Burma has multiple currency-exchange systems in its one economy. The authorities have fixed the official rate at 6 kyat per US dollar, but this does not reflect the real economic situation and it is impractical for business.
The authorities also created foreign-exchange certificates (FEC), which initially were very close to the real market rate. Foreign visitors were forced to turn their hard currency into FECs and could transfer the certificates into kyat. Meanwhile the exchange rate on the black market was the real source of economic life.
China used to have this kind of currency-exchange system but rushed to terminate FECs in the late 1990s when their value was close to the market rate of the yuan. However, Burma has had no chance to do so, as its economy has never been healthy enough.
The authorities mulled adjusting the currency-exchange regime again this year when the real value of the kyat was about to pose troubles for the economy. The market rate of the kyat is now sitting at 750 per US dollar, appreciating 25 per cent from 1,000 kyat per dollar last year.
Thein Sein admitted for the first time during a workshop with economic experts in Naypyidaw on August 17 that the kyat had dealt a blow to some exports.
"In consequence, local demand for goods is falling, and it has affected producers, especially farmers, who depend on exporting agricultural produce. So ways and means are being sought to ease the crises those farmers are facing," the president was quoted as saying in the state-run New Light of Myanmar newspaper.
The Burmese government stepped up measures to ease economic restrictions on tackling the problem. The measures included reduction of the export tax from 8 to 5 per cent and granted tax exemption for exported farm products.
Experts say the causes of appreciation of the kyat are the weak dollar in the world market and mismanagement of Burma's currency-exchange system.
The president's chief economic adviser U Myint, who released an analysis paper at an economic workshop in Naypyidaw recently, said there were four factors making the kyat stronger.
First, Burma relies too much on exports of natural gas. Second, it produced goods and services that are not traded on the world market.
Third, the country exports only gas while importing oil. Fourth, manufacturing and agriculture are lagging, while capital and labour forces are moving to non-trade sectors such as construction.
U Myint saw a good opportunity for the authorities to push reform of the exchange-rate regime to establish a new system that could meet international standards. The reformed currency system would provide an effective tool for the authorities to adjust macroeconomic management, he said.
U Myint recommended a number of measures to tackle the problem, which President Thein Sein is likely to agree with. The chief adviser suggested that the authorities unify the multi-rate currency-exchange system into one and liberalise economic restrictions.
To be more precise, the measures include reducing export taxes, removal of foreign trade restrictions, buying US dollars in the domestic market, reduction of interest rates to adjust the currency, requesting help from the International Monetary Fund, enforcing transparency and accountability in economic management, and providing sufficient information on the economy to the public.
To achieve these aims, Thein Sein needs a lot of political will and courage to move his country towards reform, since economic management has been in the military's hands for a long time. Some generals treat the economy as if it were their own property.