Myanmar currency drops to low amid post-coup unrest – The Diplomat
The value of Myanmar’s kyat currency has fallen by nearly half since the February military coup, providing the latest evidence of the scale of the deepening economic crisis in the country. Free Asia Radio reported on September 17 the black market value of the kyat fell to an all-time low of 2,200 per US dollar, from 1,330 on February 1, when the military overthrew Myanmar’s democratically elected government.
The depreciation is the direct result of the political unrest sparked by the coup, which was followed by mass protests, work stoppages for civil disobedience, violent repression by the military junta and disruption of essential services such as telecommunications, banking, health and education.
It hit an economy that was already stumbling due to the impact of lockdowns imposed to stop the COVID-19 pandemic, as well as the near total collapse of some sectors, like tourism, which depended on a flow of visitors. international.
The direct cause of the slip, Nikkei Asia reported, was the decision of the Central Bank of Myanmar (CBM) to abolish a rule that kept the kyat dollar exchange rate below 0.8% of the benchmark rate set by the CBM. In early August, the military administration ordered the CBM to reintroduce the fixed parity for the first time in three years, which the bank said was necessary to “keep the exchange rate stable and keep commodity prices from falling. ‘to augment”. But the bank then reversed course, repealing the regulation on September 10 without explanation. The result was a sudden divergence between the black market rate and the central bank benchmark rate.
The devaluation took place despite efforts by the CBM to inject US dollars into the domestic market to support the kyat. According to a report in Myanmar Now, CBM has released $ 120 million in the market since the coup, including one number of sales in July and August, but that these amounts were insufficient to meet the growing demand for global reserve currency.
In a broader sense, the fall in the value of the kyat reflects widespread pessimism about the future of Myanmar’s economy and an associated massive flight to the security of the US dollar. At the same time, the amount of U.S. currency circulating in Myanmar has stagnated since the coup due to a collapse in exports and foreign direct investment, while U.S. sanctions have choked the amount of U.S. dollars entering the country.
The fall in the value of the kyat is only one indication of the drastic economic contraction that resulted from the combined impacts of the coup and the COVID-19 pandemic. In April, Fitch Solutions, a unit of Fitch Group, predicted that the economy would contract an astonishing 20%, compared to a 2% growth forecast before the coup.
The World Bank made a similar projection in its Myanmar Economic Monitor, published at the end of July, which suggested Myanmar’s economy was set to contract by 18% between October 2020 and September 2021. He estimated that one million jobs could be lost and the number of people living in poverty is expected to more than double by ‘here the start of next year compared to 2019 levels.
The fall in the value of the Burmese currency is expected to drive up the costs of imported goods, especially gasoline, contributing to the widespread increase in the cost of living. In addition to the weakening of the local currency, the World Bank’s Myanmar Economic Monitor suggested that inflation would also increase significantly in the coming months, further increasing the pressure on Burmese households and exacerbating the political challenges facing the junta. is facing.
The World Bank has also highlighted another disturbing trend, which is that as Myanmar’s ‘legitimate’ economy implodes, the military will simply turn to income streams based on destructive illicit or environmental and social activities such as as jade and wood mining and drug trafficking. “There are already early signs of increased reliance on extractive and / or illicit activities,” the World Bank said, “and a return to the introverted policies that have characterized much of history. from Myanmar.
An earlier version of this article described Fitch Solutions as “A subsidiary of the global rating agency Fitch Ratings”. In fact, Fitch Solutions and Fitch Ratings are both independent companies within the Fitch group.