SIR - The recent comments of the International Monetary Fund on Myanmar’s growth trajectory, as reported by your article “Myanmar economy losing momentum, IMF warns" on Monday, deserve deep reflection.
Sluggish reform isn’t the real cause of the recent slowdown in Myanmar’s economy. The IMF’s board of directors pointed out that the Myanmar government recognises that a “business-unfriendly” environment is a major obstacle to growth. In response, the administration has come up with a number of reforms in recent years to improve the regulatory regime and create investment opportunities.
There is now greater clarity as to which products require export licensing after the “negative list” was announced by the Ministry of Commerce in February 2018. The Companies Law which went into force last August enhances protection for minority shareholders and strengthens corporate governance. In addition, under the 2017 Investment Law and the Special Economic Zone Law, the authorities guarantee protection against nationalisation and expropriation, and grant a wide range of favourable income tax exemptions and other incentives to foreign investors.
Despite the changes, there is indeed a decline in foreign direct investment (FDI) inflows. But the slowdown in economic activity is by no means attributable to the pace of reform.
The “loss in momentum”, as the Fund warned, is mainly the result of two factors: poor implementation and the perceived reputations risks owing to the Rakhine crisis.
Firstly, poor enforcement of the existing reforms has weighed on their effectiveness in the short term. Both the Companies Law and Investment Law are often implemented in an ad hoc and haphazard manner, with decisions dictated by illicit payments rather than standard practice, adding to confusion and expense for businesses. At the same time, the lack of an anti-corruption and compliance framework continues to weigh on the transparency of Myanmar’s banking sector, affecting business confidence.
Secondly, the continued fallout from the crisis in northern Rakhine greatly contributes to investor scepticism. Myanmar’s deteriorating reputation suggests that the country may struggle to strengthen its economic ties with the West over the short term. The rise in perceived risks is accompanied by a decline in the tourism market.
Despite the progress made, vested interests continue to stand in the way of meaningful structural reforms, which remain a major drag on foreign investment and prosperity. Reducing the role of the elites in Myanmar’s economy would require long-term systemic and institutional transformation over many years, rather than being addressed through piecemeal legislative changes.
Authors:Callum Furness & Mattero Vidiri, Economists