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BY-ELECTION, CURRENCY MOVE SEEN AS GOOD FOR MYANMAR

Written by The Business Times
SINGAPORE, 3 APRIL 2012 - Analysts and businessmen whom BT spoke to said these developments were positive for the country and are necessary to attract foreign investment. But they added that as Myanmar is still in the nascent stages of political and economic reform, the long-isolated country has much to do before it can catch up with the rest of the world. 

'The (changes in the exchange) rate, coupled with a draft new foreign investment law, sends a clear message that Myanmar will actively pursue foreign investment in the environment of post-election political credibility,' said Tony Nash, managing director of IHS Consulting.

'This is not to say that Myanmar is a 'safe' investment by any stretch. Non-trivial problems like political opacity, creaky infrastructure, armed conflict, corruption, declining health and education indicators and drug problems with skyrocketing methamphetamine and opium production remain,' added Mr Nash.

Vishnu Varathan, a market economist at Mizuho Corporate Bank, said Myanmar needed to build confidence in the kyat.

'They need to show now that they can stick to their guns, that they won't see, say, a 5-10 per cent fluctuation in the currency within a month,' said MrVarathan.

'Ideally, continued economic growth (aided by foreign direct investment) will allow for the currency to appreciate gradually, thereby building confidence in the currency and the economy. Establishing this cycle of confidence is vital in ensuring that Myanmar can circumvent problems such as 'dollarisation',' he added.

Dollarisation refers to a lack of confidence in the domestic currency, with businesses and households storing wealth in the US dollar, or in some cases gold, leading to a self-fulfilling cycle of devaluation of the local currency. This is a problem that Vietnam continues to face after it adopted a managed float of its currency since 1999.

Myanmar also needs to hold sufficient foreign currency reserves to ensure that it can intervene in the market when necessary, said MrVarathan.

A Reuters report had earlier this year quoted a Myanmar lawmaker as saying that the country's foreign currency reserves stand at US$7.2 billion.

For foreign businessmen with operations in Myanmar, the change to its currency policy is a welcome move that would reduce distortions for foreign investors. Previously, the official exchange rate was used in public sector external transactions, and Myanmar law requires that all capital brought into its economy be converted into the local currency using the official exchange rate. Foreign businessmen have long cried foul over this, given the huge discrepancy between the official and black market rates.

'This is a very good thing. And I believe that over the next few months it is possible that they will be able to unify all the different rates,' said a Singapore businessman with operations in Myanmar.

'I also think it is possible that the US and EU will remove the sanctions soon because I think Aung San Suu Kyi definitely won the elections, and I don't think the Myanmar government will go back on its word because they want the US and EU to remove the sanctions.

'President TheinSein is for reforms, and the government is afraid that the Arab Spring could happen in Myanmar, so even the hardliners still in the government realise that some change is necessary,' added the businessman.

For now, however, businesses appear to be waiting for more practical reforms before they venture into the country. Said Nyi Nyi Htun, CEO of management consulting company Inter Group of Companies: 'I've spoken to many of my Singapore clients, and they say that they are still not really interested to set up a business in Myanmar yet because the government has a policy where it does not allow foreign firms to set up trading companies to trade domestically in Myanmar.
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