Burma Must Brace For Post-Sanctions Cash Deluge

Agenda-Setting Financial Insight.
May 18 2012 3:02 PM

Burma Must Brace For Post-Sanctions Cash Deluge

144650325
A Burmavendor sells fruits at a train station in Yangon on May 17, 2012. After 50 years of isolation, Myanmar now faces the "danger" of being deluged by foreign cash.

Photo by Soe Than WIN/AFP/GettyImages

After 50 years of isolation, Burma now faces the danger of being deluged by foreign cash. With U.S. sanctions suspended, it is open season for investment. While inadequate legal and financial infrastructure is unlikely to deter them, they’ll need to work with authorities to make sure their cash doesn’t fuel inflation, inequality and corruption.

Rich in gems, timber and natural gas, Burma needs just about everything else: modern consumer goods, hospitals and schools, roads and phone systems, banks, power plants and hotels. And though the global economy may be sputtering, Burma’s GDP is growing at roughly 10 percent. Clearing away sanctions altogether will take time, but the suspension frees foreign investors to seal deals in the hope that Burma doesn’t backslide on political reform.

Advertisement

Great care is required, though. Would-be investors may be surprised to find payments still conducted using pallets of cash. ATMs are not linked, credit cards still a novelty. With the economy dominated by state enterprises, banks have little experience in commercial finance. And the law still requires that imports be paid for in export receipts.

Burma appears keen to encourage foreign-owned ventures and reward them with tax holidays, but it has yet to publish finalised laws or implementing regulations. Its judiciary is not independent and official corruption is rife. Property rights are murky and land grabs increasingly common. Keeping corruption in check may require hiring independent auditors to keep public contracts above suspicion. And for UK and U.S. investors whose governments prosecute corruption abroad, venturing into Burma will mean laying a paper trail visible from London and Washington.

The IMF estimates that foreign direct investment will soar roughly 50 percent this year to $3.4 billion, equivalent to roughly 7 percent of GDP. But incoming foreign-exchange is managed by state banks, not the central bank, which has few tools to mitigate the inflationary impact of such inflows. Burma has floated its currency, the kyat, doing away with a system that valued it 120 times the black-market rate. The IMF reckons the kyat is still overvalued and demand from foreign investors is likely to push it even higher.

In the context of what went before, these are good problems to have. But Burma, and its potential investors, must brace themselves for a post-sanctions cash deluge. 

Read more at Reuters Breakingviews.

TODAY IN SLATE

Politics

Blacks Don’t Have a Corporal Punishment Problem

Americans do. But when blacks exhibit the same behaviors as others, it becomes part of a greater black pathology. 

I Bought the Huge iPhone. I’m Already Thinking of Returning It.

Scotland Is Just the Beginning. Expect More Political Earthquakes in Europe.

Lifetime Didn’t Think the Steubenville Rape Case Was Dramatic Enough

So they added a little self-immolation.

Two Damn Good, Very Different Movies About Soldiers Returning From War

Medical Examiner

The Most Terrifying Thing About Ebola 

The disease threatens humanity by preying on humanity.

Students Aren’t Going to College Football Games as Much Anymore, and Schools Are Getting Worried

The Good Wife Is Cynical, Thrilling, and Grown-Up. It’s Also TV’s Best Drama.

  News & Politics
Weigel
Sept. 20 2014 11:13 AM -30-
  Business
Business Insider
Sept. 20 2014 6:30 AM The Man Making Bill Gates Richer
  Life
Quora
Sept. 20 2014 7:27 AM How Do Plants Grow Aboard the International Space Station?
  Double X
The XX Factor
Sept. 19 2014 4:58 PM Steubenville Gets the Lifetime Treatment (And a Cheerleader Erupts Into Flames)
  Slate Plus
Slate Picks
Sept. 19 2014 12:00 PM What Happened at Slate This Week? The Slatest editor tells us to read well-informed skepticism, media criticism, and more.
  Arts
Brow Beat
Sept. 20 2014 3:21 PM “The More You Know (About Black People)” Uses Very Funny PSAs to Condemn Black Stereotypes
  Technology
Future Tense
Sept. 19 2014 6:31 PM The One Big Problem With the Enormous New iPhone
  Health & Science
Bad Astronomy
Sept. 20 2014 7:00 AM The Shaggy Sun
  Sports
Sports Nut
Sept. 18 2014 11:42 AM Grandmaster Clash One of the most amazing feats in chess history just happened, and no one noticed.