Interview: Sean Turnell
How would you assess the economic liberalisation that has taken place in Myanmar so far?
SEAN TURNELL: In recent years some important foundations have been laid for the structural transformation of Myanmar’s economy. The floating of the exchange rate back in 2012 was a crucial technical reform, but it was an even more important symbolic gesture in signalling the return of the “market” as a central coordinating mechanism for the economy. Likewise, the new investment laws, the opening up to foreign banks, the expansion of microfinance and the creation of some new institutions all suggested that Myanmar had decisively turned away from the path it had taken in the past five decades. Yet, at the end of the administration of President Thein Sein, these foundations were still fragile, and the liberalisation measures recounted above were, in practice, sometimes more superficial than real.
Even the exchange rate reforms did not lead to a truly floating kyat, or an end to official interference in the foreign exchange market. So, the new government has its work cut out for it in genuinely liberalising the economy and otherwise improving policy-making in ways that will improve the fundamentals of the economy. Nevertheless, I believe they are starting in the right place. Economic policies narrowly defined have never really been Myanmar’s main problem. Instead, for that one must look to politics, and on that front I am optimistic that things are better now than they have been for half a century.
In your opinion, what fiscal measures can be employed to promote economic growth?
TURNELL: Myanmar’s government extracts less tax revenue than any comparable government in Asia, or indeed almost anywhere else. At the same time, for decades it has maintained levels of military spending that have been, relative to GDP, among the highest in the world. This resulted in the fiscal deficits Myanmar has traditionally been noted for, and from these the full gamut of macroeconomic distortions that have hitherto been so apparent. Clearly, Myanmar’s fiscal arrangements are in need of a fairly dramatic overhaul. One major upside of this is that, from such a low base of growth, the positive impact of improvements in Myanmar’s fiscal circumstances should be quickly and powerfully felt.
In terms of the kind of overhaul that is needed – predicated on the obvious need to raise greater revenues – new but fairer taxes need to be introduced, but, above all, the whole structure of tax rates needs to be simplified and made more transparent. Naturally, given past problems on this front, the revenues of state-owned enterprises also need to be brought into the budget and properly accounted for. On the spending side, budget transparency needs to be established and spending priorities realigned.
What priorities has the NLD identified to improve rural access to finance?
TURNELL: Improving access to affordable and reliable financial services is a central objective of the NLD. But this is especially so with respect to Myanmar’s farmers, who currently lack such access and, as a consequence, are either forced into the arms of informal moneylenders charging truly usurious interest rates or simply go without finance. Therefore, the impoverishment of the country’s farmers and the impairment of agricultural productivity has been the inevitable outcome of problems originating in financial sector dysfunctions.
The NLD has devised several policies for improving this situation, including undertaking a proper diagnostic of the sprawling, state-owned Myanmar Agricultural Development Bank (MADB), and then rebuilding and recapitalising it. Complimenting a revived MADB will be the extension of greater freedoms for private banks to engage the rural sector.
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