When Myanmar’s military seized power on February 1, 2021, it forcibly dissolved the government led by the National League for Democracy (NLD) and terminated a process of political and economic opening that the government had spearheaded over the past five years. This had involved ambitious efforts to loosen the military’s grip on the economy, rationalize Myanmar’s institutions, attract foreign investment, and catalyze the long process of catching up with the country’s neighbors.
Throughout the NLD’s term in office, the Australian economist Sean Turnell was a close participant in and observer of the reform process, serving as a “special economic advisor” to NLD leader Aung San Suu Kyi, an experience that he relates in his recent book “Best Laid Plans: The Inside Story of Reform in Aung San Suu Kyi’s Myanmar.” Appointed shortly after the NLD took office for the first time in 2016, Turnell would serve in this capacity until the coup, when he was arrested by the Myanmar military and spent 650 days in prison, prior to his release in late 2022.
Turnell, now an honorary professor of economics at Macquarie University and a senior fellow at the Lowy Institute, spoke with The Diplomat’s Southeast Asia Editor Sebastian Strangio about the inner workings of the NLD government, the ups and downs of the reform process, and where the country might be today were it not for the 2021 coup.
To start with, give us some sense of the scale of the challenges facing Myanmar’s economy in the mid-2010s, when you took up your post as an economic advisor to Aung San Suu Kyi’s government.
At the time the NLD assumed office in 2016, Myanmar’s economy was in the early stages of emerging from nearly fifty years of policy ineptitude and stagnation. It was one of the poorest countries in Southeast Asia, and a notable standout against the “Asian Tiger” narrative that characterized much of the rest of the region. The challenge thus was to turn this around, to apply in Myanmar the policies that elsewhere had proven so successful at promoting economic growth and development.
The “what” to do on this policy front was relatively straightforward: opening the economy to international trade and investment; promoting macro-economic stability through prudent monetary and fiscal policies; reforming the tax system and eliminating the scourge of money-printing financed public-spending; rescuing the financial system from imminent insolvency; dramatically increasing the resources devoted to health and education; investing in sustainable energy and more efficient infrastructure, and; all to be supported hopefully by democratic scrutiny and accountability. Of course, it was understood from the get-go that implementing all of this would be the real challenge. And so it proved.
You write that Myanmar attempted to pursue a form of export-led industrialization similar to the path taken by many of its Southeast Asian neighbors. Which of the aforementioned challenges do you think ultimately proved the most intractable, and where do you think Myanmar’s economy would be today if the coup hadn’t happened?
Unquestionably, the biggest barrier Myanmar’s economic reformers faced was the opposition of the “deep state.” Of course, I know this is an over-used label and one that in many places is somewhat imaginary – but in Myanmar it was (and is) very real. This opposition had many forms. One component was the immovability of the civil service. Bloated, inefficient government departments that (at the top) were sinecures for sloth and rent-seeking were more or less the norm in Naypyidaw. Inertia was the weapon of choice for many senior bureaucrats in their reform resistance, even as so many brave ordinary public servants did their utmost to try to bring about change.
But the most lethal opposition to reform came from the military, who made it clear throughout the period of the NLD government that they could intervene at any time, and destroy all and anyone who stood in their way. I cannot stress enough the pervasive threat that hung over Naypyidaw throughout the whole reform period.
Had the coup not occurred, I have no doubt that Myanmar would have made real progress in catching up to its peers and neighbors. It would have still been a hard slog, but 2021 was emerging as the pivotal year. So many reforms were about to come due that year, and were about to be presented to the parliament that was due to sit that terrible first day of February 2021 when the tanks finally rolled in.
The World Bank has estimated that had the coup not taken place, Myanmar’s GDP would have been about 50 percent greater today than that ultimately delivered by the junta. That seems a reasonable estimate to me.
Tell us a bit about the state of the banking industry and how it was shaped by years of military rule. How did the country’s largest banks view and respond to the NLD’s reforms?
Under military rule, Myanmar’s banks were not really “banks” at all, but little more than corporate cash boxes dispensing largess and favor amongst the country’s crony conglomerates. For that reason, very little in the way of proper credit assessments were ever done in banks’ lending decisions – with the unsurprising result that “non-performing loans” were at levels that (if properly accounted for) would render the banks insolvent. I exaggerate a little – a handful of banks were trying to become real financial institutions that could have served Myanmar well in aggregating and allocating capital – but most were precisely as I have described.
Fixing up the banking system, then, applying proper regulation (up until that time, the Central Bank of Myanmar was asleep at the wheel when it came to prudential bank supervision), getting the banks into some sort of safe shape for depositors, would be our order of business. As with most things, it was a difficult road. Nevertheless, with such skilled reformers as Dr. Bo Bo Nge, Dr. Winston Set Aung, and Finance Minister U Soe Win, by 2021, broad system solvency was in sight. There were still some recalcitrant banks, some of which were owned by the military, others by crony business figures deeply connected to them. The latter included the biggest banks in the country, and they were not hesitant in issuing threats to members of the NLD Government, and even to advisers such as myself. I might add, these threats continue to the present day.
