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Myanmar considers foreign-exchange overhaul
Myanmar officials are considering plans to restructure the country's complex and confusing foreign-exchange regime in what could become the country's first major overhaul to its economic system since a new government took power late last year.
People familiar with the discussions stressed the talks are still in the early stages, and could result in minimal or even no changes to a system that currently involves multiple exchange rates—including one for official business and one for everyday transactions by average citizens. The official government exchange rate is about six Myanmar kyat for every U.S. dollar, compared with roughly 800 kyat per dollar in public marketss—a gap that introduces a range of distortions to the Myanmar economy and makes it complicated to do business there.
The foreign-exchange discussions were reported by Myanmar news publications in recent weeks, citing senior Myanmar government officials, and also by Xinhua, the state-run news agency in China, which is a close ally of Myanmar. The reports said Myanmar, also known as Burma, has also requested help from the International Monetary Fund to evaluate its options.
A spokesman for the IMF confirmed it had received a request from Myanmar authorities to help them "prepare to modernize their exchange-rate system and lift restrictions on the making of payments and transfers for current international transactions." The spokesman said the IMF planned to send a technical team to Myanmar in the second half of October to begin the process, but other details about the process or contemplated reforms weren't available.
Myanmar government officials couldn't be reached to comment over the weekend.
Analysts and investors have been watching closely to see whether Myanmar's government acts on promises of reform after last year's first national election in two decades. The vote was dominated by allies of Myanmar's long-ruling military regime, and it was derided as a sham by the U.S. and other Western governments, which maintain stiff economic sanctions against Myanmar in response to reports of widespread human-rights violations there.
Myanmar officials, however, have said the election was the first step in a series of expected changes in a country that remains one of the poorest in Asia, despite having extensive supplies of natural gas and other valuable resources. Although Myanmar adopted some market-oriented reforms in the 1990s, the government still controls much of the economy. Modern conveniences such as credit cards are uncommon, and much of the country's infrastructure is in decay.
A recent weakening of the dollar against the kyat in street markets has made it tougher for Myanmar exporters to compete overseas, adding pressure for further market reform.
Earlier this year, the government appointed a local economist named U Myint – an associate of pro-democracy activist Aung San Suu Kyi who is known for advocating market reforms – to a new government economics advisory board. It has also encouraged discussions about the country's economic problems at a series of meetings this year on alleviating poverty.
Although it isn't entirely clear why the government keeps more than one rate, analysts say it allows government officials and state-owned enterprises to in essence maintain two sets of books, which could make it possible to hide revenues that can be diverted to other needs, such as military hardware. That could occur when officials record foreign payments for natural gas or other exports at the official rate of six kyat per dollar—greatly underestimating the payment's actual value in local terms—and then convert the money into kyat at the prevailing street rate. It isn't clear how widespread the process is in Myanmar.
Another reason for having multiple exchange rates, economists say, is that it can give a government more control over the local economy and help subdue inflation, at least in the short term.
The foreign-exchange system has also included a range of other irregularities over the years, including unpredictable devaluations and rules that make locals and others convert dollars into "foreign exchange certificates" issued by the government.
Reforming the foreign exchange system "would be a wonderful symbol to the rest of the world that 'we're open for business – we may not be a democracy, but we're going to have rational economic policy,'" said Sean Turnell, an expert on Myanmar's economy at Macquarie University in Australia.
Still, "there seems to be lots of talk but not a lot of concrete stuff" happening, he said. "It could all be nothing – it could all be to create a feeling that this is happening."
Myanmar officials have repeatedly promised major overhauls in the past to earn goodwill with Western governments and human rights-activists, only to make cosmetic changes or abandon the efforts later.
Adding to the uncertainty is ongoing confusion over who actually runs the country. Although a former military commander named Thein Sein became the country's president earlier this year, it is unclear how much power he holds. Many residents believe that military figures including former strongman Than Shwe, who controlled Myanmar from the 1990s until the latest election, continue to pull the strings behind the scenes.
People familiar with the matter say they believe a power struggle is developing within the new government between hard-liners connected to the military and ministers who are pressing for more economic changes. These people stress it remains unclear which side will win.
The mere fact that changes are being discussed openly in public could be a sign of improvement, however, and could also flag the growing influence of Myanmar's business community at the expense of the military, which has dominated the country's economy for decades.
Many of the changes, including reforms to the foreign currency system, are backed by members of the Union of Myanmar Federation of Chambers of Commerce and Industry, which represents Myanmar's business sector and is seen as increasingly influential within Myanmar's government.
Although changes may be slow, "the good thing now is the authorities are willing to listen," said Maung Maung Lay, the group's vice president. He said that "unification of the local currency kyats can be expected," and that he believed Myanmar would also soon have widespread use of credit cards. Government officials are "very serious indeed" about change, he said.
Another official at the same organization, who declined to be quoted by name, was less optimistic, though he agreed the government was becoming more open to change. The "government has shown greater interest for reforms, but the actions seem very slow," the official said.
He said government ministers were still not public- or media-friendly and preferred heavily centralized control of the economy, with much of the country's development programs focused exclusively in areas around the capital city of Naypyitaw, at the expense of other parts of the country such as Yangon that are more important in terms of production and trade.
Wall Street Journal
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