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HomeOpinion & AnalysisA critical look at Myanmar's economic outlook

A critical look at Myanmar’s economic outlook

(YANGON) – Inflation is going up on a daily basis despite the junta regime struggling to regulate the central bank of Myanmar to increase its fixed rate of Kyat to the dollar from 1850 to 2100 and growing control measures on imports and exports. The public will lose trust in its own currency ­– Kyat (MMK).

The rising inflation caused by several factors appears to be much of a critical debate over whether there is excessive demand over supply in views of macroeconomics by economists, which sends the price skyrocketing and shakes up the market.

Inflation is caused by an overheating economy triggered by printing unlimited amounts of new money and injecting it into circulation, far too much fiscal stimulus, and overly easy monetary policy. An attempt to meet the budget deficit by continuous printing of new notes can eventually lead to hyperinflation that will contribute to less purchasing power with continuous rising inflation and immense damage to the economy.

On the other hand, tight monetary measures and austerity policies can lead to repeated recessions based on the conventional wisdom of inflation, which is rooted in the historical knowledge and past experiences of countries such as the USA in the 1970s.

The economic intervention of the military junta in the country is that the junta is attempting to force the people into enforced frugality by restricting imports as part of the junta’s desperate efforts to handle the economy. That approach eventually results in misleading austerity by enacting fiscal contraction.

One of the gravest mistakes of the central bank of Myanmar was trying to sustain the “fixed rate” of dollar exchange -instead of implementing a “floating rate” to meet the market. In addition, they instructed that all US account holders in the country must convert 100% of their dollar into MMK with the set fixed rate.

In a striking impact of the mandate to sell foreign currencies to the respective banks, importers are not able to repurchase the dollars as much as needed for their importation of raw materials and goods they wish to import.

Many foreign investors like Suzuki Motors Company, Yangon Can Manufacturing company, and many others suspended their operations temporarily, while some left the countries permanently due to scarcity of dollars for their imports. Previous non-licensing goods required licenses, and what is more worrying is that 100% advance payments must be obtained for export such as flowers, fruits and vegetables.

An abrupt order by the Central bank of Myanmar on the 7th of August 2022 that 65% of all export earnings must be converted into Kyat within 24 hours, and exporters can withdraw the remaining 35% under the instruction and approval of the central bank or their respective banks, came as a surprise.

The coup leaders were not able to access or retrieve the foreign reserve funds said to be $5 billion that Myanmar held during the NLD-led government. Brutality and violence nationwide have tremendously reduced economic growth and production capacity, resulting in an unemployment hike and a gradual brain drain. It is speculated that the junta regime can collect the foreign reserve fund from all US accounts in private and public banks in Myanmar, which is probably half a billion dollars. Some US account holders are either corporate or individuals.

There is a big question remained over whether the regime can survive another six months with such a small foreign reserve fund to import petroleum, medicines and weapons to fight against their people.

The fiscal contraction and austerity policies used as the last resort to fight inflation, recession and stagflation may have accelerated the path to Depression and eventually the economy’s collapse in the coming months. With Myanmar’s economy on the brink of collapse, the military regime’s grip on power may be next.

The story is written by a Burmese economist who requests to be anonymous for his security and edited by Chindwin.

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