Panic has gripped Myanmar over the growing likelihood of a Sri Lanka-type economic collapse or a Pakistan-type economic crisis after the country's central bank called on all citizens this month to convert their foreign currency holdings and remittances received from abroad into the local currency kyat within a day.

Myanmar's foreign reserves are believed to have dwindled sharply and foreign debt has escalated as western sanctions following the Feb 2021 coup and the raging Covid pandemic have impacted the nation's economy.

The country's military rulers, however, continue to sign up for more and more Chinese-funded infrastructure projects and allow Chinese companies to take over mines and other profitable businesses. That in the hope that the Chinese will bail them out in the event of a Sri Lanka or Pakistan-type crisis.

Burmese fighters opposing the military rule are increasingly targeting Chinese business interests even as other foreign investors are pulling out of the country.

Central bank directive

It is not yet clear whether the Myanmar central bank directive in early April asking all citizens to change their foreign currency holdings and remittances into Burmese kyat has helped the military government rake in much-needed foreign exchange.

Two months before the February 2021 military coup, Myanmar's forex reserves stood at $ 7.8 billion (as on Dec 2020). The military rulers have provided no current data on the country's forex reserves, but banking and business sources in the country say they have sharply dwindled because of the impact of Covid pandemic and the western sanctions.

Myanmar's foreign debt now stands at between $ 10-11 billion – with some estimates suggesting that Myanmar does not even have half that much amount to pay back debt. That explains the strange directive to mop up all foreign exchange available within the country – a move described by leading Myanmar analyst Bertil Lintner as "financial suicide." Economists following Myanmar developments say the country is headed for payment defaults and shortage of essentials unless the

Chinese bail them out, as they have done with their other friends like Pakistan but not quite with Sri Lanka.

The military junta's directive not only aims to shore up depleted foreign exchange reserves but also prevent anti-junta activists and civil society groups from receiving funds from foreign donors and exiled groups.

Public unrest

Public anger over the move was evident when a senior central bank official was shot within three days of the bank issuing the forex mop-up directive. The Central Bank's Deputy Governor, Than Tha Swe, appointed to the position after the Feb 2021 military coup by the generals, survived the attack. What must have upset all Burmese holding foreign currency was the directive just gave them one day to change all their forex holdings into kyats, whose value has steadily fallen.

The official exchange rate of 1,850 kyats per dollar is far below the black market rate that has climbed steadily past the 2000 kyat for a dollar mark.

What adds fuel to fire is the existing military junta rule that holders of kyat accounts may withdraw only 500,000, or the equivalent of less than US $250, per week. That raises a more worrisome question as to whether the central bank actually has enough kyat reserves to cover the conversion of all foreign holdings into local currency.

For the Burmese, it is double whammy. They get less for a dollar when they exchange it at the bank, which means they are left with less money to handle the sharply escalating price line.

Agricultural output has dropped due to civil war conditions in many parts of the country with the military using airpower and heavy weapons to quell the popular uprising in areas dominated by the ethnic Burmese, in addition to the ongoing insurgency in areas dominated by ethnic minorities.

Anger against China

Public anger over worsening economic situation and brutal military repression is increasingly focused not merely on the military rulers but also against China, which has been supporting the junta that calls itself the State Administrative Council (SAC).

The SAC has cleared more than fifteen new Chinese projects worth $ 4.8 billion since the Feb 2021 coup, even as other foreign investors like the Japanese are beginning to pull out. Nearly 20 of the 180 Japanese companies operating in Myanmar have already pulled out. The decision to mop up all

forex holdings by the central bank has further unnerved the foreign investors. So the junta's claims that it hopes for nearly six billion US dollars in foreign investments in 2022 entirely depends on the Chinese investments.

The foreign investment community, except the Chinese , are up in arms over the central bank's directive to mop up forex holdings.

The Japanese Embassy has already sent a letter to the SAC military junta which said: "Japanese companies operating in Myanmar will face serious challenges in following the new regulation, which will cause difficulties in continuing their businesses in the country. It will also be detrimental to the function of the Embassy of Japan and other official organizations."

The Singaporean Embassy issued an almost identical statement. Both embassies requested exemptions for companies from their respective countries, which are among Myanmar's top providers of foreign investment. Japan and Singapore are the biggest foreign investors in Myanmar after China.

Already a dozen business groups — among them the French Myanmar Chamber of Commerce, AustCham Myanmar, EuroCham Myanmar, the British Chamber of Commerce in Myanmar, and the German Myanmar Business Chamber — issued a joint statement saying that the new foreign currency rule "needlessly lowers the living standards of the Myanmar people, halts foreign business activity, stops the flow of foreign direct investment, and creates trade tensions with other countries. Restriction on the use of foreign currencies, the statement noted, "disconnects Myanmar from the global economy and global financial system."

ILO report

In January 2022, a report by the International Labor Organisation (ILO) said Myanmar is on the "brink of economic collapse." It said the country has suffered an eight per cent employment shrinkage, amounting to 1.6 million job losses since the Feb 2021 coup. The country's construction, readymade garment and tourism sectors have been the hardest hit, leading to a sharp drop in foreign exchange reserves.

A month ago, the United Nations Development Program (UNDP) issued a statement that estimated "by early 2022, nearly half of Myanmar's 55 million population — some 25 million people — will be living below the national poverty line. There now appears little doubt that the country's poverty

headcount is likely to return to levels not seen since 2005, effectively erasing 15 years of pre-pandemic economic growth."

Myanmar's economy had contracted 18 percent for the year ending September 2021 and now these projections to the situation getting worse because of the move to mop up foreign exchange reserves. The UN may soon reverse its projections for a one percent growth for the current financial year when it calculates the impact of the latest directive on the country's economy.

The Sri Lanka syndrome

However, the Burmese generals don't appear bothered, hoping Beijing will bail them out in the event of a Sri Lanka-type crisis. Says Bertil Lintner: "The junta's lurch towards de-dollarization might thus give rise to a new yuan-based financial order – and even greater dependence on Beijing."

That is precisely upsetting Myanmar's pro–democracy groups who are fighting to bring down the military junta. The People Defence Forces (PDF), the military arm of the parallel National Unity Government (NUG), recently threatened to attack Chinese-backed mines in the country's northwest if the projects are not shut down, saying the profits were lining the pockets of the junta.

The focus of this latest threat was believed to be China's Wanbao Mining, which has a partnership with Myanmar military-owned conglomerate Myanma Economic Holdings to run the controversial Letpadaung and Sapetaung-Kyesintaung copper mines near Salingyi in the Sagaing region.

Sixteen Myanmar rebel groups issued a joint statement recently saying income from mining would line the pockets of senior Myanmar military officials and cronies. A PDF spokesman warned that if these projects are not closed down, they will be attacked.

More than 30 Chinese-run factories were attacked in the months after the coup by demonstrators. Later, the PDF attacked an offtake station on the oil and gas pipeline that connects a Chinese-funded port in Myanmar's Rakhine coast with the Chinese province of Yunnan. Then a Chinese run nickel processing plant was attacked.

A worried Chinese embassy in Myanmar has tried to contact the NUG in a desperate attempt to prevent armed attacks on Chinese interests. So far the covert outreach has not worked. All groups opposing the military junta in Myanmar see China as the prime villain in propping up the brutal generals, holding Beijing responsible for the crackdown that has led to 1,700 official deaths so far.

This story was first published by news9live.com

Subir Bhaumik is a former BBC correspondent and author of five books on South Asian conflicts