Myanmar’s Junta Lacks the Tools Needed to Stabilize the Economy
By Lin Htet Myat 25 August 2021
Myanmar could have avoided the third wave of COVID-19 if it were not for the State Administration Council’s (SAC) misguided policies and relaxation of pandemic-related restrictions, particularly the reopening of schools in June, and the opening of amusement parks and entertainment venues. It’s like adding fuel to a burning house.
Consequently, the economic downturn has become much worse in the previous two months. In July 2021, the World Bank released its bi-annual Myanmar Economic Monitor, in which it predicted Myanmar’s economy would contract by 18 percent at the end of this fiscal year in September due to the coup staged by the Myanmar military on Feb. 1 and the third wave of COVID-19.
There is no end in sight for the economic recession and the suffering of the Myanmar people.
The SAC does not have a concrete plan like the National League for Democracy’s COVID-19 Economic Recovery Plan (CERP) and the Myanmar Economic Relief and Recovery Plan (MERRP) to reinvigorate the economy.
Junta chief Senior General Min Aung Hlaing discusses policies in abstract terms and is not willing to take responsibility for his wrongdoings regarding the economy and public health. He speaks as if the current economic woes including the banking crisis and the COVID-19 third wave are crises that all countries in the region and beyond are encountering, rather than the consequences of his coup and misguided policies.
The military junta’s economic recovery policy and plans, articulated by Min Aung Hlaing at SAC meetings, are a combination of inward looking protectionist import-substitution and extractive policies, and delusions of grandeur as described by The Irrawaddy.
He talks about the importance of the rural economy, as 70 percent of the population lives there; he talks about food sufficiency; he talks about an import-substitution policy involving palm oil production; he talks about traditional medicine and COVID-19 vaccine production; he talks about green energy; he talks about transforming Naypyitaw, the capital city of Myanmar, into a 20-million-resident megacity with underground trains and electric vehicles.
Some of these policies such as rural development, promoting value-added agricultural produce, food sufficiency and import substitution can be considered necessary responses to targeted sanctions imposed by the US and EU, and are aimed at ensuring the regime’s survival. Tax and non-tax revenues, as well as foreign currency reserves, have dwindled since the coup, hence the SAC’s efforts to control import items to reduce the current account deficit and alleviate pressure on the kyat—despite which the currency continues to depreciate. However, all of these policies and his grandiose Naypyitaw transformation plans are ad hoc fixes, not well-formulated plans backed by sufficient resources.
What he does not discuss and cannot present to the public is concrete macroeconomic stabilization policies.
Myanmar’s current economic woes necessitate such policies. Recently, Independent Economists for Myanmar, a group of financial experts and economists, released a report titled “Myanmar’s Banking Crisis” in which they describe the banks in Myanmar as “zombies” and attribute the ongoing banking crisis to the SAC’s incompetence, heavy-handed measures and control over the Central Bank of Myanmar. Similarly, substantial price increases, faster currency depreciation, serious unemployment (nearly 1 million jobs lost), an expected doubling of the poverty rate by the beginning of 2022 (almost half of the population is in danger of falling below poverty line according to the World Bank’s latest MEM report), firms’ declining confidence in future business activities, and a drop in investments and international trade have been reported by several international organizations. What these indicators highlight is that macroeconomic fundamentals have been badly eroded, and a credible stabilization policy with concrete plans and expenditures is needed.
A massive capital injection is needed to resolve the banking crisis alone, and a fiscal stimulus package with sufficient outlays is necessary to facilitate public investment, social transfers, support for small and medium-sized enterprises, and health and education programs. Above all else, public trust must be restored in the banking sector and public institutions. International assistance in the billions of dollars and technical assistance to implement stabilization policies are essential.
However, the military does not have adequate fiscal and monetary tools in its arsenal to stabilize the economy. Due to its human rights violations, killings, arrests and illegitimacy, it cannot mobilize the needed resources from either international or domestic sources. Therefore, coup leader Min Aung Hlaing does not talk about macroeconomic stabilization policies. He is likely well aware of the fact that his regime has no capacity to implement them.
As a result, the longer the junta remains in power, the more destabilized the economy will become and the greater the suffering of the people.
Lin Htet Myat analyzes public policy with a focus on economic governance and Public-Private Partnership Projects in Myanmar.
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