which she said the authorities were monitoring. “I don’t think we need to intervene at this point,” she said, asking for anonymity since she was not authorized to speak to media.

Authorities are working closely with the IMF which concluded an annual review of Burma’s economy on Wednesday.

“Volumes traded in the daily central bank auctions are increasing. The Central Bank of Burma is smoothing exchange rate fluctuations without targeting a specific rate,” IMF team leader Matt Davies said in a statement.

The central bank still falls under the Finance Ministry but a new central bank law expected in the middle of the year will give it operational autonomy.

Davies said foreign direct investment inflows should outweigh a widening current-account deficit, suggesting the dollar shortage could correct itself over time.

Bosher at Yoma Bank said the current central bank arrangement meant there was a risk monetary decision-making could be influenced by political concerns, a possible factor in the recent kyat trend.

He said the government was aware a weaker kyat would help farmers who would benefit from better prices for dollar-denominated rice exports. They make up a sizable portion of Burma’s 70 percent rural population. Exporters of other commodities such as teak would benefit too.

Kyi Myint, an economist and independent member of parliament, said the government’s withdrawal of foreign exchange certificates (FECs) may have also contributed to a sudden increase in demand for dollars. The FECs were first issued by the former junta in 1993 as a surrogate for US dollars.


7 Responses to Burma’s Kyat Currency Slumps As Imports Flood In

  1. “Asia’s newest democracy” – democracy??? Is this text really about Burma?

  2. One US dollar is equal to 6.13 Chinese Yuans now. Americans and other Western nations want China to revalue its currency something like 4 Yuans a dollar. Chinese economy is thriving because with low Yuan they can sell their products very cheaply.

    It was about 1,400 Kyats a dollar a few years ago although Burma couldn’t export much because of sanctions. Now it can sell many things and the products are very expensive compared to other countries because of the unreasonably high exchange rate.

    Some lazy people who only want to import things and never think to produce in the country are now whining that the exchange rate for Kyat is low and imports are expensive. Economists, please educate ignorant people what kind of an opportunity Burmese economy can have if the exchange rate is 1,000 Kyats or more to a dollar.

    • There’s a crucial difference between capital goods to build up a country’s infrastructure and industrial capacity and consumer goods which will show for nothing except conspicuous consumption, opulence and rich people flaunting their wealth.

      Producers of food and exporters must be a priority. Currency speculation is the scourge of the global as well as the local economy particularly in the case of Burma. The proposed Yangon Stock Exchange will reflect FDI and will be vulnerable to the herd mentality of stock brokers and currency speculators.

  3. “Asia’s newest democracy”? What? There is no democracy yet in Burma. There is just a fake democracy there. As long as 25% seats are occupied by military, there is no democracy. All Hlutdaw members must be elected to be called Democratic government.

  4. We do not have a yard stick to measure economy or anything else but no democracy. We are puzzle with our population numbers, GDP, out puts, imputs, border trades, water trades, whatever acid test we failed. If the government, private industry, institutions, associations and strategist studies group release regular reports such as statistics, facts and figures, analysis, commentary,etc. without hiding or twitting so much, we may have better pictures for feed backs for improvement. Government should also build up ground staff to collect the datas instead of waiting for the rain drop on you.Right now we are having in guessing game or gut feeling base of what we see or hear. Directive to get feed back from the horse mouths is so importance for making less mistake now.

  5. We need to educate those greedy people who only think with democracy, they will get rich in one day ! Some real estate prices are even higher in Yangon than in New York. With these trend, someday soon, Kyats will face a big bang due to this extremely over valued exchange rate. Wake up you lazy greedy opportunist.

  6. I am not an economist, but I am currency savvy. The kyat needs to and sink and rise in value based upon the GDP, IMF, the international Market, supply and demand, debt, equity,consumption and export and not upon fluctuation based upon speculation of the currency market. I have never seen a currency fluctuate so dramatically from one day-to-another in all my travels.

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