Myanmar strives for monetary reform

Myanmar is said to introduce a unified and float foreign exchange rate beginning April 1, the start of the fiscal year 2012-13, aimed at totally eliminating the informal currency market as part of its bid for the monetary reform. Disclosed by sources with the Central Bank of Myanmar, the foreign exchange rate of U.S. dollar against Myanmar Kyat will be officially designated as 1 to 800 to end the decades-long complex dual exchange rate -- the official rate and the market rate. Official and formal announcement in this regard is yet to be expected from the finance authorities. The government budget will be calculated on the basis of the new unified market exchange rate of 800 Kyats per dollar instead of 6 Kyats per dollar previously. Amendment of rules and regulations related to the unified exchange rate application is expected to follow after thorough and final consultations with the International Monetary Fund (IMF). The measure is also said to contribute to further elimination of different exchange rate of Myanmar's Foreign Exchange Certificate (FEC) and official export earning, leading to the final cancellation of use of FEC. Myanmar's foreign exchange rate against the U.S. dollar was traditionally designated at around 6 Kyats per U.S. dollar since 1975, while the market exchange rate fluctuated between 780 and 1, 000 Kyats per dollar for the past several years, standing for most of the time around over 800 Kyats per dollar for the past one year. At the request of the Central Bank of Myanmar, a representative team from the International Monetary Fund (IMF) Article VIII made two productive-engagement visits to Myanmar in November last year and January this year, discussing its plan to unify the exchange rate regime and lift restrictions on current international payment and transfer. Myanmar invited the IMF team for the visit to coordinate on adjusting its foreign exchange rate in a bid to facilitate the country's economic and financial links with the rest of the world, and development and stabilization of the domestic foreign exchange trading market. The team from the Monetary an Capital Markets, Legal, and Asia and Pacific Department said it will continue its work from the IMF Headquarters in cooperation with the Myanmar authorities as they formulate their policies towards accepting the obligations of Article VIII. "IMF members, accepting the obligations of Article VIII, undertake to refrain from imposing exchange restrictions on the making of payment and transfer for current international transaction or from engaging in discriminatory currency arrangements or multiple currency practices without IMF approval," a statement of the IMF team also said. The team met with government officials, banks, and public and private sector representatives to conduct an initial diagnostic assessment of the legal framework and actual market practices governing the exchange rate system of Myanmar, particularly the existing exchange restriction and multiple currency practices. In its last Myanmar visit in January this year, the IMF stressed the priority to reforming the country's complex exchange rate system to eliminate constraints on economic growth, pointing out that the unification of the exchange rate would require moving away from the "export first" policy. The IMF proposed immediate removal of certain exchange restrictions in light of the appreciation pressure by allowing the use of all foreign currency bank account balance for import, easing import licensing requirements and access to the newly- established foreign exchange retail counters. "A successful exchange rate unification would require improvement in all areas of macro-economic management," the IMF emphasized, calling for starting with establishing a monetary policy framework to focus on price stability. A prudent fiscal policy is essential to maintain marcro- economic stability, especially during the exchange rate unification process, the IMF further stressed. Myanmar has been a member of the IMF and World Bank since 1952 but they suspended providing financial aid to Myanmar since 1987. Meanwhile, to eliminate illegal foreign exchange trading, all 17 private banks have been granted as authorized dealers to open official money exchangers since Oct. 1 last year to enable official trade of three kinds of foreign currencies with Myanmar Kyats at a rate designated in line with daily exchange rate transacting in the international exchange market. These foreign currencies go to the U.S. dollar, Singapore dollar and Euro. The service will facilitate exporters, importers, companies, organizations, hotels, travels and tours companies, airlines and individuals in dealing with their balance of foreign currencies purchasing and selling by account transfer. These counters were set up at banks, airports, hotels, shopping centers and major tourists destinations for the convenience of tourists visiting Myanmar and Myanmar citizens leaving the country. In the latest development, the Myanmar government has eased foreign currency exchange control, allowing exchange of up to 10, 000 U.S. dollars with Myanmar Kyats without any documentation starting Feb. 1 this year. The fresh regulations, aimed at getting rid of black market exchange, apply to both Myanmar citizens and foreigners. Moreover, Myanmar is reintroducing the automatic teller machine (ATM) system in running bank services starting December last year after it was suspended for a decade. The system will be initially applicable with single-bank-use debit card, all-bank-use MPU (Myanmar Payment Union) card and shopping-center-use point-of-sale (POS) card and the application will extend to internationally circulated visa card and smart card. A payment system development committee of the bankers' association is being formed with local and foreign experts and organizations to update the country's payment system.