As hopes of a new, prosperous future for Myanmar under Aung San Suu Kyi have dramatically disappeared, the country’s business community is paying the price of a stumbling economy and pleading for government help that is unlikely to materialize.

The World Bank has downgraded its economic growth projection for Myanmar this fiscal year 2018/19, ending on March 31, to 6.2% from its original forecast of 6.8%, blaming the slowdown on mostly domestic factors such as floods, inflation and the “Rakhine crisis.”

The country’s economic data doesn’t look great – approvals for foreign direct investment (FDI) applications in the April-September period reached $1.7 billion, compared with $3 billion during the same period last year. Inflation is at 8.5%, compared with 5.5% last year, and the kyat currency has depreciated 25% in recent months, more than other regional currencies impacted by the strengthening dollar.

Currency depreciation

To its credit, the Myanmar Central Bank handled the currency depreciation sensibly, allowing a de facto float against the dollar – Myanmar’s foreign currency reserves equal three-months-worth of imports – removed trading bands and stopped the re-export trade of oil and sugar to China.

Merchants imported these items paying in dollars and then re-exported across the border to China, creating a needless demand for dollars.

“In the past, a nervous central bank would have imposed capital controls, would have stopped dollars from flowing out, would have stopped imports and would have fixed exchange rates,” said one Myanmar fund adviser who asked to remain anonymous.

While the kyat steadied somewhat in October at less than 1,600 to the dollar, further falls are possible, which poses a real threat to Myanmar’s predominantly import-led economy.

“What we need to do on the currency is longer-term stuff, like infrastructure to support manufacturing, the removal of red tape for exports, tighter border controls but lighter customs procedures,” said the fund adviser. “We need all of that to promote trade.

“That’s the only way we’re going to get through the currency reserve issue. And, in the short term, FDI in a big way would offset the currency.”

Myanmar’s business community, including the FDI that rushed in after things opened up and western sanctions were lifted on the once-pariah state in 2012, is growing increasingly frustrated with the elected government of State Counsellor and de facto leader Aung San Suu Kyi and her National League for Democracy, and their angst stems not only from the mishandling of the Rakhine crisis.

Ethnic cleansing backlash

The United Nations Human Rights Council’s damning fact-finding report published on September 18, 2018 on alleged abuses by the Myanmar military in Rakhine in August 2017, that sent 700,000 Rohingya Muslims across the border to Bangladesh, has sparked calls to investigate Myanmar’s generals for “genocide.”

Since the military is part of Suu Kyi’s government – the 2008 military-backed constitution assures them of 25% of the seats in Parliament and control over the defense, border and home affairs ministries – she bears some of the blame, especially for failing to condemn the ethnic cleansing.

The Rakhine situation, as well as the jailing of two Reuters reporters for the crime of writing about the genocidal incident, has pretty much eliminated the ebullient buzz that pervaded the country in November 2015, following the NLD’s triumph at the polls.

“The brand capital that Myanmar had in 2015 was huge,” said Filip Lauwerysen, executive director of Eurocham Myanmar. “That is completely gone, and that is because of Rakhine. Now it is impossible to arrange a Myanmar promotion event in Europe.”

The threat of new economic sanctions is under consideration. The European Union Trade Commission is to dispatch a team to Myanmar later this month to look into withdrawing Myanmar’s GSP – a move that threatens the country’s nascent garment export sector, which earned the country $2.7 billion last year, with much of the shipments heading for Europe.

Losing its GSP status, and with it possibly 300,000 factory jobs, might lead to street protests elsewhere, but they are unlikely in Myanmar.

“It will not be seen as ‘Why isn’t the NLD dealing with the situation.’ It will be seen as – the international community is bullying us and persecuting us and not understanding us,” said one Myanmar business-woman.

Already ultra-nationalist Buddhist groups are organizing mass rallies against western interference.

And it is unrealistic of the EU to imagine that sanctions would force the NLD-led government to bring their naughty generals to account. The military is Suu Kyi’s partner in government, like it or not.

But there are plenty of things the NLD could do to improve the current business and economic environment in Myanmar that don’t affect the Rakhine situation.

Restoring credibility

The list is well known.

The country desperately needs investment in the energy sector to provide electricity to the population and potential manufacturers. Foreign companies are keen to invest in the sector, especially clean energy alternatives.

But the government has refused to raise electricity rates, a necessary move to make investment in the sector commercially feasible. Instead, it continues to subsidize the current electricity supply to the tune of $500 million a year, a significant bite out of a $15 billion national budget.

Raising electricity rates is never popular politically, but only 30% of the population now gets electricity.

Then there is the financial sector. The central bank has been trying to better regulate local banks, forcing them to reduce their overdraft lending – fixed rate loans that can be rolled over annually – which are harder to evaluate.

This is perhaps necessary as the country’s banking system is underdeveloped and weak, with non-performing loans (NPLs) accounting for an estimated 15% of the system.

But with the tighter regulations should also come liberalization, to allow the banks to lend more money, especially to the struggling SME sector.

Local bankers have been begging the central bank to relax interest rate controls, allowing them to assess their own risks and set their own rates, and to set their own time periods on loans, which are now limited to one to three years. To date, their prayers have not been answered.

As with electricity rates, one could argue that higher interest rates would be a politically unpopular move for the NLD. That said, only 20% of Myanmar’s population hold bank accounts and a much smaller percentage have access to the formal financial system. So where is the danger of losing votes?

They could pass out licenses to foreign insurance firms, or allow them to have joint ventures with local firms, a move that would eventually create a huge kyat-denominated base for the purchase of government bonds.

Movement on any of these fronts would likely boost confidence in the government’s economic management and encourage flagging FDI, if not from the West at least from the East.

“Here all you need is one credible fiscal announcement and one credible structural announcement and then you are off,” said one multilateral lender’s lead economist. “It would also show in the broader political scheme of things that the government is serious about the economy at a time when they are otherwise being distracted by the sheer intensity of the international outcry.”

To its credit, the government has passed a more liberal foreign investment law and an amended Companies Law, making it easier for foreign entities to invest in Myanmar companies, but with a general election looming in late 2020, there are fears that the NLD, halfway into its term already, will do what they have done best thus far – avoid making tough decisions.

“Over the next two-three years I see Myanmar treading water,” predicted Aung Htun, Director of Myanmar Investments Limited, an investment fund listed on the London Stock Exchange.