Do you think the economy and/or economic interests played any role in prompting the military takeover in 2021? Did Senior Gen. Min Aung Hlaing and his fellow generals pursue an active economic agenda once they were back in charge? What was the fate of the reforms introduced over the previous five years?
As I mentioned above, a core of the crony conglomerates were entrenched in their opposition to economic and political reform in Myanmar, and aligned themselves closely with the military. These groups were, I believe, complicit in the coup. The reforms (especially in banking) were getting very close to impacting the rent-seeking activities of these conglomerates. They acted accordingly.
Since the coup, Min Aung Hlaing and the junta he leads have demonstrated no real economic agenda (and little competence), beyond simply extracting from the economy as much resources (real and financial) as possible to fight their wars against the people they are attempting to rule over. There are so many examples of this priority, but to me the most telling are the myriad ways the junta has fashioned Myanmar’s banking and financial arrangements to expropriate foreign exchange – from exporters and other businesses, but above all from Burmese workers overseas making remittance payments back to their families at home. These payments are forced through a select group of Myanmar’s banks, who swap the foreign currency earnings for Myanmar kyat at exchange rates highly favorable to the junta, and greatly disadvantageous to the workers and their families. Retention of foreign exchange by ordinary people in Myanmar is prohibited, and all foreign currency must be surrendered to the regime. Of course, the junta’s need for foreign exchange is extreme. Amongst the few advantages they have over the democratic resistance is the regime’s ability to wage war via sophisticated aerial platforms. The latter can only be sourced from China, Russia, and a few other places, but all require foreign “hard” currency. The junta’s economic policies have greatly damaged Myanmar’s hard currency earnings – hence their desperation.
How would you characterize the state of Myanmar’s economy today, and does it differ from the situation under the junta that ruled prior to 2010?
Prior to 2010, Myanmar’s economy was coming to the end of a five-decade “development coma.” The leadership at the time had little idea about what to do to turn things around, but at least some of them understood that change was needed.
Today, the idea that Myanmar needs profound change to its political economy has been pushed aside by the ruling junta. As noted earlier, their focus is not on the longer-term needs of the country, but the day-to-day survival of their rule and privilege. The entire language of economics, of development, is alien to them. I see no vision at all from the junta with respect to the country’s economic future. They are in their bunker.
In the book, you describe China as “the most secretive and troublesome of all the donor countries in the NLD era.” Why? And how did the NLD government go about handling China, in particular the giant infrastructure agreements that were signed (with very little transparency) under the previous junta?
China was a great problem during the reform era. They were (and are) anxious to have in Myanmar a country that was stable enough to be a supplier of natural resources and as a market for cheap consumer goods, but otherwise weak and dependent. Of course, Myanmar was also a key component of their Belt and Road Initiative, but especially as manifested in their so-called China Myanmar Economic Corridor, and the deep-sea port and attendant Special Economic Zone at Kyaukphyu. This gargantuan project, approved by Myanmar’s previous military leaders, would have seen the country take on debt to China of around $10.8 billion, all at commercial interest rates and with a host of provisions that would have seen the port surrendered as collateral to China as, inevitably, the whole scheme failed financially. It was Sri Lanka’s disastrous Hambantota experience on steroids. Understanding the danger, the leading reformers of the NLD government renegotiated the deal, turning this version of debt-diplomacy into a useful and digestible $1.3 billion project that contained no sovereign guarantees from Myanmar at all. Had the project still gone wrong, all the risk would have been borne by the Chinese developers.
On March 28, a massive earthquake hit central Myanmar, killing nearly 4,000 people and displacing hundreds of thousands. Do you see any chance that the disaster could act as a spur to political reform, as some argued that Cyclone Nargis did in 2008?
More than a month after the disaster, and it is apparent that Myanmar’s junta has behaved little differently than what they always do following natural disasters – to use them to extract resources from the international community to the extent they can; and to use the opportunity to attain some sort of legitimacy. Infamously, they have also continued their attacks on the country’s democratic opposition, as well as any civilians who may be in the way. Targeting ethnic minority communities for especially brutal treatment, usually as delivered from Russian and Chinese-built warplanes and drones, has been a particular feature.
In short, the earthquake and the junta’s malevolent and opportunistic response to it should be a reminder to everyone, but especially the international community, that any real improvement in Myanmar’s situation will only come with the excision of Min Aung Hlaing and his cohort from their positions of power. I believe this will happen. The junta is out of puff, out of money, out of ideas. I hope and expect their end will be sooner rather than later.