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Currency tops Myanmar’s economic agenda
Myanmar must liberalise its foreign exchange controls or it will struggle to carry through economic reforms, one of the country’s central bank directors has warned.
The bank, which is set to gain more autonomy under the government’s reform plans, will also concentrate on economic growth and price stability this year, according to U Maung Maung.
“These are our top priorities, but most of all we must liberalise foreign exchange controls…it’s a fundamental priority to move forward on this,” Mr Maung Maung, one of eight directors under the central bank’s deputy governor, told the Financial Times.
Western sanctions imposed in response to a brutal military crackdown in 1988 have restricted trade and investment with Myanmar.
The country’s dual exchange-rate system has also helped strangle the economy and grossly distort economic fundamentals. Under the parallel system, the official rate this week is 5 or 6 kyat a dollar, but the black market offers around 800 kyat a dollar.
While even government agencies have shifted to unofficial market rates, officials acknowledge the urgency of unifying the parallel rates. The central bank is considering proposals to allow the kyat to float, said Mr Maung Maung, but “no decisions will be made until later this year”.
Economists who study Myanmar say currency unification is key to the country’s entire reform programme.
“This step should precede all others…Following unification, a range of other important policy interventions will immediately become possible,” a paper by Harvard University’s Ash Center for Democratic Governance and Innovation concluded.
Since mid-2011, most of the country’s 19 private commercial banks and four state owned banks have been permitted to offer market rates. But the banks’ exchange procedures are onerous and informal money changers thrive throughout the country.
Other important reforms implemented under the nominally civilian government of Thein Sein, president, include the slashing of trade taxes and boosting pensions. For the central bank, the reform agenda includes developing Myanmar’s capital markets and investment code, and lifting restrictions on banks’ overseas and domestic lending operations.
There are “many ideas” to reform the financial and banking system but significant changes hinge on the outcome of two multilateral missions led by the International Monetary Fund, said Mr Maung Maung.
Highlighting a reversal in the government’s previously isolationist stance, he said: “We are co-operating, we need to consult and hear advice from the IMF, we hope it’s soon, as we will need some time [to implement reforms].”
The missions, the second of which left Myanmar on Thursday, will issue recommendations on exchange rate unification and economic policies in coming weeks and are expected to resume loans and aid to Myanmar if western sanctions are lifted.
Another pressing concern is the strength of the kyat, which has appreciated by about 32 per cent in nominal effective terms since April 2010. The currency has been boosted by massive natural resources sales, privatisation of government assets (mainly of property), surging investment from China and other countries and speculative capital inflows.
These large foreign inflows “cannot find an outlet due to exchange restrictions on current international payments and transfers,” the IMF mission said.
financial times
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