Myanmar Central Bank Revamp to End Army Legacy: Southeast Asia

The Central Bank of Myanmar will undergo its biggest revamp since the military junta set it up in 1990 as lawmakers prepare to vote on a bill that would allow it to conduct an independent monetary policy.

The proposed legislation, drafted with the help of Japan, Thailand, the International Monetary Fund, World Bank and Asian Development Bank, will pass with only “superficial changes” in parliament, according to Win Myint, a lawmaker who sits on the bank’s monetary affairs development committee. President Thein Sein may sign the bill next month, he said.

Previously “only military officers were appointed to the central bank,” Win Myint said in an interview in Naypyidaw on Feb. 5. “Since they came from the military, they only received military management training. Now we are looking for experts in monetary policy, the banking sector and economic development.”

Finding the right talent poses one of the central bank’s biggest challenges as it shifts from serving as the finance ministry’s money-printing arm into an autonomous authority responsible for macroeconomic stability. Thein Sein dismantled a fixed exchange rate last year and moved to clear $11 billion in bad debts as the country reconnects with the global financial system following about five decades of military rule.

“We are looking at a new law, a new institution,” Anoop Singh, who heads the IMF’s Asia and Pacific Department, said on Feb. 5 in Naypyidaw, where he met with government leaders. “We expect more autonomy and new staff. This is big for any country -- it’s particularly big for a country that is emerging from years and years of being a closed economy.”

Student Protest

The IMF plans to open a representative office in Myanmar with as many as four technical experts based in the country to assist the central bank in its transition, Singh said. The World Bank and ADB opened offices in Yangon last year.

Myanmar’s central bank is now governed by a law signed by Senior-General Saw Maung in 1990, two years after troops quashed student-led protests for greater democracy, a crackdown that Human Rights Watch said killed an estimated 3,000 people over seven months. Thein Sein, a former general who took power after 2010 elections that ended direct military rule, has sought to reconcile with political opponents, ease media restrictions and eliminate economic distortions.

The shift prompted the U.S. and European Union to ease sanctions on Myanmar and allow development banks to re-engage in the country of 64 million people, which is among Asia’s poorest. The central bank will soon allow foreign banks to set up joint ventures in the country, attracting lenders such as Standard Chartered Plc and Japan’s Mizuho Corporate Bank Ltd.

‘Not Bankers’

The central bank needs more experts to effectively implement monetary policy as foreign investors consider pouring money into the country, according to Than Lwin, a former deputy central bank governor and deputy chairman of Kanbawza Bank Ltd., one of Myanmar’s largest private lenders.

“Many officials at the central bank are not bankers,” he said in an interview. “We have to substitute. People who are not bankers should not come and work as a banker. It is not good to change careers because it’s difficult for training.”

When the new law takes effect, the central bank plans to double its staff and set up new departments, according to Khin Saw Oo, head of the Financial Institutions Regulation and Anti-Money Laundering Department. She acknowledged that many central bank officials have a military background.

Economists Needed

The law will include a requirement for all board members to have expertise in areas relevant to central banking, she said. The bank is looking to recruit lawyers, accountants, auditors and economists who have master’s degrees, said Khin Saw Oo, who has worked at the central bank since receiving a master’s degree from Columbia University in New York.

“In the near future our people can take this responsibility effectively,” she said Feb. 5 at the bank’s headquarters in Naypyidaw, where a gold-plated sign saying “Ministry of Finance and Revenue” hangs in the lobby.

“We will be separated from the finance ministry, and the central bank will be an independent body to exercise its own powers,” Khin Saw Oo said. “We will stop the direct deficit financing, but we will conduct open market operations.”

The central bank is now monetizing about 40 percent of the government’s fiscal deficits, she said. The deficit may fall to 5.25 percent in the fiscal year ending March 31, from 6 percent a year earlier, as higher revenue from state enterprises using the market-based exchange rate offsets increased spending on health, education and infrastructure, according to the IMF.

Energy, Infrastructure

Myanmar’s economy may grow 6.3 percent in the fiscal year ending March 31, up from 5.5 percent a year earlier, and growth may reach about 7 percent over the next five years if reforms continue, the IMF said in a report last month. It called on Myanmar to limit non-concessional external borrowing to financing energy and infrastructure projects, and cap it at $2 billion for 2013.

The kyat traded at 856 per dollar on Feb. 5, down 4.8 percent from April, when the managed float took effect. Capital inflows will intensify over the coming year as investors seek ways to capitalize on Myanmar’s economic opening, making it more crucial for the central bank to strengthen its ability to conduct currency and exchange operations, according to Matt Davies, the IMF’s mission chief for Myanmar.

“There’s an acknowledgment among the authorities that they need expertise, and they will make use of what’s available within the country and outside,” Davies said on Feb. 5. “They are very eager for advice.”

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