Thai Embassy officials say Myanmar government's 'enthusiasm and determination' to reform will be rewarded.
All roads seem to be leading to Myanmar these days as a semi-civilian government pursues political and economic reforms at a pace that has surprised the world. But many Thai investors remain cautious about whether the reforms will last.
After half a century of iron-fisted military rule that isolated the former breadbasket of Southeast Asia from much of the world's development, it is only natural that some would question whether the "transition boat" toward democracy has enough wind in its sales.
In the view of the Thai Embassy in Yangon, the ship of state is firmly on course for the better.
"There is an indication that the government will see to it that reforms proceed and that it will not backtrack to the old system," says Wichaya Sinthusan, first secretary at the embassy.
"The government seems determined to prove that positive changes have indeed taken place and that it is committed to undertake economic restructuring toward a market economy.
"Even those who visited the country years before can clearly notice the changes that have taken place on the ground. There are more cars on the roads now, even traffic jams in certain areas. The cost of living has gone up, prices of hotel rooms have gone up, not to mention rental prices for homes that have rocketed in the last couple of years."
Land prices in prime areas of Yangon, she noted, are approaching the equivalent of one million baht per square wah, on par with top locations in Bangkok.
Supapan Tiapiriyakij, another first secretary at the embassy in Yangon, said that even representatives from the International Monetary Fund, on their most recent trip to the country last month, applauded the government for its recent reforms.
"IMF representatives said they were amazed to see such enthusiasm and determination by the government toward reforms and restructuring of the economy. Even high-ranking leaders from Myanmar's central bank showed determination that they wanted to see changes to financial regulations implemented well within particular time frames," Ms Supapan said.
She noted that in recent weeks parliament for the first time debated a national expenditure budget, a development the IMF hailed as an important step forward toward transparency in governance.
In his inaugural speech in March 2011, President U Thein Sein expressed commitments to address four significant issues related to development and poverty reduction: to adopt market-friendly measures in economic restructuring; to develop industries with agriculture as the foundation; to commit to developing small and medium enterprises; and to foster a more attractive environment for foreign investors.
Within just two months of his speech, the government began an assault on poverty by setting up a Central Committee for Rural Development and related sub-committees. Most importantly, it established microfinance institutions to offer loans to small-scale farmers, Ms Supapan explained.
The IMF said the loans to small farmers were a good step but that the current loan expansion rate of 6-8% should be higher.
Ms Supapan said the government has made it a point to development rural areas which are home to around 70% of the population. A new Ministry for Industrial Development was established with a mandate to promote development in border areas, including establishing industrial zones to improve employment in rural areas.
The government has already approved an industrial zone in Karen state and plans similar zones in Mon and Rakhine states in the future.
In addition to poverty reduction, Ms Supapan said macroeconomic reforms are a priority for the government, particularly the dual exchange-rate system, which makes credible international financial transactions impossible. The official exchange rate of the kyat has been fixed at six to the US dollar but most transactions take place in the black market. That latter has been extremely volatile in the past two years, with the rate swinging between 650 and 780 per dollar. Lately it has stabilised at around 810. The IMF has been invited to advise the government on this issue.
Ms Supapan said the IMF also suggested that Myanmar abolish its prevailing "export first, import later" policy in order to avoid a current account deficit and promote much needed international financial transactions. Moreover, Myanmar should encourage more trade liberalisation and imports as it would lead to more financial liquidity in the country.
The IMF has also encouraged the government to strengthen investments in education and healthcare, particularly in rural areas. The government has pledged to lift spending on education and healthcare to 7.5% of total national expenditure from the current 5.4%.
On the trade front, exports have declined recently due to the kyat's volatility. To address this issue, the government has reduced taxes on exports to 7% from 10% and is exempting taxes on exports for seven main agricultural products. It remains to be seen if this policy will continue, Ms Supapan said.
The government is also revising laws to attract foreign investors, aiming to passed them in March or April.
"The government is aware that present investment laws are rather restrictive toward foreign investors and it is now in the process of revising them with aid from Japanese consultants. This once again indicates its commitment to creating a favourable climate for foreign investment in the future,"said Ms Supapan.
The changes are expected to allow investment laws to be based on real market exchange rates. Incentives for investors would include exemptions from taxes in the first eight years, with extensions if certain criteria are met, Ms Supapan said.
