No Money, Mo’ Problems

“There was an early recognition, and unfortunately time has validated this, that the fight against military rule was not going to get much in the way of international support,” explains Sean Turnell, the author turned economic advisor turned political prisoner. This is his third time on the podcast; the first time he discussed the transition economy, and on his second visit he shared his personal story. In this interview, he offers his analysis of how things have been developing financially since the coup, which can be summarized succinctly: poorly, very poorly.

Turnell points to “a great struggle for control of the economy, but in particular, a great struggle for hard currency.” The military is trying to acquire as many resources as they can get their hands on, which usually ends up either in the coffers of individual generals, or is directed towards the purchase of yet more weapons to use on their own people. Although Russia provides the regime with much of their military needs, they, too, are demanding hard currency as payment, further exacerbating the need to find yet more sources of wealth. But Turnell notes that in essence, the junta has no real economic policy to speak of. “Their policy framework really touches on nothing else,” he says. “There's no education policy to speak of, or health or anything to encourage foreign direct investment or improvements and transformation in agriculture. It really boils down to a big question, and I think Min Aung Hlaing wakes up to every morning to it, of, ‘Where can you get more US dollars today?’” 

This is also where the role of US sanctions comes in, potentially limiting access to additional funds for the junta. “It just tightens the screws that little bit further, and sends a signal to reputable banks all around the world that you really shouldn't be dealing with these guys, and ultimately pushing them into the position of making a decision: Do we want to play the game in the US? Or do we want to play with Myanmar generals?” But Turnell adds that even though U.S. financial institutions, themselves, are likely to comply with these sanctions, banks in other countries can choose to use their own US dollar reserves to conduct transactions on behalf of these generals, a point that Michael Haack similarly brought up in a recent podcast. This would circumvent the need to go through the U.S. financial system, thereby avoiding detection and facilitating the evasion of sanctions. Still, the penalties for doing so would be severe, so the profit margins would need to be quite high to make it a viable option.

While foreign investment has plummeted, extractive operations (ie, mining and drilling), especially those not requiring a domestic labor force, continue. However, Turnell points out that some foreign firms that had been involved in these industries have left the region because of grassroots activism and the looming fear of bad publicity. Some observers had expected China to fill in the gap, given their lesser concern for human rights issues, but Turnell says that this really hasn’t come to pass, likely due to China’s predominant concern about the country’s stability.

As for how the Burmese people are faring since the coup, Turnell doesn’t mince words. “Just a disaster, basically,” he says, “One has to be careful of hyperbole, but if we look at Myanmar, those are the only sort of words that you can use: a disaster, catastrophe, etc. Because for the average citizen, things are awful!” For example, he cites the cost of food, up 130% even as the average income has fallen dramatically, and military spending that is up a whopping 60% while health and education sector funding (which were already very, very low) has fallen 15%.  Another issue is that approximately 70% of the budget deficient has been monetized, driving up inflation, which Turnell suspects is even worse than the numbers indicate: much of economic activity has retreated into the “informal economy,” where transactions are made but are not recorded, and in that space the cost of goods is anecdotally much higher than in the past. Moreover, many goods are simply not available, which is not reflected in the inflation data. Another sign of the worsening situation is that the Central Bank of Myanmar has abandoned its fixed exchange rate of 2,100 kyat to the dollar even for preferred customers (eg, fuel importers), and has made it illegal for any foreign exchange activity to occur outside its auspices. “The central point is that they're desperate for foreign currency, and they're trying to work out how can they do this. Do they put the restrictions ever tighter, but that then sees more people try and flee the net, or do they try and loosen the net a little bit in the in the hope of gathering more funds in aggregate? I would imagine it's a real dilemma for them.”

Other decisions the regime has made are simply confounding. For example, Turnell is shocked that the military is now encouraging people who operate in the private sector to not pay their debts. “The regime is urging its own private sector to default on debt!” he exclaims. “This then undermines the real fundamentals of capitalism, which at its heart, is property rights. I mean, there's nothing in capitalism as important as that!” This desperate, short-term attempt at keeping the shrinking money supply circulating is resulting in the breakdown of the entire system, something for which it’s hard for Turnell to find any precedent. The regime functions only to support its own needs, without almost any consideration to the state that it purportedly rules over! “There certainly is no long-term vision, but there doesn't seem to be any medium term vision either. It just seems to be this need to scramble right at this moment for as much foreign exchange as possible.”  

