Burma’s erratic economy

Lately, since last year or earlier, Myanmar’s Kyat has been rising up against dollar and other currencies. It rose up so much to a degree where we see about 20% increase alone in last year. While its currency value is rising, the prices in the country still remain higher than ever, with huge inflation.

As a Burmese expatriate working abroad and sending money back home from time to time, it makes me wonder why it is going on like this, not about the rise of Kyat but about why prices are not falling back home. Typically, when a country’s currency is rising up the prices should become lower. In other word, inflation should be minimal or even leading to deflation. But that is not what is happening in Burma today.

Why Kayt is rising against dollar is understandable. Dollar itself is in downfall due to slow economic growth and debt problems in United States. On top of that, Burma received a substantial amount of foreign currencies from increasing foreign direct investment (FDI) and selling off natural gas and other natural resources to neighboring countries over the last few years.  Remittance by Burmese citizens abroad back to home might also contribute to the flow of dollars to the country.

However, the rise of Kyat does not bring yet any perceptible economic benefits to the country’s fellows, such as being able to consume more products and services at relatively cheaper prices or seeing more jobs available from investments made with currency surplus. The main reason for current situation, I believe, is due to government’s still tight control on export and import industry. Usually under a fairly liberal economic policy, when its currency rises up the country will see increase in imports. When currency is weaker, there will be rise in exports and so on. But that is not happening now in Myanmar.

Government puts quota and exclusive permits only to their hand-picked businesses for importing products from abroad. Thus, Burmese people cannot consume enough foreign products as much as they should be able to with their stronger Kyat currency. If import rules are relaxed, there will be increase in flow of products and services from abroad and allowing people to consumer more than before. Such increase in imports will drive the demand for dollars and thus eventually can balance up currency exchange rate which the country’s exporters want to see again. When your currency is stronger, it is also a good opportunity for the country to buy foreign machinery and other utilities for investments in infrastructure developments and productions. In other word, encouraging more imports will not hurt the country’s economy but will benefit both the consumers and eventually the exporters.

However, with the history of Burmese generals’ mercantilist view on economy tied with xenophobia, I find it hard to hope the current regime starts relaxing trade policy anytime sooner.