Myanmar’s debilitating currency crisis is creating a growing opportunity for the regime to profit from controlling foreign-currency exchange, with the gap in rates giving it access to as much as 6.4 trillion kyats (US$1.8 billion) in the year to June 22, an analysis by a Myanmar-focused economist found.
“The military’s forex policies will become more important in the future, in part because the growing exchange rate gap will further benefit the regime … It is important to start understanding the SAC [State Administration Council] as a regime whose retention of power increasingly depends on forex policies,” Jared Bissinger wrote in “Myanmar’s Military Funds Its War Through Forex Policy.”
Market rates for the kyat have plunged from a high of about 1,300 to the US dollar in the month before the Feb. 1, 2021 coup to 6,350 to the greenback on Monday. The Central Bank of Myanmar’s official exchange rate is 2,100 kyats to the dollar, although it has since late last year allowed some trading among authorized dealers on its online platform at 2,900 kyats to the dollar.
The arbitrage opportunity comes from forcing businesses and individuals to convert their foreign currency into kyat at rates that vastly overvalue Myanmar’s currency. The size of this difference is larger than annual commercial and income tax collection and possibly revenues from sales of natural gas in the last fiscal year.
The $1.8 billion gap between market and forced forex conversion rates in the year to June 22 is also about the same as the regime spent on its defense budget in the last fiscal year, he said.
Most of the arbitrage opportunities – about 75% – came from forced conversion at the official rate, while the rest came from forced conversion at the central bank’s platform rate. Bissinger based his calculation on daily market and official exchange rates, and volume data during the 12-month period.
“These forex controls give the Myanmar military widespread power and opportunities for profit. Some discounted forex likely goes to private companies that facilitate military-related imports,” he said. “Some discounted forex does go for legitimate imports, including fuel for civilian use. But getting that forex requires permission from the regime, which can entail a long wait or use of connections.”
Speaking to The Irrawaddy, he explained: “That figure of $1.8 billion [the arbitrage opportunity] was annual, from June 22, 2023 to June 22, 2024. I wouldn’t look at it as temporary, though the size will change over time. If the exchange rates continue to diverge [between regime-set and market rates], that would benefit the regime, but of course that would hurt people and businesses and push them to look even harder for ways to circumvent the regime’s forex controls.”
Economist and former adviser to the National League for Democracy Sean Turnell agrees, saying that the junta’s central bank and its Exchange Supervisory Committee have been the main vehicles for the regime to acquire the foreign currency it needs to buy sophisticated weaponry.
Two of the ways it does this is by forcing conversion of foreign currency accounts into kyat at an arbitrary exchange rate favorable to the junta and forcing the conversion of export and other earnings by Myanmar firms into kyat at a rate favorable to the junta, he wrote in the report “How Myanmar’s Central Bank Facilitates the Junta’s Oppression.”
Bissinger said the divergence between market and government-set rates is also a recipe for corruption. He told The Irrawaddy it helps keep individuals and businesses loyal to the junta so they can access foreign currency at better rates. “It’s all about access to foreign currency… If you can get access at favorable prices, you will do very well.”
However, he cautions that the $1.8 billion figure is an estimate based on limited data collected in an opaque environment. “This is not a single, well-functioning market for foreign exchange,” he noted. “That makes it very difficult, if not impossible, to determine what the exchange rate and foreign currency volumes would be without the SAC’s interventions.”
The World Bank also pointed to rising opacity in Myanmar, saying in its “Myanmar Budget Brief” in May: “There has been a notable decrease in the disclosure of fiscal information since the release of the last budget brief in November 2023.”
Still, Bissinger’s findings show that the regime’s interventions in currency markets create large and growing distortions that can benefit the junta significantly. Its artificial forex rates, and general mismanagement, are economically devastating and will accelerate economic decline, economists agree.
Artificial currency exchange controls extract wealth from the productive economy, expand the informal economy and discourage economic activity, economists and business leaders say.
Bissinger advises finding avenues for economic activity outside the junta’s system, including cross-border trade and finance that can benefit the people of Myanmar rather than the generals who exploit them.
This will not be easy. Cross-border trade is controlled, for the most part, by national-level institutions and bilateral agreements.
However, the success of Myanmar’s ethnic resistance organizations (EROs) to gain control of long stretches of the country’s borders, including trade routes and trade checkpoints, opens opportunities for resistance groups to enhance trade with Thailand—and to a lesser extent with China—through border checkpoints, Bissinger explains in “Myanmar’s Resistance And The Future Of Border Trade: Challenges and Opportunities.”
He makes two recommendations for EROs to expand trade through border checkpoints. First, they need to collaborate on trading arrangements and trade facilitation. “They are more likely to obtain major changes to the trading arrangements if they do not negotiate individually with trading partners. Since trade facilitation is a national (or federal) level power in almost every context, it also presents an ideal opportunity for the resistance to demonstrate they can work together—as they would in a future federal system,” he explains.
Second, he calls on EROs to expand their capacity to include trade facilitation. “While EROs and other armed groups have not historically administered formal trade, they could build capacity, learn about international practices, and establish and follow rule-based processes,” he explains.
However, he adds a caveat, noting that the future of trade between EROs and their cross-border neighbors depends on their neighbors and their views on the SAC, EROs and other armed groups.
“If trade remains informal and fragmented, and EROs focus on extracting revenue while providing few trade-related services, it may create or reinforce a view among trading partners that the SAC-controlled state is still the preferable partner,” he writes
“However, if they can collaborate and demonstrate to trading partners that they are committed to facilitating trade, developing trade-related processes and institutions, implementing basic standards, and engaging in some enforcement, trade partners may start to view them as a viable alternative to the SAC,” he adds.
“It could bolster international confidence in the ability of EROs and armed groups to govern federally,” he concludes.
