Sunday, July 1, 2012

Burmese Kyat Depreciating 10% in 2 Months!

Exchanging Kyats to US$ at Thein Byu Centre.
Many business-people in Burma are now fearful that the Kyat is fast becoming unstable as it has depreciated more than 10% since freely floated two months before in April.

Since the Kyat has been floated under managed-floating-exchange-rate-regime on April 1 this year the Kyat to US$ exchange rate has gone up from about 812 kyats/dollar to nearly 900 kyats/dollar as the Burmese currency has depreciated nearly ten percent.

The exchange rate was only about 819 kyats/dollar at the highest in April after the new exchange-rate regime was put into action and it was trading at the range from 817 to 840 kyats/dollar in the whole May. But the rate shot up constantly in June and touched the highest 900 kyats/dollar on June 27.

Has the Burmese Government been Selling Down the Kyats?

Industry Minster U Soe Thein.
One significant event just before the rapid fall of Burmese kyat was the Workshop for the development and challenges for Myanmar CMP operations held at the Rangoon’s Chatrium Hotel on June 3. The powerful Union Minister of Industry U Soe Thein attended the workshop and delivered a speech.

In his speech to the assembled-bussinessmen he says, “We do not like the strong kyats at all. We’re trying hard to bring it down. We already have a plan and as the opportunity arises from time to time we will work to soften the kyat.”

He once even told a Journalist that he personally thinks the currency rate should be fixed at around 900-1,000 kyats for one US Dollar.

Within three weeks after that speech the Burmese currency has dropped 10% roughly to 900 kyat for one US Dollar. The blame also went for the well-publicised release of newly-minted 10,000 kyats notes on June 15.

What the Economists Think of the Kyat’s Depreciation?

Professor Daw Hla Myint.
Following is what retired-Professor Dr. Daw Hla Myint of Rangoon Institute of Economics   said of the currency depreciation.

“Kyats depreciation or dollar appreciation is definitely good for our exporters. But if the primary producers do not have the export commodities in their hands they wouldn’t enjoy the benefits. So what the government is doing right now is kind of helping the primary producers and the exporters.

But once the exports picks up again our currency will go up again. There will be more currency circulation as more exports are realized. The exchange rate needs to be at a reasonable rate for the businesses and also needs to be stable. Thus once we have a workable exchange rate our government needs to maintain that rate. Inflation should not also be higher than necessary.

And at the current rate our exports are growing well and the imports should follow. Once the general trade and investment increase our economy will be woken up from its current sleepy state.”

Following is what Professor Dr. Daw Yee Yee Myint of Rangoon Institute of Economics   said of the currency depreciation.

“Since the beginning I thought the exchange rate might be between 900 and 1,000 kyats/US$. Actually the rate was more than 1,370 once few years back. Also the Government is supposed to be keeping the rate reasonably low to encourage the growth of trade and the growth in foreign and domestic direct investment.

If the government or the Central Bank is really behind this exchange rate movement it is definitely a good move from the economic point of view. I don’t think the Central Bank is selling down the Kyat meaninglessly.

Newly-issued 10,000 kyats note.
And in my opinion the new minting of 10,000 kyats note is partly responsible for the selling down of kyats. Issuance of a new big note always pushes up the inflation. But I think our Central Bank can keep the inflation under control reasonably. I don’t think the government and the central bank are intentionally forcing our economy into a downward spiral as they are all trying and working hard for the good of our country and our economy.

But the economic issues are overly complicated and all really interconnected it is hard to say what would happen exactly down the road. There are so many unknowns. The main problem for the government right now is how to fund the budget deficit when the foreign loans and the foreign aids are hard to find.

Government has to sell more bonds and notes. But at the same time the government and the Central Bank can’t do whatever they want as they have to coordinate and cooperate with international organizations like IMF and ADB and the World Bank.”

What an Importer Thinks of the Kyat’s Depreciation?

Dr. Than Htut Aung of EMG.
But following is what Dr. Than Htut Aung the CEO of Eleven Media Group which imports and distributes new and used automobiles disapprovingly said of the untimely currency depreciation.

