The IOM’s estimate is roughly in line with a more recent one which suggests that there are between 2m and 4m Burmese workers in Thailand, perhaps another half-million in Malaysia, more than 100,000 in Singapore, a few thousand in Japan and South Korea, and then a totally unknown number in India and China.
So, if some 5m Burmese are earning their livelihoods abroad, how is it that last year only $566m (or 1.1% of GDP) worth of remittances ended up in the coffers of the Central Bank of Myanmar? In neighbouring Bangladesh, monetary authorities managed to get their hands on nearly $14 billion (or 12% of GDP) in remittances, channelled through their formal bankin system by an overseas work force of roughly the same size.
The average migrant worker in Asia sends home nearly $4,000 every year, according to a recent report sponsored by the International Fund for Agricultural Development (IFAD) and the World Bank. Suppose we cut that in half in the case of Myanmar’s emigrants, who must be poorer than the mode. Even then they should be sending home $10 billion—which is more than, say, the value of Myanmar’s annual gas exports added to its formal bilateral trade with Thailand.
The reason for this enormous discrepancy is not exactly a mystery. Burmese migrant workers don't trust their banks and prefer informal channels to send their money home. This was only rational. For five decades Myanmar’s banking sector was little more than the financing arm of the state. Bouts of high inflation coupled with low interest rates on deposits meant that having money in a bank was a money-losing proposition. The most recent full-blown banking crisis happened in 2003. And there have been at least three episodes of demonetisation since independence. In the most recent, in 1987, the government cancelled all of its 25-, 35- and 75-kyat notes, without warning or compensation—at a stroke rendering 75% of the currency in circulation worthless.
From the state’s point of view, the public’s reluctance to trust banks is a big and expensive problem, says Taffere Tesfachew, a director at the United Nations Conference on Trade and Development (UNCTAD). It means that the government has to make do with smaller foreign reserves, which it needs to implement its exchange-rate policy. (The kyat has lost nearly 20% against the dollar since the central bank scrapped a 35-year fixed exchange-rate regime and adopted a managed float in 2012). Secondly, smaller foreign-exchange reserves mean less “collateral” to enhance the country’s creditworthiness; they raise the cost of money more generally. Third, large illicit flows of money encourage illicit trade, says Mr Tesfachew.
All that is not to mention the potential benefits to millions of migrant workers’ families, were remittances channelled into productive use rather than collecting under mattresses.
The country and its banks are at last opening up, but fixing the broken system of trust will be tricky. Plenty of Myanmar’s private banks have tied up with banks in Thailand, Malaysia and Singapore to serve the overseas Burmese labour force. From a development perspective, these new channels for remittances are good news. They provide (registered) migrants with the option of sowing their cash into savings and investment at home.
But that is only a partial solution. Changing the behaviour of migrant workers—most of whom still prefer informal channels—takes time. It is reminiscent of the lag between falling rates of infant mortality in developing countries and rates measuring reproductive behaviour. The actual risk of their money’s being wiped out by a capricious state may have been greatly reduced, but migrant workers’ perception of risk cannot be expected to change overnight.
The biggest obstacle to getting their billions of dollars in remittances into Myanmar’s formal financial system is the ubiquity of the informal channels of money transfer.
For Thailand’s 2m to 4m Burmese migrants the traditional hundi system is cheaper, quicker and safer than anything the banks can offer. Rather than wire the money, brokers in Bangkok ask trusted counterparts in Myanmar to pay the recipient in cash, often on the same day. (There is a slightly costlier alternative, which involves cash being delivered to the doorstep, even in rural Myanmar: an informal network that migrants call “carry”).
One of the leading hundi dealers is located in Bangkok’s central business district. The dealer doubles as a trading company. Its rates are so competitive as to cast doubt over whether there is any margin left for commercial banks and money-transfer companies in serving Thailand’s hidden labour force. If they can’t find any, it is not for a lack of trying. Siam Commercial Bank, Thailand’s third-largest commercial bank, is waiving its 200-baht ($7) fee for new remittances to Myanmar, at least until May 31st.
Dragging the informal financial flows between Thailand and Myanmar—the two countries with the biggest shadow economy relative to GDP in Asia—into the daylight will take time.
And the informal transfer of cash is only the obverse side of the coin. On the reverse is the compensatory trade. When a broker in Thailand asks his counterpart to pay a recipient in Myanmar, the former incurs a debt to the latter. The balance must be settled somehow and most often that is by the trade of gold, gems or anything that can be shipped or smuggled across the two countries’ 1,800km border. The Economist
Post a Comment