Executive Summary of Monthly Economic Development & Outlook Discussions
Wednesday, May 2nd, 2018
A balanced set of discussions that focused on the subject matter of some of the economic policy goals as articulated by the recently elected President U Win Myint and thereafter a sharper focus on one of his stated objectives (combatting the illegal drug trade) that thereafter progressed on how global stakeholders could potentially help play a constructive role by supporting Myanmar’s policy makers and regulators in this specific direction.
A brief overview of all the subject matters discussed.
1. Government’s Stated Goals
Discussions initiated with a focus on the stated goals by Myanmar’s recently elected President U Win Myint on economic policies and anticorruption with special emphasis on the following three mentions:
- ‘Infrastructure upgrades including electric grid expansion’
- ‘Boosting access to credit for SME’s’
- ‘Combatting the illegal drug trade’
There was acknowledgement of appreciation from all participants especially global stakeholders who drew a direct co-relation between FDI’s and actionable progress in combatting the illegal drug trade.
The following two quotes were cited:
“Freedom from corruption is the sine qua non for building a clean government and good governance, and it is also connected with foreign investment and the image of our country,” -on April 10th at the Meeting of the Anti-Corruption Commission in Nay Pyi Taw.
“More efforts need to be exerted to stamp out corruption. More efforts need to be exerted to prevent human rights violations. More efforts need to be exerted to crack down illegal drug trade.”- March 30th oath the Ceremony to take oath of office in Nay Pyi Taw.
Not merely for its symbolism however the messaging resonated on economic touch points that could potentially positively impact FDI’s (and thereby economic growth rates) but also in helping Myanmar make progress in complying with globally accepted standards for Anti-Money Laundering Compliance.
There was healthy skeptism that much of the messaging would be lost by a failure to institute progressive policies and the enforcement thereafter to augment the good words into good policy.
2. Stakeholder Engagement
Recognizing that the Myanmar Economic Forum (MEF) could offer its platform for more direct and progressive economic engagement with Nay Pyi Taw stakeholders, some members offered to take the initiative to help co-ordinate a Delegation for the next quarter. This initiative was encouraged.
3. Anti-Money Laundering (AML) Compliance
Discussions thereafter progressed into trying to pin point broader transgressions within the Banking Sector to the difficulties expressed by its stakeholders in two key specific areas i.e. transactional monitoring, and suspicious activity reporting.
Banking sector participants however highlighted their focus being distracted in facing increased compliance pressures at a time when they are struggling to meet the new capital requirements and loan portfolio restructuring milestones set forth by the Central Bank of Myanmar. However, a deeper dive into the subject matter revealed a more inherent threat posed by the timelines imposed on the new capital requirements, i.e. without access to outside (foreign) capital, local shareholders will be allured to the short cuts of easily accessible monies available locally which may not have the strict covenants of AML compliance that most foreign capital will insist upon, however comes at a steeper price in the form of permitting laundered/illicit funds to flow back into the formal banking sector.
Local participants were expressive in attributing to the facts that the Myanmar border is porous that leads to large amounts of untraceable foreign exchange hard currency entering the country on any given day, the fact that these same hard currencies was being flown into Singapore to settle nostro account activity. The larger point being articulated by these stakeholders was that there was a double standard being imposed on Myanmar as it pertained to AML Compliance issues, i.e. when nostro settlement take place between Singapore and Myanmar banks on a daily net basis, as supposed to the globally accepted principles i.e. settlements being concluded on transaction by transaction basis, it demonstrates that to accept a zero cost of financing there are no penalties imposed by these Western stakeholders as compared to voluminous amounts of monitoring and reporting requirements imposed upon the local banking sector (especially when there is lack of depth of capacity to administer these controls) to be accepted directly into the global financial sector freed from the encumbrances of correspondence relationships and their various interlocutors.
Global financial stakeholders were however quick to point out that operating in Myanmar imposes them to also similar hardships of compliance however as a policy they do not support any local clients with a dependency of cash transactions so as to be fully compliant with all globally accepted Know Your Customer (KYC), AML and counter-terrorist financing legislations.
As a means of keeping this difficult discussion congenial and progressive for all parties it was pointed out that the US for example had also successfully overcome complex challenges when dealing with illicit cross border payments for the benefit of Drug Cartels and other nefarious actors.
Pointing towards a new but subtle development local stakeholders speculated that messaging finally emanating from Singaporean Regulators via directives to their money center Banks on the need to tighten their disposition towards Myanmar Banks specifically as it relates to their AML compliance protocols may have the most impact in the short term primarily because of the historically special status that Singapore financial institutions have afforded Myanmar financial institutions.
Additional conversations focused on the perception amongst global stakeholders of a Hundi marketplace that is not regulated and a contributing factor to money laundering. Moving Myanmar off Section 311 of the USA Patriot Act which designates Myanmar as a jurisdiction of “primary money laundering concern” was considered a favorable outcome if these discussions could facilitate a deeper appreciation amongst Myanmar government stakeholders (policy makers and regulators) to help move the Hundi marketplace into a formal sector so as to enable greater transparency in all transactions.
In closing participants pivoted back to the stakeholder engagement discussion with a strong consensus for a delegation to Nay Pyi Taw to meet with government officials who have mandates to improve the investment climate for the country and also those who pass legislation on anti-money laundering reform (both being not mutually exclusive). The morning discussion however ended on a realistic note that there are not enough technocrats in Nay Pyi Taw who understand what it will take to implement badly needed change. The larger concern once again expressed that without clear policy, an effective law and active regulatory enforcement, the curtailment of rampant money laundering activities in Myanmar will continue unbated, hampering FDI flows, economic growth and potentially slide the country back into further Western enforced economic sanctions. Local stakeholders were encouraged to provide leadership for engagement activities on the subject matters discussed.
The Discussions thereafter adjourned, with the next monthly Discussion dates confirmed for Tuesday, June 5th and Tuesday, July 3rd, 2018 respectively.