Breaking News

French Planes Carry Out First Strikes on Iraq Islamic State Targets
Tweet TWEET

IMF Says Myanmar Plans to Ease Trade Flows by End-2013

Myanmar plans to scrap all restrictions on international payments and transfers before the end of 2013, the International Monetary Fund said, making it easier for companies to buy and sell goods in the country.

The government expects to complete the unification of multiple exchange rates within the same period after it adopted a managed float for the kyat last month, the Washington-based lender said in a report known as an Article IV Consultation. Lifting restrictions too soon risks a flood of imports, according to Meral Karasulu, the IMF’s Myanmar mission chief.

Moving too fast “would certainly create a significant drain on the exchange reserves of the country,” she told reporters in a conference call today. “It would further undermine probably the quite nascent domestic industries because they aren’t really competitive and now they would also face even more competition from international trade.”

Myanmar’s central bank scrapped a 35-year fixed exchange rate system in April, the biggest financial market policy shift after President Thein Sein took power a year ago. Moves toward greater democracy since then have prompted the U.S. and European Union to ease sanctions, leading investors to scout opportunities in the Asian nation of 64 million people.

Managing Reserves

Authorities implemented the managed float of the kyat “quite successfully” and are now working to free up capital flows and establish a monetary policy framework, Karasulu said today. The IMF is helping to draft a law to govern the Central Bank of Myanmar and has recommended it handle all central banking functions, including managing reserves, a task now mostly handled by three state-run banks, she said.

“The management of reserves in Myanmar is not up to par with regards to best practices,” she said. “They have been managing them extremely conservatively in simple accounts. So they could have made more money.”

Gross official reserves are projected to rise to $9.9 billion in the 2012-2013 fiscal year, up from $3.1 billion in 2007-2008, the IMF said. The institution is also helping to resolve Myanmar’s overdue debts, which authorities estimate at about $5.7 billion, Karasulu said.

“The international reserves of the country remain quite comfortable and if anything, we do expect those to even get better because there are significant new natural gas projects that would increase the foreign exchange revenues,” she said. “We certainly do not see any complications with regards to the external balance of payment needs.”

China, India

Bordering China and India and with the second-largest land area in Southeast Asia behind Indonesia, Myanmar’s resources include rubber and natural gas, as well as deposits of gold, copper and gemstones. Gross domestic product will increase 5.5 percent in financial year 2011-2012, and 6 percent the following period, the IMF estimates.

“Myanmar could see strong growth if it pursues the necessary reforms to take advantage of its rich natural resources, young labor force, and proximity to some of the world’s most dynamic economies, including China and India,” Karasulu said in a statement accompanying the report.

The discussions with Myanmar officials took place in January and the report was prepared in March. It’s the first time the government has agreed to make the annual assessment public, the fund said.

Less Military Spending

Thein Sein has moved to reconnect Myanmar with the West since taking power 14 months ago, including releasing political prisoners and convincing opposition leader Aung San Suu Kyi to rejoin the political process. The government has increased spending on education and health, and plans to reduce military outlays to 14.5 percent of gross domestic product from 23.5 percent, the IMF said.

IMF economists said rapid changes in Myanmar on a large scale could make potential mistakes “very costly.” The government needs to prioritize reforms even as the planned changes would take time to implement, they said.

“Drastic, over-reaching reforms in many policy areas may not be realistic, given the capacity constraints and the need to coordinate across various institutions,” Karasulu said.

The multiple exchange rate system increases transaction costs, discourages foreign direct investment and trade, encourages informal activity, and has put appreciation pressure on the kyat, the IMF said. The government has targeted removing it before it hosts the Southeast Asian Games in 2013, it said.

To contact the reporters on this story: Shamim Adam in Singapore at sadam2@bloomberg.net; Daniel Ten Kate in Bangkok at dtenkate@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.