CB of­fi­cial talks kyat volatil­ity

With the kyat near record highs against the US dol­lar the busi­ness com­mu­nity is de­mand­ing that the Cen­tral Bank and the govern­ment take ac­tion to stem the slide and pro­tect the cur­rency from fu­ture volatil­ity. U Win Thaw, di­rec­tor gen­eral of the Cen­tral B

The Myanmar Times - - Front Page - CHAN MYA HTWE chan­myahtwe@mm­times.com – Trans­la­tion by Khine Thazin Han, Win Thaw Tar, Emoon and Zaw Nyunt

The head of the Cen­tral Bank’s for­eign ex­change man­age­ment de­part­ment speaks out on what needs to be done to keep the cur­rency sta­ble.

The kyat has lost over 11 per­cent of its value against the dol­lar since July, what’s be­hind the steep fall? The dol­lar is strength­en­ing while the kyat is weak­en­ing. Other in­ter­na­tional cur­ren­cies have also de­pre­ci­ated against the dol­lar. The US dol­lar in­dex [a mea­sure of the dol­lar’s strength against a bas­ket of for­eign cur­ren­cies] has risen and fallen in re­cent years, but has strength­ened sig­nif­i­cantly since Novem­ber. [The kyat’s de­cline] is a re­ac­tion to [de­vel­op­ments] in other coun­tries.

An­other fac­tor is [Myan­mar’s] trade deficit – im­ports are larger than ex­ports – and this is some­thing that we [the Cen­tral Bank] can’t solve. In prac­ti­cal terms it’s about the cur­rent ac­count. If there was as much com­ing in as go­ing out then we could con­trol se­ri­ous rises and falls in the dol­lar ex­change rate.

But in the cur­rent sit­u­a­tion [where the cur­rent ac­count deficit is ris­ing] the dol­lar will rise con­tin­u­ously – no one per­son can con­trol it. But [the ex­change rate] can be con­trolled by [im­prov­ing] the coun­try’s econ­omy. Bud­get deficits, in­fla­tion, GDP growth rates, we need to con­sider all these fac­tors.

An­other is­sue is off­shore ac­counts. Money has been kept abroad in off­shore ac­counts, be­cause of which ex­porters can claim they only re­ceived half of their ac­tual ex­port pro­ceeds and keep the rest abroad. The own­ers of these ac­counts spec­u­late on the dol­lar when the ex­change rate shifts, so the value of the dol­lar has in­creased more than it needs to.

The main prob­lem is the dol­lar’s value has risen very rapidly, which should not hap­pen, and this has af­fected peo­ple work­ing in the ex­port and im­port busi­nesses. Not only has the US dol­lar in­dex in­creased, but the black mar­ket has in­flu­enced [the ex­change rate]. The govern­ment should deal with this by in­ves­ti­gat­ing who is re­spon­si­ble for the spec­u­la­tion and find­ing a way to deal with them, but [the au­thor­i­ties] have been un­able to do this so far.

There are many do­mes­tic and ex­ter­nal fac­tors [in deal­ing with the cur­rency], I’m sim­ply list­ing some is­sues out of many. Some can be con­trolled, but no coun­try can con­trol when and for how long the [ex­change rate rises].

How should the Cen­tral Bank and the govern­ment re­spond to sta­bilise the dol­lar ex­change rate? The im­me­di­ate thing the Cen­tral Bank and the govern­ment can do is to ex­am­ine im­ports and ex­ports. We must stop un­nec­es­sary im­ports for a set pe­riod. If we do, then the out­flows [of dol­lars] will be lower. Im­port lists must be re­viewed. We have monthly value-based im­port sta­tis­tics from the bank­ing sec­tor for ev­ery year. Af­ter that re­view, we can know which im­ports are not nec­es­sary, which im­ports should be stopped, and on which im­ports we should raise im­port du­ties.

We also need to make sure that ex­port pro­ceeds are re­turned to Myan­mar. To do this we can ex­am­ine the ex­port in­comes in the bank­ing sec­tor. There are [a high vol­ume] of ex­ports at the Thai and Chi­nese bor­der ar­eas, [where the pro­ceeds] are not [pro­cessed through the] bank­ing sec­tor.

