The Sule Pagoda is a stupa in the heart of downtown Yangon. It is in the center of the city and an important space in contemporary Myanmar politics, ideology and geography. Photo: iStock

The Yangon Stock Exchange has added a fifth telecommunications-firm listing and launched online trading to mark its second year since opening, but the local index was stuck at 475, capping a year of foreign-investor disappointment despite passage of a new companies law that will eventually allow access.

The Rakhine state crisis, as it is called in official media since the Rohingya population is not formally recognized, has blemished the civilian Myanmar government’s reputation as the accounts of hundreds of thousands of refugees fleeing to Bangladesh describe human-rights abuses warranting United Nations investigation and possible donor aid cutoff and trade sanctions.

The recent summit of the Association of Southeast Asian Nations in the Philippines suggested that while the bloc may continue its “non-interference” stance, the US and Europe will likely take punitive action. US President Donald Trump and Secretary of State Rex Tillerson have been famously at odds over their personal relationship and diplomatic direction, but were united on a strong warning to State Counselor Aung San Suu Kyi that reports of ethnic cleansing, should they be verified, would be met with economic and military consequences.

The International Monetary Fund, in a November Article IV visit to Myanmar, cautioned that growth in gross domestic product would come in at only around 6% for the 2016-17 fiscal year, with bad weather hurting dominant agriculture and construction project slowdown.

The IMF added that the impacts on tourism and investment of the humanitarian emergency had yet to be felt and might be “localized,” but cited risks “tilted to the downside” from banking-sector and other uncompleted reforms. They have prevented the country’s integration into the global value chain and poverty reduction notwithstanding the refugee scrutiny, and the IMF urged a “well-sequenced second wave” of liberalization and infrastructure development for viable frontier market status.

Critics believe that FDI has been sluggish since Suu Kyi’s National League for Democracy assumed a parliamentary majority in the civilian transition early last year and then unveiled a dozen-point economic plan with scant detail

GDP growth above 6.5% is projected next year on inflation at the same level, and the current-account deficit should shrink by 1 percentage point to 4% of output. The shortfall has been covered chiefly by foreign direct investment (FDI), and reserves at three months’ imports and the exchange rate are “broadly stable,” according to the report.

Critics believe that FDI has been sluggish since Suu Kyi’s National League for Democracy assumed a parliamentary majority in the civilian transition early last year and then unveiled a dozen-point economic plan with scant detail. The IMF estimates investment at US$4 billion to $5 billion this year with large data gaps, after a previous spurt on one-time hydrocarbon and telecoms ventures.

The army, which still controls one-quarter of legislative seats, key security ministries and strategic state enterprises, also holds sway over economic policy, described as “sick” by the chief adviser to the former junta, U Myint. He has expressed skepticism over meeting the end-decade per-capita-income target of $1,800 or even catching up and competing with poverty-stricken socialist neighbor Laos.

Dr Myint’s vision is private-sector-led with a defined social safety net for the disadvantaged, in contrast with the “low delivery and expectations” he associates with Suu Kyi’s administration. Ruling-party leaders like Lay Nyunt on the Economic Committee have urged agricultural-export diversification and central-bank independence under internal “frustrations,” while asking the international community for patience under existing political and technical limits.

Amid fanfare last week, President Htin Kyaw signed the long-awaited updated Companies Act, replacing century-old provisions, enabling a 35% foreign-ownership stake in domestic counterparts and authorizing trading on the Yangon Stock Exchange.

It modernizes corporate governance and minority-shareholder rights, with an automated registry to be in place with Asian Development Bank assistance. Previously only selected industries such as building materials and car distribution were open to outsiders, and a companion 1940 law barred non-resident equity sales.

However, officials indicated that implementation rules could take another nine months, and lawyers representing overseas investors lamented “missed opportunity” from the delay.

The same pattern applied to new central-bank rules for “overdraft” loans, 70% of the $9 billion total, which are made on preferential terms or indefinitely rolled over to lock in customers. Originally they were to be cleaned up under a six-month deadline, now extended to three years, since executives from the industry’s two dozen institutions raised the specter of widespread runs with an immediate crackdown.

Amid the standoff, five new state-sector specific lenders in farming, mining and tourism were approved, which will worsen allocation to favored clients. The central bank itself is forced to finance the budget deficit of nearly 5% of GDP, as a historic  hostage to financial-system inertia alongside the stock market.

Gary Kleiman

Pioneer and recognized expert in the field of global emerging economies and financial markets. Founder of first consulting firm dedicated to providing independent analysis and advice to public and private sector clients in 1987, and research coverage and firsthand experience covers 75 countries in all developing regions. Advisor on financial vulnerability issues, risk management, portfolio allocation, and financial sector and capital markets strategy and development.