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Myanmar’s Economic Crisis Likely to Deepen as Latest Dollar Rule Kicks In

Myanmar’s Economic Crisis Likely to Deepen as Latest Dollar Rule Kicks In

The military regime has once again changed export rules to raise US dollars, but business people say its erratic and misguided policies will only deepen Myanmar’s economic crisis.

The junta-controlled Central Bank of Myanmar has once again changed a rule on foreign currency earned by exporters, raising the amount they have to sell to authorized dealers and setting the rate the dealers will pay for US dollars.

Exporters of rice, broken rice, corn, and beans and pulses have had to sell 70 percent of their US dollar earnings to authorized forex dealers at the rate of 3,088 to 3,155 kyats per US dollar, following an announcement by the central bank in the last week of February.

In December they were allowed to sell their US dollar earnings to fuel and cooking oil importers at the market rate.

The amount of dollar earnings they have been required to sell has changed several times since the coup.

On Aug. 5, 2022, exporters were required to convert 65 percent of their export earnings to kyat at the official rate of 2,100 kyats per dollar set by the central bank. Almost one year later, on July 13, 2023, the amount was reduced to 50 percent.

Since the middle of last year, the market rate has been over 3,000 kyats per dollar.

In December, the central bank further relaxed its forex conversion rules, announcing that traders only needed to convert 35 percent of their foreign currency earnings at the official rate and could exchange the remaining 65 percent at the market rate.

Additionally, the central bank said at the time that it would allow authorized banks to set their own rates for converting foreign currency.

The central bank also said in December that exporters could sell 70 percent of US dollar earnings from exporting rice, broken rice, corn and beans and pulses to importers of fuel and cooking oil at the market rate.

That all changed with the notice from the Central Bank of Myanmar (CBM) late last month. Exporters are now required to sell their foreign currency to authorized dealers.

“Traders have been hit by frequent policy changes. We are seeing huge losses,” a trader said.

The regime has imposed import-export restrictions and a fixed exchange rate in a bid to control foreign currency flows after the country’s currency collapsed against the US dollar following the 2021 coup.

The regime has also limited imports of fuel, cooking oil, pharmaceuticals and “luxury” items in a bid to prevent US dollars from flowing out of the country. It has also imposed restrictions on export and import licenses.

The collapse in exports and foreign direct investment coupled with a lack of international loans has choked the flow of US dollars into Myanmar, which forced the regime to sell the country’s foreign currency reserves. The junta imported at least US$1 billion worth of weapons and related materials from Russia, China and other countries in less than two years after the coup, according to a UN report in 2023.

The junta’s Commerce Ministry summoned business people to Naypyitaw on Feb. 22 to explain its latest policy change and followed up with a Zoom meeting on Feb. 27.

Executives asked the ministry to delay the new currency-conversion rule until the end of the fiscal year on March 31, saying it will damage agreements already in effect if it came into immediate effect.

Three different exchange rates have been issued by the CBM regarding [currency] conversion. So, including the market rate, there are four different rates. We can’t sell 70 percent of export earnings to fuel importers now. And we can only sell to authorized dealers, but again not at the market rate. And authorized dealers will sell to fuel importers, particularly for the import of diesel,” said one executive.

A border trader told The Irrawaddy: “Importers will be hit by the new rule. Their [existing] agreements with business partners will be negatively affected by the new rule, and they will not be able to make a profit.”

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