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Keith Rabin

Keith Rabin

KWR International

Keith W. Rabin serves as President at KWR International, Inc., a consulting firm specializing in the delivery of Asia-focused trade, business and investment development, research…

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Analyzing the Direction of Economic Policy in a NLD-Governed Myanmar

This interview is part of an ongoing series highlighting Asia-related business, trade and investment opportunities and issues.

KWR Special Report
Conversation with Dr. Sean Turnell, Associate Professor, Dept. of Economics, Macquarie University and Economic Advisor, National League for Democracy

Dr. Sean Turnell

Sean Turnell has been a researcher of Burma's economy for nearly twenty years. Formerly a Senior Analyst at the Reserve Bank of Australia, he is based at the Economics Department of Macquarie University in Sydney. Sean has written widely on Burma's economy, and is a regular commentator on the country in the international press. He has been an advisor on Burma to the US State Department and other agencies, to USAID, to Australia's Department of Foreign Affairs and Trade, to the World Bank, the Open Society Foundation, and many other international bodies. Sean has provided frequent testimony on Burma's economy to US House of Representatives and Senate Committees. Within Burma, Sean is an advisor to a number of key stakeholders and prominent reforners, including Daw Aung San Suu Kyi and the National League for Democracy. In 2009 the Nordic Institute of Asian Studies published Sean's book on the history of the financial sector in Burma, Fiery Dragons: Banks, Moneylenders and Microfinance in Burma.

Hello Sean, good to speak with you today. Can you tell our readers about your background, your interest in Myanmar, and your affiliation with the NLD?

I first became interested in Burma around 1990, after meeting Burmese students who had been forced to flee the country. Shortly afterwards, I came to share a house with a descendent of one of Burma's so-called '30 comrades'. This group of young men, which included General Aung San, Daw Aung San Suu Kyi's father, are credited with bringing about Burma's independence after the second world war.

At this time I was an economist at the Reserve Bank of Australia, with a special focus on banking. This 'professional' side of my life soon merged with the personal, as I was asked by people from the NLD to help them analyze economic developments in Burma. Gradually this came to take over and it became my primary focus - and continued after I become an academic at Macquarie University in Australia in 1991.

I was motivated at that time by the idea that economics might be a channel through which change could be brought to Burma. First I moved to do this by trying to critique the idea, which was popular at that time, that somehow military dictatorships were good for the economy. Luckily, on this front Burma's military rulers made this job rather easy and I have written numerous articles and written a book on the subject.

We have recently seen a historic election in which ASSK and the National League for Democracy experienced a landslide victory gaining almost 80% of contested seats - or almost 60% accounting for the 25% of seats presently reserved for the military. What does this mean and how will this change Myanmar moving forward?

It means we are now at the cusp of great change in Burma, rather than simply changes on the surface. Certainly this will be true politically, but I also think this will be the case for Burma's economy as well. A couple of early noticeable changes will be a refocus on agriculture, and much greater investments in 'human capital' via greater spending allocations to health and education. Likewise though, Burma's external image will undergo profound change. Instead of being a land associated with human rights abuses and political crises, I think we will have a country that will be the latest tourist 'must visit', and one that will not raise the red flags of compliance officers from London to Lisbon.

Last week Daw Aung San Suu Kyi met with President Thein Sein, Commander in Chief Min Aung Hlaing, and former Senior General Than Shwe. Previously she met with Lower House Speaker Shwe Mann. How do you view these discussions and what was achieved? What would you evaluate the relationship between these parties and the institutions they represent, the prospects for a "national reconciliation" government and how the transition will be managed?

I claim no special insight on this, but remain extremely hopeful. Such a meeting would have been inconceivable only a short time ago.

The NLD mounted a highly centralized campaign and candidates focused on ASSK and the party - rather than their own views and experience. How will this approach translate after the new government takes power? Will it allow effective response to diverse national and local issues?

Decision making in Burma has long been highly-centralized, and that has been deeply problematic - politically as well as economically. The NLD has made a number of commitments with respect to creating a governing apparatus that delivers greater 'say' to Burma's ethnic nationalities, and I can see no reason why this will not be honored. It won't come overnight of course, but overtime I do think there will be significant decentralization of economic policy-making in Burma.

