Myanmar’s Muddy Modernization Maw
A cascade of Western officials and investors, including hedge fund titan George Soros, visited long-shunned Myanmar as a diplomatic thaw was signaled and the IMF released a detailed report on recent economic performance and immediate challenges. Democracy campaigner and Nobel peace prize recipient Aung San Suu Kyi remains free from house arrest and will run in April elections after her party abandoned its previous boycott stance. A mass amnesty for other political detainees has ensued and a cease-fire was signed with a major ethnic rebel group. The new head of the military government has been praised as a “genuine reformer,” and international commercial sanctions are under review in Washington, Brussels and Asian capitals and could be lifted later this year. Representatives from the Korea Stock Exchange, which has offered funding and technical assistance throughout Indochina, have launched consultations with local counterparts as the Fund urged comprehensive banking overhaul including interest rate liberalization, collateral strengthening and rural network extension. Other overriding structural imperatives are state enterprise privatization and currency system unification which can improve fiscal and monetary balance, according to the mission. GDP growth is 5-6 percent on inflation around the same level, as natural resource exports should continue to benefit from the removal of restrictions. FDI has pushed the parallel exchange rate up one-third the past two years with current and capital account curbs still in place. The central bank was given initial autonomy, but has few tools for liquidity management and could consider pilot Treasury bond issuance. The budget deficit is close to 5 percent of GDP and should shrink with natural gas project revenues. Tax simplification is overdue and government-owned companies are a costly drain. The business climate suffers from lack of infrastructure and smaller firms are at a competitive disadvantage with licensing requirements and narrow credit and market access, the Article IV picture concludes.
Asian frontier followers cite the precedent of minerals powerhouse Mongolia, which led all stock exchanges in 2011 with a triple-digit advance, in an attempt to sell the transformation story. GDP growth there was 20 percent in the latest quarter, and soon the biggest coal mine will go public with shares allocated to all citizens as general elections approach. A stabilization fund has been established to smooth the commodity cycle which ended formerly in a 2008 bust and bank failures that ushered in emergency multilateral assistance. As with Myanmar, China is the key resources customer, and complaints have become more heated about corruption and environmental damage surrounding joint ventures. Thousands of Chinese work at the giant units in the Gobi Desert as enthusiasm for prospects aided by operator hype and employment urgency may not suddenly dry.
