After decades of economic disasters carried out by the military in the name of socialism, Myanmar’s economy was handed over to Aung San Suu Kyi in ruins. Even though she has pushed forward general efforts for liberalisation and economic development, most of the measures put in place were too abstract to reach significant improvements. Yes, there were some advances but, even before the coup, there was a lot left to be done, especially in regards to illicit markets and those minority groups who were most overlooked by the government.
During Suu Kyi’s years in governance, Myanmar suffered also due to Western sanctions enforced as a punishment for human rights abuses. Suu Kyi tried to hide behind powerful and care-free allies like China’s Xi Jinping. Unfortunately, as Myanmar’s economy became more reliant on Chinese trade, it became even harder for Suu Kyi to influence the military-backed government’s actions towards minorities.
The economy was also badly hit by the coronavirus pandemic which disrupted the already fragile health system, leaving Suu Kyi to be faced with a very complex situation and a shortage of resources. The coup in February 2021 came as Myanmar was facing one of the worst Covid-19 outbreaks in Southeast Asia, with one of the highest death rates in the region. Following the coup, the economic crisis has only gotten worse as the generals nationalised an increasingly isolated economy, as Western governments have applied further sanctions to deter the military. With economic activity continuously disrupted by the civil war and foreign investment having almost completely halted, Illicit markets have swelled and inflation has surged. The only “hope” left for General Hlaing, much less Suu Kyi, lies with China and Russia, two of the very few countries that have not condemned the regime.
Inherited Numbers
As the military took over Myanmar in 1962, it established the “Burmese Way to Socialism”, a totalitarian strategy towards isolationism and socialism. This ideology ravaged the country, and transformed it from one of the most prosperous nations in Southeast Asia, to one of the most impoverished ones. Decades later, as Thein Sein became president in 2011, he pushed forward several economic liberalisation reforms and anti-corruption efforts, and even though Suu came to power after several years of attempted liberalisation, the traces of the Burmese Way to Socialism remained highly visible, and thus, she “inherited high inflation, sizeable budget and current-account deficits, a volatile exchange rate, and institutions both ossified after decades of corruption, stagnation and top-down rule”.
When the National League for Democracy won the 2015 elections, Myanmar’s GDP per capita was the second lowest in Southeast Asia, lingering at $1204, only a fifth of that of Thailand’s. Its tax rate averaged 7.5% of its GDP in 2017, making it one of the lowest in the world; in comparison to 16% of GDP in Thailand and 14% in Cambodia.
Unfortunately, the taxes that were collected were not spent appropriately. From 2007-2010 only 1% of Myanmar’s GDP was spent on education -not even a third of the regional average- which can be reflected in the 9 out of 10 students that give up on their education before finishing high school. Moreover, the military regime emphasised the importance of agriculture during its rule, and by the time Suu Kyi came to power, 70% of the economy was directly or indirectly related to agriculture. However, it became a trap for the Burmese citizens who were involved in the industry, as the main source of credit was the Myanmar Agricultural Development Bank, a state-owned enterprise that charged 10% of its loans per month, leaving farmers more indebted than before they entered the agreement.
On top of a disastrous internal economic structure, the military’s brutal rule had caused international condemnation in the form of embargoes and sanctions. Between 2003 and 2016, the United States and the OECD imposed targeted comprehensive sanctions against the regime, which caused asset freezes, trade embargoes and financial restrictions. Consequently, Myanmar had to rely on a handful of trade partners to stimulate its economy, causing 93% of its trade to be with its top 10 partners, with 65-67% of which taking place with China and Thailand alone.
And so, as The Lady stepped into power in 2015, not only did she have to coordinate a proper democratic transition for which she had fought her entire life, but she also had to ensure that her people stepped out of the poverty and penury that the Burmese Way to Socialism had left.
Unfortunately, the reforms she has pushed forward during her time in office have been a mere continuation of the status quo, a perfunctory “neoliberal approach to economic management.” Nonetheless, it is -once again- difficult to determine to what extent this uncommitted attitude is caused by the controlling shadow of the military reigning over the Burmese parliament, or by Suu’s leadership choice.
Changes after Suu Kyi
Months after the 2015 elections, Suu Kyi announced a 12-point plan intended to boost foreign investments and to aid small businesses. In 2018, her government unveiled 238 non-binding measures to improve the economy. And even though these (and other) announcements lacked the sufficient detail to understand how it would develop, Myanmar’s economy showed some improvement during her initial term.
By issuing bonds to reduce the fiscal deficit instead of relying on the Central Bank, Burmese inflation was reduced from 10% in 2015 to 6.5% in 2017. Similarly, between 2016-2017, the economy grew 5.6% and overall poverty levels fell. The textile industry, an important sector to the Burmese economy, grew ten times its size between 2008-2018, and now constitutes 8% of Myanmar’s GDP. These improvements were mainly achieved through foreign (Chinese) investment, but also through other specific measures that Suu’s government pushed through.
For instance, in an effort to reduce the influence and power of the 31 State-Owned Enterprises (SOEs), Myanmar joined an Asian forum on how to best monitor them. These enterprises provided for half of the government’s revenue in 2018 (excluding foreign aid), and they collect 12% of all fiscal revenue. Consequently, Suu’s decision to become a member of this Asian forum has allowed restrictions on highly influential and detrimental economic actors. Similarly, the government has expelled its ex-finance minister, Kyaw Win, for corruption and for falsifying his PhD.
However, Suu’s economic reforms failed to address a large problem of Myanmar’s economy, that of its illegal sectors. For example, Myanmar produces 70% of the world’s jade, but this industry is controlled by the military and is constantly threatened by rebel groups. Consequently, ⅔ of the market is illegal, making it extremely dangerous for the workers due to landslides and other possible threats. Similarly, the illicit drugs market constitutes between 1-2% of the country’s GDP, as Myanmar has become the second-largest source of opium and heroin. This industry has also become a national issue, as an estimated 30% of the population uses heroin or meth, and as it has become a source of income for most rebel groups.
