Money in Myan­mar. Safety first.

Mizzima Business Weekly - - Editorial -

Money and the way peo­ple han­dle it are an awk­ward story in Myan­mar. Five decades of mil­i­tary rule have trans­formed peo­ple’s at­ti­tudes to their per­sonal and business fi­nances. Burma - as it used to be called – stood as a strong trad­ing na­tion and the big­gest rice ex­porter in the re­gion on the cusp of in­de­pen­dence, but was trans­formed into an in­ward-look­ing, fear-driven so­ci­ety.

The mon­e­tary poli­cies of a suc­ces­sion of mil­i­tary gov­ern­ments didn’t do much to in­still trust in Myan­mar’s cur­rency, the kyat. The kyat was pegged to the dol­lar at an un­re­al­is­tic rate (6 kyat to the dol­lar) that over­val­ued the na­tional coin grossly thereby cre­at­ing a thriv­ing black money mar­ket. Worse were the de­mon­e­ti­za­tions, some­times in­spired by as­trologers and in some cases prompted by hon­est at­tempts to tackle the in­for­mal econ­omy, although vir­tu­ally bound to fail with­out sound mon­e­tary poli­cies to match the ef­fort.

The 50 and 100 kyat notes were de­mon­e­tized in May 1964, but it was the de­mon­e­ti­za­tion of 1987 that re­ally crip­pled the Myan­mar econ­omy and dealt a ma­jor blow to con­fi­dence in the gov­ern­ment’s eco­nomic man­age­ment. Sud­denly 60 per­cent of all pa­per money and the sav­ings of many peo­ple were ren­dered use­less. In com­bi­na­tion with ex­plod­ing rice prices, this was one of the eco­nomic driv­ers be­hind the na­tion­wide protests that erupted in 1988.

Then in early 2003, Myan­mar suf­fered a ma­jor bank­ing cri­sis. The cri­sis was trig­gered by the col­lapse of in­for­mal fi­nance com­pa­nies, the so-called A-Ky-oe-Saung-Lou-Ngan, and spread to the for­mal fi­nan­cial sec­tor, when fear-in­spired bank runs re­sulted in the down­fall of a num­ber of banks and a liq­uid­ity cri­sis. The after ef­fects are still felt to­day. Con­fi­dence in Myan­mar banks has never re­ally re­cov­ered.

As a re­sult of the trou­bled fi­nan­cial re­cent past, trans­ac­tions in Myan­mar are still car­ried out us­ing cash. Salaries are paid in cash, and money is kept un­der ma­tresses, in­stead of keep­ing it in a cur­rent or sav­ings ac­count. As a re­sult banks have to make do with a very limited money sup­ply. They are hard-pressed to fuel Myan­mar’s eco­nomic growth by sup­ply­ing loans to emerg­ing com­pa­nies in need of fi­nance.

“Safety first” rules the real es­tate mar­ket as well. Prop­erty own­ers hold on to their prized pos­ses­sion in the hope that at some time in the fu­ture they might reap mas­sive ben­e­fits. Of­ten the own­ers lack the means and the knowl­edge to de­velop prop­er­ties them­selves, re­sult­ing in di­lap­i­da­tion and low mo­bil­ity. Mean­while, limited sup­ply in­flates prop­erty prices beyond rea­son­able lev­els, which in turn strength­ens the belief of “house hoard­ers” in the wis­dom of cling­ing to their prop­er­ties a lit­tle longer. Call it delu­sional, as at some point the bub­ble will burst.

Op­ti­mism, how­ever, is buoy­ing Myan­mar’s po­lit­i­cal and eco­nomic tran­si­tion. In Oc­to­ber, the Cen­tral Bank asked banks to start ac­cept­ing less-than-per­fect dol­lar notes – will ex­pa­tri­ates fi­nally be able to use their CB-num­bered notes? Ques­tions hang over the hundi, the in­for­mal sys­tem that helps peo­ple make long-dis­tance pay­ments. How long will this sur­vive? Sev­eral banks are au­tomat­ing their sys­tems after cen­turies of ex­clu­sively us­ing hand-writ­ten ledgers. ATMs are on the rise, in­ter­net bank­ing will ar­rive late this year or in early 2015, and the ar­rival of for­eign banks will prompt do­mes­tic fi­nan­cial in­sti­tu­tions to up their game.

Ul­ti­mately trust is the key. The dam­age of fifty years can’t be un­done in a day. Harm­ful mem­o­ries can only be un­done by con­sis­tency and ex­pe­ri­ence. If the Myan­mar gov­ern­ment and the Cen­tral Bank of Myan­mar re­peat­edly prove they are worth the trust of cit­i­zens by cou­pling sound mon­e­tary poli­cies with de­cent bank­ing reg­u­la­tion, and the Cen­tral Bank ac­tu­ally sup­ports banks when they are in trou­ble - an el­e­ment sorely missed in the 2003 cri­sis - at some point the mo­men­tum will pick up.

When peo­ple start trust­ing banks, they will start to save. Banks will fi­nally be able to play their role as cat­a­lysts.

Only then will Myan­mar live up to its eco­nomic po­ten­tial.

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