May 27, 2011

Currency exchange and export credits

After a short-lived upswing in early May, the exchange value of US dollars and export credits continued their slow declines last week, industry watchers said.

On May 18, US$1 was exchanging in Yangon for between K827-832, down from about K845 in early May – a relatively small fall of 1.7 percent. However, the value of export credits earned through the export of commodities and required to import goods, fell to K890-895, a 3.2pc fall from the K920 they were worth in early May.

Dr Maung Aung, an economist with the Union of Myanmar Federation of Chambers of Commerce and Industry’s Economic Studies and Research Institute, explained why the value of export credits temporarily spiked.

He said the jump, which saw export credits hit a high of about K920 on May 4, was the result of the announcement on April 9 by the new Minister for Commerce, U Win Myint, that the lucrative palm oil import market would be opened up beyond the small cartel of influential companies that previously controlled it.

However, he said that since news spread that only 10 large companies had acquired import licences, demand for export credits had quickly abated. Dr Maung Aung added that the export and import industries are closely related.

A black market currency changer at Kyauktada Market warned that the value of foreign currencies and export credits was likely to continue falling.

“The value of export credits rose briefly earlier this month but it has quickly fallen back and I think that will continue until after the next gem auction, which will dump millions of euros into the market,” he said. He added that the euros were likely to be sold to buy dollars, which would then be traded for kyat.

A fisheries exporter said export credits should always be worth about 10pc more than dollars because they have already had taxes levied on them, either when they were earned via export or when they were purchased from the Central Bank of Myanmar in Foreign Exchange Certificates.

In early 2010, the Central Bank of Myanmar started allowing importers to buy export credits using Foreign Exchange Certificates, deducting 10pc from the total exchange as a tax, which should be reflected in the reduced value of the dollar versus export credits.

The difference in value between export credits and the dollar price is now about 7pc, the fisheries exporter said.

“But generally speaking, it’s very hard to know what will happen with the currency market because government policy decisions can have big impacts.”

Source: Myanmar Times