Tue 31 May 2011
Filed under: Business / Trade
Rangoon — Two months after Burma’s new government led by President Thein Sein was sworn in to office, the value of US dollars and gold dropped in an unprecedented manner, with the dollar reaching a historic low, according to business sources.Some foreign currency dealers in Rangoon said the extensive influx of US dollars from the illegal drug trade at the Sino-Burmese border and the continuous decline in demand on the domestic US dollar market have lowered the value of the dollar. The dealers said that although the value of US dollars has decreased in world markets, the domestic currency market is not directly related to the international market.
“The rate for US dollars in Rangoon lies in the current exchange rate of yuan-dollar-kyat at the Sino-Burmese border. It is not determined in Rangoon. Now, the supplies of US dollars at the border have significantly increased. There are many reasons for the increase. There has always been a heroin and amphetamine market at the border involving US dollars. If dollar supplies there increase in value then the domestic market will decrease,” said a businessman in Rangoon who has been involved in the gold and dollar trade in connection with the China border.
A number of businessmen in Rangoon said they believe that the increase in US dollar supplies at the Burma-China border is related to tensions between the government troops and ethnic armed groups, which could lead to clashes at any time.
“There is news of a reunion of two ethnic Shan armed groups and of tensions between the Kachin and Wa armed groups and the government. Concerns about whether clashes will break out have forced dollar holders to sell off what they have in the market. Everybody predicts that the dollar value will decrease more,” said a gold trader from the Myanmar Gold Entrepreneurs Association.
The value of the US dollar has reportedly sunk as low as 789 kyat per one dollar on Tuesday in Rangoon’s street exchange market.
One of the reasons for less demand in US dollars is reported to have been the formation of a joint company for importing palm oil that was permitted by the government.
“Since the government only allows any one person to import 3,000 tons of palm oil, those who want to do business in this area joined hands and formed a company. A joint company comprises at least 10 businessmen and each has to invest a minimum of 70 million kyat [US $ 85,366]. Some businessmen who can afford to do so invest about 100 million kyat [US $ 121,951]. The investment in this business caused a significant decrease in dollar buying,” said a businessman from The Union of Myanmar Federation of Chambers of Commerce and Industry.
On gold markets in Rangoon and Mandalay, the demand for gold has reportedly dropped in an unprecedented manner and daily sales continue to be quiet.
“The gold market is very quiet. There are people who want to sell, but only a few who want to buy. It is not in good in shape at all,” said a gold trader.
Currently, one kyat-thar [0.016 kg] of solid gold is reported to cost 667,000 kyat [US $ 813].
Business sources said although the new government has granted import and export licenses quickly, traders still have to go through many unnecessary steps and the amount of imports and exports have yet to increase under the new trade policy.
“Imports and exports haven’t increased very much following the dissolution of the Trade Council. Only the license application process has become quicker. Other steps remain stagnant. Whoever wants to apply for an import/export license has to go to Naypyidaw. If they want to export rice they need recommendations from the Myanmar Rice Industry Association. They need every document required in order to apply for a permit. If something goes wrong they have to start over and go through many steps,” said a Rangoon-based businessman.
An economist inside Burma said that things have not improved in Burma and a down-turn is indicated.
“The prosperity of a country cannot only be measured by its exports, but also by imports. If the economy improves, the import of capital and other goods will also increase. But here in Burma, the import of consumption goods—such as gasoline, diesel and palm oil—is more than that of capital goods. The latter is imported only for the government or its projects. Private businessmen have imported only a small amount of capital goods,” said the economist.
He said that in exporting rice, various types of beans and fishery products, Burma needs to come up with plans to increase the export of high-valued products and the government should relax regulations in the license application process.
According to the Burmese government’s official statistics, foreign investment in the country exceeds US $36 billion and China has invested the most in the energy and natural gas sectors.