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Since the termination of foreign assistance in 1988, Myanmar has had to continually struggle to maintain its foreign currency reserves. Historically, servicing of foreign debt obligations has placed the greatest amount of pressure on the foreign reserves. Prior to 1987/88 deficits of the overall balance of payments where financed primarily by drawing down on official reserves. In 1987/88 the first arrears on the servicing of debt payments of US$73 million occurred in order to maintain foreign currency reserves at US$78 million (1.7 months of merchandise import). Recent figures put the government debt at US$6.6 billion with US$2 billion being in arrears. Apart from the servicing of foreign debt, the import of goods into the country, including military hardware, has also placed pressure on the foreign reserves. The need for hard currency to satisfy Myanmar's external obligations has driven the Government's policy on foreign exchange and related trade regulations.


The Kyat is a non-convertible currency and cannot be imported or exported out of the country. The official exchange rate has remained at 6 Kyat to one US Dollar. Officially, there is also a customs rate that is used for purposes of calculating customs duties on goods which is presently at 100 Kyat to one US Dollar. The black market rate of exchange fluctuates according to the demand for US dollars by either the Government or the private sector and as of June 2000 was quoted at around 340 Kyat to the US Dollar. However the trend has been toward an increasing devaluation in the Kyat. Part of the decline in the value of the Kyat can be attributed to the fact that much of the Government's deficit has been financed out of significant increases in the money supply. Additional pressure has been placed on the currency by the demand for consumer goods and the need to settle payment in foreign exchange. The disparity between the official rate and black market rate has fuelled the growth of a burgeoning black market. Laws are in place that restrict the exchange of currency to licensed exchanges however the enforcement of the law has not always been consistent and has depended largely upon the Government's need for foreign currency.


For many years there were tight exchange controls but despite this the black market grew almost unabated. Many believe this finally led to a government press release in late January 1993 announcing that with effect from February 4, 1993 the Central Bank of Myanmar would start issuing Foreign Exchange Certificates (FEC) with the objective of enhancing foreign exchange earnings and for the convenience of tourists and business people visiting Myanmar. Three denominations of the FEC, namely those equivalent to US$ 10, US$ 5 and US$ 1 were introduced. These certificates are good for use only within the Union of Myanmar.

Initially, the FEC were permitted to be purchased only by tourist or business people who had the compulsory obligation to change at least US$ 300 upon arrival at the Yangon Airport or by non-resident foreigners. This regulation has been revised and now, anyone in Myanmar (foreigners and citizens alike) who has access to legally earned foreign exchange may officially purchase FEC. However, the Government has specified that FEC are not to be utilised for normal payment of house rents, and rentals for motor cars and machineries.

Payment by FEC is deemed to have been made in foreign currency and is acceptable by any person or organisation in Myanmar. Recipients of FEC may deposit the FEC into their foreign currency accounts. Those who do not possess foreign currency accounts as yet may also establish one with the Myanma Foreign Trade Bank. No questions will be asked as to how and why one received the FEC.

The FEC is basically the introduction of a dual currency system that indirectly and unofficially devalues the local Kyat currency without any official devaluation process being necessary. Officially, one United States Dollar will be equivalent to one unit of FEC but the Pound Sterling is to be exchanged at the daily cross rate notified by the banks. Any fractions of an FEC calculated at the daily cross rate will not be exchanged. The black market rate for FEC generally parallels the black market rate of the US Dollar though there is usually a slight divergence with the FEC receiving a somewhat weaker rate than the US Dollar. However the present exchange rate for both the FEC and the Kyat as of December 1998 is approximately FEC 350 and Kyat 350 to one US Dollar.



