Laying the foundations for Myanmar’s development

Author: Peter Drysdale, East Asia Forum

Myanmar’s progress towards a more democratic political system and a more prosperous and productive economy is a story that continues to unfold and that can be expected to surprise. This year is likely to carry more than its share of surprises. With the national elections due by December, the National League for Democracy (NLD) opposition party leader Aung San Suu Kyi declared last month that it’s still too soon to commit to contesting the election before the date and the terms of the election have been confirmed. Although there are signs that she might now accept a contest in which she herself is barred (under the provisions of the Constitution) from seeking the presidency, there are many complex issues yet to be settled if the next step towards democracy is to garner widespread national support.

Customers sitting with drinks at a traditional roadside coffee shop in downtown Yangon, Myanmar, 28 January 2015. (Photo: AAP).

Whatever the outcome, this year’s election will not be the end of Myanmar’s story of political reform and there are many uncertain steps ahead. As Nicholas Farrelly observes, even the lead-up to the national census last year was plagued by criticism and uncertainty. ‘There were widespread predications that efforts to quantify the population, and determine its ethnic, religious, socio-economic and geographical characteristics, would end in disaster’. It was easy to lose sight of the fact, Farrelly wisely notes, that in Myanmar new things need to be done almost daily, and that they all carry some level of risk.

In this week’s lead essay, Trevor Wilson argues that Myanmar’s initial reforms (that began in March 2011) were dramatic and surprised everyone. That they are still incomplete and have not always worked well is less surprising. Many of the most difficult areas have not yet been touched by reform — land reforms, judicial system reform and ending human rights abuses are still to be tackled — and there is much unfinished business. But the idea that Myanmar’s reform is stalled, Wilson argues, is far from reality. While Aung San Suu Kyi, in a 5 November press conference at the time of the East Asia Summit, warned about the stalling of reform and urged the international community to keep the pressure on progress, she also declared that she was not concerned by any ‘backtracking’.

The key to economic success is entrenching a process of reform that makes economic openness an organising principle. This is not a goal that can be achieved at any single point in time. As many much richer countries are aware, it is a never-ending task. The objective will only be secured by building institutions that ensure that policy stays the course.

Openness will move the Myanmar economy towards its comparative advantages and facilitate the inflow of technology and ideas, lifting production, domestic consumption and community welfare.

Myanmar’s trade performance has huge ‘catch-up’ potential. Analysis shows that, with greater openness, the country could double its exports and imports. If Myanmar is able to match or exceed the rates of productivity growth experienced by East Asia’s most successful industrialisers during their periods of domestic reform and economic liberalisation, more than doubling its per capita income within a decade is certainly a realistic prospect.

A well-functioning private sector is the fundamental engine of such growth. Myanmar needs to lay the foundation for private sector-led economic development by enhancing macroeconomic stability, deepening financial markets, creating an enabling regulatory environment, improving the education, skills and health of its workforce and overall population and improving access to markets, electricity, infrastructure, credit and technology.

The government’s ability to provide economic stability and public investment to meet the development priorities that are critical to private sector growth is limited by low revenues, weak policy review capacity, underdeveloped public financial management and a centralised governance structure. The strategies to overcome these problems can be best achieved through putting in place improved institutional capacity for policy review, government decision-making and macroeconomic management and increased fiscal and administrative capacity. Improving policy processes and lifting capacity in key areas will help with agenda-setting and getting reform priorities right. This will also support the growing political autonomy being conferred on state and regional governments.

These steps are set out in a major paper (an unofficial ‘White Paper’) prepared by MDRI-CESD and EABER to be presented to the Government and the people of Myanmar in Naypyitaw and Yangon on 13-14 February. Wide stakeholder buy-in to this agenda will provide confidence, domestically and internationally, in commitment to the long, hard task ahead.

Greater economic openness will have a fundamental effect on the structure of the Myanmar economy. It offers the prospect of diversifying the economy by reducing dependence on natural resources exports towards other activities in the rural, manufacturing and services sectors. Complementing greater openness, domestic reform that encourages improvements in agricultural productivity can raise incomes for the majority of the population in the near term. Facilitating labour-intensive manufacturing and supporting service activities can further raise trade, investment and income-earning opportunities.

Attracting foreign investment is critical to transforming Myanmar’s economy and growth outlook. The country’s success in attracting and benefiting from foreign direct investment will ultimately depend on the development of the infrastructure and institutions that are fundamental to the broader reform effort. They should be transparent, be liberalising and reflect a principles-based approach to regulating both domestic and foreign investment.

Substantial and strategic investment in infrastructure is needed to support the development of Myanmar’s domestic markets and their integration into the international economy. This will be a challenging task, requiring a nationally coordinated approach to prioritise projects. While such integration will intensify the forces concentrating activity in the central states and regions, development need not be similarly concentrated. Active steps to share the gains from growth will help sustain that growth, underpin peace and raise welfare for all of Myanmar’s people.

Myanmar’s transition is supported and embraced by its regional neighbours and increasingly by the global community. Its membership of ASEAN is a guiding focus in a trade and investment diplomacy that emphasises broad and non-preferential liberalisation and seizes vital opportunities for regional and global engagement to reinforce domestic reform.

As long as there is a vision of how Myanmar can more than double the incomes of its people over the next decade across the political leadership,it is likely to be achieved. By getting these elements of the national development strategy right, Myanmar can sustainably raise living standards, improve the welfare of all its people and re-establish its weight and role in the international community in the decades to come.

Peter Drysdale is Editor of the East Asia Forum.

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