Saturday, June 24, 2017
The Myanmar Times
The Myanmar Times

Central Bank’s autonomy questioned with recent currency actions

The Central Bank of Myanmar’s intervention in the exchange rate bears the stamp of senior government officials, raising questions about its independence, according to experts.

Pedestrians walk past the Central Bank of Myanmar building in Yangon yesterday. Photo: Naing Wynn Htoon / The Myanmar TimesPedestrians walk past the Central Bank of Myanmar building in Yangon yesterday. Photo: Naing Wynn Htoon / The Myanmar Times

The Central Bank was separated from the Ministry of Finance and declared an autonomous body in mid-2013, in theory allowing it to independently dictate monetary policy, such as determining how much currency to print and rules around currency use.

Yet government officials have stepped in. The President’s Office has been coordinating the policy toward kyat-dollar exchange, which has been heavily criticised by businesspeople, economists and even some government officials.

The recent events have certainly demonstrated the limits of Central Bank independence in Myanmar, and also expose the Central Bank’s lack of policy-making and regulatory capacity, said Sean Turnell, an economist at Australia’s Macquarie University.

“It has some truly exceptional people, especially at the vice governor level,” he said.

“But it lacks leadership at the top, as well as knowledge of modern financial markets and banking at the level of implementation.”

It seems, unfortunately, that senior figures in the government remain beholden to old ideas about the currency and of the economy broadly, he said.

It is not only the Central Bank that faces problems building capacity.

U Tin Maung Than, director and senior research fellow at the Myanmar Development Resources Institute, said there is a shortage of experts in economics, including at the Central Bank. He added the bank’s decision-making seems to be guided variously by the government side, or institutions like the International Monetary Fund and the World Bank.

Politics has heavily influenced the government bureaucracy for years, where there has been a lack of following proper rules and regulations. Tycoons and businesspeople are often able to influence senior officials to steer certain policy decisions, he said.

“The Central Bank needs to resist the pressures of politics and media if it is going to be independent,” said U Tin Maung Than.

Mr Turnell said that some officials in the government seem to have notions of the exchange rate as a sort of simplistic barometer of national economic success that means they think a high kyat is good but low is bad.

An orderly reduction in the value of the kyat in keeping with market supply and demand would be a good thing for Myanmar. It would make its exports more competitive, increase the income of farmers and other commodity producers, and compensate for Myanmar’s relatively high inflation rates and costly infrastructure.

“On top of this are apparent hankerings for direct controls, orders, restrictions – all of the things that have been rolled out in recent weeks and days to tighten access to foreign exchange,” he said.

Many people also do not have access to official rates. They have had to live with informal markets, which, to all intents and purposes, are markets in which the kyat “floats” according to supply and demand, he said.

“Maybe it’s time to unify the rates by simply allowing the formal exchange rate to be fully market determined too,” he said.

The Central Bank could still intervene from time to time if matters become disorderly. It could even buy foreign currency to keep the kyat down if it rises too high and damages competitiveness.

Moving to a market-based rate would remove the obligation to expend capacity in deciding and defending a set rate, and in establishing a rate that is too often the target of speculators.

A team from the International Monetary Fund led by Yongzheng Yang visited Myanmar earlier this month. At a press conference held at the end of the mission, he said that the prime function of the Central Bank is to set monetary policy and the exchange rate, and added the Central Bank needs to more closely coordinate with the Ministry of Finance to be more effective.

U Soe Thein, former deputy director general of the Ministry of Finance, said the Central Bank struggles to be independent, and should take steps in that direction during the weak economic situation.

“The Central Bank has a low degree of autonomy at present,” he said. “Hopefully it gradually retreats from some functions that are not related to its monetary instruments.”