“Dollar going up is definitely good for the exporters. That’s an undeniable fact. But the timing is quite questionable? Right now in the middle of the rainy season the business activity in our country is slowing down as usual.

And FDI (Foreign Direct Investment) are not really coming in yet. Currency circulation isn’t that strong at all. In these situations the kyat’s weakness will bring in the dreaded inflation.

And even the rise in exports will only benefit the exporters not the primary producers and the farmers as they have already sold their produce at low prices when the Kyat was higher against the US Dollar.

So basically the farmers and the primary producers were being screwed not just once but twice. So were the importers like us. Only a small minority gets benefits from this government-made artificial depreciation of Kyat.

If they really wanted to jack up the exchange rate they should do it when the FDI are coming in and when the business will be active again in well after the October. The majority will be severely affected if the government forces down the Kyat to 900 a US Dollar right now. Of course what I’m saying is for the public benefits of majority, not from the economic point of view.”

What an Exporter Thinks of the Kyat’s Depreciation?

Myanmar Fishery Federation.
And following is what U Win Kyaing the General Secretary of Myanmar Fishery Federation which represents the private sector fishery producers and exporters welcomingly said of the untimely currency depreciation.

“The appreciation of US$ against a local currency is always a good thing for any country, period. We the primary producers of this country have always pointed out that undeniable fact whenever we could.

But of course the timing to US$ appreciation is important too. Actually the best time for the US$ to appreciate against our Kyat is the harvesting time for the exporting cash crops and the time the fish farms and animal farms harvest their produce.

Only then the farmers and the primary-producers will reap the benefits as they will get more Burmese kyats in their hands. But the foreign currency is going up now and only people who are enjoying the benefits of kyats’ depreciation are the cold-storages in case of marine products such as frozen prawn and fish, the millers and warehouses in case of rice and peas, and the exporters.

There has been a complete mismatch between what the government and the Central Bank wanted when they sold the Kyat down and what is really happening as the Kyat’s gone down.

As if they are making rains on the flooded plains!

The reason is, for example, when the US$ fell and the rice prices dropped last summer the government came in and bought the excess rice for the reserve-rice-scheme so that the farmers wouldn’t be severely affected.

At that time they should also have pushed the US$ up to certain level so that the selling farmers would have got more kyats in their hands. They didn’t do that and the farmers got less than 300,000 kyats for one hundred Tins (One Tin of Burmese-volumetric-measure is equivalent to 9 imperial gallons) of rice.

Only now they pushed the US$ up and the people who bought the rice and stored it for the export are getting more kyats for their rice and it is unfair for the farmers. Same fate happens in the pea market as the pea farmers got screwed by the big buyers.

That’s why I said the government and the Central Bank are making rains on the flooded plains by selling the Kyat down at a wrong time.
I do accept the fact that the US$ going up is good for us. But we are worried that it will come back down when the crops are being harvested and the marine-farms are harvesting. If they play the currency market that way it is totally unacceptable for us as it wouldn’t be good for the country at all.

We support the weak kyat and strong dollar policy and as we have been suggesting that policy the authorities are now responding. But somehow their timing is completely wrong. For near future that exchange rate needs to be stable till the harvesting time to be beneficial for the farmers and the primary producers.

Most important for us is that they should push dollar up to only some level where the primary producers will reap the benefits of stronger dollar, not up to the level where the inflationary pressure are too much.

If there is inflation they have to stop selling down the kyats and then start selling again when the dollar is too weak again. And we could end up like now. That is low dollar at harvesting time and high dollar at exporting time.

On the other hand if the dollar is too strong the public servants and the poor public will suffer as the general price level will be higher because of higher inflation. We don’t expect our government to release too much kyats as we don’t like it too.

We would like to see the government release enough kyats into the circulation to push the dollar to the best level and then keep the exchange rate at that best level beneficial to both the primary-producers and the exporters.”

What the Public Thinks of the Kyat’s Depreciation?

“I work for the government and we’ve just got a small salary increase only two months ago  and now we get additional twenty or thirty thousand kyats a month. Even with that additional money we don’t really dare to shop freely yet as the prices are going up as well.

