Shortly after the coup, the military cut off internet connection supposedly due to a political and military reason. It was not known how much beneficial for the SAC politically or militarily, but an entire banking system on which most of the people relied for savings and deposits was badly hit. All of the Internet-related banking services were stopped. As a result, social, economic and educational benefits of the people related to banking were affected. The worst happened when people didn’t trust banks anymore and tried to withdraw the money they deposited. There was a high risk of collapse for banks if they allowed such a massive withdrawal of the deposits, and, therefore, they stopped their service of cash withdrawal. Consequently, it terribly damaged the reputation of banks, and it would take long to regain trust of the people. Lack of trust of the people on domestic banks can also largely affect a free market economy.
Recently, dollar conversion rate was newly fixed, and an order was issued to convert foreign-currency income of individuals to the Central Bank of Myanmar within one working day. This order shocked the business world and troubled foreign investments. At last, as diplomats were even affected, an exemption list was issued later. Although diplomats and foreign investors were exempted, a big burden on local businesses and labor force eventually fell on to the people. Export and import companies got into trouble. Not long ago, there was another order related to a border trade to export rice, beans, corn and oil crops only in the US dollar. From traders of agricultural produce to the farmers, everyone was shocked as they could see from calculations that being far from making any profits, the more they export the more losses they would have. As a result, export-dependent Myanmar economy was affected. Loss of export earnings has impacted on imports somehow. It’s due to a fixed dollar conversion rate and the order to deposit the foreign-currency earnings to banks as quickly as possible. Farmers have been in difficulties with loss in whatever they grew. There was also a worse order for trading companies to postpone loans and interests owed abroad. It destroyed a long-lasting trust among trading partners. Consequences would be unimaginably terrible.
Although it’s unclear why dollar conversion rate was fixed, all foreign trading businesses have been in trouble. As they must apply to the Central Bank of Myanmar for the use of dollar, business transactions delay. Due to such delays in import and unwillingness of businesses to sell fuel which is an essential commodity at a loss, people have faced with fuel shortage and a price hike. As increase of diesel price has affected from an agricultural machinery to transport trucks and lorries, domestic flow of goods has slowed down and prices have become sky-rocketing. Electricity supply in quota has made things worse. Businesses which have to use generators for power have finally stopped due to high production cost. Even SKD vehicle assembly services have to stop because of import difficulties. The control of dollar has also impacted on farmers. Since agricultural inputs such as fertilizers, fuel, labor and other things have become a lot more expensive, it’s hard for them to grow a full length of their farm areas this year as no farmer wants to put effort for a loss. According to news, some farmers only cultivate for family survival and leave the remaining farmlands uncultivated. In fact, farmers are in debt. Due to losses, they have been in debt year after year. As peasants constitute a major population in Myanmar, the rulers should know that their indebted situation could not be ignored.
It’s said even the World Bank could not estimate economic ups and downs of Myanmar. And hundi system heads up.
For a lesson-learned, Sri Lanka’s problems should be glanced at. Many people knew that challenges of Sri Lanka started from foreign debt. Here, let’s look at similarities to Myanmar. Crop production dropped in Sri Lanka and they had to import them from abroad eventually, and farmers were in debt due to losses in whatever they grew. Then, the government had to spend for the imports from its foreign exchange reserves which became lessened as a result. Having had no money to invest resulted in no income, but with high expenses, and put the people into poverty. The COVID-19 deteriorated tourism industry and caused more unemployment. Sri Lanka became indebted more and more with times by these circumstances and owed a foreign debt of 51 billion dollars, and was forced into bankruptcy.
Myanmar seems less bad than Sri Lanka. However, indebted situation of farmers, the basic population and reduction of farming areas should not be neglected. It’s really important not to impede border trade such as exporting farm produce. If everything is totally controlled, production and trading will be delayed, and employment will be scarce. If farmers reduce growing paddy, price of commodities will increase. Cash withdrawal from banks is not possible and consumption decreases. With all these, no one can guarantee there won’t be a general crisis.
At this time, the military shows their strength by military parades and also extends joint- military exercises of the Navy and Army combat forces. At the same time, lootings, robberies, bomb blasts and killings are common everywhere throughout the country. Deterioration of the rule of law and peace and stability is worsening. It is noted some robberies are surprisingly unplanned. Under such circumstances, it’s not unusual everyone assumes that education and health issues are unimportant.
During recent months, the Central Bank of Myanmar sold foreign exchange reserves in a fixed rate of conversion. About 14 to 15 million was sold a day. The Central Bank authorities must have already calculated how much assets held on reserve by them and how long they could continue to do so. It’s certain they are not ignorant. However, it’s really astonishing to observe a sudden run-out of foreign exchange reserves.
It’s very clear that the SAC is trying to control the Central Bank by transferring six lieutenant colonels to there as Deputy-Directors. The Order was signed by the Governor of the Central Bank and issued on June 7 2022, and contained in the Gazette of the Republic of the Union of Myanmar on July 15 2022. Since then, they have controlled and started to collect dollars with a conversion rate of 1850 MMK for a dollar. In the last Order, they asked trading companies to postpone loans and interests owed abroad. They also issued an Order to export rice, beans, corn and oil crops only in the US dollar, and to issue an export license only after a cent percent of payment was made from the buyers’ side. Some business entities included in the previous exemption list were later cancelled. Experienced businessmen said they have never heard of or seen such orders in the world of trade. These orders are very surprising as they aimed apparently to kill all the local businesses.
The SAC’s spokesman Major-general Zaw Min Tun said they possess enough foreign exchange reserves, but it seems unreasonable. If they do so, there is no reason to issue the orders that endanger the country’s economy a great deal. Maybe he said it ostentatiously.
Some observers think that the more frequent use of air strikes in local conflicts, denigrating personal trips of Commander-in-Chief to Russia, a sharp decrease of the assets held on by the Central Bank, and re-collecting of dollars by a forced conversion order are all related. The question “What do you think why foreign exchange reserves declined sharply?” has become very interesting.
The Central Bank authorities must have surely known how much extent these orders would affect Myanmar economy. And the question of why they issued knowingly such unrealistic orders would hopefully find a historic response in the future.
General crises intermingling with local conflicts may cause a worrisome situation for Myanmar. Which issue should be addressed first: Armed conflicts; or political problems; or economic difficulties; or the rule of law? Each and every issue is of prime importance. And this has itself become the biggest question in Myanmar political crisis.
Nyan Lynn