Burmese currency plunges spiral upw

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Subject: Burmese currency plunges spiral upward

Burmese currency plunges spiral upward
07:44 am July 09, 1997
By Aung Hla Tun 
RANGOON, July 9 (Reuter) - The Burmese kyat has plunged against 
dollar-denominated foreign exchange certificates (FECs), forcing prices of 
imported goods to rise sharply, currency dealers and analysts said on 
Wednesday.
They said the kyat has fallen nearly 14 percent over the past 10 days against 
the FEC, which is worth one U.S. dollar. On Wednesday it was trading at around 
210-211 per FEC compared to 185 in the last week of June. 
Some analysts said the kyat could fall to as low as 300 per FEC by the end of 
August. In the official exchange market, which is rarely used, the kyat was 
quoted unmoved at six to the dollar. 
The FEC was introduced in February, 1993 so that foreign tourists would not 
have to buy the currency at its overvalued official rate. 
When it was created it could only be exchanged for dollars, but in December 
1995 the government said it could also be swapped for kyat. 
The sharp drop in the kyat has sent prices soaring, analysts said. One 
diplomat put the annual rate of inflation at around 40 percent and said prices 
would continue to rise. 
"The galloping rate of the FEC (against the kyat) has affected the prices of 
all imported goods and has indirectly spurred inflation which has been out of 
control for a long time," one local analyst said. 
"Inflation is around 40 percent, at least. Now the kyat is falling so heavily, 
oil prices will rise and prices of everything else will go up," the diplomat 
said. 
Shop owners said the changing value of the kyat against the FEC meant they had 
to alter prices continuously. 
"In the past, we had to change price tags once every four or five months, but 
now we have to do it almost every week," Hla Maung, owner of a small store, 
told Reuters. 
"For example, the price of a can of Labatt's Ice Beer is now 120 kyats, 
up from 100 two weeks ago and 90 kyats about two months ago." 
Burma's military government created the FEC after it seized power in 1988 as 
part of efforts to entice more foreign investment into the economy, which had 
shrivelled after a quarter-century of socialist policy. 
The government desperately needs foreign currency to help boost its depleted 
reserves. 
Burma has received virtually no foreign aid since it took power due to 
international condemnation of the regime's human rights record. 
Since it became legal to exchange FECs for kyat, a growing number of ordinary 
Burmese residents have been buying FECs as they lose faith in the kyat, 
analysts said. 
"People just don't have confidence in the kyat," the diplomat said. In March, 
the International Monetary Fund repeated calls for a "one-shot" devaluation of 
the kyat, saying it was needed to spur growth and keep inflation at bay. 
Many people now demand payment in FECs instead of kyat for goods and services. 

"There is a major drawback in the FEC system," one local analyst said. 
"Everybody can buy FEC with kyats. So since they don't believe in the 
kyat they buy FEC and gradually begin to speculate in it."