Myanmar expands private banks with military ties

BANGKOK Wed Sep 15, 2010 11:07pm EDT

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BANGKOK (Reuters) - Myanmar is expanding the number of private banks in the reclusive state ahead of November elections, a step that looks set to strengthen the hand of businessmen with close ties to the ruling generals.

The banking expansion follows signs of rising investment in the resource-rich country from neighboring China and growing trade links to Southeast Asia, but economists doubt more banks in the army-run country will boost its capital-starved industries.

Instead, the increase in private banks to a total of 19, from 15 previously, illustrates a trend in which the military elite and their allies look set to emerge as the financial powerbrokers of a new era of civilian rule in the former Burma.

A Finance Ministry official said four businessmen have been authorized to each open new banks ahead of the November 7 elections.

The four are among the closest allies of the ruling generals and the wealthiest civilians in one of Asia's most secretive economies at a time when the top military brass are swapping fatigues for civilian clothes ahead of the first elections in two decades and the first civilian government in half a century.

One of the tycoons, Tay Za of the Htoo Group, has been identified by the U.S. State Department as an arms dealer.

Another, Zaw Zaw, was hit with U.S. sanctions last year and a third, Nay Aung, is the son of Myanmar's Industry Minister, a powerful figure seen as a protege to supreme leader General Than Shwe.

The fourth businessman, property developer Chit Khaing, is also subject to Western sanctions.

"They are symbolic in many ways of all that is wrong with Burma's economy -- profit through connections, opaque," said Sean Turnell, an expert on Myanmar's economy at Sydney's Macquarie University.

"CASH BOXES"

"It is hard to see the new banks as anything much more than 'cash boxes' at the heart of the conglomerates that own them," he added. "They are playthings to some extent but also as vehicles to access all manner of concessions, foreign exchange, and to otherwise manipulate and disguise money flows," added Turnell.

Economists generally dismiss banking as a dysfunctional industry in a country blighted by decades of economic mismanagement and squeezed by sanctions imposed by Western nations in response to human rights abuses.

Turnell estimates a mere 15 percent of domestic credit made its way to the private sector in 2008/09. Over the last five years, the private sector's share of credit has fallen by nearly 25 percent, crippling private enterprise in a country where 30 percent of the population live in poverty according to U.N. data.

Hardest hit is the agricultural sector, source of more than half of Myanmar's economic output and lifeline to more than 70 percent of the country's 50 million people. Agriculture receives just 0.4 percent of credit created, said Turnell.

The vast bulk of credit supports the military regime.

The four businessmen run conglomerates considered top beneficiaries of a wave of privatization in which about 300 state assets -- from real estate to ports, shipping companies and an airline -- were sold, mostly this year.

Their four banks will be based in the capital Naypyitaw.

"We will do our best to modernize the banking industry. We will try to offer small loans and introduce online services, ATMs and so on," said an official at a new bank who declined to be identified because she was not authorized to speak to the media.

Dozens of private banks owned by local and foreign companies operated in Myanmar before sweeping nationalization in 1964. Its military rulers introduced a market economy after seizing power in 1988, allowing private banks in 1992.

(Additional reporting by Aung Hla Tun; Editing by Alex Richardson)

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