Undoing Reform: The Hidden Costs of the Coup in Myanmar
Six months after the February 1st coup, Myanmar remains conflict-ridden as anti-coup protests continue and armed civilian militia proliferate. What is following the political crisis is an economic one, with Fitch Solutions estimating that the country’s GDP will contract by 20% this year alone.
The junta has tried to maintain a veneer of being pro-business, although their actions point to the opposite.
The sudden crash in market expenditure is compounding the socioeconomic impacts of the global COVID-19 pandemic. According to a recent report by the UN Development Program, 83% of households in Myanmar reported a significant drop in income during 2020, and half the country’s population of 55 million is expected to slide into poverty by 2022. Such levels have not been seen since 2005, during the previous military junta’s rule.
The country is therefore on the cusp of an economic meltdown. Strikes and protests are continuing and most anti-coup activists have expressed a willingness to inflict a pyrrhic victory by choking the economy. Worse still, the junta has been systematically undermining the economic reforms and governance institutions established by the previous government.
No Way Forward
Military generals have a history of heavy-handed and top-down decision-making, which undermines institutional checks and balances in the civil administration.
“It’s part of the psyche of military generals and how they approach political economy, [they] focus on decisions, not policy,” says Mark (alias), an economist who worked for an international NGO in Yangon until recently.
“The lack of rationalized planning may lead to policies running counter to each other, which is not just bad for foreign investment, it’s disastrous for local businesses!”
For the same reasons, foreign investment projects in the coming years will do little in terms of economic development. In the midst of the ongoing political instability, the junta is likely to attract mainly extractive and speculative forms of investment, which boost GDP but create little to no benefit for local people.
Sectors like natural resource extraction and infrastructure investment can, of course, be developed sustainably, but only if there is strong political and institutional oversight in place.
It seems inevitable that Myanmar will return to a kleptocracy, where military cronies and shady foreign investors make deals behind closed doors, shutting out SMEs and local entrepreneurs.
Although certain sectors, like banking and construction, have always been dominated by an oligarchy connected to the military, reforms under the NLD’s civilian government introduced a more level playing field for small businesses.
In human terms, the coup has also led to the disintegration of Myanmar’s education system, creating a crippling skills shortage, compounded by a massive brain drain, as many young academics have fled the country in recent months or abandoned their careers and opted to take up arms instead.
“What we are seeing at the moment, and I believe this is the one thing that will harm Myanmar the most in the future, is that there is now over a year of people not being able to study in universities, in schools. Now it seems naïve, but those people are not going to be skilled workers when it [the economy] expects them to be,” said Steve (alias), another economist with three years of experience in Myanmar.
Myanmar’s economy languished for decades under weak civic administration and a bloated military apparatus, which plundered state coffers. When the NLD party won historic elections in 2015, expectations were high, although meaningful reforms were initially slow to materialize.
Nevertheless, the civilian government’s economic reform program gathered momentum in the second half of their term, with a slew of legislative and governmental reforms.
The 2016 Investment Law and 2017 Companies Law, for example, established an open investment environment, where foreign companies were allowed to operate in all areas, except for five key sectors on the prohibited list. These were further bolstered by the 2017 Investment Rules.
This was complemented by the decentralization of the Myanmar Investment Committee (MIC), which screens large projects and tax incentives for investment in poorer States and Regions. “Ease of Doing Business” also increased significantly, with the move to an online company registration system in 2018, which substantially reduced the registration costs and compliance requirements for SMEs.
Perhaps the most significant reforms, however, have been in terms of national economic governance.
A key aspect of this was the introduction of the 2018-2030 Myanmar Sustainable Development Plan (MSDP), which formed a legislative framework for policy planning and implementation. By rationalizing Myanmar’s long-term development goals, the MSDP marked a significant break from the past, when government policy was arbitrary and spending decisions were based on networks of patronage.
The MSDP was complimented by the so-called ‘Project Bank,’ an online portal, which increases transparency and accountability by requiring all major public investment programs to be screened and prioritized based on their alignment with the MSDP.
This was further accompanied by the creation of a new Ministry of Investment and Foreign Economic Relations and the reorganization of several other portfolios, all spearheaded by key planning institutions, namely the Ministry of Planning, Finance and Industry (MoPFI), the Myanmar Development Institute (MDI), a public sector think-tank, and the National Economic Coordination Committee (NECC), chaired by Aung San Suu Kyi herself.
Alongside the State Counselor and the President, almost all other key reformers have been charged by the current government with various alleged crimes and are now in prison or under house arrest.
All of this points to a systematic dismantling of the economic reforms that were put in place during five short years of civilian rule. The junta is attempting to woo investors, even as the civil conflict spirals out of control and do not yet appear to have any policy plans in place to salvage the economy.
Putting these pieces together paints a grim picture. SMEs are being undermined and the lack of public service provision is destroying worker productivity. Without oversights in place, we can expect to see poor investment decisions, increased corruption, and rampant environmental destruction in the coming years.
This triggers memories of the heydays of corruption, during the economic liberalization of Senior General Than Shwe’s junta in the 1990s as, once again, the poor suffer what they must while the Tatmadaw stares out at a scorched economic landscape.
By David, with Co-author Anders Moeller*
*Anders Moeller is an applied economist and policy expert who worked in Myanmar from 2017 to 2021. He is currently pursuing a PhD in urban geography at the National University of Singapore.