Following Burma’s Money

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Following Burma’s Money

Burma will introduce a managed floating exchange on Sunday. It’s a masterful political move by Thein Sein.

Most Burma watchers will rightly have their eyes fixed on this Sunday’s much-anticipated by-elections and the prospect of opposition leader Aung San Suu Kyi entering parliament. However, others will be crunching the numbers after the government announced significant currency reforms to come into force the same day.

A managed floating exchange rate will begin on Sunday, April 1, for the kyat, allowing market forces to value the currency with input from the Central Bank of Myanmar (CBM). The decision wasn’t unexpected. Importantly, this will end decades of dual currency valuations by the central government and the black market that enable corruption and money laundering to flourish through semi-official and unofficial rates.

Officially, the kyat is pegged at around six kyat to the dollar, while on the black market one dollar can fetch 800 kyat. Deals are normally done at the official rate, but can be worth much more after the currencies are bought and sold on the informal market.

A fresh exchange rate will be published by the CBM each morning and Reuters has previously reported that the government intends to use an exchange rate of 800 kyat to the dollar for its 2012/13 budget. That fiscal year also begins on April 1.

The currency could be expected to fluctuate two to three percent on either side of a reference rate.

The float will go a long way in convincing international financial markets, Western governments and business that the Burmese government is serious about reform, modernizing its economy and creating an atmosphere conducive for foreign investment.

Launching the float on the same day as the 45 by-elections, heralding Suu Kyi and her National League for Democracy (NLD) into the parliamentary ranks, was also a masterful stroke.

There’s little doubt that Suu Kyi will win her bid for parliament. But regardless of the outcome, her NLD will be a small minority in the 650-seat legislature.

Her victory will be largely symbolic, and in real politick terms seen more as legitimizing the rights of the current government under President Thein Sein than as an assertion of her right to be in government, which was crudely stolen from her after the NLD won the 1990 poll.

If Western governments declare the by-elections – three have been cancelled for security reasons – free and fair, then an easing of crippling economic sanctions that have been in place for years should follow.

By announcing the float, Thei Sein has sent a timely reminder to his own electorate and the international community that he is in control of the purse strings, he is responsible for the much welcomed political and economic reforms and most importantly that this will remain the case at least until 2015, when the next general elections are due.