Friday, August 18, 2017

CB says sugar re-export softens kyat

Sugar and machinery oil are two re-export products contributing to a weaker kyat, according to the Central Bank, which has started scrutinising import-export sectors in an attempt to combat volatility in the US dollar exchange rate.

Buyers survey bundels of sugar cane at a jetty market in Yangon. Photo: StaffBuyers survey bundels of sugar cane at a jetty market in Yangon. Photo: Staff

Myanmar’s currency lost around 15 percent of its value against the US dollar in the second half of last year, prompting cries for action among the business community.

Central Bank and government officials pointed out that a US stronger dollar has affected many other Asian currencies, not just Myanmar’s. But the authorities have also conceded that the huge amount of border trade going through the informal market deprives Myanmar of foreign exchange earnings, which they say contributes to a shortage of dollars and pushes up the value of that currency against the kyat.

In response the Central Bank is collaborating with government ministries to try to better monitor border trade and export earnings. U Win Thaw, director general of the Foreign Exchange Management Department, said that the way in which sugar and machinery oil are re-exported from Myanmar is resulting in a net outflow of dollars that is affecting the US dollar-kyat exchange.

Myanmar imports sugar from Thailand across the land border and by ship. The border imports are typically paid for in baht, but the shipments are dollar denominated. Imports by sea from India and Brazil are also paid for in dollars.

People in the sugar industry say the problem is that much of this sugar is then re-exported to China, sold to Chinese traders paying in Chinese yuan who are importing the sugar illegally in order to avoid a hefty tax on sugar imports applied by their government.

Myanmar traders exporting the sugar, on the other hand, are not breaking any laws.

“It’s true that we don’t get back dollars, we get back Chinese currency because the Chinese [traders] are not importing legally,” said U Soe Lin, the association’s chair. Because the payment that Chinese traders make is illegal according to their government, the Myanmar seller does not receive payment through an official export bank account, he added. So long as the Chinese imports are illegal, the proceeds will be yuan-denominated and not made through the official financial sector, said U Soe Lin.

Sugar association secretary U Sein Tun said that because the yuan payments are not made through the financial sector, they are not recorded as export earnings or taxed as such.

U Soe Lin said it was likely that if the exports to China were legal on both sides of the border, the transactions would shift to dollars – the standard currency for regional sugar trade.

U Win Thaw and industry associations were unavailable for comment on the re-export trade in machine oil.

Vice chair of the Union of Myanmar Federation of Chambers of Commerce and Industry U Maung Maung Lay said that greater government supervision of border trade was necessary, but that successive administrations had failed in their attempts.

“It’s difficult to control given that the border trade is growing,” he said. “It will take time for the government to control it.”

Translation by Emoon, Khine Thazin Han and San Layy