Entrepreneurs want central bank to intervene rising Kyat

Reported by Marn Thu Shein + Sithu Aung Translated and Edited by Myint Win Thein + MYA

The price of US dollar dramatically fell by K 30 to below K 700 within two days recently. On 23 August, the US dollar price dropped to K 680 per unit, and the sudden depreciation of US dollar against Kyat currency had a negative impact on export enterprises. As a result exporters were forced to stop accepting new orders from foreign clients and buying goods for export in the domestic market. During the last three months, the price of US dollar dropped by 25 percent against Kyat. Fifteen percent depreciation of US dollar against Kyat was seen within the last two weeks. Although the government is making efforts to adopt an exchange rate in order to solve the problems stemmed from the depreciation of US dollar against the local currency, the process may take some time. Therefore, entrepreneurs are of the view that immediate remedies should be employed to cope with the deepening problems. Buying of US dollar in the local market at a certain rate by the central bank, lowering bank interest rates or permitting to import currently restricted goods are possible effective measures to curb the problem. If necessary all these measures are to be taken at the same time. “The dollar price has dipped below K 700 per unit. Exporters are forced to refuse new orders. They will also reduce buying goods for exports. Some of them have started reducing their purchases in the country. It will take at least three to six months to amend the financial and monetary policies of the country. If the dollar price continues to fall another one month at this rate, entrepreneurs will have to stop their business operations. So I think immediate responses for short term remedies are required. Some analysts and entrepreneurs suggest that the central bank should buttress the local businesses by buying US dollar in the local market at a certain rate. Another method is to increase the demand for dollar by allowing to import some currently restricted goods like vehicles,” said an entrepreneur who participated in the national workshop. “A soft crab breeder who had raised 1.2 million previously now keep only 0 .6 million now. He has to reduce the number of worker on his farm from 600 previously to only 450. If the dollar price continues to fall, he is going to keep only 0.4 million crab. This is the immediate consequences of the depreciation of US dollar,” said an official from Myanmar Fisheries Federation. “The dollar price has fallen from K 725-730 on 19 August to K 685 on 22 August. I am now refusing to accept new orders from foreign clients. I will deliver goods for the existing orders. If the dollar price does not rise within next two weeks or one month, I will have to reduce the production,” said an export entrepreneur in Dagon Seikkan Industrial Zone. “Exporters always try to gain profits from their businesses. If their transactions are not profitable, they stop their operations. This is now directly affecting fish farmers like us. We cannot repay loans that we have borrowed from others. We failed to keep our promise to repay the loans. Soft crab breeders have to reduce the number of workers in their farms. These are the current impact of the prolong depreciation of the dollar. Falling US dollar prices have an impact on exporters as well as farmers,” said vice chairman U Win Kyaing of Myanmar Fishery Federation. “Today, some organizations have urgently submitted papers on the impact of the depreciation of US dollar against the local currency. The focus of their papers is to bail out through subsidies that will have immediate effects on the situation while making efforts for exchange rate reforms,” said a person from an industrial organization. “Falling US dollar prices can only be effectively curbed by subsidies from the central bank and increasing the demand for US dollar by permitting to import some currently restricted goods. If traffic congestion is a problem, unlicensed cars in the country can be fined in US dollar as well. This will increase the demand for US dollar in the local market. New cars should also be allowed to import. The burden of transportation charges for the public will be reduced,” said an official from an economic organization who took part in the meeting between the president and business entrepreneurs held in Nay Pyi Taw. “A team from the IMF will arrive here in October. It will take at least six months to reform the monetary policy of the country. However, the market has already been badly affected by the depreciation of US dollar. So a short term remedy is advisable. Either the central bank buys US dollar in the local market at a certain rate or the demand for US is increased. The market has already proved whether businesses are functional or otherwise at the US$ price of K 690 per unit. It is also a viable option to permit the import of restricted goods like vehicles as this will be beneficial for the public,” said an advisor to an economic organization. Retired Rector U Maw Than said, “US dollar prices are falling