ADB Prescribes Economic Medicine for an economy that atrophied for 50 years
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.
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