YANGON, Myanmar — A strengthening of Myanmar’s kyat currency is causing further hardship in the impoverished Asian country, hitting exporters and workers paid in dollars, with farmers also set to suffer.
The kyat’s rise over the past three months is in part linked to the U.S. dollar’s weakness, but also reflects other factors, some of which stem from the military-dominated government’s attempts to pump up economic growth and create more wealth for the country’s elite.
Among them: wealthy locals selling their U.S. dollar savings to snap up land in newly created special economic zones, higher foreign investment from neighboring countries, and increased sales of exports such as gems despite extensive U.S. and European sanctions.
Officially, the kyat is pegged at about six to the dollar and is not freely convertible into other currencies. But virtually all business and most currency transactions in Myanmar — also known as Burma — are conducted using a black market rate.
That rate has strengthened steadily from 860 kyats to a dollar in April to 830 in May and around 770 kyats this month. Myanmar’s ruling generals generally tolerate the black market for currency exchange as the only practical way of allowing commerce to continue in a country that is among the world’s poorest.
Because people recall instances of sharp inflation, as well as the cancellation of many bank notes in 1987 — an event that helped spark a failed pro-democracy uprising — it is common for Burmese to keep savings in dollars, generally illegally.
“Since the movement for the U.S. dollar of late has been down, especially against currencies of countries that produce commodities, the rise of the unofficial kyat is not that remarkable,” said Sean Turnell, an expert in Myanmar economics at Australia’s Macquarie University.
But he said other factors also have a role in driving the kyat higher such as increased real estate purchases by buyers from neighboring China, usually disguised as transactions by individual Burmese.
The government is also selling state assets to favored businesses, who are financing the deals by exchanging their holdings of dollars for kyat.
Sales, meanwhile, are up for export commodities such as gems, logs, beans and pulses, which could drive up the black market rate when U.S. dollar payments are exchanged into kyat. The country has earned more the $3 billion in the past six months from the sale of gems and jade.
Myanmar’s extensive underground economy, particularly the drug trade, has also been known to cause swings in the black market exchange rate.
“Burma’s production of narcotics is up, and payments on this do filter through into foreign currency conversions into kyats to pay the ultimate producers,” Turnell said.
Myanmar is a major producer of the stimulant methamphetamine and heroin.
Yangon-based economist Khin Maung Nyo said it is impossible to pinpoint a single reason behind the kyat’s appreciation.
A large increase in foreign direct investment from countries such as China and rumors the government could change the official exchange rate could be among the reasons, he said.
Exporters are among those being squeezed by a stronger kyat. Farmers are also likely to feel some pain.
“The strong currency is stifling exports. Exporters earn less and the bad business will affect other businesses, ranging from producers and transportation to restaurants,” said Kyaw Myint, an exporter of beans.
Kyaw Myint said that because his income from bean exporting has been reduced by about 9 percent, he will not be able to pay a good price to the farmers for the next harvest. He is uncertain if he will continue in the export business.
Meanwhile, others hit hard by the kyat’s rise are employees whose salaries are pegged to the dollar.
Some foreign embassies and foreign companies have adjusted their payments to their employees, but at a fixed rate that does not keep pace with the currency’s real value.
Thin Thin, a 35-year old accountant for a foreign company, said her real income had fallen so much she has trouble eking out a living. She gets about $120 dollars a month, which was worth 102,840 kyats two months ago, but now brings only 93,600 kyats.
She said the monthly rent for the apartment she shares with a friend remains 25,000 kyats per month and food prices likewise haven’t fallen, making it impossible for her to survive if it were not for extra income she gets from tutoring several young students.
Copyright 2011 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
Source:http://www.washingtonpost.com/business/strengthening-kyat-currency-in-myanmar-throws-dollar-earners-for-a-loop/2011/06/08/AGaUNvLH_story.html
The kyat’s rise over the past three months is in part linked to the U.S. dollar’s weakness, but also reflects other factors, some of which stem from the military-dominated government’s attempts to pump up economic growth and create more wealth for the country’s elite.
Among them: wealthy locals selling their U.S. dollar savings to snap up land in newly created special economic zones, higher foreign investment from neighboring countries, and increased sales of exports such as gems despite extensive U.S. and European sanctions.
Officially, the kyat is pegged at about six to the dollar and is not freely convertible into other currencies. But virtually all business and most currency transactions in Myanmar — also known as Burma — are conducted using a black market rate.
That rate has strengthened steadily from 860 kyats to a dollar in April to 830 in May and around 770 kyats this month. Myanmar’s ruling generals generally tolerate the black market for currency exchange as the only practical way of allowing commerce to continue in a country that is among the world’s poorest.
Because people recall instances of sharp inflation, as well as the cancellation of many bank notes in 1987 — an event that helped spark a failed pro-democracy uprising — it is common for Burmese to keep savings in dollars, generally illegally.
“Since the movement for the U.S. dollar of late has been down, especially against currencies of countries that produce commodities, the rise of the unofficial kyat is not that remarkable,” said Sean Turnell, an expert in Myanmar economics at Australia’s Macquarie University.
But he said other factors also have a role in driving the kyat higher such as increased real estate purchases by buyers from neighboring China, usually disguised as transactions by individual Burmese.
The government is also selling state assets to favored businesses, who are financing the deals by exchanging their holdings of dollars for kyat.
Sales, meanwhile, are up for export commodities such as gems, logs, beans and pulses, which could drive up the black market rate when U.S. dollar payments are exchanged into kyat. The country has earned more the $3 billion in the past six months from the sale of gems and jade.
Myanmar’s extensive underground economy, particularly the drug trade, has also been known to cause swings in the black market exchange rate.
“Burma’s production of narcotics is up, and payments on this do filter through into foreign currency conversions into kyats to pay the ultimate producers,” Turnell said.
Myanmar is a major producer of the stimulant methamphetamine and heroin.
Yangon-based economist Khin Maung Nyo said it is impossible to pinpoint a single reason behind the kyat’s appreciation.
A large increase in foreign direct investment from countries such as China and rumors the government could change the official exchange rate could be among the reasons, he said.
Exporters are among those being squeezed by a stronger kyat. Farmers are also likely to feel some pain.
“The strong currency is stifling exports. Exporters earn less and the bad business will affect other businesses, ranging from producers and transportation to restaurants,” said Kyaw Myint, an exporter of beans.
Kyaw Myint said that because his income from bean exporting has been reduced by about 9 percent, he will not be able to pay a good price to the farmers for the next harvest. He is uncertain if he will continue in the export business.
Meanwhile, others hit hard by the kyat’s rise are employees whose salaries are pegged to the dollar.
Some foreign embassies and foreign companies have adjusted their payments to their employees, but at a fixed rate that does not keep pace with the currency’s real value.
Thin Thin, a 35-year old accountant for a foreign company, said her real income had fallen so much she has trouble eking out a living. She gets about $120 dollars a month, which was worth 102,840 kyats two months ago, but now brings only 93,600 kyats.
She said the monthly rent for the apartment she shares with a friend remains 25,000 kyats per month and food prices likewise haven’t fallen, making it impossible for her to survive if it were not for extra income she gets from tutoring several young students.
Copyright 2011 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
Source:http://www.washingtonpost.com/business/strengthening-kyat-currency-in-myanmar-throws-dollar-earners-for-a-loop/2011/06/08/AGaUNvLH_story.html
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