Dateline Irrawaddy: ‘The Speculative Market Is the Main Problem’

By The Irrawaddy 17 December 2016

Kyaw Hsu Mon: Welcome to Dateline Irrawaddy. This week, we have invited businessmen to discuss the rising exchange rate of the US dollar in Burma’s financial market. U Maung Maung Lay, vice-president of the Union of Myanmar Federation of Chambers of Commerce and Industry (UMFCCI), and U Myo Min Aung, vice-chairman of the Myanmar Retailers Association will join me for the discussion. I’m Irrawaddy business reporter Kyaw Hsu Mon.

Let’s start our discussion with dollar price hikes under the new government as they affect daily business operations and everyday people. In 2012, the Central Bank of Myanmar (CBM) adopted a floating exchange rate to give itself flexibility in influencing the kyat to dollar exchange rate. Then, the CBM reference rate was about 850 kyats to a dollar. Within four years, the market rate has reached more than 1,380 kyats to the dollar [on Dec. 13] while the CBM reference rate was about 1,308 kyats. Why has the market price increased so much?

Maung Maung Lay: There has been a fluctuation in dollar prices for the last 20-25 years. It is not unusual. But the current market rate is the highest it has been since CBM adopted a floating rate. The fundamental cause is supply and demand. Dollar prices increased because supply could not meet the growing demand. There are many factors such as macroeconomic policy, financial policy, trade policy and a monetary system that led to dollar prices increasing.

KHM: Ko Myo Min Aung, you are an importer and retailer. Importers have complained since dollar prices have risen over the past month. They have said they had to weigh whether or not to sell stock from their warehouse. How are importers handling this?

Myo Min Aung: We are retailers and so we sell to consumers. As dollar prices have risen, commodity prices have increased, which is quite normal. But people’s incomes did not increase to meet steadily rising commodity prices. This hurt sales. Faced with low incomes and rising commodity prices, people only buy the bare necessities.

The dollar price hikes will directly impact pharmaceuticals. Most pharmaceuticals are imported. Dollar price hikes will have a serious impact on individual healthcare. The new government needs to put greater efforts into implementing laws that are already in effect, for example, requiring kyats [for transactions]. The new government is busy with other issues and seems to have neglected this.

At the same time, the new government has failed to handle the problem of small change scarcity though the previous government handled it. Small change has become extremely scarce in the market. Suppose we sell a product for 700 kyats. Because there aren’t enough 100 and 200 kyat notes in the market, we have to increase the price and sell it for 1,000 kyats. Besides the dollar prices increase, the scarcity of small change has also forced retailers to sell at higher prices.

KHM: The CBM has recently issued an instruction requiring those who have foreign bank accounts to report the details of their bank accounts such as balances and when the accounts were opened. There is talk that the CBM did this because it was suspicious that some people collect US dollars in the domestic market and put them in foreign bank accounts. Do you think this move will help bring down the increasing dollar price?

MML: People usually don’t do that—collect US dollars in the domestic market and put them in foreign bank accounts. The interest rate offered by foreign banks is lower than that offered by local banks in Burma. Most international banks are particularly careful about money laundering. There is almost no room for illegal or large financial transactions.

Most of the notifications issued by the CBM have been merely on paper. It issued a notification that kyats must be used [in transactions and to pay salaries] because Burma is a sovereign country. However, the CBM enforced this regulation with short-lived enthusiasm, and it has never acted consistently. Many people complete transactions with US dollars in the domestic market. In other countries, visa fees are charged based on the country’s currency. But in Burma, they are charged with hard currency. It is sad that [the CBM] can’t legitimize the country’s official currency. All stakeholders should join together to make sure laws, rules, regulations and notifications take effect.

KHM: Importers have continuously complained that they cannot buy as many dollars as they want from private banks. Ko Myo Min Aung, did you face this problem? How do you get the dollars you need for imports? What are the difficulties?

MMA: The market rate reached more than 1,380 kyats today [Dec. 13], but the CBM reference rate was 1,308 kyats. There is a gap between these two rates. It is convenient for us that now we can pay the customs department in kyats to receive customs clearance for goods we import. But when we have to pay the consigner, we cannot buy the amount we need. So, we are forced to find the required amount of dollars on the unofficial market. There we face unnecessary problems. As Saya U Maung Maung Lay has pointed out, there are existing laws in effect. Rather than focusing on dollar fluctuations, I think the CBM should handle the interest rate because private banks offer high-interest rates here. If the CBM reviewed its banking policy and effectively enforced its existing rules and regulations, the dollar problem would be solved.

KHM: Do you think the CBM needs to be more effective in handling monetary issues or are there other organizations that should help?

MML: Rather than the CBM handling the problem alone, there must be coordination between the CBM, the Ministry of Planning and Finance, the Ministry of Commerce, the Ministry of Home Affairs and concerned agencies, traders and stakeholders. I have heard complaints about the lack of coordination even within departments.  There must be intra-departmental coordination as well as coordination among all stakeholders. All concerned departments should review and limit certain things such as the issuing of licenses, usage of foreign currency and the speculative market. The speculative market is the main problem in the country. Perhaps, coordination [among stakeholders] will be able to control speculative activities once and for all. There used to be speculative activities and authorities used to control them. We will be able to find a solution if all the stakeholders join together and take control.

KHM: Ko Myo Min Aung, what will be the negative effects if the exchange rate continues to rise? How should the government solve this?

MMA: The dollar price hikes have resulted in commodity prices increasing. At the same time, smuggling increases in parallel with rising exchange rates. As long as the exchange rate increases, it encourages smuggling. The government only focuses on cracking down on smuggling in the border regions. Commodity prices have increased partly because of dollar increases. If there are too many regulations on official imports while the exchange rate is high, this indirectly encourages smuggling. The scarcity of small change also has a negative impact. These things need to be changed to solve the problem. Another fundamental contributing factor to commodity prices increasing is the lack of cooperation between the Internal Revenues Department and the Ministry of Finance. Our government has called on citizens to pay tax. We are willing to pay it. But most of us don’t want to go to the tax office. We have to find an answer for this. Why don’t we want to pay tax? Once we pay the tax, we can’t cancel it. We have to pay the tax every year. We are willing to pay. But if I am levied 100,000 kyats this year, I am sure I will be levied more than that amount next year—maybe 150,000, 200,000 or 1,000,000 kyats. People are afraid of this. Taxes increase every year. This has widespread consequences. To control this, the CBM, Ministry of Finance, Ministry of Commerce and the public sector need to work together and hopefully, we will be able to find a solution.

KHM: Thank you for your contributions.