Monday, September 21, 2015

IMF calls Central Bank of Myanmar's capacity “weak”

Buying and selling of Hpakant jade from Burma's northern kachin state es often done by Chinese Yuan rather than Burmese kyat

In a country update released on Friday the International Monetary Fund (IMF) warned that the Central Bank of Myanmar's (CBM) “regulatory and supervisory capacity is still relatively weak”. The Washington based organization did however praise what it described as the “ongoing liberalization of the financial sector” which includes the recent Burmese government's decision to allow 9 foreign owned banks to operate inside the country.

Despite the praise the IMF however remains concerned about the CBM's management. “The CBM should speed up the issuance of remaining prudential instructions and the strengthening of its supervisory capacity”, noted the IMF's latest report on Burma which was released following the IMF recent conclusions of what the group call its 2015 Article IV consultations with their Burmese counterparts.

Whether the CBM and the Burmese Ministry of Finance will dutifully implement the IMF's demands to the letter remains to be seen. Burma underwent a serious banking crisis in 2003 when several banks collapsed in spectacular fashion. A financial disaster blamed on mismanagement and incompetence by Burma's then military rulers, CBM officials and greedy junta cronies.

The IMF is not without its own critics and has over the years been called out by economists and development experts for pressuring the governments of Africa, Latin America and Asia to implement policies that the IMF's detractors say favor large multinational firms and the priorities of western government's over the interests of local people in particular small scale farmers and the poor. As result of a long standing gentleman's agreement between the US and Europe the IMF is only ever led by Europeans. A practice that came under some unexpected attention when then IMF managing director Dominique Strauss-Kahn was arrested and charged with sexual assault in New York in May 2011.

IMF blames macroeconomic policies for kyat's slide

Under IMF and World Bank guidance Burma has over the past few years started to reform much of the economy, further opening it up to the global market. This has included scrapping previous attempts at running a fixed exchange rate.

In its latest report the IMF noted that the Burmese kyat had lost about 20 percent of its value against the US dollar over the past year. "The current downward pressure on the kyat is largely a result of macroeconomic policy inconsistency. Monetary and fiscal policies are too loose to anchor the exchange rate expectations, although external shocks have also played a role. Under the current macroeconomic policy settings, resisting depreciation pressure could lead to a quick rundown of reserves," the IMF concluded.

In recent months the CBM has attempted to limit what has been described as the dollarization of Burmese economy where by salaries and other payments are made in US dollars which leads to further deprecation of the kyat. This effort appears to have been largely unsuccessful so far with the dollar still being widely used across the country including in Kachin state.

In much of Kachin and northern Shan states in particular along the border areas, China's Renminbi is the currency of choice. The buying and selling of Kachin jade and timber is often done in Chinese currency, in part because the Burmese currency's largest denomination the 10,000 kyat bill is less than 8$, which makes the handing over of large sums kyat in informal settings particularly unwieldy.


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