(Sebastian Strangio’s post from THE DIPLOMAT on 06 May 2025.)
Sean Turnell on Myanmar’s Star-crossed Economic
Reforms: “Had the coup not occurred I have no doubt that
Myanmar would have made real progress in catching up to its peers and
neighbors.”
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.
