A Kyat in the Dark
covering burma and southeast asia
Thursday, January 23, 2020


A Kyat in the Dark

By YENI Thursday, October 6, 2011

In this photo taken on July 21, 2011, cashiers are seen behind piles of kyat banknotes as they count it in a private bank in Rangoon. (Photo: Reuters)
(Page 2 of 3)

For most of 2010, one US dollar was equivalent to more than 1,000 kyat, but dropped to less than 900 kyat by the end of the year. There have been several explanations for this. Besides the declining value of the dollar worldwide, other factors include a dramatic increase in foreign investment, especially in the energy sector; high oil and gas prices (Burma’s biggest export is natural gas); and a spending spree by cronies of the military elite, who in the run-up to this year’s transition to ostensibly civilian rule used their massive dollar reserves to buy up real estate, gems and state-owned businesses.

While these factors may have driven up the value of the kyat, however, they have done little to put the country’s finances in order. In August, when budget figures were presented in Parliament for the first time since 1987, Maung Toe, the secretary of the Public Accounts Committee of the country’s Pyitthu Hluttaw, or Lower House of Parliament, said that Burma would run a deficit of about 2.2 trillion kyat (US $2.9 billion) in the 2011-2012 fiscal year.

Responding to a question by an MP, Maung Toe said the government expected to raise 5.78 trillion kyat ($7.7 billion) in revenue, while expenditures were budgeted at 7.983 trillion kyat ($10.6 billion). Although he provided no details about government expenditure, an official document released earlier this year, known as the government gazette, showed that nearly a quarter of this year’s budget would go to the military.

Although the sale of stated-owned property might have helped to reduce the country’s ballooning fiscal deficit, the lack of transparency that characterized the entire process makes it impossible to know how much of the money raised went into public coffers, and how much wound up in the generals’ private bank accounts. It is also worth noting that much of this massive debt was used to finance the construction of Naypyidaw, with its imposing public buildings, extensive road network and lavish residences for the retired generals.

Despite its efforts to make all the right noises about poverty alleviation and curbing corruption, the Thein Sein administration continues in the footsteps of its junta predecessor in spending heavily on the military, while doing little in the way of implementing policies to support households and businesses.

Meanwhile, Burma’ central bank remains reluctant to tighten policy aggressively, as it is not operationally independent from the government. Burma’s domestic inflationary pressures remain strong owing to the fact that the central bank—which is operated by the Ministry of Finance and Revenue—is always ready to finance the budget deficit by printing money, with the consequent growth in domestic credit pushing up prices. Combined with pressure from rising global consumer prices, this could send Burma’s inflation rate up to 16.2 percent in 2011, according to the Economist Intelligence Unit.

Of course, it is the very poor, who make up the bulk of Burma’s population, who bear the brunt of this erosion of purchasing power. But the country’s much smaller middle class also struggles with the distortions inherent in an economic system heavily weighted to favor a tiny handful at the top.

Ironically, despite the rising value of the kyat, most middle-class Burmese consider their national currency essentially worthless. Those who somehow manage to rise above mere subsistence aspire to send their children to school in Singapore, Malaysia or Thailand, or to move to these countries themselves, to escape being squeezed by ludicrously high duties on the sort of goods that most people of moderate means take for granted.

On the Road to Reform?

While most of Burma’s economic problems are seen as an endemic feature of life under an entrenched authoritarian regime, there appears to be at least a nascent recognition among the country’s rebranded rulers that the status quo is simply unsustainable. How far they are prepared to go in reforming a system of their own creation is, however, an open question.

If Thein Sein was hoping that a few cosmetic changes would suffice to bring Burma into the international mainstream, the renewed focus on the kyat has served to highlight just how bizarrely out of step with the rest of the world the country remains. In addition to setting an official exchange rate that would cripple the economy if it were actually enforced, the government continues to print its own US dollars, in the form of dollar-denominated Foreign Exchange Certificates (FECs).

At least on this front, the government seems to be getting a grip on reality. Government officials have reportedly told Burmese business leaders that the FEC is on its way out.

« previous  1  |  2  |  3  next page »

Please read our policy before you post comments. Click here
E-mail:   (Your e-mail will not be published.)
You have characters left.
Word Verification: captcha Type the characters you see in the picture.

suzy Wrote:
Some foreign companies in Myanmar are guaranteeing their foreign employees 950 kyat to $1. This is common in so-called 'international' schools.

Moe Aung Wrote:
I agree with Jimmy. The exchange rate can be set at say K 850-900 to the dollar, only there are a couple of hurdles like trust and then so many personal and intrusive questions asked, forms to fill.

Instead, even if the rate is a bit lower, people will definitely go to those who will change money for them and no questions asked. I'd be surprised if the new bureaux de change are doing a roaring trade. What is the rate offered anyway, still K6.50?! That'd be unbelievable, completely and utterly moronic.

malaysian Wrote:
i have so many note 5k kyat...
get from myanmar member's at malaysia...
i also see rate at Bank of Negara Malaysia...
100 kyat = rm50+-
but cannot exchange, huhuhu...

Jimmy Wrote:
Burmese government is in need of foreign exchange especially American dollars. Because of the enormous difference between the official $1 to 6 kyats and the black market rate of 800 to 1000 a dollar, most Burmese people rely on and use the black market to send the money back home from abroad. It will be a great source of revenue or income for Burmese government if they can collect it but who will exchange the money officially in the old system? The solution is simple. If the Burmese government give a little bit more in kyats than the black market rate, than people will exchange their dollars at the government sponsored exchange sites. For example, the black market rate is $1 to 800 and the government pays 850 kyats, then people will go to the place where they can get more. There is no concern for the government to run out of kyats since more kyats can be printed as necessary. In the short run it will work but in the long run people will keep the dollars and use themselves without involving the middleman government and thus save money.

Moe Aung Wrote:
It most certainly is a big ask "to break half a century of bad habits", and Dr Tin Soe summarized them perfectly.

Notwithstanding the IMF, whose advice on removing the petrol price subsidy sparked the August protests and September Saffron Revolution in 2007, will we see the leopard change its spots, basically putting public interest above their own?

confused Wrote:
why should the kyat be floated? why fixed or partial fixed exchange won't work?

more articles in this section