Episode #201: Navigating the Financial Landscape
This is the first of several episodes with Sean Turnell, an economic advisor from Australia to the civilian government in Myanmar between 2016 and 2021. He was imprisoned for 650 days following the military coup for violating Myanmar’s Official Secrets Act. While an upcoming episode will explore his personal story and the circumstances leading to his imprisonment, this interview covers his economic analysis, and refers in part to the findings from his 2009 book, Fiery Dragons, in which he chronicled the country’s financial system from colonial times to the present day. He highlights how Burma’s intricate financial landscape played a pivotal role in shaping its devolution from one of the richest countries in Southeast Asia at the beginning of the twentieth century, to now, one of the poorest.
The main contributor to that drastic transformation has been the disastrous economic policies initiated by the nation’s successive military regimes over the past half century. Turnell starts with Ne Win’s 1962 coup, which resulted in a “command economy” where the military held almost total power, including widespread nationalization that trended towards “full Stalinist state control.” He describes how the regime derived its benefits not through robust economic activity, but rather through complete control of the country’s natural resources, in which they got richer at the expense of the rest of the country. Turnell paints a picture of cronies overseeing a largely “rent-seeking” economy, namely, one centered in people and entities that amass wealth for themselves without creating any corresponding wealth or benefits to society. “It's just grabbing hold of that pie, and carving that pie up,” he explains. “It was never about, ‘How can we make a bigger pie?’ That was never the central question of economic decision makers in Myanmar for much of the last half century.”
On several occasions, the junta abolished, without any warning, entire denominations of currency. While many observers have attributed this to superstitions regarding numerology, Turnell believes it also is related to wanting to control a thriving black market, and is an action that totalitarian states often undertake. He explains it this way: “There was this burgeoning informal economy which the state had very little impact over. But the one thing that they did have control over was the basic currency unit, within which most of that activity took place. So the idea was, if you demonetized the most important currency notes in that system, it was a way of bringing down that formal economy and in a sense reasserting state control.” Besides essentially wiping out many people’s savings overnight, another devastating impact of this mercurial policy was that people lost all faith in their own currency. The result of this is that the normal flow of interlocking economic activity that helps sustain a society instead “gets diverted into defensive ways of keeping the state at bay. Nothing can be trusted and investment takes a big hit, and you just start doing all the things you need to do to protect yourself rather than those longer punts in the future.”
Turnell turns his attention next to the Myanmar Economic Corporation (MEC) and the Myanmar Economic Holdings Limited (MEHL), two major conglomerates overseen by the military. He regards their creation as “a superficial demonstration that that the military understands that the economy was important, and they needed to pull back in that really obvious Stalinist sort of sense, and come up with something else… but not do anything too much to endanger those flow of rents.” He adds that they may also have hoped that they could improve overall prosperity through these organizations without having to increase civil liberties or political freedoms. Still, little is known about the inner workings of either MEC or MEHL, which Turnell likens to a “black box.” He adds that some researchers tried to dig deeper into them, but so significant were their power that publishers were afraid to go through with the release. Given the lack of transparency and data, Turnell can only guess, but he estimates that before the coup, perhaps 20% of the economy was under their control.
Diving deeper into the transition period, Turnell believes that part of the openness that was enjoyed during these years was because military leaders acknowledged how poor their country was becoming, and feared that it would soon become a kind of vassal state of China unless they changed tactics. Thein Sein, in particular, was interested in opening up the economy to more foreign investment, while having little interest in transitioning towards an actual democracy. But once the tight controls were loosened, the pent-up momentum of opportunity and freedom exploded beyond what the regime had expected, and the military began to fear the loss of the privileges they’d long enjoyed. Indeed, the NLD drafted the Myanmar State Development Plan, which argued that “by dispersing economic power, there would be a dividend politically so that you will actually begin to dilute some of those really powerful instruments that controlled the Myanmar economy for such a long time, that included the military and a lot of the powerful groups connected to them as well.” This was the military’s worst nightmare!
Similarly, the military’s cronies found themselves facing genuine competition and new regulations in industries where they had long been the only player, and so they saw their market shares dramatically threatened. This was even worse for those engaged in illicit activities, as rule of law could eventually eat away at their profits. Turnell’s hope was that the NLD could find a way to implement reforms rapidly enough that new centers of power could be created, encouraging interests that support reform rather than resisting it, despite the stranglehold of corruption that still marred Burma’s economic landscape. And indeed, this began to occur; come of the military’s cronies started to partner with international corporations that followed strong governance requirements. Following the coup, however, many who had disentangled themselves from the military have fallen back in line because there was scant opportunity for engagement in legitimate business.
