Burmese currency plummets

[ausgeo@xxxxxxx]

Asia Times News

Myanmar currency plummets

Stephen Brookes, Rangoon, 8th July 1997


A sudden and precipitous decline in the value of the Myanmar kyat from 185 to 
the United States dollar to 215 last week has analysts in Yangon concerned 
that further currency turmoil may be ahead. 

"It could be quite serious," said one Yangon-based economist. "The government 
only has enough foreign reserves to cover about 50 percent of its domestic 
obligations, and hard currency earnings are going to be low for the 
foreseeable future. The government will have to buy dollars with kyats to meet 
its obligations, so it will have to keep on printing more and more kyats as 
the price goes up. This could fuel domestic inflation." 

The kyat has seen several sudden depreciations over the past 18 months. 
Trading at about 120 to the US dollar in late 1995, it suddenly dropped to 
about 145 to the US dollar in May 1996, then dropped again to about 165 to the 
US dollar in July 1996, with another downward lurch earlier this year. 

"There's a pattern tied to export earnings," said one Yangon-based analyst. 
"Between December and March, the government gets hard currency from timber and 
rice exports. But then the money runs out, and the kyat rate goes down, and 
only stabilizes when earnings from beans and pulses start again in May and 
June. And when those earnings stop, you have a crisis again in July. That's 
what we're seeing now. But we may be heading into a much more serious crunch." 


The kyat is officially valued at a rate of approximately six to the US dollar, 
but is traded on the gray market at market rates. Myanmar citizens are not 
allowed to hold foreign currency, but the government issues Foreign Exchange 
Certificates (FEC), whose value is pegged to the dollar, and which are legal 
tender in Myanmar. 

Myanmar's low level of foreign reserves is likely to put further pressure on 
the kyat, and some analysts predict that the currency will decline to about 
230 to the US dollar before stabilizing again in about four months. That value 
will also be affected by the domestic inflation rate, which is estimated to be 
running at about 20 percent annually.