Next finance minister expected to rescue confidence, speed up bank reforms

The government has to find someone who can pick up the baton swiftly and restore confidence to an increasingly frustrated business community since U Kyaw Win has resigned as planning and finance minister. With economic reforms slowing and plummeting of investor confidence, the next office-holder needs to communicate the reform blueprint to the private sector, end ambiguity over laws and policies and revitalise the reform momentum, especially in the banking and financial sector. And all of these have to be done while the clock is ticking.

The cabinet-level position taking charge of the Ministry of Planning and Finance as well as the upcoming appointment of the new Central Bank Governor are the two most important posts in the executive being watched by investors at home and abroad, according to Nick Powell, managing partner of private equity firm Delta Capital.

The National League for Democracy-led government’s 12-point economic plan includes supporting competition and a robust private sector based on a market-oriented system by cutting down unnecessary red tape and expanding access to credit.

“We have seen some positive developments were made in the area of promotion of financial inclusion and expansion of credit to the unbanked through relaxation of regulatory restrictions in the microfinance sector by the financial regulatory department. But, more recently, the pace of reform has slowed. Clearly, access to credit across all sectors of the economy and clear regulations are important to the positive development of Myanmar,” Mr Powell observed.

European investors hope that the cabinet change would speed up sluggish reforms for the banks and prioritise the issue of easing access to financing.

“Post-initial liberalisation of banking sector, we have seen less development in financial market in Myanmar. Particularly, there has been ambiguity of how certain regulations are to be implemented and overall reform of the banking sector has also taken a backseat in Myanmar’s reform,” Nishant Choudhary, co-chair of the legal affairs advocacy group under the European Chamber of Commerce in Myanmar, commented.

Better coordination and harmonise the laws

For the Union of Myanmar Federation of Chambers of Commerce and Industry (UMFCCI), U Kyaw Win, despite his diligence and efforts, did not listen to the business community or place sufficient emphasis on delivering reforms.

“U Kyaw Win is one of the most hardworking ministers in the NLD cabinet… He tried to promote private sector development while he was in office. He seemed to understand the private sector better than any other NLD ministers.

“However, he is not a good listener and not result-oriented,” U Ye Min Aung, UMFCCI’s vice president, told The Myanmar Times.

While the minister came under fire for failing to deliver, U Ye Min Aung stressed that it is the system per se which is flawed. The most important task for U Kyaw Win’s successor is to tackle the “very weak” coordination and cooperation among ministers and their ministries and officials leading different departments.

Similarly, the lack of harmony of different legislations regulating financing presents a considerable problem for investors, according to the European chamber. A case in point is how the age-old Myanmar Stamp Act is as an impediment is easy and cheap financing, whether for a term-loan or working capital loans. An internal circular was issued by the Internal Revenue Department (IRD) in 2015 instructing that loan agreements are to be stamped as “bonds” and fall under that category of the Schedule to the Stamp Act. But this is not gazetted and thus is not a law. Yet, the practice is being “largely followed” by all stamp officials, which is “not the correct interpretation of the law or general understand of difference between a bond and a loan agreement”.

Because of that circular, all loan agreements are being charged with 0.5 percent of the loan amount, making the sector “highly prohibitive”, according to Mr Choudhary. “Even in countries like India, where they have identical Stamp Act, loan agreements are not stamped as a bond, but under residuary article of Stamp Act chargeable with K300,” he explained.

Liberalise the financial sector

Elsewhere, the Central Bank of Myanmar (CBM) is still restricting several financial activities.

“For instance, to date no non-banking financing institution’s registration is permitted to foreign companies, while the Financial Institution Law does not prohibit the same. Concepts such as peer-to-peer financing or crypto currencies are an alien concept or are discouraged,” the co-chair noted.

There is serious ambiguity on trade financing products such as receivable financing. Myanmar laws do not provide for any specific license to enter into the transaction for purchase of receivables. It is not clear whether such financing (which does not fall under capital account transaction and thus doesn’t require CBM approval) would indeed need the CBM authorisation. It is also unclear if one blanket approval would suffice or every purchase of receivable needs to be approved individually.

“We hope that the present change would lead to a reform, which is highly anticipated and it is understood by the regulators that without reforming financing market, development of the country is not possible,” Mr Choudhary said.

This agenda is echoed by Singapore-listed Yoma Strategic CEO Melvyn Pun, who argued that reforming the financial system and liberalising credit extension should be a priority for the next minister. This includes the need to help recapitalise banks and develop the non-bank financial institutions.

Mr Pun added that the successor should also focus on the implementation of the new Companies Law to streamline administrative burden for businesses and facilitate foreign investments into domestic companies, as well as clear communications of economic priorities and transparency over the next reform milestones.

“Commitment to a timeline for each top priority is important to give better certainty for planning,” he urged.

Source : Myanmar Times

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