“The disruptive process itself can become quite productive,” Turnell notes, referring to his goal of NLD reform. “Disrupting one part of the economy requires deep disruption in another, and so on, and then you start to build coalitions and other interests in favor of reform, so the hope was that if you could get really things going, that you would be able to get enough incentives out there to bring other people along with you.” And while he did see immediate signs of improvement, he also notes that the military was a huge obstacle to the economy developing how the country’s democratic leaders would have liked. “It was incredibly difficult to get things through,” he says, adding that much of the country’s bureaucracy was almost impermeable to innovation and improvement. “They would become wealthier, by a wealthier Myanmar. But at the same time, their absolute control particular industries would begin to weaken.”
Turnell admits that the transition period wasn’t perfect, but stresses that it did open things up in ways that had hardly been seen before in Burma. “It was a mix of things. It still had a large portion completely under state control, and then variations of that leading out to the informal economy, which is about the only bit that was beyond state control. So it was moving along that continuum, but towards the more economic free end of things.”
Turning his attention to the civil service, Turnell points out that under the 2008 Constitution, the military retained control of several key ministries, along with their entrenched rent-seeking incentives and corruption. Many civil servants were “big, old men who had grown up under a different system and were highly resistant to change,” so Turnell was pleased to see an influx of younger men and women begin to take on leading roles during the transition period. “I admired them for their ambition, vision, and courage,” he says, stressing that women in particular helped lead the way despite the obvious social and cultural hurdles in their path.
Turnell can only wonder what might have been in a second NLD term. “It was going to be bold in the economic areas,” he says. “A new set of reform measures were been drawn up, and people were extremely excited about them [and] we expected an acceleration of reforms.”
Turning his attention to post-coup Myanmar, Turnell touches on a point made in a recent podcast episode with Zach Abuza concerning the military essentially giving itself a 50% budget increase, which it does by simply printing more money. This, of course, results in dramatic monetary instability. “Even as they print like crazy, they are simultaneously reducing the value of the kyat as they're doing that,” he notes. In an absurd twist that would be comical if it did not symbolize such dire consequences for the country, Turnell wryly notes that the military has been printing so many banknotes recently that the presses have actually broken down, and they are now having difficulty finding the spare parts from overseas to keep them running! Of course, the regime also routinely steals and plunders whatever it wants from the civilian population as it feels the need, which requires no exchange of currency. But its main concern is access to foreign currency so it can purchase weaponry, which underscores the importance of effective international sanctions.
The military has wrecked the functional economy to such an extent that Burmese confidence in the local currency is non-existent, and many people have turned to bartering. Wealthier people hoard gold bars while the poor try to acquire food in exchange for a good or service they can provide. “What we can say about Myanmar is large parts of the economy are not denominated in the kyat,” he notes. He actually sees three separate “spaces” in the Burmese economy: one revolving mainly around foreign currency for the wealthy, the widespread barter economy, and a smaller one where the kyat is used.
Ironically, the profound economic inequality now found in Myanmar has actually prevented hyperinflation, which would normally be the result of the undisciplined printing of money. Turnell explains that besides the widespread barter economy, which sidesteps the kyat, hyperinflation is curbed by the fact that there are frequent goods shortages, so people cannot buy much anyway, which inhibits the circulation of overprinted kyat notes. And again, even when goods are available, many people simply cannot afford to buy them or prefer to barter for them. For Turnell, the concern of hyperinflation lurks in the background, ready to manifest if any of the mechanical and/or psychological aspects of the situation begins to shift.
Turnell notes that he was targeted after the coup, likely due to the leading role he played in drafting policies to improve the flailing economy. “There was an anger from the military that they were starting to come under pressure from the sort of reforms that we were doing, and I was a little bit of a bogeyman.”
He ends by reflecting on how his own personal journey intersected with the trajectory of a nation. “Obviously, I spent time in prison, but that was of no fault to the Myanmar people as opposed to the regime that rules over exploits them. And I experienced the most extraordinary kindness, compassion and courage at the hands of people in a much worse position than this privileged foreigner talking now,” he says. “If there were a better political environment, Myanmar could be a profoundly better place that its people so profoundly deserve.”