Abstract
Myanmar’s unofficial forex market stemmed from piecemeal reforms during the initial stage of its transition from a planned to a market-based economy. While partially liberalizing international trade by the private sector, the government left intact the overvalued official exchange rate and the central administration of foreign exchange allocation in the state sector. All foreign currency deals made by the private sector took place outside the official system at unofficial exchange rates. As a result, the foreign exchange market was segmented into two parts—the private sector with unofficial market rates and the state sector with the official exchange rate. After a failed attempt to devalue the official rate using foreign exchange certificates in the 1990s, the authorities did not recognize the free market exchange rate, which spurred the unregulated development of the unofficial forex market.
This chapter draws on Kubo (2013) with the permission of the publisher, Taylor & Francis Ltd, http://www.tandfonline.com.
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- 1.
The third area is foreign exchange dealer licensing.
- 2.
The deposits of the entire banking sector amounted to merely 11.3% of GDP as of 1988, although the MEB loans to SEEs reached 61%.
- 3.
As the Burma Socialist Planning Party was a disguised military regime led by the dictator Ne Win, the coup d’état was a turnover of government within the military regime.
- 4.
While the junta held a general election in May 1990 aiming for a smooth transfer of power, it did not recognize the election result. The junta changed its name to the State Peace and Development Council in November 1997.
- 5.
- 6.
Besides the MFTB, the Myanma Investment and Commercial Bank (MICB) was established in 1990 as a state bank whose main scope of operations included international banking services for the private sector.
- 7.
This contraction of capital expenditures was partly due to the valuation of the expenditures in foreign currency, as they were converted into kyats at the official exchange rate while inflation continued.
- 8.
One of the trade promotion policies was the “import first” scheme. This scheme included the following steps. First, private importers were permitted to import goods on suppliers’ credits. After selling the imported goods in the domestic market and raising the kyat revenues, the importers procured domestic goods for exports. Finally, they obtained export revenues from which they made repayments to the suppliers’ credits. By 1997, this scheme was abolished and replaced with the so-called “export-first” policy.
- 9.
Myanmar’s fiscal year runs from 1st April to 31st March.
- 10.
The amount of compulsory exchange was later reduced to USD 200 and was abolished in August 2003 (Hori and Wong 2008).
- 11.
The number of FECs issued reached USD 52 million in March 1995 and USD 409.6 million in March 1997. More than 99% of FECs issued were held at banks as of March 1997 (Policy Research Institute 1999).
- 12.
In Myanmar, many business owners registered multiple companies in the same line of business. For example, a business owner might possess two or three export companies that exported the same varieties of commodities. Such a practice might have been related to the cap on uses of FECs per bank account.
- 13.
In March 2013, the Central Bank announced the abolition of FECs.
- 14.
Other controls removed included the abolition of conditionality for imports of non-priority and priority items in the mid-2000s, which is discussed in Chap. 3.
- 15.
We will discuss the details of such controls in Chap. 3.
- 16.
To be precise, an extra 2% income tax was added to the 5% commercial tax in December 1997; the commercial tax was raised to 8% in January 1998, leading to an effective 10% export tax.
- 17.
This was applicable to migrant workers recruited by Myanmar government agencies. As is discussed in Chap. 3, other migrant workers used informal money transfer channels to avoid the tax.
- 18.
In August 2000, a surrender requirement was set temporarily on 40% of export revenues of prawn exporters at the overvalued FEC exchange counter rate. Similarly, in August 2001, garment exporters were required to convert a part of export revenues at the overvalued FEC exchange counter rate for the amount equivalent to the labor costs of their factories.
- 19.
Ministry of Finance and Revenue Notification No. 97/96.
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Kubo, K. (2018). Piecemeal Reforms in the 1990s and Forex Market Segmentation between State and Private Sectors. In: Myanmar’s Foreign Exchange Market. Springer, Singapore. https://doi.org/10.1007/978-981-13-1789-7_2
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