The Yangon Stock Exchange’s Anniversary Angst
The Yangon Stock exchange added a fifth telecoms firm listing and launched on-line trading to mark its second year since opening, but the local index was stuck at 475 capping a year of foreign investor disappointment despite passage of a new companies law that will eventually allow access. The Rakhine State crisis, as it is called in official media since the Rohinga population is not formally recognized, has blemished the civilian government’s reputation as the accounts of hundreds of thousands of refugees fleeing to Bangladesh describe human rights abuses warranting UN investigation and possible donor aid cutoff and trade sanctions. ASEAN’s recent Philippines summit suggested that while the region may continue its “non-interference” stance the US and Europe will likely take punitive action. President Trump and his Secretary of State Rex Tillerson have been famously at odds over their personal relationship and diplomatic direction, but were united on a strong warning to Aung Saung Suu Kyi that ethnic cleansing reports should be verified and met with economic and military consequences.
The IMF in a November Article IV visit cautioned GDP growth would come in around 6% for the 2016-17 fiscal year , with bad weather hurting dominant agriculture and construction project slowdown. It added that the tourism and investment impact of the humanitarian emergency had yet to be felt and may be “localized,” and cited risks “tilted to the downside” from banking sector and other uncompleted reforms. They have prevented global value chain integration and poverty reduction notwithstanding the refugee scrutiny, and the Fund urged a “well-sequenced second wave” of liberalization and infrastructure development for viable frontier market status.
Growth above 6.5% is projected next year on inflation at the same level, and the current account deficit should shrink 1% to 4% of output. The shortfall has been covered chiefly by foreign direct investment, and reserves at three months imports and the exchange rate are “broadly stable,” according to the report. Critics believe that FDI has been sluggish since the National League for Democracy assumed a parliamentary majority in the civilian transition early in 2016, and then unveiled a dozen-point economic plan with scant detail. The Fund estimates the sum at $4-5 billion this year with large data gaps, after a previous spurt on one-time hydrocarbon and telecoms ventures.
The army, which still controls one-quarter of legislative seats, key security ministries and strategic state enterprises also holds sway over economic policy, described as “sick” by the chief advisor to the former junta Dr. Myint. He has expressed skepticism over meeting the end-decade per capita income target of $1,800 and even catching up and competing with poverty stricken socialist neighbor Laos. His vision is private-sector led with a defined social safety net for the disadvantaged, in contrast with the “low delivery and expectations” he associates with Aung Sung Suu Kyi’s administration. Ruling party leaders like U Lay Nyint on the Economic Committee have urged farm export diversification and central bank independence under internal “frustrations,” while asking the international community for patience under existing political and technical limits.
Amid fanfare last week President U Htin Kyaw signed the long-awaited updated Companies Act, replacing century-old provisions, enabling a 35% foreign ownership stake in domestic counterparts and authorizing trading on the Yangon Stock Exchange. It modernizes corporate governance and minority shareholder rights, with an automated registry to be in place with Asian Development Bank assistance. Previously only selected industries like building materials and car distribution were open to outsiders, and a companion 1940 law barred non-resident equity sales. However officials indicated that implementation rules could take another nine months, and lawyers representing overseas investors lamented “missed opportunity” from the delay.
The same pattern applied to new central bank rules for “overdraft” loans, 70% of the $9 billion total, which are made on preferential terms or indefinitely rolled over to lock in customers. Originally they were to be cleaned up under a six-month deadline, now extended to three years, since executives from the industry’s two dozen institutions raised the specter of widespread runs with an immediate crackdown. Amid the standoff, five new state sector-specific lenders in farming, mining and tourism were approved to worsen allocation to favored clients. The central bank itself is forced to finance the near 5% of GDP budget deficit, as an historic hostage to financial system inertia alongside the stock market.
