Business in Burma: Show me the money, but only if it's crisp

As Myanmar's reform-inclined government undertakes a political opening, Western businesses are watching to see if this leads to an end to Western sanctions imposed during the country's brutal military rule.

But even if sanctions are removed, potential investors would face many hurdles in an economy where opaque rules and edicts have made life tough for ordinary citizens.

“We are still living in the dark ages, we haven't seen many changes,” says Aung Zeyn, who runs a small business repairing photocopiers, and whose opinion echoes similar sentiments across Yangon.

One example: Peering with the gimlet eye of a gem trader as he examines a crisp new $100 bill, one of Yangon's hundreds of black-market money traders says, “we can only accept the new, no old.”

Just any old $100 is no good in Yangon.  In order to exchange money and get the best rate on the black market, a visitor needs crisp, new bills. The trader holds the note up to the light, checking for blemishes that could render it worth substantially-less than the average unofficial market rate.  The scenario, completely normal for most Burmese, highlights the dual exchange rates: the official government rate and the unofficial "Myanmar rate," or black market exchange.

The official rate is $1 per 6 kyat (pronounced “chat”), but unofficially, $1 is worth about 800 kyat, a discrepancy that Myanmar's opposition allege allows the government to hide billions of dollars in oil and gas revenues.

Some speculate the government will adopt a more flexible approach to exchange rates.

Sean Turnell, an economist and Myanmar (Burma) expert at Australia's Macquarie University, visited the country in early February. He says that an exchange rate reform is just one of numerous changes needed there before Myanmar and the West can mutually benefit from any opening.

“The government needs to introduce a new foreign investment law, and present the budget in a transparent way and – above all – using the parliament to rescind many of the old laws, some of which date from the socialist era, that greatly restrict legitimate enterprise,” says Dr. Turnell.

Government pledges to open up

For decades, a military dictatorship ran Myanmar with an iron fist. Less well-known than the junta's propensity for human rights violations, is that the country's rulers embarked on a disastrous “Burmese way to socialism.” But even that old-school system of self-sufficiency was infused with arcane whims such as a 1987 re-denomination of the country's currency into notes divisible by 9, deemed a lucky number by superstitious ruling strongman General Ne Win.

Money hassles easily encountered by visitors are just a minor problem compared with the day-to-day difficulties faced by Myanmar citizens struggling to make a living in an economy that seems frozen in time – even as the government pledges to open up to Western investors and institutions.

"We have begun the process of re-engaging with the government to support reforms that will benefit all of the people of Myanmar, including the poor and vulnerable,” said Pamela Cox of the World Bank, in comments posted online on Thursday.

In the past, Asian countries such as South Korea, Thailand, and Malaysia underwent economic reforms before democratization, but Myanmar seems to be going at it from the opposite direction.

"There has been something of a miracle, politically, with all the reforms that have happened,” says Luc de Waegh who heads up West Indochina, a consultancy that advises prospective investors in Myanmar. “But economically speaking, it is impossible to have such an impact straight away. It is a complex and difficult task and will take time," He says. 

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