Eco­nomic re­form is a marathon, not a sprint

The Myanmar Times - - Business - SEAN TUR­NELL busi­ness@mm­times.com Sean Tur­nell is an eco­nomic ad­viser to the gov­ern­ment and an as­so­ciate pro­fes­sor of eco­nom­ics at Mac­quarie Uni­ver­sity.

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

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