December 11, 2012
Burma Reforms Financial Controls Seeking Growth
Burma's financial sector suffered years of mismanagement under military rule. But more recently, the government has pushed through economic reforms that are remaking banks and revitalizing businesses.
Nyi Nyi owns a papier mache workshop in Rangoon, where he and his family make toys. In the past, he invested his savings in gold and stashed it in a hiding place, but he's not doing that any more.
"I just keep my money and use it when I need it," said Nyi Nyi. "But my wife uses the bank. If I have one lakh, I give her 30 or 40,000 kyats for household things and for saving."
With clients buying his toys from as far away as Hong Kong, Nyi Nyi's business is international, but Burma's banks still are not. To process foreign transactions, he still relies on informal money transfers through middlemen called "hondis."
Foreign visitors once relied on black market money changers and hondis are still the main method for international money transfers. But the government hopes this informal cash-based economy is ending with new ATMs and foreign exchange licenses for private banks.
Before the military government took over in 1962, Burma's economy was the best-performing in Southeast Asia. Decades of tight state controls, widespread corruption and international sanctions have left it one of the poorest countries in the region.
Economist Sean Turnell says turning the economy around will require significant moves against corruption. That's why he says political change is key to economic reform.
"At present the most destructive regulation is the one that restricts access to foreign exchange and restricts access to import licenses," noted Turnell. "Because the effect of that is not only to restrict the amount of imports that come into this country, and it really needs a lot of imports, but there's an added effect to it and that is that it keeps the exchange rate artificially high."
Burmese authorities have done away with the old official exchange rate, which pegged the Burmese currency at 6 Kyat to the dollar, while the black market rate was over 800 Kyat to the dollar. There are also plans to loosen import restrictions and set up foreign investment laws.
The hope is these changes will allow the country to recapture its past economic glory. Than Lwin is a presidential advisor, as well as the deputy chair of the largest private bank in Burma, which plans to soon begin offering credit cards.
"Being a latecomer we have to speed up; we have to leapfrog," said Lwin. "This is very important. So what we have to do is to bring out all these new products in the picture, just to be in line with the ASEAN region. 2015 will be the target date for ASEAN integration. We are very keen to see that we keep the promise."
With foreign investors, businesses and tourists all eyeing the newly opened country, authorities hope the new banks and regulations will clean up its decades-old image of corruption and cronyism.