Question: Can you first describe
the process of financial market liberalization that Burma is going through in
order to become a member of Asean Economic Community and a signatory of
International Monetary Fund (IMF)?
Answer: According to Article
VIII of the IMF, the Foreign Exchange Market Restriction is to be liberalized
but the process will be done gradually step by step. According to the
procedure, the draft of the Foreign Exchange Management Law is submitted to
Parliament to be approved. After the approval, there will be more foreign
exchange market liberalization to follow. Eventually, the restrictions on
financial markets will be lifted just like other members of Asean countries.
Q: Foreign banks have opened
offices in Burma. Can domestic banks compete with foreign banks, if they open
offices here? And what are the possibilities of joint venture opportunities for
local and foreign banks?
A: It is natural that
the customers will go to the banks where they can get better services and
loans. The banks can compete on services. We are still considering the
possibility of joint ventures for local and foreign banks. We haven’t decided
anything yet. The private banks in our country do not have the capacity to
compete with foreign banks in terms of capital and skills. So, the capability
of local private bank should be raised before allowing the foreign banks to do
business in the country. Only after a long period would foreign banking
business be allowed, in order to safeguard the welfare of the local private
banks.
Q: A Burmese stock exchange
market will be established in 2015. Will foreign investors be allowed to invest
in the Burmese stock market?
A: First, the stock
exchange market must be established. Local public companies will be encouraged
to list their companies in the market. The stock market will be created based
on trading of stock shares, and stocks and bonds valued based on the capability
and profit of a company. Cross-border [foreign] investment will be considered
in the stock exchange market only after the procedures of the local stock
exchange market have been stabilized. It also depends on the Foreign Investment
Law.
Q: When do you expect the market
to open?
A: The stock exchange
market is expected to be established in 2015. It’s hard to know the exact time
frame in the process. Some stock exchange markets do not function well after
being established. For example, the stock exchange markets in Laos and Cambodia
are not functioning well. So, there should be sufficient preparation. It will
go better after it gets momentum.
Q: Local authorized private banks
are now allowed to buy and sell foreign currencies in local markets. Are the
local private banks also allowed to trade in the international currency
exchange markets?
A: The local private
banks are allowed to open local customers’ foreign currency accounts that were
previously allowed to operate in state-owned banks. The private banks trading
foreign currencies in the country also need to expand their business outside
the country, but they are not capable yet. It is expected that they would be
ready to do so after a period of growth.
Q: In an IMF working paper in
2008 about Burma’s multiple exchange rates, it said that the kyat exchange rate
should be around 600 to one dollar. Now, the exchange rate is around 870 to one
dollar. What do you think the price will be in another year?
A: There are many
formulas to calculate currency exchange rates. Therefore, it is difficult to
say exactly what the exchange rates should be or should not be. So, we have to
accept the market prices based on what people are buying and selling. Today's
price of 870 kyat to one dollar is the price set by the market. If the market
rate is set at 900 to a dollar, there will be a lot of sellers. When there are
a lot of sellers, the price will be decreased again. The exchange rate they
mentioned in 2008 was 600 to one dollar, and that might be the rate of that
time. Today, some people say it should be 950 or 1000 to one dollar. They argue
that the current price does not favor exporters. If we make it 950 or 1000 to a
dollar, there will be a lot of sellers. Even foreign business players may enter
the market.
Q: While the central bank of
Myanmar is working to unify multiple exchange rates in the market, there is a
big hundi (nongovernment money transfer) market. How do you plan to handle the
hundi market?
A: When our private
authorized banks can provide remittance services, the hundi market will go
extinct. Previously, banks could not provide the service. Now, four private
banks, AGD, KBZ, CB and Ayeyawaddy banks, are allowed to do remittance
services. They are doing remittance service from Thailand, Singapore and
Malaysia. Remittance service through private banks is more reliable than the
service in a black market.
Q: So, will other private
companies be officially allowed to do remittance service? Will only authorized
banks be allowed?
A: At first, only
authorized banks will be allowed. Granting permission to other private
companies will be considered later.
Q: The Central Bank has reduced
interest rates for bank loans from 17 per cent to 13 per cent. Some see it as a
way to drive economic development. But some argue that the country is going to
experience inflation, according to an IMF report.
A: Interest rates are a
tool of monetary policy that central banks can use. When money circulation is
high, interest rates are increased. And money comes into banks. When money
circulation is low, the interest rate is reduced. Then, people don't put their
money in banks. They will be more interested in investing their money in other
businesses. The central bank of usually decides whether to increase or reduce
the interest rate based on that. The central bank will reduce the interest rate
if it is necessary. Similarly, it will increase if necessary.
Q: Recently, KBZ and AGD banks
could not reduce the remittance fee due to the positions of other private
banks. What is your opinion on that?
A: The Central Bank of
Myanmar can decide and monitor private bank service charges including the
remittance fees. Banking business is not like other sectors. Stability of
currency value is necessary. One cannot expand as it wishes. Individual merit
seeking opportunities should not be allowed. Therefore, we have to negotiate.
The KBZ can reduce the charges because it is a big bank. However, smaller banks
cannot reduce the charges. So, smaller banks will have problems. It sounds like
trying to monopolize the market. Competition is competition. However, what is
the consequence of competition? It is not much of a problem for a big bank to
reduce the remittance fee. Customers will go to the bank that is cheaper. So,
the customers of other banks, which cannot reduce the fee, will go to that big
bank. Therefore, if banks want to reduce the remittance fees or charges, they
have to obtain the permission or agreement of the Central Bank first.
Than Htike Oo
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