Myanmar’s Preempted Pagoda Pageantry
Myanmar prepared to host its first ASEAN summit since admission fifteen years ago as both financial sector and broader economic and political reforms were “stalled” according to international democracy champion and Nobel laureate Aung San Suu Kyi, as she cited ethnic clashes and military backtracking in the two years since opening loosened commercial and diplomatic sanctions. The Muslim minority Rohingyas have been attacked and threatened with expulsion as the free election timetable for 2016 remains skewed by the army’s automatic one-quarter of seats and a constitutional ban on foreign-citizen presidential contenders excluding her. The government leader Thein Sein recently convened a preparatory session dominated by generals as the National League for Democracy party tries to rebuild its grassroots base and candidate bench beyond the famous dissident. The ASEAN meeting’s focus is strategic issues, in particular island and natural resource disputes in the South China Sea. Beijing and Tokyo at historical odds in the area are vying for FDI leadership and the former has concentrated on energy and built a pipeline to Yunnan province after a hydroelectric dam project was rejected in 2011. Japan’s involvement includes technical assistance in launching a stock exchange which has been dormant with two listings since establishment in the mid-1990s. Five companies will be added by the target end-2015 debut with an optimistic scenario mirroring the tiny initial trading volume achieved in nearby Cambodia and Laos. Only local investors can buy shares under existing law, and a handful of off-exchange offerings have taken place such as from the main state agribusiness operator. A regulator has not yet been created and bonds may slowly evolve with planned Treasury instrument issuance. A 30 percent foreign ownership limit is likely under the preliminary framework developed by Daiwa Securities, but Singapore linkages already available for a few enterprises will still be needed for larger positions.
The IMF’s October Article IV report acknowledged “daunting challenges” to economic transition despite 8 percent GDP growth the past fiscal year and new foreign bank and telecoms licenses. Inflation is around 5 percent and the budget and current account deficits are 5 percent of GDP. The exchange rate has stabilized and reserves cover three months imports. Despite high double digit monetary expansion private sector credit is just 15 percent of output. The central bank was granted legal independence but is still tapped for deficit financing. With poverty at 25 percent of the 50 million population by the last estimate purchasing power is minimal compared with other low-income economies in the region. Future oil and gas revenue could readily be absorbed by critical infrastructure and social spending, and planned decentralization may decrease Yangon’s taxing power. Despite approval of several foreign bank branches convertibility obligations under the Fund’s Article VII will not be assumed in the near term. They can deal only with international customers in hard currency and state policy banks have been expanded at the same time as “political imperatives” that reinforce the old order, according to the staff-monitored program.
