YANGON (Reuters) - Myanmar’s government plans to hold trial foreign exchange auctions in March before floating the currency from April 1, the start of the 2012/13 fiscal year, a central bank official said on Monday.
The float would mark the most substantial economic reform yet by Myanmar’s new government and coincides with political reforms that are ending half a century of isolation in the former British colony also known as Burma.
“Arrangements are under way to float the kyat against the U.S. dollar effective April 1 through a sealed auction system,” the official told Reuters, declining to be named.
“It’s a managed float system. Every day the central bank will invite sealed bids for a certain amount of U.S. dollars from 11 private banks, which have been granted Authorized Dealer Licenses,” the official said.
The trials had been suggested by the International Monetary Fund, which is advising Myanmar’s one-year-old civilian government on unifying its various exchange rates, the official added.
A central bank presentation seen by Reuters on March 6 had outlined the plans for a managed float in the fiscal year starting in April, but it stopped short of identifying when the kyat would be floated.
The official said the government had calculated the national budget for the year from April 1 using an exchange rate of 800 kyat per dollar, which is around where the black market rate has been in recent weeks.
Since 1977, the kyat has been pegged to the International Monetary Fund’s (IMF) special drawing rights, with one dollar equaling 6.4 kyat.
Last March the former military junta made way for a nominally civilian government that embarked on a major reform drive, freeing hundreds of political prisoners, loosening media controls and engaging with Nobel Peace Prize laureate Aung San Suu Kyi, leader of Myanmar’s pro-democracy movement.
The kyat’s unofficial rate, used in most transactions, has jumped from more than 1,000 per dollar in 2009 as foreign money has flowed into the timber, energy and gem sectors. That has hurt a swathe of Burmese, from farmers and manufacturers to traders and employees of foreign firms paid in dollars.
The official rate is used for government revenue and for imports by some state-owned enterprises. As a result, state revenue is grossly underestimated and some critics say it is likely vast sums of that money have been kept off the books and quietly smuggled out of the country into offshore bank accounts held by cronies of the former junta.
Currency reform is a delicate task whose prospect unsettles many ordinary Burmese. In 1987, the sudden cancellation of certain banknote denominations by late dictator General Ne Win wiped out many people’s savings and helped trigger a pro-democracy uprising the following year that the military crushed by killing and wounding thousands.
A team of IMF advisers came in November to look at reforming the currency and unifying the rates. Myanmar is one of only 17 countries that still have dual exchange rates and even the IMF has only three experts on how to unify them.
As big as France and Britain combined, the resource-rich country sits strategically between India, China and Southeast Asia with ports on the Indian Ocean and Andaman Sea, all of which have made it a coveted energy-security asset for Beijing’s western provinces.
Bordering five countries, Myanmar offers multiple avenues of Asian engagement as U.S. President Barack Obama shifts focus from the wars in Iraq and Afghanistan towards economic growth and security in the Asia-Pacific region.
But U.S. and European sanctions, woeful infrastructure, weak investment laws, a crippled banking system and a shortage of skilled Burmese have taken a toll on the country.
Some expect sanctions to begin to be lifted if by-elections on April 1, in which Suu Kyi will run for parliament, are free and fair. A November 2010 general election was widely criticised as a sham.
Reporting by Aung Hla Tun; Editing by Alan Raybould and Jason Szep