NLD will seek shift toward Agriculture and Agribusiness development

The NLD issued its economic agenda as part of its election manifesto. How does their agenda differ from that of the present government? How is it evolving as we move from objectives to implementation? Do you see a continuing emphasis on SEZ development such as Thilawa, Dawei and Kyauphyu?

As noted above, a 'pivot' toward agriculture will be the most obvious difference, in my opinion, between the current and future governments. As for the SEZs - Daw Aung San Suu Kyi is on record as appreciating the importance of continuity, as well as change. However, such continuity is based on worth. If a policy, institution or individual is working, if they are bringing benefit to the country, they will go on. If that's not the case, I would imagine they would be up for critical review. My own view is that, of the SEZs, Thilawa seems viable, the other two are unclear. Of course, this opinion is not a very startling one - I think it would mirror the broad consensus of just about everyone.

New Apparel Factory in Pathein Industrial Park

The USDP government also sought to focus attention on Myanmar's agriculture, manufacturing and other drivers of large-scale employment - and away from reliance on energy and mining - which had led economic growth in the past - though only benefited a small group of people and did not adequately address environmental and social concerns. They quickly found, however, that investor reluctance and lack of physical, legal/regulatory and service infrastructure as well as other constraints impinged on activity in these sectors and they were not able to achieve the progress they desired. What can the incoming government do to address this problem?

This touches upon the really central issue when it comes to genuinely transformational FDI - the sort that has made such a difference in much of the rest of Southeast Asia. In this context, it's all about institutions (broadly defined), infrastructure, and politics. These three were only partially put in place by the current government, and hence the continued dominance of the extractive sector in Burma's FDI. Recreating Burma's institutions, but above all giving security in property rights and in the application of predictable law, is central to all that the NLD is about. Indeed, this is the 'business end', if you like, of Aung San Suu Kyi's refrain on the importance of the 'rule of law'.

The NLD has never managed a government before. How will it field the necessary expertise? Should we worry about a scenario one analyst recently described as "You don't want a situation where all the current ministers leave and say, 'good luck'?" There is also talk about the need to restructure ministries and streamline the government. Can you give us any insights into how this will be handled and a possible timeline?

Outside of a handful of countries, I daresay that most oppositions come into government without governing experience. In Burma I often think experience is greatly over-rated - not least in contemplating a regime that (in various forms down the decades) has beggared the economy. The NLD people have been moving mountains over the last year or so in policy design and implementation. Much will depend on what they are left with of course, but I am confident they will do considerably better in all aspects of government than the incumbent administration. Naturally, they will also get lots of help - from a considerably expanded set of actors than the current government has been able to access.

Fixing Diesel-Powered Village Mini-grid in Central Dry Zone

Only about 30% of Myanmar is connected to the national grid, and more than half its wiring is estimated to be 70+ years old. Donors and others are taking steps to facilitate national electrification though lack of coordination between ministries and other stakeholders has made it difficult to pass the laws, attract capital and to build the necessary consensus. Based on our past research on Myanmar's energy and electrification sector, our firm KWR International has been working to develop a Myanmar International Energy Center to provide an independent platform from which government, private sector and other important stakeholders can consider, study and work to resolve key issues of importance to Myanmar's energy sector. Given the size and scale of the problem, what is your view on national electrification, as well as the need to enhance public-private and stakeholder dialogue to deal with problems of this kind?

Fiery Dragons

The lack of coordination here highlights the issue implied throughout here - that Burma's current government, whilst better than some in the past, has not been that good in actually implementing economic reforms. It has been great at announcements, even laws, but not so much in making a difference on the ground. Electricity is surely emblematic here. I remember well this and other issues being discussed on this front in March 2011 - and the same issues being unresolved two weeks ago. As to this specific sector, I would bow to KWR's immensely more informed take!

Lack of a fully functioning financial sector has constrained Myanmar's growth and made it difficult to access funding - in respect to large projects and small businesses. It has also impinged on Myanmar's ability to introduce the financial products, liquidity and practices found in many other economies. While we've come a long way since a few years ago when one presidential advisor told me there were only about 20 computers in the Ministry of Finance, how do you see this sector evolving? What is in store in regard to central bank management, the role of foreign banks and insurance companies, and how will development of the financial sector effect corporate practices in Myanmar?