The Economy since 2020
Unfortunately, Suu’s efforts to improve the Burmese economy were also hampered by the COVID-19 pandemic. Myanmar’s response to the pandemic under Suu Kyi was ineffective due to an inappropriate response framework strategy, in addition to a lack of resources and ongoing ethnic conflicts in the country. For example, although the government took steps to expand its testing capacity, the detection system still had major weaknesses due to dependence on other countries for testing kits and shortages of human resources such as trained lab technicians and data managers. Moreover, the health system lacked personnel, hospital beds, and was overall so poorly managed that 10% of the total confirmed cases in the second wave were among health care workers. Conflict, notably in the Rakhine region, further disrupts efforts to organise an effective pandemic response due to the displacement of people and the disruption of transport routes.
As a consequence of the spread of the pandemic and the consequent lockdown measures, household income dropped, leading 4 out of 5 households to report skipping meals or incurring debt to buy food by the end of 2020. Although the government provided several measures under the COVID-19 Economic Relief Plan (CERP), such as unemployment benefits, cash assistance, and food distribution to households without a regular income, the effect of these was limited, again due to a lack of resources and funds. In fact, the cash transfer of MMK 40,000 per household corresponds to a daily income that is still below the poverty line. Although it doesn’t justify the failure of her policies, Suu Kyi was faced with a very complex situation and a shortage of resources.
After the coup, the situation has only gotten worse. Western countries – including the United States, Britain, Canada and the European Union – implemented sanctions to deter the military. The generals, in response, returned to a regime of strict self-reliance and nationalised key portions of the country’s economy. Economic activity is also continuously disrupted by the ongoing war and protests. All of the above contributes to reducing investment and trade, which results in furthering a vicious cycle. To make matters worse, Covid19 continued to hit the country hard, especially as the health system is not able to respond effectively. As a result, the economy contracted by at least one fifth during 2021 and, as of mid-July 2021, the Myanmar kyat had depreciated by around 23% against the US dollar since late January.
As Myanmar’s economy has nearly collapsed after over a year of civil conflict, illicit economic activities have swelled even more. The increasing political chaos has created an opportunity to scale up production of meth. Illegal online trade of endangered wildlife has also boomed since the military coup in February 2021. The WWF claims that the number of illegal online transactions of endangered wildlife products rose 74% in 2021. As the military comes under increasing economic sanctions from the West, it relies even more heavily on these illegal flows of cash. Being sidelined from the political scene, there is unfortunately nothing that Suu Kyi can do about such economic disasters. However, having almost nothing left to lose, the population of Myanmar is fighting harder than ever to overthrow the dictatorship.
Foreign Trade
One of the toughest measures that the military regime imposed on Myanmar on behalf of the Burmese Way to Socialism, was economic isolation. During the 60s, they limited foreign trade to a minimum, and it wasn’t until the late 20th century, when trade with China and Thailand was legalised, that the military junta decided to slightly open up to the world in order to stimulate its dying economy. Currently, Myanmar’s biggest export is natural gas, and it is followed by pulses, teak and minerals. It mostly imports machinery and equipment, as well as general consumer goods. Because of the strong sanctions imposed by the United States and Europe, especially after the Rohingya genocide and the February 2021 coup, the country carries out most of its trade with East and Southeast Asian countries, most notably China.
From day one, Xi Jinping has made a great effort to build a strong relationship with Suu Kyi. He was the first leader to send a representative to pay respects for Suu Kyi’s victory in the 2015 elections, and he has invited her to Beijing numerous times to “praise her efforts” alluding to their paukphaw (blood affinity). Xi has also secured his economic relationship with Myanmar through the Belt and Road Initiative (BRI). In 2018, talks of this agreement commenced, and in early 2020 the two countries signed 33 bilateral agreements which included rail and deep-sea port projects. As part of the BRI, the two states agreed on the China-Myanmar Economic Corridor, which is meant to connect the Yunnan province to Mandalay by road, rails, and gas and oil pipelines. Similarly, it is meant to push forward the massive urban development project known as the Yangon City Project.
Suu Kyi’s government saw China as a lifeboat for their sinking economy, drowned in Western sanctions and embargoes. Nonetheless, the BRI has proven to be part of a very aggressive Chinese agenda, and its investment decisions were driven by Xi’s geopolitical needs rather than genuine hope for development. In fact, after the 2021 coup, China went on to support the military regime rather than fight for Suu Kyi’s return. It seems that the rise of China next door can easily overwhelm the Burmese through deceitful agreements. Economically isolating Myanmar through sanctions as a Western means to punish severe human rights abuses leaves the country unprotected against the influence of a country that has consistently disregarded human rights. As the former presidential advisor Thant Myint-U pointed out; “China should loom large in anyone’s analysis of Burma’s future.”
After the coup, China remains one of the only countries that has not condemned the military’s regime, notably followed by Russia, which has interests in competing with China over influence in the region. As a result, the UNSC has not been able to pass sanctions because of opposition by Russia and China, which have stated they view the developments as internal affairs of Myanmar. China’s policy toward Myanmar remained unchanged after the coup, and it will continue its investment as part of the BRI, showing that China’s interest is purely economic rather than aimed at pushing a particular form of government in Myanmar. While investment from either China or Russia can provide some relief for Myanmar’s economy at least in the short term, it is unlikely to improve the socio-political situation. Russia has defended and formed strong ties with the Burmese military, and there is evidence that Moscow is providing arms to the military junta. At the moment, ties with China and Russia are the only hope for survival for the junta.
