FEC's Days Are Numbered, but Demand Remains
By May Lay, Reform 14 August 2012
The Burmese government’s plans to abolish Foreign Exchange Certificates (FECs) by early next year could face obstacles due to continuing demand from businesses that are required to use them for a range of transactions, according to officials in the private banking sector.
Under pressure to speed up financial reforms ahead of the formation of the Asean Economic Community in 2015, Burma’s Central Bank recently declared its intentions to eliminate FECs in the near future.
Standing in the way of this latest move to put Burma’s economy on a firmer international footing, however, are laws requiring the use of FECs for everything from the payment of hotel bills, plane tickets and long-distance phone calls to the purchase of some imports and products for export.
“I hope this currency will end before [Burma hosts] the 2013 SEA Games. It is one of the challenges facing reforms of the banking system,” said Pe Myint, the managing director of the privately owned Co-operative Bank, at a press meeting on Aug. 6.
“If we want to abolish the FEC, however, the government needs to stop requiring its use for some transactions,” he added.
Initially introduced in February 1993 in preparation for plans to launch “Visit Myanmar Year” in 1996, FECs were designed as a way to facilitate tourist travel by creating a currency that could legally be used inside the country.
The use of any currency other than the kyat was made illegal in Burma under the1947 Foreign Exchange Regulation Act. However, the law was widely ignored, as many Burmese held US dollars to pay for overseas trips or buy certain products.
The introduction of the FEC did little to prevent illegal activity, however. Because the official exchange rate for the kyat was so high, many foreigners changed their FECs on the black market.
Although it is now possible to legally exchange foreign currencies at market rates, illegal trading still thrives in Burma, according to Ministry of Commerce officials, who estimate that there is more than US $3 billion in foreign currencies circulating in the black market in Rangoon, Burma’s main commercial center.
This has made it difficult for the government to regulate exchange rates, said one ministry official, speaking on condition of anonymity. This was especially crucial when the kyat was trading so high earlier this year that it was hurting exports.
“Until the government issued a decree allowing easier car imports, the dollar was very low—worth less than 700 kyat,” the official said.
“Easing imports helped, but it was just a temporary measure. In the long run, the government has to reform the financial system through cooperation with international organizations such as the World Bank and the Asian Development Bank.” he added.