CGI's Maryhrt: Myanmar Floating It's Currency April 1st 2012

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CGI's Maryhrt: Myanmar Floating It's Currency April 1st 2012

Posted By: Susoni [Send E-Mail]
Date: Friday, 30-Mar-2012 20:06:52

Maryhrt Myanmar Will Unleash Its Currency http://online.wsj.com/article/SB10001424052702303404704577308804188361084.html Myanmar said it would float its currency, effective April 1, enacting a long-sought policy reform that is expected to make the resource-rich Southeast Asian country more inviting to foreign investors following decades of pariah-nation status. The move is one of the biggest reforms to date as Myanmar 's government seeks to re-engage with the outside world and get out from under the weight of tough Western sanctions. The country's current foreign-exchange system, which involves a fixed "official" exchange rate that's more than 100 times as valuable against the dollar as the country's black-market rate, is so confusing that many foreign companies have refused to re-enter the country even if Western leaders ease sanctions against Myanmar as expected later this year. The idea is to unify the country's multiple exchange rates so that businesses and the government can more easily handle accounting and convert money. The step faces several pitfalls, though, and could have unintended consequences, including an unstable exchange rate or a strengthening currency that hobbles the country's nascent export sector at a time when the country is just re-entering the global economy. It could also prove too difficult to implement in a country that has little technical expertise in handling complex financial reforms. Myanmar officials wanted to move more quickly on the currency than International Monetary Fund advisers suggested, according to people familiar with the process. Myanmar has brought in experts from the Malaysian and Thailand central banks to help with the transition. IMF officials familiar with the Myanmar situation couldn't be reached. Details of the change—announced Wednesday in the official New Light of Myanmar newspaper—remain unclear, including the exact value of the Myanmar kyat when it is floated Sunday, which is also the day of a key parliamentary by-election contested by famed dissident Aung San Suu Kyi. It is also unclear when, or if, foreigners will be able to trade the currency in significant sums. Bankers and officials familiar with the reform have said in recent weeks that the kyat will likely be set between 800 kyat and 820 kyat to the dollar, which is close to the prevailing unofficial street rate. The government announcement said simply that the kyat will "from now on be determined by supply and demand" via a "managed" float, and that the government would "gradually eliminate restrictions on current international payments and transfers abroad." "I think it will be difficult for them to control the currency," said Anthony Nafte, a senior economist at CLSA Asia-Pacific Mark ets in Hong Kong . Among the risks, he said, was that the kyat would keep increasing in value as more foreign dollars rush in to take advantage of business opportunities there, hurting exports.