A union minister in a meeting with journalists on the 28 August, suggested that the government looks to maintain a fixed currency exchange rate at around 900-1000 Kyat for one US dollar.
A news journal editor who attended the meeting with Industrial-2 Minister and chairman of Industrial Development Committee, Soe Thein, told DVB that;
“He said the government should make sure that no harm is done to export/import businesses, those who hold foreign currencies in the country and the country’s productivity, trade and financial systems.”
“He said that he personally thinks the currency rate should be fixed at around 900-1000 Kyat for one US dollar,” said the journal editor under condition of anonymity.
He continued that the minister expressed hope that export/import businessmen will be able to do business with confidence in the near future. Burma has only recently began to show signs of developing a viable manufacturing sector with industries such as garments offering hope of much needed jobs.
However exchange rates in Burma have dropped to as low as 718 kyat to the US dollar, which has led to economists to urge the government to take swift action on preventing this as well as informing people about the situation.
The danger is that Burma’s nascent garments and manufacturing sector will be moth balled as exports are no longer competitive, and imports from larger more developed economies become cheaper.
However Thein Sein has hinted that, in line with the opinions of his senior economic advisor, U Myint, the currency should be floated; traded and therefore liable to the currency appreciation that is currently harming exports.
China are accused of fixing their currency as it appears Soe Thein is in favour of. The Chinese do so by selling or buying Yuan and or dollars and as such they have been able to keep their currency artificially lower and therefore exports cheaper. This has maintained the country’s high growth rate and also crucially maintained the growth in new low wage jobs in the economy, which has been the bed rock of China’s remarkable economic transformation.
As a result the United States has embarked on a similar tactic which it calls ‘quantative easing’ but essentially entails pumping more dollar bills into the market, thereby reducing the value of the currency and inducing other nations to call for a new reserve currency.
This has exacerbated problems with Burma’s currency. Not only has investment in Burma’s energy sector shot through the roof, helping foreign direct investment (FDI) go from US$ 300 million to US$ 20 billion in the previous financial year, but energy prices have risen and the fire sale of government assets has meant that money previously kept in Singapore or elsewhere has poured back in and been converted to kyat in order to buy up solid assets in the country, thereby rising in value.
With suggestions that the government will do away with antiquated economic systems such as the Foreign Exchange Certificate and multiple exchange rates in general, economic reform has looked the most realistic of the raft of modernising reforms that have been hinted at. It has been suggested that the International Monetary Fund (IMF) will be invited in to help facilitate any such currency reform.
The government’s current official exchange rate is set at 6 Kyat for one US dollar. But amidst the climate of reform, it has looked likely that the government will float the currency and lump for a market driven rate. Soe Thein’s suggestion therefore could indicate a split between those favouring a more liberal approach and those favouring mirroring China’s more controlled policy.
In any case in an attempt to try and head off a slump as a result of the strong currency the government looked to cut export taxes for a number of key agricultural commodities. The strong currency ironically meant that agricultural commodities flooded the local market as they were no longer sold abroad, making them cheaper on the local market and putting farmers into debt.