Myanmar is undergoing a rapid transformation and the results of November 2015 speaks for itself. After two decades of direct military rule, six decades of civil wars, and estrangement from the international community, the country has embarked on a process of wide-reaching political and economic reforms.
An abridged report from Bertelsmann Stiftung’s Transformation Index (BTI)
Myanmar is
undergoing a rapid transformation and the results of November 2015 election results speaks for itself. After two decades of direct military rule,
six decades of civil wars, and estrangement from the international community,
the country has embarked on a process of wide-reaching political and economic
reforms. Many political prisoners have been released, media restrictions have
been relaxed, civil liberty restrictions have been eased, ceasefires have been
negotiated with most of the armed ethnic minority groups, and a process of
engagement with the global economy is underway.
The Backdrop:
After the 1988
coup, Myanmar's military regime officially abandoned the socialist-era,
statecontrolled economic system and announced it would introduce market-based
practices in order to improve the economic situation. In reality, the economy
remains highly controlled by the state, which restrains market-based
competition. Since 1989, the junta has initiated a series of privatizations,
including a large-scale privatization in 2009 – 2010, when over 300
enterprises, including a major airline, ports, mines, factories, hotels,
cinemas, gas stations, land and buildings were privatized.
The balance of power
between regime and opposition forces shifted fundamentally in the former’s
favour, enabling it to diminish (though not destroy) the threats that had
prompted its intervention and withdraw on its own terms. This outcome stemmed
from the transformation of Myanmar’s geopolitical and economic context, which
supported the regime’s strategies to centralize power and reduce centrifugal
challenges, giving it the confidence to resume Myanmar’s forced march to
“disciplined democracy”.
However, most of the
formerly state-owned properties have been transferred directly into the hands
of the regime’s cronies or the military conglomerates that continue to
monopolize the economy. According to the Heritage Foundation’s 2012 Economic
Freedom index, Myanmar has one of the world’s 10 most repressive economies. The
export tax was increased arbitrarily to 10% in 2008, although it was reduced to
7% in March 2013, making the export market noncompetitive compared to other
countries. However, the government and military enterprises do not need to pay
these taxes, and some of these have even received subsidies. Two military
conglomerates, the Union of Myanmar Economic Holdings Limited (UMEHL) and the
Myanmar Economic Cooperation (MEC), the largest economic enterprises in the
country, have dominated the economy.
The Present:
In the last two years, the government of
Thein Sein has introduced a number of economic changes in order to make the
country more competitive and attract serious, long-term investment from Western
countries. Export taxes were lowered and restrictions on the financial sectors
were eased. On 1 April 2012, the country ended its grossly overvalued fixed
exchange rate system, which had been in place for 35 years, and introduced a
market-based exchange rate. Steps are now being taken to move to full current
account convertibility, possibly before the end of 2013.
In the domestic
market, there is no market contestability at the level of large enterprises
since market leaders are in the hands of the state, the military and a handful
of cronies. Although the environment for mid-sized businesses shows better
market contestability, market entry barriers for companies are still huge. For
instance, it takes three months to register a company, and bribes must be paid
to various authorities throughout the process. Import/export licenses and
approvals for foreign investments are still controlled by the government.
Due
to the government’s control of large economic enterprises and the plethora of
government regulations, the informal economic sector has expanded. In December
2012, the government of Thein Sein enacted a new foreign investment law that
offers tax breaks to investors and allows them to lease private land and
repatriate investment proceeds using market exchange rates.
Anti Monopoly Policy:
No antitrust
or competition laws have been introduced in Myanmar. It is unlikely that such
laws will be introduced in the current parliament, since two military conglomerates
are allowed to enjoy virtual monopolies. Even if such laws were to be
introduced in the parliament, enforcement would be unlikely, since general
economic law enforcement measures have been weak in the context of weak rule of
law
Liberalization of Foreign Trade:
Myanmar has
been a World Trade Organization (WTO) member since 1995, but because of its
extensively controlled economy, foreign trade has not been liberalized in
reality. The country’s trade openness ratio is the lowest among its Southeast
Asian neighbors. Myanmar also has a large informal trade in arms, narcotics and
forest products. Regarding official trade, revenue from gas exports today is
much higher than revenue from the country’s traditional exports of agricultural
and forest products, gems, and live animals. Gas exports are controlled by the
state’s own Myanmar Oil and Gas Enterprise, which co-invests with foreign
partners. The remainder of the country’s trade is dominated by two military
conglomerates, the UMEHL and the MEC.
A WTO member,
Myanmar has an official tariff figure that is low on paper. It was 3.9% in 2007
and is likely to continue at more or less the same level. However, nontariff
measures appear to be significant, since import and export licenses are
considered case by case, and some corruption fees appear to be involved in
getting the licenses. Import and export taxes are also high, and if businesses
don’t want to pay them, they need to bribe customs officers. There are also
import quotas for certain items, such as trucks, buses and certain types of
cars. Certain export items are also limited; rice is one such product, for
example, in order to stabilize the domestic rice market. Certain other
safeguards exist to protect domestic industries such as plastics and food.
Banking System:
The banking
system still is in a nascent stage of development. The three state-owned banks
dominate the banking system and the central bank is directly under government
control. A new banking law license allows 19 domestic private banks to operate
and permits 32 foreign banks to open representative offices. The country has no
proper capital market and has no real market for bonds, which are sold only to
the banks. Banks in Myanmar operate under formal regulations, but with little
supervision or enforcement and without transparency. This led to a banking
crisis in 2003. During the crisis, there was a run on a few main private banks,
and the central bank could not help in time. After the crisis, the central bank
imposed additional restrictions on the banks’ lending practices, seeking to
prevent similar problems in the future. There are currently discussions
underway to overhaul the weak banking sector. The IMF’s technical guidance is
focused on this area. A new central bank law is expected early in 2013, and a
rudimentary money market may exist by the end of the year.
Conclusion:
Despite
Myanmar’s encouraging reforms in recent years, experts point to looming
governance challenges, including political power-sharing, sectarian violence,
and ongoing reforms. The November 2015 elections were the first nationwide,
multi-party elections since the country’s parliament first convened in 2010, and
are widely considered Myanmar’s most free and fair polls in twenty-five years.
Approximately 80 percent of the country’s thirty million eligible voters
cast ballots, and Aung San Suu Kyi’s opposition NLD party won a landslide
victory, securing a majority in the upper and lower houses of parliament.
We can hope for a miracle: a genuinely elected civilian government may bring the civil war to an end and implements policies that raise household incomes in the rural sector where most of the population resides. But don’t hold your breath, because
We can hope for a miracle: a genuinely elected civilian government may bring the civil war to an end and implements policies that raise household incomes in the rural sector where most of the population resides. But don’t hold your breath, because
- The state-owned enterprise sector will remain a drag on Myanmar’s economic progress until and unless their hegemony is broken down
- Bold reforms that may be proposed by the next government may be watered down by the legislature.
- The military will not cede control to civilians of its most lucrative rent-seeking activities.
- The woefully neglected education system will not produce enough quality graduates who can become globally competitive enterprise managers, either.
However, all fingers are crossed!
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