in the international market. This is also true for the domestic market. The supply is greater than the demand. As a result the local currency has risen. It seems like that the local currency is scarce. Not only the US dollar but also other currencies like Yuan, Baht, Singapore dollar and Malay Ringgit are also falling. As a result, exporters, export related businesses and hard currency earners are hurt. This also has an impact on the entire business community. There are many opinions about the exchange rate. And they seem to have an effect on the market. We are now in a transition. So we still need to wait and see. In other countries, governments intervened into the market in financial crises to reduce the consequences. Similarly, the government will have to intervene with the market here.” Professor Daw Yi Yi Myint said, “At present, businesses are in a crisis. The government is doing its best. People in the market, entrepreneurs and the government are grappling with the problems. They are not sure where to start to solve the problems. Most countries are affected by the depreciation of US dollar. Some entrepreneurs suggest that the government should buy the US dollar at a certain rate. If the government buys US dollar in the local market, its foreign reserves will accumulate in the hand of the government. When US dollar prices rise again later, the government can control the price by using the reserves. It is likely that the government will get in the way with the market. The government is trying to solve the problems but it cannot still find out the ways and means to solve the problems. One of the causes for the current depreciation of US dollar against the local currency is due to rumors. The price of dollar should be at a level for exporters to be functional.” Professor Daw Hla Myint said, “To promote trade, exchange rate should be stable. Fluctuation of exchange rate is not profitable. Now we have three kinds of exchange rates such as the official exchange rate, the export credit rate and the market rate. In the past, governments adopted a fixed exchange rate. However, the difference between their adopted exchange rate and the market rate was not much. So, the exchange rate was stable. For example, fixed exchange rate was adopted during the parliamentary democracy period in the past.. However, the government had to struggle hard to strike the balance between the supply and demand of the hard currency. Otherwise, there would have been a market rate in the black market. The fixed exchange rate was adopted again during the period of the BSPP. When there was gap between the fixed rate and the market rate, a black market of the hard currency emerged. What I mean here is that as long as there is a wide gap between the fixed rate and the market rate, financial market and money flow will not be normal. Businesses will face difficulties. At present, local businesses are facing difficulties.” An economist pointed out that regulating the money circulation by lowering bank interest rate will also have a positive effect on long-term downtrend of US dollar. “Now, Kyat is rising. On the other hand, it is impossible to reduce the costs of manufacturing and inputs. Interest rate is 17 percent per year. Previously, it was profitable to take out loans just for the inflation. Now money is shrinking. Kyat is rising. Money circulation is irregular. Most of the entrepreneurs are struggling to keep their businesses running. Rising Kyat has already affected the entire economy. If one can keep the business running, it is not profitable at present. The current situation is unpredictable. Only when more Kyat is injected into the market, the situation will improve,” an economist said. “The local currency is not really rising because we cannot get much in exchange for it. Gold prices rose sharply in the international market, but local gold prices did not rise proportionately. As a result, local gold was purchased by foreign buyers. The biggest gold buyers in the world are China and India. Therefore, whenever gold prices climb up, the local currency rises. If the local gold price rises on a par with the international market, the local currency will not rise. However, you do not need to worry about this. The political situation of the country is on the positive side. Economic prospects will be brighter. As soon as the political prisoners are released, proper investment from international community and financial reforms will follow. Myanmar has a tradition to enjoy economic prosperity when the open season comes. When crops are harvested, financial problems will cease to exist. The exchange rate will be profitable for businesses. So farmers are no longer affected by the economic problems. However, the government will have to render assistance to the businesses hurt by the current problems. If the government lowers the bank interest rate by 3 to 4 percent and extends loans, all the money in banks will flow into the market and the US dollar will rise against the local currency. The financial problems will disappear,” said Chairman and CEO Dr. Than Htut Aung of the Eleven Media Group.