- August 6, 2018
The goal of the USAID Burma Private Sector Development Activity (PSDA), implemented by Nathan, is to promote increased broad-based economic opportunities in Burma (Myanmar) by helping lay a foundation of economic governance and stakeholder engagement that promotes its transition to a market economy that is inclusive and sustainable and provides meaningful opportunities for Burma’s people to improve their lives.
This paper, published as part of PSDA, explores the lessons for financial sector reform in Burma from the experiences in Vietnam, a country that began from a similarly inauspicious place.
In terms of financial sector reform, a little-known feature of Burma and Vietnam is that the two countries commenced their efforts nearly simultaneously in 1990, and from very similar starting places. Their shared journey accordingly was a parallel one in many respects until 2003, when political instability and a banking crisis in Burma largely derailed its financial reform agenda. As Burma stumbled, sanctions were applied by a range of nations, and foreign investment in the country’s financial sector was effectively frozen out for a further decade. By contrast, in Vietnam, foreign financial institutions slowly advanced in response to incremental openings, and in stages emerged as key niche players in banking, insurance, and bond and equity markets.
In particular, this paper focuses upon the role of foreign institutions which, as noted, have hitherto been shunned in Burma, but which in Vietnam have played an important role. With Burma having taken the first steps to invite the participation of foreign financial institutions, what does the Vietnamese experience tell us? In attempting to answer this question, this paper takes up a number of issues. First, it briefly outlines the history and foundations of the respective financial sectors in Burma and Vietnam, a procedure that itself suggests the themes to come. The paper presents the structure of the two systems as they exist today, as well as some comparative data. The role of foreign banks is then explored, beginning with a brief discussion of the state of the consensus of their functions broadly, before examining the particular experiences of each country. The paper also examines the issue of insurance, again pointing to experiences in Vietnam that suggest foreign firms can deliver both sector-specific product benefits as well as highly advantageous macroeconomic consequences, and provides a concise examination of the two countries’ stock markets – arenas of risk, as well as some reward.
Finally the paper presents the lessons of Vietnam’s experience with foreign investment in its financial sector that are instructive for Burma.