The main body of law that relates to foreign exchange controls is The Foreign Exchange Regulation Act (August 1, 1947) (the Act). The essence of the Act is intended to restrict foreign exchange activities to those dealers who are authorized to do so by the Government: the Act prohibits individuals from buying or borrowing from, or selling or lending to, or exchanging with, any person not being an authorized dealer, any foreign exchange. The management of exchange is administered by the Controller of Foreign Exchange of the Exchange Department of the Central Bank of Myanmar and the Exchange Management Board pursuant to directives that are issued by the Ministry of Finance and Revenue. The Central Bank has issued four types of licenses that permit exchange activities: 1. licenses to commercial banks that are permitted to purchase and sell foreign currencies; 2. licenses that permit the licensee to exchange US Dollars into FEC; 3. licenses that permit the licensee to purchase and sell FEC in Kyat; and 4. licenses permitting shops to receive foreign currency for the exchange of goods.

The shift from a planned economy to a market economy began in 1988. In the early part of the 1990's foreign investment was flowing into the country at an increasing pace. This encouraged the Government to liberalise its foreign exchange controls somewhat and on December 8, 1995 ten exchange centers were licensed and permitted to: 1. exchange the US Dollar and FEC into Kyat at a rate of exchange proximate to the black market rate; 2. exchange the US Dollar into FEC; 3. exchange travelers checks into FEC or Kyat (5% commission); and 4. exchange the Kyat into FEC at a rate of exchange proximate to the black market rate.

The benefits introduced by the exchange centers are two fold. First, the exchange centers provide holders of foreign currency or FEC a legal means of exchanging foreign currency or FEC at rates of exchange that are in line with the prevailing black market rates. Foreign investors thus have an official source of local currency, at rates of exchange proximate to the black market rates, and can then use the exchanged Kyat to pay for local expenses. Second, the opening of the exchange centers provides an official route for the exchange of Kyat into FEC. The FEC can in turn be deposited into a foreign currency account from which it is possible to settle payment for off-shore obligations that have been approved by The Central Bank of Myanmar.



The remittance of foreign currency into the country is unlimited however the physical import of amounts in excess of US$ 2,000 will trigger a reporting requirement. Foreign currency that enters Myanmar must either be converted into Kyat or deposited into a foreign currency account. Foreign currency accounts may be opened with a minimum of US$ 100. Note, there will be a 10% service charge for the deposit of funds into a foreign currency account. However, there is an exception for foreign currency that is brought in as part of the capital requirements of an enterprise formed in Myanmar.


Outward remittances of foreign currency face a more difficult scenario. The low levels of foreign currency reserves creates an incentive for the Government to retain as much foreign currency in the country as possible. Further to this end there are several important restrictions that are contemplated by the Act that are intended to prohibit the transfers of money out of the country unless there is approval by the Government. First, there are provisions that place restrictions on an individual's ability to make payment to, or credit the account of, a resident outside of Myanmar. Under this provision direct payments for overseas expenses to non-residents or payments that are owed by way of a promissory note, royalties, or a bill of exchange would require approval. Second, the Government is empowered to prohibit the export of goods unless there is sufficient evidence to substantiate that an amount representing a reasonable return for the goods will be paid within a prescribed period of time. This provision makes it difficult to fabricate transfers of funds out of the country in the form of goods. Finally, individuals are prohibited from transferring security to a place, or resident, outside of Myanmar: included within the definition of security are coupons or warrants representing dividends or interest. Consequently, transfers necessitated by the ownership of security by a non-resident are likewise required to obtain prior approval. In these ways, the Government is empowered to regulate the outward flows of moneys.

In effect, The Central Bank of Myanmar approval for the outward remittance of funds is required. This creates problems for foreign investors wishing to remit profits out of Myanmar unless the enterprise has been granted foreign investment privileges as outlined below. Foreign investors not operating under foreign investment privileges are thus required to repatriate profits in a manner that is linked to the export of goods. This would necessitate the enterprise exporting goods and maintaining the proceeds of the sales abroad. The alternative is to purchase, at a premium, the export retention credit (i.e. moneys owed to a company for the sale of goods abroad) that may be due to a different enterprise which has already exported goods out of Myanmar. Strictly speaking, both of these methods are prohibited by the Act as an individual/enterprise who has a right to receive foreign exchange has an obligation to ensure that there is no delay in the receipt of funds in Myanmar. From a practical point of view, it is the method of remitting funds that is most palatable to the Government since the foreign exchange linked to the export of goods would off-set the loss of foreign currency tied to the profits.

