Thursday, 09 July 2020

By Larry Jagan

BANGKOK - Myanmar's military rulers are planning a major economic-reform program, expected to be rolled out this year. The plans involve opening large sections of the economy to foreign investors, privatization of state-run enterprises, and major structural reforms for the collapsing banking system and misaligned fixed-exchange-rate regime.

A top-level committee of senior military officers and prominent local businessmen has recently drawn up a list of suggested reforms that await final confirmation from the country's top two generals, Than Shwe and Maung Aye, before the formal implementation process begins.

Previously this year, Yangon announced that 11 government-run businesses, including beer, bicycle, cosmetics, glasses, soft-drinks, textiles and paint factories in Yangon and Mandalay, would be privatized and re-established as joint ventures, with the government holding 51% and the rest of the shares sold to the private sector.

"The value of the shares in these companies, currently worth 1 million kyat each, will be adjusted every year," Industry Minister U Aung Thaung recently told a group of Myanmar entrepreneurs. Private investors, he said, would have the rights to run the firms for a decade, and the buyers would be allowed to resell their shares or transfer ownership.

Moreover, the government plans to establish a Privatization Commission to oversee the sales. Nearly a thousand state-owned enterprises are slated to be partially privatized or sold off in the coming year, according to government officials. Some 200 different government-operated businesses, including cinemas, hotels, rice mills and sawmills, were privatized by the end of the last financial year, which ended in March, according to a senior government official who spoke to Asia Times Online on condition of anonymity.

"The military regime wants to boost industrial production, increase industrial efficiency and attract foreign investment," the official said.

At present, the government intends to lease or auction off the businesses and set up joint ventures with the eventual aim of trading shares on a yet-to-be-established stock exchange. "The government is planning to develop a stocks and shares market to help strengthen the growth of the country's private sector," a prominent Myanmar businessman with senior-level government contacts told Asia Times Online.

Myanmar's broad privatization plans were originally launched more than 10 years ago, but were soon shelved when the country's top military rulers got cold feet about foreign penetration in the economy. The plan's recent revival is intended to develop the country's lagging industrial sector, which has stagnated badly in recent years. Rising global fuel prices and US-led economic sanctions on trade and new investments in the country also have hit hard.

The new reform plans have been prompted by the military government's desperate need to raise new funds, especially to finance the building of the new national capital, which was abruptly established last November about 400 kilometers north of the old capital Yangon. The economy is also racked by widespread shortages and chronic inflation of crucial food staples.

The Chinese model

Behind the scenes, Chinese advisers are pushing the regime to privatize the country's state-owned enterprises and undertake other structural economic reforms. It's not the first time that Beijing has given the junta economic advice. During the 1997-98 Asian financial crisis, Beijing supplied the junta with emergency low-interest loans to bolster the kyat against speculation. In exchange, China was granted various natural resource concessions and free passage for its cheap manufactures, which have subsequently flooded the country's markets.

The new joint-venture formula that apparently will soon be implemented is clearly modeled on the Chinese approach to economic development, another senior Myanmar businessman told Asia Times Online on condition of anonymity. "[Myanmar's] military leaders have been studying the Chinese and Vietnamese approach to industrial development and feel comfortable that this strategy will help boost production and attract foreign investment while maintaining tight government control," he said.

Analysts say the current privatization and reform push is largely motivated by the country's mounting economic and financial crisis. Prime Minister Soe Win launched a probe into the state of the economy last December, and the investigation's results reportedly weren't pretty.

 

The joint committee set up to review the government's economic policies has already reported back to the cabinet and, apart from advocating a comprehensive privatization program, the group also suggested a more serious approach to company accounts, a more effective and systematic collection of taxes, including both corporate and personal income taxes, and drawing up new legislation that would allow foreign investors to repatriate their profits more easily.

