Burma Making Progress, Despite ‘Being Smothered With Love’

By William Boot 28 November 2013

Lex Rieffel is an economist of 40 years experience, and a Burma watcher who has visited the country more than a dozen times, first in 1967. After 18 years as a staff economist in the U.S. Treasury Department and seven years as a senior advisor with the Institute of International Finance (the leading association for the global financial industry), he joined the Brookings Institution in 2002. The American currently teaches a seminar on Burma at the School for Advanced International Studies (SAIS) Johns Hopkins University, in Washington, DC.

Following a visit to Burma, also known as Myanmar, in August, Rieffel answered questions from The Irrawaddy correspondent William Boot.

Question: What changes for the better—or perhaps for the worse—did you notice on your last visit to Burma compared with earlier tours?

Answer:  In January 2010, I began visiting Myanmar every six months for at least two weeks each time. My last visit was in July-August 2013.  From an economic development perspective, I have witnessed steady and remarkable and positive changes from one visit to the next.  I hope the pace of positive change will continue for the next 30 years with no significant interruptions, as it did in China.

I have been most impressed by the Government of Myanmar’s decision to move to a market-based exchange rate system on 1 April 2012, by the debt relief operation in January 2013, and by the award of two mobile phone licenses through a competitive process in June 2013. I have been pleasantly surprised by how rapidly the private banks in Myanmar have been raising their game.

My biggest worry is that the 70 percent of the population that lives in rural areas and depends on agriculture is being left behind because of inadequate agriculture sector policies. Another big worry is that Myanmar is being smothered with love: too many non-Myanmar people are coming to Myanmar to “make a difference.” They all want to meet with the top policymakers and as a consequence these policymakers are not giving enough attention to the crucial tasks of policy formulation and implementation.

Beyond these short-term concerns, of course, are the existential challenges of establishing peace and overcoming the country’s resource curse.

Q: Processing key investment often seems bogged down in bureaucracy. For example, offshore oil and gas development: Despite international interest for more than one year, it will be first quarter 2014 before any of 30 new blocks on offer are awarded. Is this due to inexperience by government departments, and if so how can it be improved?

A: What’s the rush? I share the view of many others that Myanmar suffers from a resource curse, part of which derives from excessive ongoing extraction of resources. I pointed out back in May 2010 that an economic case can be made for declaring a 5-year moratorium on new resource extraction projects.

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Lex Reiffel

Myanmar’s resources are unlikely to be widely perceived as a blessing until the Government of Myanmar is able to negotiate transparent contracts with resource extracting companies that maximize revenue to the national treasury, and to create financial systems that visibly channel this revenue to projects and programs that benefit the population as a whole.

I believe the Government of Myanmar does not have the ability to do this now, and it could easily take five years to develop the ability.  In the meantime, the Government of Myanmar should be able to obtain all the foreign exchange it needs to foster rapid economic growth and rising living standards from existing resource extraction projects (in some cases on the basis of renegotiated contracts), from FDI in the manufacturing and service sectors, from foreign aid, and from remittances sent by Myanmar people residing in other countries.

Q: Do you think that Burma’s vague laws, continuing lack of transparency and fragile financial system still deter some major investors?

A: Yes, there can be no doubt about these obstacles, which deter small investors as well as “major” investors. At the same time, it is important to have realistic expectations about the pace of improvement in Myanmar’s business climate. Look how long it has taken China to create an attractive environment for investment.

Many experts would say that China still does not have one. One lesson from China’s experience is that political stability, including a negligible level of internal conflict, is more important than well-crafted laws, above-average transparency, and a sound financial system.

It is not easy to assess the views of investors because there are so many factors that go into their investment decisions. There seem to be plenty of major investors gearing up to operate in Myanmar. From an economic development perspective, I see more risks from Myanmar getting too much foreign investment in the near term than getting too little.

Q: Burma’s economy is expanding quickly in some areas, notably in property and tourism, but foreign investment in infrastructure such as electricity supply remains sluggish. Is there a danger of lopsided economic growth?

A: There is always danger in lopsided economic growth, but there is just as much danger in trying to force balanced growth in a low-income, late-starting country like Myanmar.

A market economy is a complex system with many “non-linearities.” This means that when an input is increased, the output does not necessarily increase; it will increase more at some moments and less at others, depending on what is happening elsewhere in the system. Growth is an “emergent” phenomenon. This means it is fundamentally unpredictable.

I believe that the single most important key to satisfactory, sustainable growth in a country like Myanmar is selecting good ministers, deputy ministers, and director generals.  These are the people who decide which policies to adopt and then ensure that these policies are well implemented. Putting the right women and men into these positions today is more important than building effective institutions because the policies will affect people immediately while building effective institutions can easily take more than one generation. And if the right people are chosen, they will get the process of institution building off to a good start.

Q: Burma might perhaps look to Thailand as an example of economic development, but a centralized system there has focused much national wealth in Greater Bangkok while rural poverty remains elsewhere. What can Naypyidaw do to avoid that negative trend? Is a federal system the answer?

A: I’m an economist, not a political scientist.  The question reminds me of a quotation attributed to [the late Chinese leader] Deng Xiaoping: It doesn’t matter if a cat is black or white, so long as it catches mice. It seems to me it doesn’t matter what kind of political system Myanmar chooses as long as it leads to internal peace and releases the energy that exists in the Myanmar population to build a prosperous society.

Why would Myanmar look to Thailand for an example of economic development? I see a lot of unhappy people in Thailand. Why would Myanmar want to consider any other country to be a model for its development?

The world will not benefit from having a Myanmar that looks like a clone of Thailand or Vietnam or Singapore. It will benefit from a Myanmar that finds better solutions to the problems that diminish the quality of life in these countries and many others. I hope the government and people of Myanmar aspire to developing their economy better than other countries have done and thus become a model for others.