Battered economy sees kyat on the ropes
South China Morning Post-October 12, 2001
IF AN ANTIDOTE to the blatant optimism of entrepreneurs over the easy opportunities for making money in Myanmar were needed, the weakness of the kyat would be it.
Myanmar's currency lost more value in the first six months than it did during the whole of last year and - after being briefly reined in by the authorities - has continued its slide. The plunge signals not only desperate government action and lack of faith by the Myanmar people in their own currency, but also a dearth of productive capacity in a vulnerable, desperately poor country.
Earlier this year the open rate for the kyat fell below 800 for US$1 - and well beyond 900 for a time - forcing the authorities to introduce a range of measures to protect the currency, notably further import restrictions in June. This dragged the rates back towards the 700-kyat mark. But in recent weeks the decline has continued with a slide in the currency's value of about 15 per cent. In the middle of last year it was trading at about 350 kyat to the dollar. It has slipped about 40 per cent this year.
The kyat's downward spiral reflects what economists describe as "severe" macro-economic imbalances within the economy.
"The economy simply is not creating enough wealth for a country of this size. It hurts," a Yangon observer said. Although there are indications the authorities have made a genuine attempt to rein in government spending - albeit at the cost of social rather than military services - the fact that for the first time in a long while no budget was published this year suggests the economy remains deeply troubled. Foreign currency reserves are thought to have shrunk to the equivalent of just two months of imports.
Officially inflation is running in low single digits but no outside economist appears to believe this. One said the claim was "laughable" given the significance of imports in the economy combined with the currency weakness.
One embassy in Yangon reckons that even estimates of inflation of 20 per cent to 25 per cent a year are "conservative" and the true rate may be closer to the 35 per cent to 40 per cent level. The higher numbers would certainly tie-in better with the plentiful anecdotal evidence prices have risen sharply this year.
"I hear a crescendo of complaints and cries of alarm in the streets all the time now," a Yangon resident said. The seemingly inexorable weakness of the kyat has severely undermined it as a means of storing wealth in the eyes of ordinary people who are now loath to hold it. "There has been a run for the exits," one resident willingly admitted.
The preference for hard currencies, gold and even cars is also encouraged by the nagging fear that in a desperate attempt to conserve dollars, the authorities might even risk another round of the hugely unpopular "cancellations" of notes of certain denominations. This has been tried before - most notoriously in 1987 when many in Myanmar woke up to find their savings had been wiped out overnight, leaving them so bruised that many were happy to join unprecedented nationwide protests against military rule the following year.
Car prices are going wild, with reports of vehicles being sold at values sharply higher than they fetched even days earlier. A further disincentive to save is provided by real negative interest rates on bank deposits. In other words because inflation is so high it easily wipes out the interest paid on deposits - 9 per cent at one local bank.
The much-vaunted hard currency contributions payable by Thailand for gas from the Yadana offshore gas pipeline will, in the circumstances make relatively little impact, especially as analysts suspect some of the hard currency will leak into the regime's private accounts.
Many experts say the government is printing money to paper over the cracks in its finances (and to cover last year's 500 per cent pay rise for civil servants). It is further undermining the kyat. The authorities appear to have tapped loans from private banks lately to fill in the budget deficits, in addition to the usual central bank financing, so fuelling the kyat's downward spiral.
In the circumstances it is understandable why the United Nations' aid agencies represented in Myanmar made a joint request to their headquarters to be permitted to make sharply high contributions to hard pressed communities. Yet some do not despair.
"This is a fecund country that has survived the most incredible mismanagement. There is mostly agricultural, fisheries and logging wealth being generated," one observer said.
"Would you declare your honest income to this government? No matter how bad the government's finances look the country never quite falls over. I've no doubt even the military is worried but we shouldn't count on this resilient country breaking just yet."