In addition to Dawei, the government also plans to create two more special economic zones in Kyaukpyu where Chinese investments are concentrated, and in the Thanlyin-Kyauktan Industrial Zone in Yangon.
It remains to be seen if any other laws would be passed, including revisions of land holding rights for citizens. The IMF has encouraged the government to make it easier for farmers to own land as it would provide incentives to lift output.
Given that Myanmar has received large volumes of foreign direct investment in the last two years, and particularly as Western countries contemplate lifting sanctions as a reward for the government's commitment to political reforms, many in Thailand are worried that Myanmar will become a competitor in the near future.
Dr Kanit Sangsubhan, the director of the Fiscal Policy Research Institute Foundation, dismissed the idea and said people should consider the opening up of Myanmar to foreign investment as a supportive cushion for Thailand, because the country can no longer afford to take on labour-intensive projects as before due to increases in the minimum wage.
"As it is our shipyards are fully packed, so we will need Dawei. We have always wanted something like the Dawei industrial zone with a deep-sea port but there is no place left in our country to build such a complex. We also don't have appropriate locations to build new power plants while our demand for energy is increasing, so having developments in Myanmar would help us," he said.
Dr Kanit said that it was also time for Thailand begin to revise its overseas development assistance (ODA) policy toward Myanmar. The government under former prime minister Thaksin Shinawatra provided 3 billion baht in ODA but a furore arose over conflicts of interest and strings attached to the aid to favour businesses allied with Thaksin.
Areepong Bhoocha-oom, the Finance Ministry's permanent secretary, urged Thai businesses to invest in Myanmar and tap into its labour-intensive workforce.
"So far Thai investments have been relatively slow compared to those from China and Singapore," he said. "The ministry would like to encourage even smaller companies to invest in services, particularly hotels and restaurants that are our strong points."
Major Thai companies, among them CP and PTTEP, have actively invested in Myanmar for more than a decade.
Dr Kanit said that good management of the Thai-Myanmar border area, particularly given tensions between ethnic groups and teh Myanmar government, is very important to fruitful relations between the two countries.
"Just as we have to have good management of Phrea Vihear to have cordial ties with Cambodia, we also have to properly manage issues related to ethnic minorities on the border area. Thailand has often been criticised for its accommodating stance toward ethnic migrants fleeing conflict in Myanmar and for drug trafficking involvements," he said.
Myanmar's GDP for is expected to grow by 5.5% this year and by 5.8% to 6% next year. Inflation has been on the rise for five years, but last year it dropped a little to 4.2% due to swings in the kyat and lower exports. Next year the kyat is expected to stabilise, which would lift exports, which would in turn bring about higher inflation rates, said the representative from the Thai Embassy.
So far Myanmar's "positive" developments have been acknowledged to a high degree by the US and UK, as reflected in the recent historic visits by Secretary of State Hilary Clinton and British Foreign Secretary William Hague.
However the international community still needs to keep an eye on how the byelections in April will proceed in terms of transparency. The treatment of Nobel laureate Aung San Suu Kyi after the results will also be a key indicator of whether the government is genuinely interested in reforms, said Dr Kanit.
Hoteliers gearing up
YANGON : "Thai investors and businesmen still view Myanmar as unsafe for investments, but if they come to see for themselves and do business here, they will find that it's not that scary at all," says hotelier Bhongbhichai Bhitakburi.
"The government has been very corporative with us so far and all the ministries have given us good recommendations to their guests too."
Tremendous potential exists to expand the tourism and hotel sector, according to Mr Bhongbhichai, the general manager of the Chatrium Hotel in Yangon, owned by the Bangkok Bank group.
However, the industry is facing a mismatch in room demand and supply. Of the 25,000 hotel rooms across the country, 8,000 are in Yangon and about 3,000 are three- to four-star hotel rooms, he said.
In 2011 more than 300,000 tourists visited the country only to face accommodation shortages. This year the numbers are expected to reach 500,000 as Myanmar has promoted itself more.
Room rates have risen sharply, averaging $100 now from $40 in 2008.
Many investors are returning, including the Thailand-based Central and Amari groups. Big global names such as Marriott, Sheraton and Shangri-La also have a presence in the country.
Mr Bhongbhichai brushed aside concerns that Myanmar would steal tourists away from Thailand.
"I can say that Myanmar will not be our competitor as the target groups are different," he said. "Most tourists visit Myanmar for its ancient temples, traditional architecture and old cities that are very different from ours."
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