Myanmar’s Military Funds Its War through Forex Policy

Revenues from natural resources and military companies have been key sources of income for the Myanmar State Administration Council (SAC) military regime since its 2021 coup. However, in the last year, the regime’s foreign exchange (forex) policies and the kyat’s depreciation have started to change this dynamic. Rents from forex policies — in other words, proceeds extracted from the state’s ability to administratively fix rates and force conversion at those rates — now rival resource revenues as the regime’s most important source of forex. New controls also determine who can purchase forex, a power that the regime may be exploiting to retain more forex for its own purposes. This signals a shift in strategy for obtaining forex for weapons, fuel, and conflict-related imports — with major economic consequences for the country.

Since the coup, the military-controlled Central Bank of Myanmar (CBM) has greatly expanded its control, forcing the conversion of export earnings and other remittances at administratively-fixed rates. Most exporters have to convert 65 per cent of export earnings at the “online platform” rate of 3,354 MMK/USD and 35 per cent at the official rate of 2,100 MMK/USD (before 5 December 2023, these ratios were 50/50). These are far below the market rate according to data from large forex traders, which was 4,450 MMK/USD in late June 2024. The ever-growing difference in rates means that exporters now lose 34 per cent of their earnings, or 1,514 MMK for every forcibly exchanged USD. Over the last year, the size of the potential rent to the military regime — the difference between the market rate and the weighted average rate that forex was actually sold on the day of the transaction — was at least 6.4 trillion kyat ($1.8 billion USD). This is nearly identical to the military budget and perhaps larger than the state’s natural gas earnings. This rent also exceeded the combined estimated value of commercial and income taxes in the 2023/24 financial year, which was 5.3 trillion kyat.

The CBM also launched a forex trading platform in June 2023 which requires banks to provide information on companies that want to purchase forex, including their name, the desired purchase amount, the reason for the purchase, and the exchange rate. In conjunction with banks, the CBM determines eligibility, transaction amounts, and exchange rates, giving them control over who can access Myanmar’s annual forex flow which was worth $8 billion USD in the past 12 months. This incentivises loyalty and ties economic outcomes to relationships with the military. The regime is also forcing more businesses to use the platform. In February 2024, it started requiring rice, corn, and rubber exporters to sell earnings via the platform, not directly to fuel and edible oil importers as was the case prior. Given this, the platform’s purpose seems to be about giving the SAC control, not facilitating market exchange.

These forex controls give the Myanmar military widespread power and opportunities for profit. Some discounted forex likely goes to private companies that facilitate military-related imports, as widely documented. But not all forex is used for military purposes —some of it is available to other parties, such as commodities traders or outbound tourists, who can purchase between $300 and $500 USD at the platform rate. However, the amount of such favourably priced forex available to importers may be declining. Some importers note that it is “impossible” to buy forex at the platform rate and they are increasingly forced to buy at the black market rate. In 2022 and 2023, the regime often announced that key commodity importers could buy discounted forex, but on multiple recent occasions has not announced the rates for those sales. Other importers have suggested that cheap forex is sold to military-connected companies who then resell at market rates.

These forex controls give the Myanmar military widespread power and opportunities for profit.

The regime’s forex policy is so important because it is where their access to forex has increased the most. Natural resources remain an important forex source. Annual earnings for offshore and pipeline projects were estimated at $1.5 billion USD in 2021, and may have increased somewhat since, as prices rebounded and the regime’s stake in some projects increased due to divestments. However, other resource revenues have declined; copper exports fell 80 per cent after the coup. And some post-coup growth in resource exports, like jade, probably benefit ethnic resistance organizations as much as the military. Regardless, resource revenues fall far short of the annual $8bn USD stream of forex the CBM controls via forex policy.

Myanmar’s military companies, Myanmar Economic Corporation (MEC) and Myanmar Economic Holdings Limited (MEHL), are not a major source of forex, and are less lucrative than previously reported. A 2020 report by Amnesty International claimed that MEHL paid dividends equivalent to $18 billion USD from 1990 to 2011. However, the report converted kyat to dollars at the official rate of 6 MMK/USD which wildly overvalued the kyat. In practice, no one sold dollars to MEHL at this fictitious rate. In 2007/08, for example, MEHL dividends of over 12 billion kyat (about $2 billion USD at the official rate) were worth just $12 million USD at the market rate. Data from 2019 showed MEHL paid $14 million USD in taxes, which would derive from sizable profits but nowhere near the reported billions.

The military’s forex policies will become more important in the future, in part because the growing exchange rate gap will further benefit the regime. Meanwhile the military’s other key revenue source, natural gas, is expected to fall 75 per cent by 2030, reducing revenues dramatically. Given this, it is important to start understanding the SAC as a regime whose retention of power increasingly depends on forex policies. These policies threaten to hasten economic decline, as they extract from the productive economy, incentivising informality and discouraging economic activity. They also add to the importance of finding avenues for economic activity outside the SAC system, like cross-border trade and finance, which benefit Myanmar’s people.

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