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A Case for Leadership in Economic Affairs

From 1962 to 1988, Myanmar (‘Burma’ then) economy has been a centrally planned socialist economy. What to produce and what people should buy were decided by the government. From 1989 to 2010, the military government ran the country. It failed in the attempts to open up the economy. The country was poor and everything requires a permit from the government. Most of the economic decisions were still centrally planned.

Myanmar actually started its path towards capitalism for less than five years and the people here have not really experienced the ups and downs of a true market economy. Resilient as they are, the people may get a rude shock of an economic downturn in the foreseeable future.

Regardless of the form of government a country has, be it communist, socialist, democratic, dictatorship, or military, the economy must be managed in a capitalist manner. That has been the way to the riches for nations. Looking among our neighbors; China, Vietnam, Singapore, Malaysia, none of them are fully democratic countries. Yet majority of the people are reasonably well off and the governments are rich too. It is debatable whether people really want democracy or they can be satisfied with larger incomes. India is the largest democratic country in the world, yet most Myanmar people would rather go and work in Singapore, Malaysia or China to work, instead of India. As Bill Clinton famously put it, in his successful 1992 presidential campaign, ‘It’s the economy, stupid!’, the government priority should be the relentless focus on the economy and the economic growth.

The NLD government and its supporters always highlight that the government has been in power for only six months. Actually, it is one year now, since they had won the election. NLD knew that they would be in government since the end of 2015. If a business person knew for sure, that he won a tender in November for a project that is supposed to start in April, he or she would definitely plan for it, gather manpower, establish strategies, etc. The plan on how to govern the country, esp., how to improve Myanmar economically should have been in place since the end of last year.

Yet, the new MIC (Myanmar Investment Commission) was formed only in July of this year. There is no economic czar in the country until now. Ministry of Finance, Ministry of Commerce, the Central Bank (CBM) and the President Office Ministry are working on piecemeal basis without much organization to improve the economy. We faced major electricity outages in April, traffic in Yangon is worse than before, Bengalis invasion in the west, inflation in double digits (CBM, 2016) and construction and property industry in tatters. Businesses are facing tougher times than ever. Foreign Direct Investments have decelerated (World Bank, 2016) from April to September 2016, the expected FDI was $3 billion and the actual FDI was only $1.3 billion. Kyat has seen its lowest exchange rate in recent history (xe.com, 2016).

All major agencies are lowering GDP growth forecasts for Myanmar this year. (ADB, World Bank, IMF, 2016)

There was some generic announcement on the economic policy for the country a couple of months ago,yet we have not seen any concrete steps to push the country forward on the economic front.

The effects of ignorance or the lack of action on the government part are being felt right now; inflation is hitting double digits for the first six months, a figure unheard of in the past five years. Confidence on the Myanmar economy and its currency Myanmar Kyats is so low that the Kyats Dollars exchange rate has reached historic highs. The gold price has reached record highs, never before seen in the history of the country.

Even prior to Yangon Regional Government blanket order to stop all high-rise construction projects, the condominiums and apartment sales have slowed so much that private property development and construction industry is in jeopardy now. The banking industry may soon be affected too, as the recent announcement by CBM highlighted the exposure of the bank to the loans to construction industry, which stands around $1.5 Billion, a significant portion of the domestic economy. A lot of these loans may carry significantly more risks than the banks have in their books, as the installment loans obtained from the banks by property buyers, may not be genuine sales, but transactions with related parties (disguised as genuine buyers) as developers need to securing a second round of funding from the banks. (The first round being the direct loans to developers by banks). Facebook is abuzz with complaints about the price increases of basic goods yet whenever criticisms of the current government is made on economic front, an army of defenders of Aung San Suu Kyi will be whitewashing the valid arguments while blaming the previous government at the same time for all the woes.

The news of abolition of US sanctions brought a brief respite to the ever-depreciating Kyat. It did not last for even three days. Structure issues in the economy persist and lack of economic leadership is plaguing the whole private sector growth. Unless the government take quick and effective actions on the economy, I am forecasting the Kyat-$ exchange rate to be around 1,400 towards the end of the year. Myanmar economy may take years to regain the momentum it gained over the past five years.

The worse case scenario would be an economic downturn for Myanmar, i.e., a recession, technically defined as two consecutive quarters of economic growth. Though seemingly not possible at present, the four indicators of recession are all pointing in the negative direction.

  1.  Major hiring decisions have been put on hold, based on the HR department inputs from retail, manufacturing and property sectors.
  2. Retails sales, especially automobile sales have slowed down. Most restaurants are reporting lower sales compared to previous years. Out of the 8000+ or so upcoming condo units in Yangon in 2017, less than 10% has been sold (Property Congress, 2016).
  3. The small manufacturing sector continues to suffer from expensive energy prices and high logistic costs due to lack of infrastructure. They simply cannot compete with regional neighbors under the current state of affairs.
  4. Real personal incomes have been heading south, due to the inflation of basic goods and services. May be it’s now or never for the government to act, appoint an economic czar to get the economy moving, else the results of the coming by-election in April would vindicate Bill Clinton once again, even in Myanmar.