It’s like picking frogs with a basket with holes. Prices always go up as the salaries rise. I ended up praying in the kitchen worrying about inflation when the ten thousand kyats notes came out,” said one female high school teacher from Hlaing Township.

“I work for a private company and I could give my wife only 1,500 kyats for a day’s expenses. For a family of three that is almost nothing. Just bus fare alone cost me 6,000 to 10,000 kyats a month. Nothing left from my wage and we have no savings at all.

The most I am fearful of now is all the price rises. That always happens whenever they issue new big notes, when the government increases the salaries of the public servants, and whenever the dollar rises. I would like to ask this stupid government to be very careful of whatever they’re trying to do,” said one company employee from the Shwe Pyi Thar Township.

Are there sinister reasons for the Kyat’s Depreciation?

According to the Face book posting from AGD (Asian Green Development Bank) no serious reason could be found for the sudden drop of Burmese Kyat but some people familiar with the foreign exchange market still believe that someone or some organization has manipulated the market for their advantage.

One such case could be that the people or the organization expecting a large transfer of US$ into Burma as the FDI is aggressively buying the US$ in the market to push up the US$ just before they have to convert their dollars into kyats.

Or Just the Result of Massive Growth in Money Supply?

The successive Burmese governments have been printing too much money since the late 1960s. According to one report from the Public Accounts Committee of the First People Parliament the currency circulating in the country in the early 2012 was over 5.6 Trillion kyats and severe hyper-inflation was constantly occurring just because of massive 193% average yearly growth in the money supply.

Same report mentioned that the money supply at the end of 1997 was only 199.845 billion kyats and even it was 30.96% increase from 1996. By 2011 the figure was 5,600 billion kyats and from 1997 to 2011 the average yearly growth in the money supply was 193%.

Compared to Burma’s 193% the annual growths of money supply in 2011 are only 6.3% in United States, 7.1% in EU countries, and 17.4% in China.

The same report pointed out the fact that Burma hasn’t had a proper banking system yet and thus the lack of a payment system and the paper notes, instead of the bank or company or personal cheques, are being used in almost every transaction large or small in the most backward country of this modern world.

The result is the fundamental requirement for the trillions of kyats in the circulation to facilitate the general commerce. And the chronic fact that the successive Burmese governments have been running budget deficits hasn’t help the ballooning of money supply at all since the country has been shut out of the world’s financial system for very long time and the successive Burmese governments have been forced to print the paper notes for almost all of its ever-increasing expenditures.

Lack of Transparency from the Burmese Central Bank!

Following is what U Than Lwin the Vice President of Kanbawza Bank and a retired VP of Centran Bank said of the currency depreciation.

“Once the dollar has appreciated substantially the exporters can give more to the farmers and the breeders. American dollar has been appreciating globally and what is happening in Burma is just a part of that global trend.

Euro has been weakening as the EU countries faltered one after another and the result is the strengthening of US dollar. And the FDI here in coming years will be more than ever before and a lot of people here are now holding a lot of US$. So the demand for dollar is exceeding the supply. It is just the market doing its work. Nothing sinister!

One major problem here is that our central bank is not so transparent and no one knows what the Bank is doing. No one knows in advance before anything happening. And even after something serious did happen no one knows if it was done by the Bank or not.

I do not think the people running our Central Bank has right qualifications to properly control the very important foreign exchange rate. One just has to watch the market carefully to know what is going on.

But it surely is a good thing for the economy to have a stable exchange rate suitable for both the businesses and the primary producers.”

Dr Than Htut Aung the CEO of Eleven Media Group has added that Burma needs selfless people to lead the country. He said that even some people leading the UMFCCI (Union of Myanmar Federated Chamber of Commerce and Industry) are known to be avoiding paying personal income taxes and that is very worrying for him as these selfish people have a lot of influence over the decision makers in the Government.

Burmese Kyat will be floating from April 1.
Soaring Kyat, Australian Miracle and New Burma Order.
US$, Sin$, and Burmese Kyat's History by Zaw Aung.