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The promise and peril of Myanmar's economy

Updated On: Feb 06, 2012
Following multiple reforms introduced recently, Myanmar's government has sought Singapore's expertise to help kick-start its economy. This week's commentary feature is written by SIIA Chairman Simon Tay, on the new outlook and potentials of the resource-blessed Myanmar economy in a renewed political climate.
This article was published in Today and China Daily on February 2, and in The Nation on February 7.
 Just as Myanmar's long-detained icon Aung San Suu Kyi began campaigning for a parliamentary seat, the country's President Thein Sein made a state visit to Singapore.
Accompanied by a high-level delegation, the President's visit concluded with an agreement for technical assistance and training in a number of key areas including finance, investment law and trade facilitation.
These two events over the same week demonstrate the ambitious pace of change and growing confidence in Myanmar. Reaching out to Singapore also brings into the spotlight an economic dimension to the ongoing political reform.
Businesses from many countries have been eager to explore investments in Myanmar. Considered the last large and untapped market in Asia, many sectors of the economy have been underdeveloped or else dominated by Chinese firms.
The Association of South-east Asian Nations (ASEAN) - the regional group to which Myanmar belongs - wants to be supportive and so does Singapore, as a major hub for the region. This goes beyond the politics of having Myanmar assume the group's chairmanship in 2014.
ASEAN's plan for a more integrated economic community, targeted for 2015, can also gain.
Much, however, depends on whether sanctions put in place by the West for more than two decades are lifted. The European Union has already begun to unwind its sanctions. In Washington, a complex legal process is gaining bi-partisan support.
There is cause for optimism, but is Myanmar ready for business and investment? Can the country follow up on its current political reform with parallel reforms to the economy and boost the country's development?
A recent publication by the International Monetary Fund (IMF) predicts the economy will grow at a rate of some 5.5 per cent for 2012. Such projections - in line with neighbouring Indochinese economies - are significant given the weak global outlook. But there is potential for greater, sustained growth.
Consider the country's ample natural resources of oil and gas, as well as forestry products and minerals. Factor in a strategic location that can link China, India and South-east Asia. Add also that Myanmar has a sizeable population of some 54 million, many of whom are of working age and eager for jobs. The economy, among the region's poorest at present, has the potential to grow.
There are, of course, concerns, many of which are typical of frontier economies - like the need for infrastructure and concerns about corruption and power shifts during this political change. But Myanmar also faces special challenges.
One key issue - as pointed out by the IMF - are exchange controls and currency stability. Officially, US$1 (S$1.26) is exchanged for just six Myanmar kyats. But in the widespread black market, the rate currently hovers around 750 kyats and has been as high in recent years as 1,250 kyats. Only with astute financial management can the country hope to liberalise its currency while maintaining macro-economic stability.
Another issue important for businesses coming in is that investment protection laws need improvement, with stable policies to be put in place. Recall that in the mid-1990s, some companies invested in the country, anticipating its membership in ASEAN. Many investors of that period were, however, left stranded by circumstances and policy changes.
Another issue to watch will be the central government's effort to settle decades of fighting with different ethnic groups. The recent ceasefire deal with the Karen is a prime example. The Karen have been active in the Dawei industrial zone in the south of the country and this is now undergoing a major overhaul worth US$50 billion as a cornerstone of the government's revitalisation plan.
As economic opening moves ahead, it will be essential that gains go beyond the circle of those in power. If development is to be sustained in tandem with political reform, the government must give attention to educating and training its people and meeting their basic needs, such as housing.
This sets the context for the agreement between the governments of Myanmar and Singapore. Tapping on Singapore's expertise in finance, law and providing public services can help Myanmar kick-start economic development. The agreement was in many ways to be expected, given that the countries have long-standing ties in trade, as well as training programmes for public officials.
The spotlight thus far has understandably been on Myanmar's dramatic political opening. Economic reform is now emerging as a twinned issue and the agreement with Singapore is but an early step on this path. Advocates for human rights and democracy will continue to watch developments in Myanmar but expect that businesses too will increasingly be part of the equation for change.
Simon Tay
About the author: 
Simon Tay is chairman of the Singapore Institute of International Affairs.

Assoc. Professor Simon Tay provided perspectives on this topic on Channel NewsAsia's Primetime Asia on 31 January, as well as on BBC World in an interview recorded on 1 February, 2012.