Burmese economic reform faces obstacles at home and abroad

Burma’s finance minister Hla Tun told the annual meeting of the World Bank/IMF in Washington last Friday that the new civilian government, which replaced the junta in March this year, was fully committed to measures for economic reform.
“The major thrust of these measures is to establish transparency and accountability at all levels of government,” he said. “The policy focus of the elected government is based on the twin objectives of economic management and poverty alleviation.”
Burma faced decades of economic hardship due to mismanagement and political instability under the military regime that ran the country from 1988 until elections in November last year.
Among current serious economic problems is the appreciation of the kyat, which has surged 20-25 per cent from 1,000 kyat per US dollar last year to 750-800 kyat/$ this year. The appreciation, caused by speculators’ high demand for kyat,  has hit exports as well as the daily life of local residents.
The country has also been suffering the effects of a multi-rate currency exchange regime for decades. The official exchange rate is set at 6 kyat/$ while the market rate varies between 800 and 1,000 kyat/$.
Burma approached the IMF for technical assistance in exchange rate management. The country needs policy advice and training in order to unify its exchange rate. The IMF has a mandate to monitor the economic, financial and exchange rate policies of its members in order to ensure the effective operation of the international monetary system, but political restrictions have limited this monitoring in Burma’s case.
Hla Tun said his government had received some assistance over exchange rate management from the IMF but he expected to have more technical and financial cooperation to support economic development programmes. “We believe they can provide a parallel role in our future prosperity,” he said.
Despite Burma’s need for such assistance, there remain serious obstacles, according to an updated report by the International Crisis Group (ICG) entitled “Myanmar (Burma): Major Reform Underway”. Western donors, who would be obvious providers, remain extremely cautious about the kind of help they will offer, the ICG report said. This caution has also impacted multilateral assistance from other international organisations.
Legal constraints such as sanctions from the US and the European Union prevent international organisations from providing assistance in terms of loans and development aid to Burma.
However, the ICG argues that there are many other forms of assistance which international organisations and financiers could provide to Burma, such as policy advice and technical help to support reform in the country.
Western countries might doubt whether Burma is serious about reform, as they have not seen dramatic changes over the past months, but the ICG believes the new set of leaders are working for positive change.
Since becoming president, Thein Sein, who was prime minister in the junta regime, has stepped up measures for economic reform. He appointed prominent economist U Myint, who is also advising Nobel Laureate Aung San Suu Kyi, as the head of his economic advisory committee. U Myint has worked closely with Thein Sein to advise on ways of coping with the appreciation of the kyat over the past few months. The government has eased economic restrictions, reduced export taxes and cut the interest rate to tackle the currency problems.
It was U Myint who suggested that Thein Sein ask the IMF for assistance in handling the exchange rate regime and the move to a unified rate.
In July, the government announced a large increase in pensions to improve the lives of 840,000 pensioners and, by association, the millions of family members who relied on such payments, the ICG reported.
The government has already implemented its five-year plan for 2011-2015 which aims to generate 8.8 per cent economic growth in the next five years. Hla Tun also told the IMF/World Bank meeting that his government had adopted many measures for the fiscal and banking sector.
The ICG report, however, sounded a word of caution, noting that reform in Burma is a fundamental task that required strong political will and courage to overcome difficult hurdles and achieve deep and lasting positive change. Officials who benefit from status quo might resist reform, while red tape in bureaucracy, administrative rivalries and factions in the military and politics would also be major obstacles.