Payment for off-shore expenses will require the prior approval of The Central Bank of Myanmar. However, authorisation for aggregate monthly remittances below US$ 50,000 per month, should be forthcoming provided that there is ample documentation to support legitimate expenditures or the moneys are related to the export of goods (as expanded on further below): note in July of 1997 the Government implemented a regulation that restricts the amount of foreign currency that may be remitted abroad to US$ 50,000 per month.

There is a black market that has developed for the remittance of funds abroad, in addition to the black market exchange activities, though the Government has recently stepped up efforts to crack down on this practice as well.


Although there are restrictions placed on outward remittances, the Act does contemplate the satisfaction of obligations to a non-resident by way of payment into a blocked account (in the name of the non-resident creditor) or special account (in the name of the Controller or authorized dealer). Payment into such an account is deemed to be a good discharge of the person making the payment. In this way payment could be made to a non-resident however the moneys would effectively remain within Myanmar unless approval is granted to remit the moneys abroad.


The penalties for individuals who violate the provisions of the Act include imprisonment or fine or both. If the person violating the provisions of the Act is a juristic entity, than the Directors, Managers, Secretary or involved officers shall be deemed to be in violation of the Act unless they can prove that they did not possess knowledge of the offence or that they exercised all due diligence to prevent the offence.


The Union of Myanmar Foreign Investment Law (November 1988) (FIL) grants individuals and juristic entities certain privileges with respect to remittances of currency abroad. A juristic entity may remit out net profits from which taxes and prescribed funds (i.e. the employees' bonus fund, the employees' provident fund, the social and welfare fund, the enterprise development fund, and such other funds that may be required) have been deducted. In addition, foreign investors are entitled to repatriate those funds that have been approved by the Government following the termination of a business. Finally, resident aliens who are employed by a company operating under an FIL permit will be allowed to repatriate their income after appropriate deductions are made for taxes and living expanses. Although the pressure to retain foreign exchange is rather severe the Government has permitted companies operating with an FIL permit to continue to enjoy remittance privileges. Thus operating under an FIL permit remains effectively the only method by which one can legally repatriate profits abroad.


Although there is no direct relationship between the Act and trade regulations, the underlying policy with respect to foreign reserves, retention of capital, has led the two bodies of law to compliment each other. On the export side, trade regulations are intended to ensure the flow of moneys into Myanmar as payment for the shipment of items out of the country. This intent is reflected in the fact that the export of items requires either the opening of a letter of credit to secure payment from overseas or the payment for exports is linked to a corresponding import of items. The only exceptions relate to the export of items on a consignment basis or by way of transit trade (items which typically enter Myanmar and are in transit either to or from the Peoples Republic of China). On the import side, outward remittances for the payment of imported items have to be approved by The Central Bank of Myanmar as outlined above. In order to receive approval, outward remittances will have to be made in compliance with the trade regulations. Under the trade regulations, the outward flow of moneys to pay for the imported items is in effect off-set by a requirement that necessitates a corresponding export of items. Similar to the export of items, there are similar exceptions for consignment (presently not permitted) or transit items.

In addition to the controls mentioned above, the Government has recently adjusted the ratio of priority items and optional items that are permitted to be imported into the country. Early on, the Government categorized imports into a priority list and an optional list. An importer wishing to import optional items (essentially consumer goods) is required to import a prescribed ratio of priority items: the ratio has been fluctuating but is presently set at 20% optional items and 80% priority items. In this way, the Government has managed to significantly reduce the total amount of imports flowing into the country by increasing the amount of priority items that must accompany the optional items into Myanmar. Hence, the need to remit currency outward is reduced proportionately.

Both export and import procedures are designed to work with the exchange controls and serve the present policy of capital retention. The Government's position on this policy should remain in place until there are sufficient reserves to accommodate the demands of its external obligations. Given the present regional outlook, it may be some time longer until the economy lifts to the point where the Government will contemplate a change of policy.

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