Aung San Suu Kyi has made considerable political progress in the six months since she became Myanmar’s de facto leader. She has struck a more conciliatory tone with the military and secured a U.S. commitment to lift remaining sanctions. When it comes to steering the domestic economy, however, it has been slow going.

The transition to a nominally civilian government in 2011 brought foreign capital flooding into the country. Cars and cellphones quickly spread, and consumer spending surged. Under former President Thein Sein, Myanmar mustered annual growth above 7-8%.

On the flip side, spending on infrastructure and farm development caused the country’s deficit to balloon. The figure for fiscal 2017 is expected to be triple that for fiscal 2014. Narrowing the gap is a priority for Suu Kyi’s government.

On Sept. 20, Myanmar held its first competitive auction of long-term government bonds. This was part of an effort to raise money from the private sector to cover 60%, or 1.8 trillion kyat ($1.42 billion), of the deficit for this fiscal year.

Although monthly auctions are scheduled to follow, the government only secured a little more than 1% of its target amount in the first round. “Bonds issued by the government of Myanmar, which doesn’t even have a credit rating, cannot be considered an investment,” an official at a Japanese bank said.

In July, State Counselor Suu Kyi announced economic policies geared toward expanding revenue. The auction was the first of her fiscal measures.

According to the government, Myanmar expects $6 billion in foreign investment in each of the next five years. But in the April-August period, foreign investment came to only a quarter of the amount for the same term last year. Delayed approvals by the newly sworn-in government are seen as the main reason. Some also suspect the government blocked certain projects that could have a significant impact on the environment, such as natural resource development.

Aung Naing Oo, director-general of the Directorate of Investment and Company Administration, said the new government attaches greater importance to quality than quantity. The directorate leads Myanmar’s efforts to attract foreign investment.

Thein Sein presided over a steady stream of inbound investment. But in fiscal 2014-2015, for example, half of the inflow was related to oil and gas exploration. Suu Kyi wants to reduce the country’s reliance on commodities and shift to a more manufacturing-driven economy. Natural resources will eventually run out, she has said, and the country must focus on creating jobs to retain talent.

Suu Kyi’s call for a new industrial structure stems from the fact that over 3 million people, or 6% of the population, work in neighboring Thailand to make a living. Resource businesses do not create many jobs, and investment in the sector cools whenever commodity prices fall. The government is looking to foreign companies to build labor-intensive industries in Myanmar, such as sewing and food.

Trouble is, Myanmar’s weak infrastructure is deterring outsiders from jumping in. Only 30% of the country has access to electricity, and blackouts are common. Foreign companies are forced to rely on their own power generators at an extra cost, countering the benefits of the country’s inexpensive labor.

Suu Kyi’s government aims to increase electricity coverage to 100% by 2030. But it also environmentally conscious, and it intends to rethink the previous government’s plan to build more coal-fired thermal power stations. One alternative would be to use liquefied natural gas, but it is anyone’s guess how the country would foot the estimated $30 billion bill to develop an LNG plant.

Myanmar’s economy is projected to grow by over 8% this year, thanks partly to infrastructure investment, according to the Asian Development Bank. But there are warning signals in the property market in Yangon, the commercial capital.

The market boomed after the transition to civilian rule. But the average monthly office rent has fallen from the peak of over $70 per sq. meter at the end of 2014 to $54 in June. Condominiums are in oversupply, with many left unfinished due to financing problems, an official at a major property company said.

As Myanmar’s economy shifts to a new phase, Suu Kyi has her work cut out for her.

Link: http://asia.nikkei.com/Politics-Economy/Policy-Politics/Suu-Kyi-struggling-to-get-economic-agenda-off-the-ground