The committee also radically suggested opening up the country's media sector to outside commercial investors. In that direction, the Information Ministry is considering allowing private investors to launch a daily newspaper and a new television channel. The current foreign partner of the English and vernacular weekly newspapers, the Myanmar Times, has recently been approached by Information Minister General Kyaw Hsan about the possibility of establishing a new solely private-run daily newspaper, according to sources familiar with the situation in Yangon.
The new television channel is further along in the planning stage, according to an industry source, who says it is in talks about receiving investment from the Thailand-based Shin Corp. The committee also suggested that the government had to tackle lingering problems in the banking system and the country's wildly misaligned fixed-exchange-rate currency regime before the economy could attract more foreign investment.

Myanmar's official fixed exchange rate is pegged at 9 kyat to the US dollar. On the black market, however, the exchange rate fluctuates to nearly 1,000 kyat. "Most significant commercial transactions in [Myanmar] are now done in dollars," said a prominent local economist. "The greenback is effectively the country's currency."

The reform committee has also suggested that the kyat be floated or at the very least pegged directly to the US dollar. The government has, at least partially, moved in that direction by recognizing the black-market rate as the "semi-official" rate. All transactions between government ministries are now conducted at a value closer to the black-market rate than to the official fixed rate.
An International Monetary Fund inspection team that recently visited Myanmar was reportedly impressed by some of the reforms the regime had put in place, including allowing the black-market exchange to function without restrictions or impediments, according to Yangon-based diplomats who were briefed at the end of their visit.

Economic analysts and businessmen inside Myanmar all agree that without thorough monetary and exchange-rate reforms, any attempt to boost the economy and attract foreign investment is doomed. "Only reform of the currency exchange rates will boost business and investor confidence," said a businessman in Yangon who goes by the name Maung Maung. "Anything less will only distort the economy, discourage investment - especially from abroad - and prevent real economic development."

Meanwhile, the government is in the process of reviewing and monitoring the country's banking system, especially the private banks, which were in open crisis in 2002. The regime is now reportedly bent on restoring consumer confidence in the financial system by forcing banks to become outwardly more effective and efficient. Most significant banking transactions, especially foreign remittances, now go through the so-called hun die system - an informal arrangement for transferring funds. The hun die system accounts for more than 90% of financial transactions in Myanmar, according to officials.

A few months ago, the police Bureau of Special Investigation was asked to examine the hun die system and explore ways to manage these transactions through the normal banking system. Investigators reportedly sought the advice of a number of the country's top economists; however, it is still unclear what advice was given and what conclusions the authorities drew from the discussions.
Optimism, pessimism

Businessmen involved in advising the government are optimistic that the military regime is serious about its economic-reform plan. One of the key players, respected octogenarian accountant U Hla Tun, recently told colleagues that the government was planning some major economic reforms that would be rolled out before the end of the year.

Other senior analysts, however, are less sanguine. Vested interests are so entrenched that it's impossible to introduce real economic reform, a senior military intelligence officer said when asked about the prospects of broad-based, deep-reaching economic reforms. Former prime minister General Khin Nyunt - who was ousted in an October 2004 putsch and was subsequently convicted of economic crimes - tried a few years ago but was rebuffed by strong vested-interest resistance, the intelligence officer confided.

Some economic analysts, both inside the country and abroad, believe the situation is no more favorable to reform now than it was then. "Myanmar's leading corporations are mostly owned and operated by the regime's cronies - mostly serving and retired military officers," said Sean Turnell, a former Australian central banker and expert on the Myanmar economy. They rely on rent-seeking as the only reliable way to make money, and that system will be hard to dismantle, he said.
Leading activist Zaw Min said, "The privatization program of the ruling SPDC [State Peace and Development Council] is another of the regime's hoaxes. They are selling the country's assets at [bargain] prices to their cronies to keep them happy."

Considering those sharply opposing perspectives, how far the regime will go with its privatization plans and economic-reform program remains difficult to predict. The country's top general, Than Shwe, apparently still needs to be convinced of the program's details, and to date there is no indication that he has signed off on all the liberalization measures.

The military leader's well-documented xenophobia would appear to make him suspicious about opening up the economy and relying more on foreigners for the country's economic progress. In the end, however, it may be Chinese advice and support that convinces him that Myanmar has no other option if it wants to avoid further and, perhaps in the future a more spectacular, economic implosion.

Larry Jagan previously covered Myanmar politics for the BBC. He is currently a freelance journalist based in Bangkok.