Myanmar’s Prickly Prize Pursuits
As Nobel peace laureate Aung Sang Sui Kyi travelled to the US on a speaking tour at the same time the Myanmar President joined the UN General Assembly session after decades of absence, Washington moved further to ease sanctions by provisionally allowing imports as the Asian Development Bank prepared an inaugural detailed study on economic and financial sector constraints. Growth for the $50 billion GDP will be 6 percent on food-dependent inflation around that number, which is also a result of central bank monetary emission to fund the 5 percent budget deficit. State-owned banks dominate the system with a fixed 5 percent interest spread between lending and borrowing rates and mandatory Treasury bond allocation. Public debt is about half of output, tax revenue/GDP is below 5 percent, and defense spending outstrips education and health together. International reserves are $6 billion mainly on natural resource exports and investment, and the exchange rate which was pegged at 5-6 to the dollar has been replaced with a managed float now at the 800 level. One-quarter of the population is poor and progress toward the Millennium Development Goals lags Asean neighbors in disease and environmental categories. The strategic location in the Greater Mekong sub-region and between China and India could bring infrastructure and supply-chain inflows which tap the young labor force and abundant oil and gas reserves as well as agriculture and tourism potential. However primary commodities including energy, timber and farm and fish products are the mainstays, with textiles beginning to come back after the long commercial boycott period. A new banking law will grant monetary policy autonomy but private credit is under 25 percent of GDP. The ADB supports the removal of deposit-to-capital ratios and collateral requirements only recognizing property as regulation is modernized. Functional interbank and government bond markets are lacking and small and midsize firms have scant credit access.
In the first half of the year East Asia’s local currency bonds came to almost $6 trillion for an annual increase of 8.5 percent, with the corporate outpacing the official segment. Their share of the global total is over 8 percent, led by China and Korea. Yields fell slightly with lower benchmark policy rates and foreign holdings were steady despite dipping below 30 percent in Indonesia. Vietnam’s growth was fastest entirely in government bonds, while the Philippines clip was at the bottom. In Thailand post-flood public works projects stimulated issuance. Islamic-style sukuk were prominent in Malaysia, and hybrid and perpetual structures featured in dozens of regional transactions. The Hong Kong renimbi “dim sum” market was lackluster as coupons were pushed higher. With subdued inflation and capital inflows released from further industrial world monetary easing yield curves should flatten although spreads have widened for lower-rated corporates which have instead tried to rise to the occasion of record international placement.
