Courtesy of The Financial Times, a report on Burma’s rather surprising currency crisis:

“…The kyat has appreciated by almost 25 per cent on the grey market over the past year, and the country’s export industries, never in good health at the best of times due to a combination of sanctions and the government’s economic illiteracy, are struggling even more than usual.

On Monday the authorities cut export duties on seven items — rice, beans and pulses, sesame, rubber, corn, marine products, and animals and animal products – from 7 per cent to 2 per cent, the second cut in less than two months.

Part of the problem is the global weakness of the dollar and the euro: sanctions might have kept international investors out – it is not as if any of today’s beleaguered funds are long kyat — but global customers for Burma’s gas, timber and gems were still buying and they were paying in foreign currency.

Until recently, there was never much demand for the kyat. But last year, the government launched a massive privatisation programme, selling vast tracts of Rangoon along with ports, government-run businesses, and petrol stations.

There was huge interest in the assets. The savvier generals and businessmen had learned how to offshore their assets – Singapore and Thailand are rumoured to be favourite destinations – but many more had kept their savings in dollars under the metaphorical mattress and were suddenly seeing them lose value by the day.

The result was a rush into solid assets, particularly property, which has risen to unprecedented levels. A theatre in central Rangoon sold earlier this year for $63m.

But the government auctions had to be settled in kyat, and the winners were faced with the choice of changing with the central bank, which was offering 6 kyat to the dollar, or going onto the black market, where the rate was closer to 1000 kyat to the dollar.

But no longer. The demand has pushed the kyat to around 750 to the dollar, and exporters and farmers are suffering.

The government cut export taxes from 10 per cent to 7 per cent at the end of June, and have now cut the key rates to 2 per cent, but for exporters who have seen their revenue drop by 25 per cent, that will come as little comfort.“