Sean Turnell: Myanmar's democracy dividend begins with an economic reboot
The stunning victory of Myanmar's National League for Democracy in the country's Nov. 8 election was, above all, an expression of the people's desire for freedom. Inspired by the NLD's message of change, it also reflected a yearning to rise above the wretched poverty that is the lot of most citizens.
The outgoing administration of President Thein Sein made some progress on tackling this bleak economic reality, including nominally floating the kyat, introducing a foreign investment law, modernizing banking, limiting autonomy for the central bank, and permitting foreign banks and telecommunications companies to provide beneficial competition. Politically, the country opened up, while a freer press ensured the government's shortcomings were covered in detail.
INHERITING A MESS Nevertheless, the NLD-led government will inherit responsibility for an economy only partially reformed and in a very poor state. Structurally, little altered under Thein Sein. The resource-extraction, energy and agricultural sectors continue to dominate output and growth, and Myanmar still has dysfunctional policymaking institutions, degraded and missing infrastructure, energy shortages, insecure property rights and a poorly educated and equipped workforce.
The macroeconomy also faces heavy weather, with a large current-account deficit, high inflation -- forecast by some economists to reach 13% by the end of the year -- and a volatile exchange rate. The budget deficit is deep due to a combination of bloated military spending, poor tax collection and largely unprofitable state-owned enterprises. The task of financing the budget deficit continues to fall to the central bank, stripping it in practice of its theoretical independence.
Against this background, Myanmar's new government faces a steep and rocky path to true reform, although no government anywhere will come into office with such a powerful mandate for change, nor with such committed supporters. The downside of this is soaring expectations of fast and dramatic improvements. The upside is a wellspring of goodwill and political capital that could help the NLD-led government survive the inevitable disappointments of office.
On the macroeconomic front, the NLD's approach emphasizes fiscal prudence -- spending restraint, improved tax collection and state enterprise reform. This approach, coupled with reforms to the nascent treasury bond and bill markets, should give the central bank real independence. The NLD has drawn up some significant liberalization measures to allow banks to be the capital-aggregating and -allocating intermediaries that Myanmar needs them to be.
Agriculture will be a major priority. Farmers lack access to credit and face barriers in selling their produce. Much land has been seized by the military, and foreign companies have been granted extralegal privileges. The NLD has committed to land reform, extending production freedoms, creating a viable rural credit system and building the infrastructure needed to connect farmers to markets.
The NLD-led government will have advantages denied to previous ones, including favorably disposed international partners. This can be seen in the significant volumes of foreign direct investment (much of it from Western countries), some of which has been awaiting credible elections and a subsequent political settlement.
PATIENCE NEEDED Much new investment will have a large employment "footprint," in keeping with the NLD's emphasis on job creation. International institutions have already given much support to Myanmar. But more can be counted on from governments and agencies that were previously nervous about domestic reactions. With such support, the NLD can deliver the higher spending on health and education that its supporters most want to see.
Myanmar is nearer to the changes it needs than at any point since its independence from Britain in 1948. That transition generated sky-high expectations, as did the 1990 election, until the NLD's crushing victory was annulled by the military. This time, the chance must not be snatched away. Nor must impatience attend what will inevitably be a messy redemption. Instead of a road to nowhere, the former pariah nation and its autarkic economy might just be turning the corner toward home.
Sean Turnell is an associate professor of economics at Macquarie University and an economic adviser to Aung San Suu Kyi. These are his personal views.