Clarity coming on foreign exchange policy
A committee formed to deal with exchange rate volatility will publish policy details in state media amid calls for public announcements on what action authorities are taking.
A NEW government-Central Bank joint committee set up to deal with exchange rate volatility will inform the public of policy measures through state media, amid growing calls for the bank to provide clarity on its efforts.
The joint-coordination committee will make “public awareness” statements, which including details of policies to be adopted by the Central Bank and the government to deal with exchange rate volatility, said U Maung Maung Win, deputy minister at the Ministry of Finance and Planning, who chairs the committee.
Banking sector officials and members of the National League for Democracy’s Economic Committee are pushing for the Central Bank to make public announcements on the exchange rate issue and its wider efforts to develop Myanmar’s financial sector.
The kyat has weakened steadily over the last few months and the Central Bank’s reference rate rose to K1295 yesterday – K16 shy of the historic high reached in December last year.
There are divisions within the business and finance community over just how much the Central Bank could, or should, do to stem the kyat’s slide. A lack of international reserves has made it reluctant to defend the kyat in the past, and international advisers like the IMF are urging the authorities to let the currency fluctuate freely.
But the Central Bank has come under fire from supporters and detractors for its silence in the face of kyat volatility.
U Ye Min Oo, a member of the NLD’s economic committee, said that the Central Banks was addressing the exchange rate issue and pushing on with financial sector development. The government’s National Economic Coordination Committee includes senior Central Bank officials, and the issues are being discussed, he added.
“It is not true that the Central Bank is doing nothing,” he said. “But the bank has to reveal what initiatives it’s taking when the exchange rate is not stable by forming news announcement teams. It needs to step forward.”
U Soe Thein, a former deputy director general in the budget department of the Ministry of Planning and Finance, said it would be difficult for the Central Bank to solve the currency volatility issue, because the weakening exchange rate is driven in part by trade and budget deficits.
The IMF has also pointed to persistent trade deficit and budget deficits – with the latter contributing to higher inflation – as putting pressure on the kyat.
“There are many matters that can’t be solved by the Central Bank alone in improving the financial sector,” said U Soe Thein. “But I can’t understand why the Central Bank doesn’t tell the public what it can and cannot address, and what it’s focusing on.”
U Mya Than, chair of Myanmar Oriental Bank, said a key issue is that large volumes of currency are exchanged on the informal market, which leads to a shortage of dollars in the formal market and pushes down the kyat’s value.
The financial sector “is not putting all matters on the Central Bank”, but the industry needs to know what the Central Bank is doing to combat the problem, U Mya Than said.
“It’s time to do things in a transparent way,” he said.
The IMF’s deputy division chief for Asia and the Pacific, Yongzheng Yang, said during a recent briefing on Myanmar’s progress on economic reform that the authorities’ aim is to gradually draw the informal market into the formal. But the size, opacity and long history of the informal market mean this will take years, he said.
U Win Thaw, director general of the Central Bank’s Foreign Exchange Management Department, said the Central Bank cannot stop the dollar appreciating against the kyat, but there are measures it can take to make the moves more stable. The bank needs to examine import and export earnings closely, and make sure that export earnings are processed through the formal financial sector, he said.
– Additional reporting by Chan Mya Htwe + Translation by San
Layy and Win Thaw Tar
‘The Central Bank has to reveal what initiatives it’s taking.’
U Ye Min Oo NLD Economic Committee
People walk past a money changer on Bogyoke Aung San Road.