Myanmar junta turns to barter to deal with growing trade deficit

Myanmar’s military regime is implementing a barter system to cope with the country’s growing trade deficit, sinking kyat, and soaring prices, according to sources in the business community. On Tuesday, the Union of Myanmar Federation of Chambers of Commerce and Industry (UMFCCI) sent a notice to merchant associations informing them of the move by the junta-controlled Central Bank of Myanmar (CBM), the sources told Myanmar Now. Under the new Barter Transaction Arrangement (BTA), import-export companies will be required to sign contracts with their foreign counterparts to exchange goods instead of paying for them in hard currencies, the UMFCCI notice said. “They’re trying to reduce the deficit to zero because it is so high right now,” said one Mandalay-based merchant, speaking on condition of anonymity. “Of course, they also want to reduce volatility in the foreign exchange market by eliminating the need to buy foreign currencies,” he added. “It’s a system people have been using since the Stone Age.” The new rules will also reduce existing requirements imposed by the CBM, according to the merchant. Currently, traders must exchange 35 percent of their export earnings at the undervalued rate of 2,100 kyat to the US dollar and sell the remaining 65 percent on the CBM-controlled online foreign exchange market at a slightly higher rate. By contrast, the actual market rate reached 4,600 kyat to the dollar in the final week of May. Companies participating in the BTA system will be freed from the junta’s foreign exchange controls, said the Mandalay-based trader. While this might be a welcome change for some, it is not likely to improve the situation on the ground, according to another trader who also asked not to be identified by name. “It’s just something they did in a panic. It won’t be easy to make this work,” he said. While the new system will reduce reliance on foreign currencies at a time when the dollar is at an all-time high, it will do nothing to address more fundamental issues, he said. “All agricultural production has decreased. In Sagaing and Magway, the bean and sesame acreage has fallen greatly. Rice cultivation has also decreased dramatically,” said the merchant, pointing to deteriorating conditions in Myanmar’s agricultural heartland since the 2021 coup triggered widespread resistance in previously conflict-free regions of the country. In the manufacturing sector, meanwhile, a chronic lack of electricity, transport disruptions, and the country’s general instability are also taking a severe toll, he added. Among the impacts of these conditions has been low levels of foreign investment—another way to bring money into the country—since the coup. Signs of major economic trouble have been especially noticeable since Thingyan, the annual water festival held in mid-April to mark the start of the traditional Myanmar New Year. In early May, the dollar was still worth less than 4,000 kyat, and other currencies were also significantly lower in value than they are now. The Thai baht has since climbed from 105 to 120 kyat, while the Chinese yuan has gone from 530 kyat to 630 over the past month. The price of gold, another important indicator of the state of confidence in the economy, has seen similar trend, rising from 4.7 million kyat per tical (16.3g) in early May to over 5.7 million kyat. Some observers blamed the ongoing weakness in the economy on the regime’s increased military spending and printing of money to make up for budget shortfalls, while others attributed it to the loss of revenue from border trade since late last year. Whatever the cause, there are few signs that it is likely to firm up anytime soon. “Normally, we would see the kyat go back up a bit after losing value for a few days, but since Thingyan it has been falling continuously,” said one trader based on the Thai-Myanmar border. “We can’t predict what will happen next. All traders are losing,” he said.

Myanmar junta turns to barter to deal with growing trade deficit

The move comes as the national currency, the kyat, continues its month-long slide to new lows against the dollar

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