Wed 2 Jan 2013
Filed under: Business / Trade,News,Other
The government’s efforts to reform the long-dormant economy and tackle endemic poverty through 2011 and 2012 have failed to reach the intended targets, sources said last week.
Since the new government took power in March 2011, the government has swiftly liberalised the economy by cutting red tape for import/export businesses, allowed domestic banks to open automatic teller machines and partner with foreign lenders to offer international transfers, opened the car and cooking oil import markets, enacted an amended foreign investment law and repeatedly invited foreign investment.
At the same time, it has strengthened democratic principles and allowed its people to voice opposition to major projects such as the Myitsone dam in Kachin State and more recently the Letpadaung copper mine in Monywa, in Sagaing Region.
The international community has taken note, as witnessed by United States President Barack Obama visiting the country on November 19, and the gradual easing of economic sanctions through 2012. Huge American companies, such as General Electric, PepsiCo and Coca-Cola, have responded to the easing of sanctions by entering the country in search of profits.
In late 2012, to a casual observer it might appear that the changes have been rapid and vast. But economic experts within the country say many of the alterations have only been on paper, and have not affected the majority, especially the farmers living in rural areas who make up most of the population.
Local economists say the government spent considerable effort and time in 2012 fighting corruption and a lack of transparency, increasing the accountability of bureaucrats, reducing cronyism and fighting illegal trade.
Emphasis has also been placed on fixing hardware problems though commissioning better transportation systems, telecommunication networks and improving electricity distribution. In these efforts the government has sought, and been provided, technical assistance from international institutions.
However, the increased international attention on Myanmar’s economy has also had strongly negative impacts on the tourism and property sectors, local economists and experts said this year.
Rental rates for hotel rooms, as well as prime residential and office spaces, have skyrocketed, catapulting Yangon to 35th on international ratings agency Mercer’s cost of living for expats index, released in June 2012.
In April, the Central Bank of Myanmar finally axed its pegged rate for the national currency and replaced it with a manage floatation set via daily currency auctions with private banks. The move saw the much-ridiculed K6-to-the-dollar exchange rate replaced by a market rate, which was K845 last week. The floatation is part of a broader plan being implemented with advice provided by the International Monetary Fund (IMF) to unify the different exchange rates available in the country, which the fund previously estimated to number more than 15.
Foreign economists said Myanmar’s economy cannot realistically grow further until its banking sector is modernised, and for that to happen the Central Bank needs to be made independent. Additionally, private banks must boost their loan and capital portfolios to extend more credit to businesses and farmers.
Dr Sean Turnell, an associate professor of economics at Australia’s Macquarie University, said Myanmar’s economy will have grown in 2012 at slightly higher rate than previous years, with energy, precious stones, and resource exports the primary drivers. He added that tourism will also have contributed a significant boost over past years.
But Dr Turnell said the effects of the economic reforms will be slight.
“Such reforms are still in their very early stages, and to some extent are just necessary steps to other reforms that could become the real drivers of transformational growth,” he said. “But the latter are not yet in place.”
He added that there are many small measures that can be taken to deliver quick benefits and swing popular support behind an economic reform program. These include removing some restrictions on banks that disallow them from providing capital to farmers and cultivators; moving quickly to lower prices on SIM cards, and bring in competition in the telecommunications sector; act to ensure that all remaining government controls on farmers (especially those that tell them what, when and how to grow) are removed; publishing a detailed set of public accounts that includes both revenue and spending items in order to better ensure transparency and accountability in public finance; modify the Farmland Bill to give genuine security of land tenure to farmers; end the system of import licensing that unnecessarily increases the prices of desired and necessary imports, encourages cronyism, and keeps the kyat artificially high by restricting the demand for foreign currencies.
“Of course, there are more foundational and long-term measures to be enacted to but all of the above can be put in place straight away, and deliver quick, positive returns,” he said.
In terms of the government’s budget allocation, the former regime’s budget was complicated and difficult to track, he said. It contributed only about 3 percent for health and 5pc for education until the 2012-13 fiscal year.
In early November, the amended foreign investment law was enacted, ending months of wrangling between parliamentarians, the business community, Myanmar Investment Commission and President U Thein Sein.
Some foreign companies have already entered the market, even though more specific investment rules are yet to be determined.
Myanmar must encourage investment that brings development and jobs to its people to catch up with the region after 50 years of mismanagement, said economist U Khine Htun.
To do so, Myanmar needs to harness its natural resources and use them to develop new industries beyond the extractives sector that also bring knowledge and learning to its people.
Modernising the agriculture sector should be the top priority since it employs so many people and could be a source of significant foreign exchange earnings. Improvements would also deliver food security and provide a reliable foundation for Myanmar to move into processing, light manufacturing and other sectors, according to Dr Turnell.
“The situation is different now than it was in the past. However, clearly aspects of the ‘old Myanmar’ continue to haunt the new, as the problems with old deals with Chinese state-owned firms amply illustrate,” Dr Turnell said.
“Likewise, there have as yet been few reforms in critical areas that impact most upon the lives of normal people. The lack of improvement in agriculture is especially striking, especially given that the sector could be lifted mightily simply by lessening state intervention,” he said.
Ministry of Commerce consultant Dr Maung Aung said every ministry has been reforming. The Ministry of Commerce, for example, has been trying to create a level playing field for traders to halt price fixing, and has also liberalised trade licensing and cut red tape.
“We can see the government trying to be fair in trade like other nations, which we’ve never seen before,” he said.
However, the government faces concerted resistance from the people on some projects, such as Myitsone dam and the Letpadaung copper mine, as well as an ethnic conflict in Rakhine State and armed conflict in Kachin State.
“These may be barriers for foreign investment but we need global trade and investment to help us to escape from being a poor country,” he said.
Dr Maung Maung Lay, vice president of Union of Myanmar Federation of Chambers of Commerce and Industry (UMFCCI), said international attention had centred on Myanmar in 2012.
“Economic reform will come after political reforms; international businessmen think of Myanmar as the gateway between China and India, where there is a very big market,” he said.
“But investors still complain about the country’s reluctance to liberalise property lending, and poor transportation and telecom services. We need to upgrade [these sectors], and not move backwards and away from foreign investment,” he added.