Abstract
The economy of Myanmar in the first part of the twenty-first century has been typified by drastic reforms. Since the middle of 2011, Thein Sein’s new government moved forward to engage in economic reforms under the newly established parliamentary system. Observing this new trend, the international community started to cooperate with the reforms, and various economic cooperation projects and development research projects were initiated.
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Notes
- 1.
For the studies on specific sectors in the junta period, please refer to Turnell (2009) for the financial sector, Kudo and Mieno (2009) for trade and FDI, and Kubo (2007) for price and currency. As a work for understanding the whole picture of Myanmar economy, Fujita et al. (2009) and author’s papers published in the book provide the bases of this chapter.
- 2.
- 3.
In June 2012, he reshuffled the cabinet to promote major pro-reform members to higher positions.
- 4.
- 5.
The ratio of tax revenue to GDP was apparently low by international comparison. According to Tanzi and Zee (2000), the rate in 1995–1997 was 37.9 % in OECD member countries and 18.2 % in developing countries on average.
- 6.
- 7.
Kiryu and Nishizawa (1996) report that the market rate in 1994 was 100–120 kyat against the US dollar and interpret the system as a part of the scheme for protecting SOEs. Until the mid 1990s, the level of the divergence between the official and market rate was moderate. During that period, the system may have functioned better to protect SOEs compared to that in 2000s when the level diverged unrealistically.
- 8.
Such a transaction custom persisted until the foreign exchange reform in 2012 and is regarded as one of major causes for high transaction costs in the foreign exchange market. But the real picture has been barely revealed due to lack of systematic research. The Box section of this chapter reports a snapshot of such transactions based on a survey conducted in 2009.
- 9.
Such a process occurred in Thailand in the 1950s, Russia in the 1990s, and Cambodia in the 2000s, for example.
- 10.
According to an interview by one of the authors to a representative bank in 2004 and 2009, the major income source of the banking business at those times was mostly from the fees of domestic remittances.
- 11.
Wang (2004), for further details.
- 12.
For details, see Kubo et al. (2009).
- 13.
Furthermore, it is possible to see that growth biased toward the nonmanufacturing sector may have worked as a distant factor in the asset bubble and resulting bank run in the early 2000s.
- 14.
This survey was commissioned by the Myanmar Survey Research (MSR) Co., Ltd., with the assistance of the Japan International Cooperation Agency (JICA), Yangon Office.
- 15.
“Related firms” include firms owned by the same company.
- 16.
It should be taken into account that when this survey was conducted in 2009, conditions in the black market were favorable for buyers of “export-earning foreign currencies.” As growth in private exports was robust, this made it easier for buyers to find suppliers of export earnings.
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Appendix
Appendix
The Foreign Exchange Transaction in the Private Sector before the Reform
Under the repressed foreign exchange market system, the private sector seemed highly exploited. In practice, however, the private sector might have adjusted itself well to the regulations to overcome the unfavorable conditions. In order to see the behavior of private firms in the black market for foreign exchange, we conducted a survey of private importers in Yangon DivisionFootnote 14 between August and November of 2009.
The sample of firms surveyed was selected from the 294 largest private importers whose imports exceeded US$1 million in 2008 according to Myanmar customs records. Out of 100 firms surveyed, 95 provided answers (firms were not selected at random, but based on their consent and availability for interviews).
Among the different categories of foreign exchange transactions in the black market, this survey focused on export-tax-deducted export-earning transactions. It was legal at the period of the survey for private exporters to hold export earnings as foreign currency deposits (FCDs) and sell them to importers through account transfers. Transactions in the black market included illicitly held foreign currency in the form of cash and deposits in foreign countries. Because the firms interviewed would not disclose information on illicit foreign exchange transactions, these were eliminated from the survey. As will be shown, “export-earning foreign currencies” are mostly traded through direct negotiations between buyers and suppliers.
Firstly, Table 3.7 summarizes the sources of “export-earning foreign currencies” for the private importers surveyed. Only 17 out of 95 firms acquired “export-earning foreign currencies” through their own or related firms.Footnote 15 The remainder (78 firms) acquired them either through brokers or directly from exporters. This indicates that 80 % of the firms surveyed depended on the black market as a source of “export-earning foreign currencies.” While smaller firms appeared to be more dependent on the black market, 75 % of import firms whose imports exceeded US$5 million in 2008 also acquired “export-earning foreign currencies” from the market. Regarding the number of suppliers from which an importer acquired “export-earning foreign currencies” in 2008, the median number is 4.
Secondly, for 78 of the firms who purchased “export-earning foreign currencies,” the survey asked what sources of information they would use to find an alternative supplier of export earnings. Table 3.8 summarizes the results. Companies with whom they had an existing business relationship were more popular as a source of information than brokers. In this regard, there is no notable difference between large and small importers.
Compared with actual sources of “export-earning foreign currencies” (Table 3.7), the proportion of brokers as a source of information for alternative suppliers is higher in Table 3.8. This suggests that an importer and an exporter enter into a transaction for the first time using a broker as an intermediary and then engage in a direct transaction subsequently.
Brokers play various roles in foreign exchange transactions. Introducing a supplier to a buyer (and vice versa) is one of their functions. Another is providing price information. Brokers also often guarantee the enforcement of contracts: As both suppliers and buyers run the risk that their counterparty will default on the contract, brokers provide a guarantee by taking advantage of the information they have on each supplier and buyer. This guarantee might be the reason why some firms surveyed regularly use brokers rather than engage in direct transactions with suppliers.
Third, the survey asked how long it took for the firms surveyed to find alternative suppliers. The results are summarized in Table 3.9. Among the 78 surveyed firms that acquired “export-earning foreign currencies” outside their company, all firms except one answered that they could find an alternative supplier within 1 day; meanwhile, 61 surveyed firms answered that they could find one within several hours. This implies that transactions of export earnings in the black market were smooth.Footnote 16
The fact that the majority of the firms surveyed could immediately find alternative suppliers implies that they did not have to depend on a long-term relationship with a fixed supplier. This suggests that the price of “export-earning foreign currencies” (the black market exchange rate) was determined competitively. The fact may suggest that the foreign exchange black market achieved efficient functioning to a degree.
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Mieno, F., Kubo, K. (2016). Growth Structure and Macroeconomy Under Twenty Years of Junta Regime in Myanmar. In: Odaka, K. (eds) The Myanmar Economy. Springer, Tokyo. https://doi.org/10.1007/978-4-431-55735-7_3
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