Aung San Suu Kyi’s National League for Democracy party may have won a parliamentary majority with the military’s USDP conceding defeat, as she repeated her election triumph twenty-five years ago in an historic contest with honored results and fewer irregularities.
However, the jockeying to name the president as head of government has just begun and will last into early 2016, with the army’s automatic hold on one-quarter of legislative seats helping to shape the choice, and the ceasefire with fifteen rebel groups, excluding the Kachin and Shan independence armies, is also due to be finalized over that period. The packed political agenda omits issues like the rights of the minority Muslim Rohingya who were barred from voting, and human rights campaigners argue that Western trade sanctions should stay in place. Remaining restrictions will also be hard to relax with the generals’ dominance of the state oil and gas and other major companies, while the NLD’s campaign platform was also vague on future economic policy beyond “governance reform.” Its leadership also lacks business experience, prompting foreign investors to delay action despite progress on new banking and commercial laws.
About $20 billion in foreign direct investment has come in the past four years, mainly in energy and telecoms, since President Thein Sein announced the transition. China, Hong Kong, Japan and Singapore have been the largest sources, with interest from US and European multinationals in the consumer goods and property sectors. A handful of private equity firms have opened with local and overseas capital, and nine international banks received licenses to operate in the Thilawa special economic zone outside Yangon. They await modernization of the stock exchange, which will see a few company listings in a preliminary phase following the model in next-door Cambodia and Laos. The garment industry is viewed as the biggest potential employer, drawing low-wage and low-skilled labor from agriculture, and retailers like Gap and H&M have contracted suppliers. However of the 50 million population, textiles absorb only one quarter of a million workers due in part to chronic land, power and transport shortages. The near bottom 177 ranking in the World Bank’s 2015 Doing Business report has often barred the country altogether from consideration.
The IMF’s September Article IV report cited “daunting challenges” as the region’s poorest economy with USD 1,200 per-capita income. Trade and financial liberalization and labor and infrastructure improvement have begun, but the new government’s chief task will be to bolster basic stability despite headline 8% GDP growth, it argued. Inflation, partly due to 20% currency depreciation against the dollar before election season, is also near double digits. The fiscal and current account deficits are at 3% and 6% of GDP, respectively. The central bank continues to finance the budget and foreign reserves are down to 3 months’ imports, a critical threshold. Private sector credit growth from a low base has been excessive at 35-50% annually, and natural gas earnings have declined with lower global prices. Fresh banking, commercial and investment laws have been prepared but still must be enacted and implemented, as financial sector supervisory capacity in particular is already strained, the Fund warned.
Exchange rate and monetary policies have been slow to correct despite large donor technical assistance programs, with the Asian Development Bank on the front lines. Pilot Treasury bill auctions have been launched, but interest rates have been capped and foreign bank branches banned from participation. The parallel and official currency markets have been partially unified, but import access has been limited. Bank lending is 90% short-term, under one year, with inadequate capital and liquidity, and state commercial and policy banks have multiplied without consolidation and reform, according to the IMF. The financial system, even with gradual sanctions removal, remains subject to international penalties for non-compliance with anti-money laundering rules. In the coming months the president’s top economic appointments could signal overdue banking and regulatory cleanups, and although Aung San Suu Kyi does not qualify constitutionally her clear embrace of friendly policies would replace luster to the Golden Land’s recently leaden business transition.
Gary N. Kleiman is an emerging markets specialist who runs Kleiman International in Washington, D.C.
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