As to why they would be engaged in such a disastrous set of policies, Turnell can hardly even surmise, aside from presuming that Min Aung Hlaing’s background as a military leader leaves him grossly ignorant as to how economic mismanagement places the stability of an entire society at risk. He adds that the general has a mindset fixated on establishing a military command economy. This strategy, rooted in military discipline and characterized by a lack of understanding of a basic market economy, property rights, and individual incentives, demands immediate obedience and orchestrates resource allocation by fiat, rather than through consensual trade. It leads to economic decisions that are illogical from a standard economic management perspective, even while that they may make sense within the political dynamics of the Myanmar military. “It behooves us to try and understand their mindset a bit,” he says, “It's the thinking of the barracks, the order of the barracks. I'm sure for a lot of them, they genuinely don't understand… It really is a command-and-control system, and they are probably just perplexed that it could [possibly] be anything else.” Just as the economy opened up to some degree during the transition period, Turnell explains that a cadre of military-affiliated cronies sees the present moment as the opportunity of a lifetime to make a killing in a market that’s largely been cleared of competitors due to the instability, mismanagement and corruption.

For Turnell, the one silver lining is that, should a democratically elected government resume control, they may be able to quickly reverse course; he surmises that in possibly as short as a single year’s time, they could get back to 2019 levels. “The policies of the regime have been so bad, that as soon as they stop, there'll be a natural bounce back really quickly.” The one concern he highlights is the return of foreign investment. He asks, “How on earth do you convince big entities to put at risk billions of dollars, the sort of dollars that you need to reinvigorate its telecom sector, its energy sector, etc.?” This is also why he feels it’s so important that the resistance forces achieve a total victory, as even during the transition period, military interference was always just around the corner, and so nothing short of complete reform will instill trust in foreign investors. “The biggest step would be the military's complete removal, and if that were the case, then all the other reforms become much more credible.” In that case, he envisions an instant release of resources from around the world, with over one billion dollars coming from the IMF and even more in the World Bank and Asian Development Bank. This would give a new government time to put funds into areas that require immediate attention, serving as a buffer period where they could gradually attract the much-needed foreign investment.

Turning his attention to how the NUG’s financial strategies try to circumvent military control, he notes, “We’ve seen a bunch of things, some of it extremely innovative and borderline cheeky, which makes people around the world sit up to attention.” He cites examples ranging from selling war bonds internationally, to crypto currency transactions, to virtual banks, to auctioning off the homes of senior military figures… even as they are still living in them, a rather haunting indication of what they are going to lose.

Turnell also points out that back in 2021, an IMF fund earmarked for COVID relief in Myanmar was suspended by the US following the coup, and remains in the US Federal Reserve, because American officials worried that the fund would be misappropriated by the new military leaders. While democratic forces have been calling for this money to be released to them, Turnell explains that it is a tricky situation. “Transferring the money to the NUG or to the opposition more broadly is a little bit more difficult, because we get into the issues of who speaks for Myanmar.” Although many view the NUG as more legitimate, he notes that other factors, such as international law and legal precedents, need to be taken into consideration… and so the money stays frozen.

As for the various resistance groups, Turnell says that no one really has any idea how much money might have raised for them over the years. This is partly due to the need for confidentiality, and partly because a wide range of organizations have been raising money in a variety of ways. “Certainly, the numbers seem quite impressive, and I’m particularly impressed at the Myanmar diaspora around the world, in its willingness to tax itself, in a sense, which is really quite extraordinary.”

However, there is a fundamental logistical question that needs to be resolved as to how those monies can be transferred; how can it be done so that the funds neither fall into the hands of the military, nor get enmeshed in anti-money laundering or anti-terrorism policies. Compounding this conundrum is that transparency for people on both sides of a transaction could well put them in danger. The possibility of using crypto is a potential game-changer, although so far it’s mainly been an exercise of trial and error. “We've got a real, live, practical experiment underway, which is fascinating to watch,” he remarks. “But it seems to be highly trusted, given the amount of money that that people are willing to put to it. And it's voluntary, and that's in complete juxtaposition to what's going on in Myanmar where so much in the monetary sphere is due to compulsion, forced repatriation, forced transfers of funds, all the old shenanigans of a military-command economy.”

In the end, Turnell returns to his confidence that things can get back on track once the military is defeated once and for all. “This just allows me to get back onto my hobby horse, which is just how impressive some of the young policymakers in Myanmar are, who are scattered all over the world now, but they'd be the sort of people who would return much quicker than the money will return,” he says in closing. “They know what to do! That's why my confidence in getting back to at least 2019 level of economic is founded on, more than just about any anything else, because they know what to do. They can do it and I think they will do it.”