The in­for­mal mar­ket [for cur­rency ex­change] is large. What the Cen­tral Bank can do is to con­trol the [ac­tiv­ity] of peo­ple keep­ing ex­port pro­ceeds in over­seas ac­counts, which they use to spec­u­late. There are ex­port pro­ceeds from bor­der trad­ing that do not come back into the coun­try. For ex­am­ple, an ex­porter will say they re­ceived $500,000 even though they re­ally re­ceived $1mil­lion, and keep the rest of the pro­ceeds aboard.

Now we are in the process of find­ing a way to get the for­eign cur­rency from those ex­ports [into the bank­ing sec­tor]. A China Bor­der Com­mit­tee has been formed, [which shares mem­bers with a] cur­rency volatil­ity com­mit­tee. The Cen­tral Sta­tis­tics Or­ga­ni­za­tion [un­der the Min­istry of Fi­nance and Plan­ning] and other re­lated de­part­ments are also in­ves­ti­gat­ing the im­pact of in­fla­tion and the bud­get deficits on the ex­change rate.

How will the Cen­tral Bank deal with the over­seas ac­counts? There is a law for tak­ing ac­tion if ex­port pro­ceeds are not [de­posited in a Myan­mar bank ac­count], and the Cen­tral Bank is look­ing into this. The bank needs to [make sure] bor­der ex­port pro­ceeds come back into the coun­try. Traders, the rel­e­vant banks and the for­eign coun­tries should all dis­cuss how to deal with this.

The Cen­tral Bank is now look­ing at how to get the money in these off­shore ac­counts back into the coun­try. Ac­cord­ing to the Cen­tral Bank’s For­eign Ex­change Man­age­ment Law, peo­ple that have over­seas ac­counts must send the monthly bal­ance of these ac­counts and their bank state­ments [to the Cen­tral Bank]. We have not im­ple­mented this reg­u­la­tion yet. Af­ter im­ple­men­ta­tion we will check they are not spec­u­lat­ing with their over­seas ac­counts and whether trad­ing can be done with­out off­shore ac­counts in the fu­ture.

When will the Cen­tral bank im­ple­ment these rules for over­seas ac­count hold­ers? First, there should be a pub­lic an­nounce­ment and an ed­u­ca­tion process so the pub­lic un­der­stand. Hav­ing to in­form the Cen­tral Bank about an

over­seas ac­count does not mean the Cen­tral Bank will take ac­tion against the ac­count holder. Peo­ple faced sanc­tions in the past and they opened over­seas ac­counts be­cause they could not trans­fer money abroad from a Myan­mar bank ac­count. As Myan­mar banks were tightly sanc­tioned, they could not open over­seas ac­counts [for cus­tomers]. So peo­ple opened ac­counts in Sin­ga­pore and other places. The Cen­tral Bank should ac­cept that peo­ple can trans­fer money from their bank ac­counts over­seas. But those peo­ple should be ed­u­cated to help build trust [in Myan­mar’s fi­nan­cial sec­tor] and co­op­er­ate to help sta­bilise the econ­omy.

You can open an over­seas ac­count with the ap­proval of the Cen­tral Bank. Nowa­days some banks are aware of this and they have been al­lowed to open ac­counts [af­ter in­form­ing the Cen­tral Bank]. Can the au­thor­i­ties re­ally con­trol the dol­lar ex­change rate to some ex­tent? If the things I men­tioned above are done then yes, it can be con­trolled to some ex­tent. If you sit and do noth­ing, it will con­tinue ris­ing. Some un­eth­i­cal busi­ness­peo­ple will keep tak­ing ad­van­tage of [the volatil­ity].

There are some ac­tions which can be taken im­me­di­ately. The re­spec­tive min­istries, the govern­ment and the Cen­tral Bank can co­op­er­ate and con­trol the rise so that it is steady and nor­mal. But this is still be­ing ar­ranged and hasn’t been im­ple­mented yet.

[At present] the Cen­tral Bank and re­spec­tive min­istries are hold­ing reg­u­lar meet­ings on the rel­e­vant mat­ters. We have a meet­ing. We come back. We make de­ci­sions. We hold an­other meet­ing. [But] such meet­ings are not ef­fec­tive, and we will only be able to im­ple­ment short-term and long-term so­lu­tions af­ter we hold ef­fec­tive and de­ci­sive meet­ings.

This in­ter­view has been edited for length and clar­ity

Photo: Aung Myin Ye Zaw

Men pile goods on top of a truck near the Muse bor­der trad­ing point in Shan State.

Photo: Staff

The Cen­tral Bank plans to put ex­port earn­ings un­der the mi­cro­scope.

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