Coup leader and Tatmadaw Commander-in-Chief Senior General Min Aung Hlaing has become the laughing-stock of Myanmar social media over his grand plans for the country.
The most outrageous example of his folly is the grandiose expansion of the capital, Nay Pyi Taw, that he proposed in August. His vision of a city of 20 million people with a subway system and electric buses for transport prompted The Irrawaddy to publish an editorial titled “Myanmar junta boss Min Aung Hlaing’s delusions of grandeur”.
At meetings of the Central Committee on Prevention, Control and Treatment of COVID-19, Min Aung Hlaing has also waxed lyrical about using traditional medicine to produce vaccines for use against the coronavirus. The domestically produced vaccines would save on the cost of imports, he said.
He has also given reassurances that despite rising inflation there will be no food shortages in Myanmar because it is mainly an agricultural country.
At a meeting of the National Planning Commission in Nay Pyi Taw on September 22, Min Aung Hlaing discussed using electric vehicles and trains to reduce reliance on fuel imports. He also said that Myanmar could become a middle-ranking member of the Association of Southeast Asian Nations within five years, and one of the top ASEAN countries in a decade.
Nothing could be further from the truth. Min Aung Hlaing is like the head of a poor household whose small wooden house is going up in flames but instead of trying to put out the fire he is shouting loudly about building a grand mansion.
His comments reflect a lack of both basic knowledge of macroeconomics and the necessary skills for managing the economic turmoil he has unleashed on the country by overthrowing the elected government.
The World Bank has forecast a contraction in GDP of 18 percent in the 2020-21 fiscal year, amid a crisis in the banking sector and the rapid depreciation of the kyat against the US dollar. In recent days, the kyat has sunk to a record low of around K2,500 to the dollar, almost half what it was trading at on January 31. The crash has prompted many money changers to close their doors, only adding to the sense of turmoil and chaos.
The economic crisis will be devastating for the people of Myanmar. The United Nations Development Programme has forecast that the poverty rate could double by early 2022 and nearly half of the population will be below the poverty line. That prediction was made back in April, and the situation has only become more dire since then.
But we need to look past Min Aung Hlaing’s delusions to winnow the truth from falsehoods and understand why the senior general and his junta, which calls itself the State Administration Council, are articulating certain economic policies. We need to ask whether the policies can be successful, what impact they will have on the lives of the country’s people, and what trajectory the economy is likely to follow in months and years ahead.
An economic agenda, and its challenges
The SAC’s economic policies can be summarised as promoting the agricultural sector for self-sufficiency, import substitution and industrialisation through protectionism.
The junta’s draft Myanmar Economic Recovery Plan seeks to flatten a recession curve by focusing on the domestic economy and domestic consumption as a counter to supply chain disruptions. The plan also sets three objectives: promoting agricultural-based industrialisation, creating a stable market economy to attract direct foreign investment, and supporting domestic industries and businesses to create jobs.
Regarding the first goal, Min Aung Hlaing has repeatedly spoken of the need to export milled rice rather than paddy, and the draft MERP targets cultivation of value-added vegetables in greenhouses in the medium term. For the second objective, MERP emphasises relaxing rules and regulations, setting up one stop service offices to speed up processing of applications, and streamlined procedures for importing capital goods. To support domestic businesses, MERP says only essential goods should be imported, while non-essential goods should be produced domestically where possible.
Promoting self-sufficiency and import-substitution, and relying on domestic consumption are understandable policy responses to targeted sanctions, the suspension of international aid, dwindling revenues and declining foreign currency reserves.
These policies are the regime’s strategy for the long game. The generals are probably aware that economic recovery in the short to medium term is impossible given the scale of economic downturn and absence of international assistance. They will resist international pressure to make concessions and will instead isolate themselves, if necessary, regardless of the costs incurred on the society. In this context, these policies will be needed to help them hang on to power.
But the SAC will be unable to achieve these objectives unless it addresses more immediate challenges to the economy. In particular, the banking crisis has planted the seeds of destruction in the real economy and the value of the kyat. Some have predicted that the economic downturn could become more severe after the fiscal year ends on September 30. The kyat’s precipitous decline over the past week only hints at how bad the situation could get.
As an example of why the country’s financial crisis will make it impossible for the junta to realise its economic plans, consider the regime’s decision to give priority to the agriculture sector, particularly small-scale farming.
The output from monsoon season crops is predicted to decline significantly this year due to a sharp fall in fertiliser use by farmers. This occurred partly because of a global rise in fertiliser prices but mainly because of the disruption that the coup inflicted on the economy.
A survey of agricultural input retailers conducted by the International Food Policy Research Institute in March found a range of factors had contributed to lower fertiliser use, including truck drivers going on strike, the disruption to banking services because of internet cuts and the Civil Disobedience Movement, the depreciation of the kyat (which made imports more expensive), and the decision of the SAC-controlled Central Bank to set limits on cash withdrawals from bank accounts.
In a working paper published in April, IFPRI predicted that fertiliser sales would be half that of a normal year. It said this would have an outsized impact on the rice harvest, particularly in the Ayeyarwady delta, which produces about half of the monsoon crop and usually accounts for half of the country’s annual fertiliser imports. In a normal year, Myanmar imports about US$500 million of inorganic fertiliser. The assessment was based only on fertiliser sales and did not include other factors such as the cost of seeds and farm machinery.
Reduced spending on farm inputs will not only have implications for the macroeconomy, it will also have a huge impact on poverty, IFPRI said, because about 80pc of the country’s poor are linked to the agricultural sector, IFPRI said.
The impact of this is not yet being felt. Data published recently by the junta’s commerce ministry showed that agricultural products accounted for 34pc of all exports between October 2020 and September this year – an increase of 25pc on 2019-20.
Total trade between October 2020 and September 3 this year was $27.15 billion, a near-20 percent drop on the $33.55 billion in the same period last year, state media reported recently.
Agricultural products have thus helped to prop up Myanmar’s trade figures this year, but this is because of increased agricultural production before the coup. Decreased fertiliser use this year means agricultural outputs are likely to fall dramatically in the near future, hitting both exporters and importers hard next year.
Political problem, political solution
During eight months of SAC rule, all of the country’s economic indicators have become flashing red lights.
The junta leader’s import-substitution and industrialisation policies are relevant for the medium to long-term but they cannot address the immediate and worsening economic crisis.
The financial crisis is the result of a lack of trust and confidence in the economy, particularly private banks. The reason for this is the Tatmadaw’s seizure of power, and restoring confidence would almost certainly require a return to the status quo ante – a political settlement that enables the National League for Democracy to return to office.
Another possible solution is a massive injection of international funds – a bailout, essentially – but the Tatmadaw’s power grab and the human rights abuses it has inflicted over the past eight months mean there is little appetite to provide monetary assistance through the SAC.
Only the restoration of democracy and a legitimate government will unlock the international assistance Myanmar needs to alleviate the crisis.
With such a solution unlikely to materialise, the future for Myanmar’s economic is bleak. In the coming months we can expect to see increased poverty inflicting greater suffering on the people, while the state-controlled news media continues to fawn over more of Min Aung Hlaing’s delusions of grandeur.