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IMF warns Myanmar on exchange rates
Myanmar has an “historic opportunity” to become the next Asian boom economy, said the International Monetary Fund, as it published its annual consultation with the country for the first time.
The top priority should be reform to Myanmar’s exchange rate system in order to eliminate restrictions that mean it has multiple different rates for different purposes, the IMF said as it forecast growth of 5.5 per cent this year and 6 per cent the year after.
The willingness of the Myanmar government to let the so-called Article 4 report be published will add to hopes that the country is moving forward with economic and democratic reform. “It certainly reveals the authorities’ willingness to re-engage with the international community,” said Meral Karasulu, IMF mission chief for Myanmar.
“Myanmar could see strong growth if it pursues the necessary reforms to take advantage of its rich natural resources, young labour force and proximity to some of the world’s most dynamic economies, including China and India,” said Ms Karasulu.
Recent democratic reforms have led the international community to ease sanctions on Myanmar, long dominated by a military dictatorship, and given rise to hopes that it could follow neighbours in an economic boom.
One danger to the economy is a rise in the currency because of capital inflows, said the Article 4 report, but the IMF warned against reforming the foreign exchange system too quickly.
The country is planning to complete its move to a single exchange rate by the time it hosts the South East Asian Games at the end of 2013.
“There would be quite a pent-up demand for imports in Myanmar. If one were to lift restrictions overnight then the market would flood with imports,” said Ms Karasulu, placing pressure on Myanmar’s foreign exchange reserves, crushing the country’s nascent industries which would struggle to compete.
The authorities in Yangon began a managed float of the currency in April in an effort to avoid that fate.
The IMF also calls for Myanmar to set up a monetary policy framework, creating an interbank market, and giving the central bank autonomy to operate in it. The Fund said that there had been a reduction in printing money to finance the government deficit. It said that a further step would be lifting restrictions on state banks and insurers buying government bonds.
financial times
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