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Sanctions risk gives some investors pause in Myanmar

Initial data reviewed by IMF indicates foreign investment approvals are slowing down

Washington

THE government of Aung San Suu Kyi is opening the economy and growth is rebounding in Myanmar, though the possibility of broader Western sanctions over the Rohingya refugee crisis is nevertheless giving some foreign investors pause, according to a senior International Monetary Fund (IMF) official.

Shanaka Jay Peiris, the IMF's mission chief to Myanmar, said in a recent interview that initial data reviewed by the institution indicated that some foreign investors were delaying final approval of projects until there was clarity about how the situation may unfold.

"The numbers we have for FDI (foreign direct investment) aren't showing it yet ... but foreign investment approvals are slowing down, so there is some indicator that going forward FDI may be weaker," Mr Peiris told Reuters following the publication last week of the IMF's latest review of Myanmar's economy.

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"Since August, investors are taking a pause. It isn't a surprise," he added. He said it was unclear which projects were being delayed and added that more data was necessary to better understand whether the "pause" was temporary or not.

However, leading indicators such as FDI project amounts approved by Myanmar's government for the first 10 months of fiscal 2017/18 from April show "a marked slowdown" since September 2017, according to the IMF.

For now, FDI inflows for 2017/18 still look to be a "solid number", Mr Peiris noted.

While it is too soon to know what it could mean for the overall economy, Mr Peiris said: "We have to see whether project approvals were temporarily lower or will be a trend, as well as whether actual FDI inflows will fall by much. The magnitude would also matter."

"We are not operating under the assumption that there are going to be broad economic sanctions," he added, downplaying the risk of a decline.

Myanmar government spokesman Zaw Htay said that, "Especially in Myanmar, because of the Rakhine issue, tourism has come down, investments and FDI have come down too," adding that the authorities were working hard to ensure macroeconomic stability.

The report by the IMF, which follows annual consultations with the government, followed a November visit to Myanmar, the first since nearly 700,000 Rohingya fled to Bangladesh after a military crackdown condemned by the international community.

The World Bank announced on Oct 13 it was delaying the release of US$200 million in budget support for Myanmar in response to the "forced displacement of the Rohingya". Both the United States and Canada imposed sanctions against a general in Myanmar's military for his role in the crackdown against the Muslim Rohingya. The European Union said in February it was preparing sanctions against military leaders to hold them accountable for their role in the crisis.

The Trump administration's aid chief, Mark Green, said last month he will visit Myanmar soon for talks with the government and see for himself conditions of the Rohingya refugees.

Mr Peiris said the IMF believed that any more Western sanctions would likely target individuals in the military and not the economy.

"If the sanctions are limited to the military personnel, which has been the case to now, we believe it will be less of an impact on the economy," Mr Peiris explained. "If it is broader, it would be more worrying."

Overall, the IMF sees economic growth picking up toward an estimated potential rate of about 7-7.5 per cent after lower-than-expected growth of 5.9 per cent in 2016/17.

The US remains concerned about the plight of the Rohingya, a Treasury official told Reuters, declining to comment on the status of sanctions investigations. Another US official said the Trump administration was reviewing all options on Myanmar.

When asked by Reuters how concerned the government was about more sanctions, the Myanmar spokesman said such actions would affect "the whole country" because Myanmar was no longer a military dictatorship but instead run by "a democratic government elected by the people."

"They shouldn't do the economic sanctions," the government spokesman added. "If the investments are affected, then it affects the people."

The IMF visit came shortly before Myanmar introduced regulations to bring the country's banks closer to international standards and force them to recover mostly open-ended "overdraft loans" that make up the bulk of their lending. REUTERS