10 - The Glass has Water: A Stock-Take of Myanmar's Economic Reforms: Exchange Rate, Financial System, Investment, and Sectoral Policies

Summary

The economic reforms set in train in Myanmar in recent times have succeeded in a number of ways, but not least in commanding international attention. Passenger planes flying into Yangon these days are as full as the hotels to which they bring their human cargoes, cargoes that include some of the titans (as well less exalted members) of the global business food-chain. In a world in which investors everywhere imagine themselves as beset by risk and stagnation, Myanmar has emerged as an unlikely field of opportunity for those who are, to use the fashionable phrase of our times, “seeking yield”.

Beyond the headlines of the business pages, Myanmar's economic reforms are incomplete, greatly contingent upon shifting alliances, and rather more fragile than supposed. Yet they are authentic and tangible too. As one anonymous contributor to a recent meeting of diplomats put it:

In Myanmar it is not possible to say yet that the “reform glass” is either full or empty—but we can at least say now there is water in it.

The purpose of this chapter is to undertake a stock-take of Myanmar's economic reforms: to determine the reality behind the rhetoric, to identify the fundamental from the superficial, and to distinguish that which will last from the merely ephemeral. In practical policy terms, the paper will examine Myanmar's new exchange rate regime and its strengths and weaknesses, the ramifications of the country's new Foreign Investment Law, mooted changes in banking laws, some changes in agriculture, and some very counterproductive changes to land laws. Highlighted too will be efforts to create institutions for revenue transparency in the extractive and energy sectors, and for fiscal reform generally.

THE FLOATING OF THE KYAT

The most important economic reform enacted by the government of Thein Sein was its decision (in April 2012) to reform Myanmar's exchange rate regime by allowing the country's currency, the kyat, to be determined via a “managed float” (Reuters 2012). Myanmar's previous dual exchange rate system—under which there was an “official” rate that set the kyat at around K6: US$1, compared to an unofficial market rate that mostly fluctuated around K1,000: US$1—had long been the most public symbol of the country's economic oddities. Under the new arrangements, an “auction” is held each morning amongst Myanmar's commercial banks to determine a reference rate for the kyat against the U.S. dollar, the Euro and the Singapore dollar.