Myanmar's central bank plans to implement an independent monetary policy in the first half of next year to keep prices and banks stable as investors prepare to inject money into the former military regime.
Parliament will consider a law as early as next month that will expand the Central Bank of Myanmar's authority and independence, Deputy Governor Maung Maung Win said in an interview on Sept 14. The International Monetary Fund and Bank of Thailand will also soon complete training programs for Myanmar officials, he said.
"We are late so we have to do hard work," Maung Maung Win said in the bank's Yangon office. "When our training programs finish, we can target our inflation, we can target our foreign- exchange market."
Myanmar officials are preparing to take control of a financial system largely run on informal cash transactions as companies such as Western Union Co (WU) and Coca-Cola Co announce plans to operate in the country. Foreign-exchange transactions have started to shift from informal markets to banks after a managed float of the currency in April and the easing of restrictions on importers and exporters last month, Maung Maung Win said.
Authorised banks now handle about US$2 million per day in foreign-exchange transactions, compared with about $5 million in informal markets, he said. The central bank wants to eliminate unofficial trades before Myanmar hosts the Southeast Asian Games in December 2013, giving authorities more control as foreign companies prepare millions of dollars in investments.'
Capital Surge
"I do worry about that," Maung Maung Win said, referring to the impact of an expected surge of capital into Myanmar. "At that time, if the inflows are much, our currency will appreciate much. We have to do our best and negotiate with other ministries, other institutions to overcome that challenge."
The kyat has weakened 5.2% since the April float to 860 per dollar on Sept 14, the worst performer among Southeast Asian countries in that period, according to data compiled by Bloomberg. The central bank and government need to work together to keep the currency stable, and one way is by saving natural- resource proceeds to provide a reserve cushion, Meral Karasulu, an IMF official advising Myanmar, told an investment seminar in the capital Naypyidaw last week.
"There is a lot of structural and fiscal reform that waits to be done so all of these inflows ensure the economy benefits from it without significant negative implications for the exchange rate," she said. "The role is beyond the central bank."
Democracy Shift
President Thein Sein has shifted Myanmar toward democracy since he took office last year to end about five decades of direct military rule. He is seeking to create jobs ahead of an election in 2015 that will include former political prisoner Aung San Suu Kyi's National League for Democracy party.
Government policies such as a move last year to import more cars also play a role in managing the currency, Maung Maung Win said. While exporters are pushing for a dollar to fetch between 900 and 1,000 kyat to keep their goods competitive, the central bank will also take into consideration the views of importers and the rural population, he said.
Monetary policy and financial stability committees will be established once the new law is passed, Maung Maung Win said. International reserves can cover 10.5 months of imports, he said, compared with an IMF estimate of $9.9 billion for the fiscal year ending April 2013, or 9.7 months of imports.
Annual Growth
Myanmar's economy may grow as much as 8% annually if policy makers keep prices under control, increase trade and attract investment, the Asian Development Bank said last month. About a quarter of the country's 64 million people have access to electricity, while mobile-phone and Internet usage is among the lowest in Southeast Asia, the ADB said.
The central bank is a department under the Finance Ministry, and its main function is printing money to fund fiscal deficits. While bond sales financed about 46% of the budget deficit in the fiscal year that ended in April, the rest was monetized, according to the IMF.
The IMF expects the fiscal deficit to narrow as authorities expand one of the lowest tax bases in Asia, eventually reaching a balanced budget in 2031. The inflation rate, forecast to average 5.8% this fiscal year, is projected to stabilize at 3.5% over the long term, it said in a May report.
Foreign Banks
The government will allow foreign banks to enter joint ventures with local lenders next year, Maung Maung Win said, followed eventually by incorporated subsidiaries and full branches. The ownership percentage will depend on the new foreign investment bill that has been passed by parliament and is awaiting the president’s approval, he said.
Myanmar has made it easier for its citizens to move money this year, introducing debit cards to pay for local goods and authorising several private banks to accept remittances from migrant workers in Thailand, Malaysia and Singapore. Foreign companies can transfer funds to Myanmar through four state-run banks, and that privilege may soon be extended to private lenders, Maung Maung Win said.
"We try our best with the systems of international organisations and neighbouring countries," he said. "Myanmar will grow because of the new government’s opening-up policy."