Aung San Suu Kyi's historic victory overshadowed another piece of equally important news: a new exchange rate came into effect, the first step in transforming Myanmar into a more open, market-based economy. Pretty soon, the whole world will be fi
NAYPYIDAW- By now the whole world has heard about the sweeping victory of pro-democracy, Nobel prize winner Aung San Suu Kyi's party in Sunday's special elections. On the same day, however, there was another piece of news from Myanmar that will have major consequences but didn't capture nearly as much attention.
The news is that, on April 1, a new exchange rate came into effect -- a reference rate at 818 kyat to the dollar. The country is changing at breakneck speed, politically and economically.
The repercussions of Myanmar transforming into a more open, market-based economy will be huge all around the region. The country is strategically placed between fast-developing countries - India, China, Thailand and Vietnam - and could soon be leading a boom in the region.
"The opening up of Myanmar marks a turning point. It was the missing link in a chain that needed all its links for the dream of a high-growth region along the Mekong to be realized," says Hak Bin Chua of Bank of America Merrill Lynch. One development relevant to that prospect is the deep-water port project in Dawei, which lies at about the same latitude as Bangkok.
Another development still in the planning stages is the road construction project that will link Myanmar via Bangkok and Cambodia to Ho Chi Minh City in southern Vietnam. A similar network is planned some 200 kilometers north, from Myanmar's capital Rangoon to the Vietnamese city of Hue.
The northern part of Myanmar that borders the southern Chinese growth regions will also be the focus of new transportation projects with Indochina. When the U.S. and the E.U. lift sanctions against Myanmar, which everyone expects to happen, these will become crucial.
The end of the economic sanctions will also bring an influx of capital from around the world. Until now, money has mainly flowed in from China, which has led to considerable dependence on the big northern neighbor. One of the main reasons for the reforms is that they will reduce that dependency.
To draw in investors from around the world, a slew of further reforms are in the preparation stages. Among other changes, foreigners would no longer need a local partner to set up a business or lease land. Investors would be exempted from paying taxes for up to five years. Property protection guarantees are also being promised.
Foreign capital will mostly flow into the natural resources sector: Myanmar is rich in oil, gas, wood and precious gems. Heavy industry is likely to be drawn to the southern part of the country, transferring across the border from Thailand where costs are significantly higher. Tourism to Myanmar will also experience a significant boom.
The country's potential is huge, particularly if one considers that even with the sanctions the economy grew 5.5% in the last year. With its population of 60 million, Myanmar could become a second regional powerhouse after Thailand with its population of around 70 million.
As Myanmar expands economically, Thailand is likely to be one of the countries benefitting most. That has been clear in the last few months as Bangkok's stock market booms and leads most other exchanges.
But Vietnam's performance has also been on the up in recent months, with first-quarter stock exchange developments in Ho Chi Minh City among the best in the world. Investors who want to get in on the new boom region now are best advised to do it through investments in these two countries.
The stock market in Myanmar is still in the making, but the Tokyo exchange is already in talks about collaboration that would lift the Rangoon exchange to world level and make it accessible to international investors.
However, "As with every ‘gold rush," there may be a little too much enthusiasm," Hak Bin Chua warns. The transition is not going to be easy, and when vast amounts of capital start to flow in, he says, it could spur inflation.
A natural resources boom could also send currency values soaring and that in turn would pose problems for the rest of the economy. And of course the political reforms are just beginning.
"One thing is very clear, though" says Hak Bin Chua. "The way Myanmar manages the transition in the coming months will not only have a significant impact on its direct neighbors Thailand and China, but on all of Asia" - and on investors in the region.
Read this article in Die Welt in German.
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