Burma Launches Managed Float of Kyat

By Charlie Campbell 2 April 2012

Burma’s Central Bank has embarked on a managed float of the national currency the day after pro-democracy icon Aung San Suu Kyi won a landmark victory in parliamentary by-elections.

A rate of 818 kyat to the US dollar was set on Monday—a vastly more realistic figure than the previous tethered rate of 6.4 kyat—which is hoped will make the isolated economy attractive to foreign investors.

The kyat previously had both an official and black market rate which was the source of huge corruption. Accounting would be done at the official rate with commodities sold abroad at the realistic rate with the difference lining the pockets of cronies of the former military regime.

Despite this method of graft seemingly being removed by Monday’s announcement, the Central Bank will continue to manage occasional interventions in the market to support or depress the currency, according to a statement. A daily reference exchange rate will also be published to influence the currency.

Economist Sean Turnell, a professor at Macquarie University in Sydney, Australia, told The Irrawaddy last week that a managed flotation of the kyat would allow the Burmese Central Bank “to intervene in the foreign exchange market to influence the exchange rate, though not to determine any particular set value.”

Analysts believe that firms which were permitted to use the old official rate also benefited as their import costs were much lower when compared with those who had to use the black market rate.

“Foreign investors can now have certainty about the security of their investments in the country,” Tony Nash, managing director of IHS Global, told the BBC on Monday.

The flotation coincides with President Thein Sein’s upcoming visit to Japan when he is expected to lobby for resumed investment. There is also a review by the European Union of its economic sanctions against Burma due on April 23, and it appears increasingly likely that some restrictive measures will be removed in the wake of Suu Kyi’s victory on Sunday.

Sweeping new laws— including tax breaks of up to five years, the right to lease real estate from the state or private hands for up to 30 years, allowing 100 percent repatriation of profits, and the right to distribute products locally—are also expected to be passed by the Burmese Parliament in the coming months in a bid to attract foreign investment.