Yes, this is such a serious problem. As with so much else, however, a lack of true resolve has been apparent. The government has passed quite a number of laws designed to update Burma's financial system, but in practice they bog down amidst administrative recalcitrance and conservatism, and an all-pervasive fear of change in critical institutions. These very much include the Central Bank of Myanmar which, some prominent internal reformers notwithstanding, remains in the clutches of people with little understanding of modern financial practices, and great antipathies toward anything smacking of 'international finance'. So much in the financial sector can be improved by simply removing a vast array of excessively restrictive, irrational and contradictory regulation. This has not been done. On the upside, change must surely come, and World Bank support for institutional and regulatory transformation seems to be imminent. Another silver-lining is that this sector represents very much 'low-hanging fruit' (apologies for the cliché), and so could be the arena for early reforms by the new government.

You recently referenced a recent Economist article which noted that in spite of movement seen in recent years the "deep state" including the security apparatus, military corporations, large crony companies and other entities of this kind remain largely undisturbed. Your view was this equilibrium needed to be "disturbed" to create a prosperous and peaceful country. Can you talk further about your views and how Myanmar can transform itself while maintaining balance, stability and a spirit of national reconciliation? Given it will be some time before there are alternatives, how quickly can this "disturbance" proceed?

A genuinely competitive economy, overseen by institutions determining the rules of the game, will be (as it always is, if imperfectly applied everywhere) the best antidote to cronyisation and rent-seeking.

This month Myanmar launched the Yangon Stock Exchange (YSX) in an effort to improve the ability of local companies to access funding using market-oriented criteria from private investors and the Deputy Finance Minister has announced that he expects the YSX to catch with Vietnam's Ho Chi Minh Stock Exchange within three years. What are your thoughts on the YSX and the role it will play moving forward.

I believe the development of the YSX is positive but that it will take awhile to work out the mechanisms that will allow it to operate effectively. This way the organizers got to hold to their launch date while allowing time to work out all the details. Longer term, we might hope for it to evolve into something like the Vietnam exchanges which, though starting badly, eventually became a useful device for capital formation and market liquidity.

US and international sanctions has deterred and constrained foreign investors in their ability to enter and operate in the Myanmar economy. Many of these measures have been repealed, but others such as the inclusion of prominent individuals and companies they operate on the US Specially-Designated Nationals (SDN) list continue. For example US banks had been refusing to process payments for trade through the main port given it is operated by Asia World, though now have relaxed this restriction for six months - which is positive but does not really allow US investors to plan effectively. At the same time, other financial institutions still place restrictions on payments even though relevant sanctions are no longer in place. Do you see any major changes in regard to sanctions and do you view this as the main obstacle to building investor interest in Myanmar? What can be done to change investor perceptions, and make it easier for corporate and financial investors to enter, operate and become positively engaged in, Myanmar?

In the medium term one might imagine the winnowing down of sanctions on Burma to just those on a small cohort of individuals who, reasonably, no-one might want to do business with anyway. Clearly the new government represents a new beginning on this front, but turning Burma into a more 'normal' (even in the SE Asian context) economy will take time. On Burma as a business climate - again, it amounts to improvements in all the issues we have outlined: good and rational macro-economic policy making, secure property rights, sound monetary conditions, openness and transparency in governing arrangements, a higher degree of political stability, etc.

Thank you Sean for your time and attention. Before we conclude do you have anything else to say to our readers?

I do think Burma really does have the opportunity now to redeem and realize its promise. In doing this it must look outside, but in economic policy-making it should also look to its past, and the advice of its many influential 'pro-market' economists who were forced offshore. Few people know there were several Burmese economists with a genuinely liberal outlook on economic development, and who achieved international prominence. This includes Professor Hla Myint of the London School of Economics, who is now 96 years old now, but still active!, Ronald Findlay of Columbia University, U Tun Wai of the IMF and Yale, R.M. Sundrum of the Australia National University, and Khin Maung Gyi of the National University of Singapore. All brilliant, they were forced into exile in their most productive years and Burma can draw on their work to help define and own its reform narrative moving forward.


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