The United States on June 21 leveled sanctions against Myanmar’s Ministry of Defense and two banks used by the junta to purchase arms and other goods in foreign currencies, according to the US Treasury Department.
The sanctions hit the Myanma Foreign Trade Bank (MFTB) and Myanma Investment and Commercial Bank (MICB), which receive and transmit foreign currencies for state-owned enterprises and private companies in their transactions with overseas markets.
Economist U Sein Htay recently talked to The Irrawaddy about the possible impacts of the US sanctions on two junta-controlled banks.
U Sein Htay is a graduate of the Yangon University of Economics and was a member of the economic committee of the National League for Democracy government. He now lives in the US.
How will the US sanctions affect the junta and state-owned enterprises?
The two banks have monopolized the country’s economy for decades. They are the key banks controlling the flow of foreign currency.
All the transactions made by businesses that are members of the Union of Myanmar Federation of Chambers of Commerce and Industry and state-owned enterprises and even the salaries of seafarers are handled by the two banks.
Foreign investments and non-governmental organizations also have to go through these two banks.
The state-owned enterprises will be hit by the sanctions.
Transactions made by two military-owned conglomerates, Myanma Economic Holdings Ltd and Myanmar Economic Corporation, as well as their associated business owners and cronies, also have to go through these two banks. So the sanctions will impact them.
Myanmar is facing a foreign currency crisis as the country has received no foreign investment and export earnings are declining. How will the sanctions impact the regime?
There is a saying that misfortunes never come alone. That is true for the regime.
Myanmar’s economy has been in free fall and the sanction on the key organ exchanging US dollars for the regime will be another blow to the regime. There will be short-term and long-term consequences.
The US has imposed sanctions on the two banks, not because it wants to harm Myanmar’s economy and people, but because the two banks supply the regime with US dollars to buy weapons.
The regime buys weapons with dollars made available by the two banks.
The regime has bought more than 1 billion kyats worth of weapons over the past two years since the coup. It is not a small amount.
It has been carrying out fatal air raids and arson attacks on villages and it purchased fuel needed for those operations through the two banks. So the sanction is intended to crush the mechanism destroying the lives and property of Myanmar’s people.
Is there any other way for the regime to make transactions without using those two banks?
I don’t know what the regime is planning.
According to its procedures, transactions by state-owned enterprises are mainly handled by the MFTB and MICB.
There were no sanctions on the two banks under the previous military regimes, which called themselves State Law and Order Restoration Council and State Peace and Development Council.
But sanctions were imposed on private banks owned by cronies.
So they made transactions through foreign banks, especially in Singapore as well as Thailand.
The current regime will follow its predecessors and try to make transactions through private banks owned by its cronies.
That’s why it has enabled direct payments with Chinese yuan and Thai baht [for cross-border transactions].
How will the sanction impact the profits of state-owned Myanma Oil and Gas Enterprises, which provides a major source of US dollars for the regime?
The regime might try to solve this problem by using private banks owned by cronies and Chinese banks. It may use the yuan and baht to do so.
But they need to use US dollars or euros for certain transactions.
They have to convert the currency, which means they have to spend more on transaction costs. This will hamper the transactions.
