Myanmar has taken a huge step towards ending 50 years of isolation. Aung San Suu Kyi’s by-election win brings democracy closer. The simultaneous freeing of the exchange rate is a dramatic symbol of the government’s intention to embrace a market economy. But, the path to democracy is still uncertain and Suu Kyi’s own views on foreign investment are unknown. Until there is clarity on both, investors shouldn’t get too excited about what is undoubtedly one of the world’s last frontier markets.
Despite the National League for Democracy’s landslide, Suu Kyi’s party controls less than seven per cent of the parliament. A regime change would have to wait until general elections in 2015. In the meantime, conservatives in the regime could make mischief — particularly, if anything happens to Suu Kyi or the reformist President Thein Sein, both of whom are 66 and in poor health.
There is a similar glass half full/half empty picture on the economy. Suu Kyi’s victory will make it easier for the United States and the European Union to lift sanctions. The government, meanwhile, has ditched a fixed exchange rate which was an astonishing 120 times the black market value. This follows hot on the heels of its plan to free up foreign investment, allowing foreigners to buy leasehold property and start 100 per cent-owned ventures.
However, it remains to be seen how the Myanmar government will handle contracts struck at the old inflated exchange rate and what it would do if the official rate again diverges from the black market one. Even its offer of tax holidays to foreign investors is a mixed blessing, as they may be unsustainable, given that it is desperately in need of revenue to pay for welfare and infrastructure in the poor country whose per capita income is $1,400.
What’s more, investors will also want to know what Suu Kyi thinks about economic policy before they make long-term commitments. Until now, she has understandably focused on politics. But, if a regime change really is in the offing, her views on business will really start to matter.