Monday, August 21, 2017

Biz community shrugs at kyat float

Myanmar bank workers count bank notes in Yangon. Photo: AFPMyanmar bank workers count bank notes in Yangon. Photo: AFP

The Central Bank of Myanmar began floating the kyat from April 1, effectively abolishing the official rate of K6 to the dollar, although the prevailing rate in Yangon remained largely unchanged.

The Central Bank of Myanmar floated the kyat through auctions with domestic private banks.

The float is the first step in unifying the many different exchange rates used in the country, which a source close to the International Monetary Fund estimated at about 17. These included the former official rate; the black market rate in Yangon; export earnings (or credits) earned through the export of commodities and a requirement for imports; Foreign Exchange Certificates (FEC); and customs duties.

The numerous rates complicated all business dealings in the country.

Myanma Apex Bank advisor U Soe Tin said a stable exchange rate would help to build trust with potential foreign investors and simplify trading.

The Central Bank is also publicising the daily exchange rate on its website at http://www.cbm.gov.mm. On April 4, the rate was K820 but black market sources said the buying rate for US dollars was steady at K810.

Co-operative Bank managing director U Phey Myint said the Central Bank began publicising the official rate on April 1 but had been holding currency auctions with 11 authorised banks since March 15.

He said each bank submitted bids using five different rates into the Central Bank’s auction box. The Central Bank then set a rate at plus or minus 0.8 percent from the average of the bids.

Furthermore, if the Central Bank liked the exchange rate offered by one of the private banks it could then purchase kyat from the Central Bank with dollars, he said.

However, several businesspeople told The Myanmar Times the float was unlikely to affect their operations.

Myanmar Shrimp Association chairman U Hnin Oo said the change was a policy decision and had had no positive impact on the industry so far.

“We can’t say whether this exchange rate is okay for the fisheries sector, that’s determined by the market. But exporters’ profit margins are extremely slim at K810-820,” he said.

U Han Tun, vice chairman of the Myanmar Fisheries Federation, said the float had not affected the fisheries industry positively.

“We welcome this floating exchange rate but it actually does nothing to help our industry,” he said. “Fish farmers have been scaling back production because the exchange rate has been too low for too long.”

“The float is good but we need to see an exchange rate of at least K900 to the dollar if the sector is going to be productive again,” he said.

U Han Tun said other factors negatively affecting the industry were electricity blackouts, which also started in early April, and transport restrictions.

U Hnin Oo said he applauded the government’s efforts to stabilise the exchange rate. But he added that the government needed to help small- and medium-sized companies by finding ways to lower operating costs, especially electricity charges.

“High electricity charges are against the government’s reform policy, which is to reduce transaction costs. But the related ministries seem to be pushing up transaction costs instead,” he added.

Other sectors, such as agriculture, are not fairing as badly as fisheries because the slim profit margins earned from exports were offset by the import of cheaper inputs such as fertiliser, he added.

The finance manager of a joint-venture services company said the floating exchange rate had not changed anything at all in her company. However, she said the float would likely force official money changers to hold larger kyat stockpiles, otherwise unhappy customers would turn to the black market.

“The black market is more convenient for us anyway because we can negotiate, which we can’t do at the official money changing counters. We also can’t complain to officials there,” she said.

However, U Khin Maung Htwe, a proprietor of Htwe Oo traditional puppet theatre, said he preferred to use official exchange counters because they gave receipts and had recently been able to supply as much kyat as he needed.

But he said he would prefer a rate of K1000, which better suited his clients.

“We expected the exchange rate would be between K900 and K1000 because K800 is a little difficult for us. For example, entrance to our shows is K10,000 a head and if the rate is K1000 we can collect fees in dollars or kyat at $10 or K10,000 respectively,” he said.

“But when the rate is K800 we have to charge $14, and customers are telling us it’s too expensive,” he said.

Economist and consultant for UNDP Myanmar’s Policy Unit U Khine Tun said the private sector would not feel the effects of the float much because it already used the market rate. However, he said the public sector might face difficulties because the official rate of K6 helped some state-owned companies mask their losses.

And while the exchange rate for dollars is about the same as before April 1, the FEC’s value is down because of rumours that the Central Bank will withdraw the currency in coming months.