Crisis imminent

The strong kyat and high food and fuel prices are a major test for Myanmar's four-month-old government. Analysts warn its failure to tackle simple survival issues may anger the public and lead to its downfall. The biggest and bloodiest uprisings against military rule in 1988 and 2007 were sparked by discontent over soaring inflation and fuel prices and former government officials say more of the same could be on the way.

"It is a political time bomb for the government," said a retired senior government official. "It was livelihood issues, not a thirst for democracy that pushed people onto the street before and things couldn't be worse now."

Rich getting richer

Dollars are pouring into Myanmar's fragile and largely opaque economy, with foreign investors keen to tap its vast resources and visiting traders buying up gemstones. But most of that money ends up lining the pockets of cronies of the military dictators who controlled the country for decades.

The government's inaction over the kyat's strength and rising food costs is alarming exporters, farmers and employees earning dollar-pegged salaries. Businesses are closing, salaries are cut and jobs are being lost as production costs rise. Exporters who hoped for better times are hurting badly, with the kyat currently trading at around 785 to the dollar on the black market, which covers nearly all transactions, compared with more than 1,000 a year ago.

Government not declaring crisis

The government has made no public acknowledgement of its currency crisis and its cut in export tax from 10 to 7 percent, effective this month, is a measure seen as too little, too late. "I don't think the government is much interested in the worsening situation with the kyat," said a retired commerce ministry official, who requested anonymity. "They seem complacent and focused on the huge proceeds from gems emporiums and foreign investment."

Private economists point to the dollar's weakness as the main driver of the kyat's appreciation but say many other factors have come into play, including increased inflows from timber and energy exports, mainly to China and Thailand, which is boosting demand for kyat. Gems such as jade, rubies and sapphires worth 5.7 billion US dollars were sold at three emporiums in the past eight months alone.

Dollar inflows also increased with the repatriation of funds held offshore by wealthy Burmese to buy up state assets and property in a mass pre-election sell-off last year.

Lack of reliable data

Sean Turnell, an expert on Myanmar's economy at Australia's Macquarie University, said another major contributor to the kyat's strength was sales of illicit opium and methamphetamine, of which Myanmar is one of the world's biggest producers.

The lack of reliable data or transparency in Myanmar's economy and banking system allows Burmese tycoons, many of whom are targeted by Western sanctions due to their alliances with former junta leaders, to continue to boost their wealth. Economists see no signs that policy makers with a history of fiscal mismanagement will take any action to intervene in the currency.

Reuters
Editor: Sarah Berning