Restarting Burma

In the 1960s, according to a new report by the Asian Development Bank, “Myanmar was one of Asia’s leading economies. Its per capita income in 1960 was about $670—more than three times that of Indonesia, more than twice that of Thailand, and slightly lower than that of the Philippines.”

However, by 2010, the country, also known as Burma, fell to Southeast Asia’s lowest per capita gross domestic product by purchasing power parity despite relatively good growth during 2000–2010.

The ADB cites key factors inhibiting the country’s growth as "low investment, limited integration with global markets, dominance of state-owned enterprises in key productive sectors of the economy, and frequent episodes of macroeconomic instability."

The bank dances rather gingerly about the fact that the frequent episodes of “macroeconomic instability” can be laid directly to the door of the disastrous economic policies put in place by the dictator Ne Win, who seized power in 1962 and introduced his “Burmese way to Socialism.” Sealing Burma off from the rest of the world, Ne Win almost singlehandedly ruined the country.

From being the two top economies in Asia in the early 1960s, today Myanmar and the Philippines rank 156th and 124th respectively in the world by GDP by purchasing power parity. Burma lags 21 countries in Asia, according to the IMF.

The question is what to do about it. Burma today is just beginning to emerge from 50 years of dictatorship and mismanagement with what even its critics agree is encouraging alacrity and enacting democratic reforms that in some cases are more advanced than in either Thailand, Malaysia or Vietnam. Earlier this week, for instance, the country announced it was ceasing all censorship of publications.

Nonetheless, it remains a desperately poor country, with per capita GDP by purchasing power parity of just US$822 – Indonesia’s is now more than four times higher -- and it will probably remain so for some time. Infrastructure has been ignored for decades. By the ADB’s reckoning, only about 25 percent of the country’s people have access to electricity. Others put the figure lower, at about 20 percent. Only about a quarter of the country’s roads are paved to all-weather standards. International communications are primitive. A banking system which could realistically finance investment – or even intermediate foreign monetary flows – doesn’t exist. Commercial bank density per 1,000 sq km was 0.85 in 2010, compared to 7.0 in Viet Nam, 11.6 in Thailand and 27.2 in Philippines.

Only earlier this month did one of the world’s major credit card companies – Visa – announce it would enter the country. Tourist expenses have had to be transacted in cash after converting to the unwieldy local currency, the kyat.

Today, however, according to the 58-page ADB report, titled Myanmar in Transition: Opportunities and Challenges, “the country could become one of the next rising stars in Asia if it can successfully leverage its rich endowments—such as its natural resources, labor force, and geographic advantage—for economic development and growth.

The report, by a team of officials from the ADB’s economics and research branch and the Southeast Asia Department, is the ADB’s first major assessment of the country since it began its political and economic reforms last year.

“Myanmar is making brave new moves, as did many of the region’s high growth and transition economies decades earlier. It is opening up to trade, encouraging foreign investment, and deepening its financial sector,” the report notes.

The ADB recommends that the government take its lessons from the export-oriented economies that have created the Asian miracle over the past decades to aid the country in achieving its medium- and long-term goals.

“The People’s Republic of China, Indonesia, Malaysia, Thailand, Vietnam, and recently Cambodia grew by 6%–10% annually during their high-growth periods,” the bank notes, reducing poverty by as much as half in a decade. “Myanmar,”, the report says, “could grow at 7%–8% per year for a decade or more and raise its per capita income to $2,000–$3,000 by 2030.”

To do that, however, the government must keep inflation in check through macroeconomic management. Second, high domestic savings levels are needed to finance investment. Third, agriculture is important but the economy needs to undergo a structural transformation to industry and services as a means to improve productivity, expand exports, and create employment, the report says.

The country is beginning its transition to democracy and a laissez-fair economy at a time when the global financial landscape is undergoing what the ADB calls a “seismic shift” in which the recent financial crisis has given way to a “new normal” in which the global economic weight is shifting from West to East and from North to South.

“This changing landscape has important implications for economic dynamics in Asia. With the emergence of Asia as a new global growth center, regional integration is now, more than ever, an important ingredient in an effective growth strategy and the prevailing international environment.”

Myanmar and its neighbors need no longer rely on the concept of “factory Asia” in which goods were produced in the east for consumption in the West, the report continues. “Asia is strengthening its own internal demand and thereby creating new opportunities for countries such as Myanmar as well as contributing to a more balanced global economy.

Greater regional cooperation can unlock the growth potential arising from increased trade and cross-border investment.”

The country is fortunate to be located between the region’s two economic giants, China and India. With China especially moving up the global value chain and its work force demanding higher wages, some manufacturing firms are seeking to relocate in countries in Southeast Asia, including Myanmar.

Capitalizing on its geographic position as a bridge between the PRC and India and between South and Southeast Asia, Myanmar could be open to a range of new opportunities. It could exploit several strengths and opportunities to catalyze its transition to an open market economy.

However, key constraints include a “weak macroeconomic management framework devoid of market mechanisms, insufficient fiscal resources and inefficient domestic fund mobilization, limited access to finance, deficient infrastructure, inadequate social services that hamper human capital development, and limited industrial diversification. The risks include environmental degradation arising from industrialization and climate change. The agriculture and natural resources sector is particularly vulnerable to the effects of climate change, notably the increasing frequency and severity of extreme weather events and other natural disasters.”

Myanmar has made progress toward the Millennium Development Goals, but one in four of its people remains poor and one in three children below the age of 5 is underweight. “Vulnerability to malaria, tuberculosis, HIV/AIDS, and other diseases remains higher in Myanmar than in its peers within the region,” the report continues. “Strong growth is imperative for the country to alleviate poverty and improve the standard of living. In turn, inclusiveness is crucial to maintaining good growth momentum because it strengthens social cohesion and contributes to human capital accumulation. With many ethnic groups, creating a harmonious society is a key challenge. Internal political and social tension can be destabilizing and may lead to open conflict.”

The ADB’s key development imperatives are for the government to provide a stable macro environment as a foundation for investment and long-term growth, to mobilize resources for investment, through increased domestic and foreign savings, improving infrastructure and human capital through the removal of structural impediments in the key areas of education, health, and infrastructure; engineer the diversification into industry and services, while improving agriculture, and reduce the state’s role in production. A further reduction in the government’s ownership and control of productive activities can help spur competition and increase investment by creating a level playing field.

Finally the report says it is imperative to strengthen government institutions, although the ADB acknowledges that building institutions and their capacity may take time given the way they have stultified in the 50 years since the country took the road to socialism and locked itself away from the global world of commerce.