Economic reform is a marathon, not a sprint
The launch of the government’s economic policy last week was always meant to be the occasion for an announcement of a broad set of economic principles, rather than a detailed set of policy measures for individual sectors and industries.
I know some people were disappointed with its brevity. This is understandable, and a function of both very high expectations and delays in making such announcements. Of course, the first of these is a great compliment for the new government, even if it makes life for it so much harder than for the previous administration.
The government is expected to turn Myanmar’s entire political economy around. I firmly believe it will do this, but 50 years of bad economic management and the undermining of critical institutions such as law, property rights and faith in monetary institutions – “trust” in short – was never going to be achieved in 100 days, or even 365 days. To be fair to the government’s critics, though, perhaps it could have explained this better.
By contrast, the Thein Sein government had almost no expectations imposed on it at all. Accordingly, each increment of reform was nearrapturously greeted, especially by international business and officials, who spied for the first time the chance for a new Myanmar. This made for a relatively easy ride. It’s an old truth in politics – massage expectations downward, and then exceed them.
In a related vein, one of the reasons for the perceived delays in economic policy has come from the very great mess that was left behind for the new government to clean up.
This was apparent in all sorts of ways – most theatrically when vacating officials stripped their homes bare as they walked out the door – but especially in the large bequeathed budget and trade deficits, the mysteriously dwindling foreign exchange reserves, and the series of very bad foreign and other investment deals approved in the final days.
Given this, understandably the new government has spent an awful lot of time – much more than expected – just trying to ascertain what the real picture is. How much does the government have in its coffers to spend? What are the levels of domestic and foreign debt? To what extent do deals done by the past government bind the new one’s hands? There must be answers to these questions before we can move forward.
So that is the past: What about the future? On this there can be much optimism I think.
Underneath the 12 points of the program announced on July 29, a furious amount of work is being undertaken across just about all the sectors of Myanmar’s economy. I was able to witness much of this first-hand over the last few weeks.
To give some examples, fiscal reform is really gearing up. The ministers and ministries are working on policies to simplify taxation rates, to bring in new but fairer taxes, to create budget transparency, to adopt international accounting standards, and to reassign spending priorities.
With respect to the financial sector, a program of wholesale reform that will involve diagnostic studies of the state-owned banks, the recapitalisation of rural finance, the liberalisation of many of the restrictions on bank lending practices and microfinance, the real application of international prudential banking standards, the proper implementation of anti-money laundering procedures, the freeing-up of the insurance sector to new players and products – are of these all actively, not academically or theoretically, under way.
The previous government left some difficulties on the foreign investment front, but new measures that really will make Myanmar a first-order location for responsible investment, in a world beset by risk and low yield, are just around the corner.
Infrastructure – including electricity generation, roads, ports, bridges and public buildings – by its nature takes time to build, even as we know it is critical for growth and development. And, we know that Myanmar’s infrastructure broadly was left in a pitiful state. As with investment, new measures will be announced shortly.
Meanwhile, some of the institutions set up to guide reform are up and running, and starting to make a difference. In my mind the most exciting and crucial of these is the new National Economic Coordination Committee.
On the trade front, a slew of possibilities awaits, but matters here are held back a little by international issues. The possible failure of the Trans Pacific Partnership for instance – which peer countries to Myanmar such as Vietnam have bet heavily upon – and the rise of protectionism and nationalism everywhere makes for a more difficult and complex environment.
Nevertheless, here too unilateral progress has been made, and will be made, not least in pragmatically refashioning for purpose some of the policies and programs left behind. Tariff reform has been noted already in the context of Myanmar’s fiscal arrangements – but clearly the simplification of tariffs will greatly stimulate trade too.
So, all in all, the July 29 announcement is just a glimpse in my view from afar of a hive of activity that at the moment is perhaps hidden from view.
It is much better to do things right than to do them rushed. This is not the most exciting way to proceed, perhaps, but it is the best way. We are talking about turning around the entire trajectory of a national economy. This can never be a process of weeks. Nay Pyi Taw might have been built in a day, but Rome wasn’t. And that’s the difference between the past and now.
‘[They are] turning around the entire trajectory of a national economy.’
Sean Turnell Economic adviser