The economic reforms implemented by the Thein Sein government face several challenges, some of which continue from the past military regime and some of which are new. The government is starting to overhaul institutions in order to obtain market-based macroeconomic policy tools, which will possibly eliminate a long-lasting fundamental cause of economic instability. One essential challenge is to design policies to encourage private capital, and to promote the agricultural and manufacturing sectors, which have already shown a high potential. At the same time, a regulatory framework and a well-functioning financial system, which are essential to encourage private capital with market discipline, must be developed. A recent rise in natural resources exports created both a fiscal cushion and balance-of-payments surplus, which seems to have promoted reforms. However, the government should be aware that the recent favorable conditions may not last for a long future.