Soaring Kyat Means More Economic Turmoil for Burmese

By YENI

The black market value of Burma’s currency, the kyat, has hit a three-year high of nearly 1,000 to the US dollar, after years of steadily declining in value. From 2005, when a dollar cost just 880 kyat, until just last week, when the going rate was 1,190 kyat to the dollar, the Burmese unit had shown only persistent weakness. In the past few days, however, this trend has reversed dramatically.

So what’s going on?

Currency dealers say that the rise in the value of the kyat cannot be attributed to any single cause, but point to a number of factors that are likely having a significant impact.

One, they say, is the fall in border trade with China and Thailand due to weak demand for products that are increasingly beyond the means of ordinary Burmese. Over-the-border imports are the main source of goods that are not widely available in Burma, and they are usually paid for in hard currency. As more Burmese decide they can’t afford those goods, their need for foreign currencies—especially the dollar, but also the Chinese yuan and the Thai baht—has also decreased.

Another factor is that Burma’s foreign currency reserves in the Central Bank may be rising. A Burmese economist who is close to government policymakers estimates that the regime has banked upward of US $3 billion, thanks mostly to the country’s trade surplus, particularly with Thailand, which is the major importer of Burma’s natural gas.

Burma is also awash in money from Chinese and other foreign investors. According to government statistics, foreign investment in Burma nearly doubled in the first nine months of 2008 compared to the same period of the previous year. In its latest statistical survey, the Ministry of National Planning and Development said that investment from January to September last year jumped to $974.9 million dollars from $502.5 million in the same period the previous year.

Aid money could also be an additional factor. According to the UN Office for the Coordination of Humanitarian Affairs, nearly $500 million has already been transferred to Burma for relief programs in areas hit by Cyclone Nargis. (How much of this has made its way into government coffers through the regime’s convoluted foreign exchange procedures is a matter we may never get to the bottom of.)

Most recently, the European Commission has announced that it will give €40.5 million (US $52.4 million) in humanitarian aid to Burma this year, while Asean Secretary-General Surin Pitsuwan told the regional bloc that it needs to raise another $700 million for a three-year recovery program in the cyclone-devastated Irrawaddy delta.

Whatever its causes, the strengthening kyat will undoubtedly have a significant effect on the outlook for the Burmese economy.

Burma’s exports will obviously suffer, as foreign buyers balk at higher prices for Burmese goods, especially amid a global slowdown that has hit demand from some of the country’s key trading partners, including China, Thailand, Singapore, India and Malaysia.

Analysts say the falling price of oil and natural gas, the country’s most valuable exports, will seriously affect the Burmese junta’s revenue. Sean Turnell, an associate professor at Australia’s Macquarie University who specializes in monitoring Burma’s economy, said that gas exports, which account for about 40 percent of all export income, fell 28.5 percent in value between April and December of last year—a loss of $670 million compared with the same period a year earlier.

Agricultural products, which are Burma’s second-largest source of export income, earning $600 million from China and India annually, have also been affected by the downturn. For instance, exports of pulse crops to India fell by up to a million tons after buyers abandoned negotiations because of inflated prices and bought from Vietnam instead.

Falling world prices and slack demand are hitting Burmese rice farmers especially hard. Already struggling to cope with the effects of Cyclone Nargis, many Burmese rice farmers say they are working at a loss. One farmer said that his income from the sale of rice amounted to 70,000 kyat ($59) per acre, while production costs were about 90,000 kyat ($78).

Meanwhile, as most Asian banks appear to be faring reasonably well amid the global financial crisis, Burma’s arcane system of agricultural credit has not been completely spared.

“We are facing liquidity problems,” said Khin Maung Nyo, a Rangoon-based economic analyst, explaining that businessmen who normally provide financing to farmers were withdrawing from the rice market.

All of this points to the fact that, contrary to the reassurances of Prime Minister Gen Thein Sein, Burma is not immune to the effects of the global financial meltdown. Sadly, the country’s economy, already one of the world’s most depressed, will only go from bad to much, much worse unless regime finally take its head out of the sand.