Transcript: Episode #196: The Brutal Incompetence of a Floundering Regime
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Host 0:19
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Host 2:01
And welcome back with me today is a returning guest of the podcast Zachary was who, for most listeners hopefully needs no introduction. But if this is your first time hearing him Zack, would you like to give us a brief rundown of who you are and what you do.
Zach Abuza 2:18
I'm a Southeast Asian Security Analyst I've been covering the region for 30 years.
Host 2:27
Excellent. And so let's let's dive right into what we want to discuss today. Let's start with the conflict previously when we had you on you you had some sort of let's say negative forecasts for the direction that the conflict was taking it seems that situation has developed a little bit particularly in regions like Sudan where the where the fighting is very intense what is what is the D'Amato experiencing right now fighting the resistance
Zach Abuza 3:02
we'll where we solve fighting previously. So again tie in state mon state that's still going on. There's still intense fighting right now going on in Chin State. But in the past few months, there have been new battlefields in just going on right now. There's intense fighting in southern kitchen state in northern Shan State. And against new combatants. You know, the regime has been careful not to broaden the battlefield. They're already fighting a multi front war. And yet right now they're engaged in just intensive fighting against the tang National Liberation Army in Cork controlled the road up to the border town with China musei. You have intensified fighting in kya. State after some of the border guards forces that had been aligned to the junta defected over to the n UG. So we're seeing not just kind of the fighting where we last when the last time I was on the podcast. But you have these new battlefields that the military really seems on unprepared for and certainly doesn't have the manpower or resources and yet they're fighting they've chosen to fight in these places.
Host 4:58
So just just declare Are we talking about a restructuring and reorganization of the way that the revolutionary forces are naming themselves and grouping themselves? Or are we talking about completely fresh forces joining the conflict?
Zach Abuza 5:13
So I think you're seeing intensified fighting in places like Zugang. Just because the military is desperate to break the back of the N ug in their PDFs, they really think that they can, with enough air power with enough troops that the N ug can be broken. And they're going out this through just sheer terror. air attacks, long range artillery, but just that village to village arson attacks, attacks on civilians. So that has been intensified. We've seen intensified fighting in Chin State. There's this one town tatlong that has was for a while very much, almost thoroughly under the control of the energy and their PDFs. But right now, we know that the kind of the last little bastion of military troops has been able to evacuate their personnel overland by by ambulance. So that's kind of suggesting that they've been throwing in resources there to retake some of the main arteries up into Chin State. Could Shin there definitely have gone on the offensive after the kitchen kind of walked out of peace talks earlier this year. Obviously, the military is desperate to control some of the Jadite mining in the state. A recent convoys, sailed up the Irrawaddy River as far as they could and now are marching in on Kitchin independence, Army positions, but again, and then you have in current state where where they have been fighting the Korean National Liberation Army. So those battle grounds are ongoing. You might be seen a little bit more violence in Boggo. Some bombings, again, largely trying to control the lines of communication. You know, Myanmar is a big country, and it just doesn't have a lot of roads. And so those those key arteries are really important. But, you know, it's places like kayas state that really have been new fronts for the military, certainly in the past five months. So that's been a new space, as I said, one of the border guards forces that had been in a tense Alliance so I'm not saying it was a close alliance but in alliance with with the military defected. And so the military had no no option but to intensify attacks. They're, even though they're just really running short on manpower. The border with China, it's just incredible how much of the border is starting to be on reach to the military. So border towns like musei are really important. The government might control the town, but they don't have full control over the road in and out. And so you have groups like the tang National Liberation Army that have been supportive in many ways of the N ug since the one February 2021 coup, but have not been fighting along the side the N UG. In offensive operations, the tnla would fight defensively if the military attack them. But the military had been smart enough until recently to kind of lay off that. And recently we've seen just a huge reversal. And I think a lot of it is the control of the road. They really need border trade with China. Just because sanctions are taking a bite the country is so short on foreign exchange, and yet they can do business with China in chat or un and So those that border trading is so important to them right now.
Host 10:05
So, you, you say that the military is already spread thin and they're choosing to engage in these new fronts. When you say the military is choosing to engage, do they really have a choice? Or are they making a poor strategic decision?
Zach Abuza 10:22
To me, it's a very poor strategic decision there, you know, everything that we're learning about the military now from leaked documents, you know, show that the light infantry battalions are running very light. You know, there was one that kind of made the news a couple of weeks ago, that the unit had 132 men down from kind of the minimum of 200. And even that floor had been lowered already, just because their the manpower issues are so dire. But we're starting to get pictures from other light infantry battalions that they too, are running very low, probably 50% are around 150 Min, or lower, and they're just running them at just unsustainably high operational tempo, so the troops must truly be exhausted. All that that pillaging and looting and targeting civilians and arcing is not easy for them. I I'm sorry about my dark humor there. But really, we're we're watching these light infantry battalions just operate on really, under they must be running on fumes.
Host 12:02
So let's talk about the light infantry battalions. So the light infantry divisions, as we've covered in the past are the sort of the true psychotic Nadia of the of the Burmese military. Now, the numbers at least theoretical numbers that we had from before the coup, we were talking, correct me if I'm wrong, something like 12 divisions, each of those divisions was supposed to comprise 5000 Men, divided into 10 battalions of 500 men, which is rather light for a battalion and modern military terms. You're now saying that these 500 Man battalions in many cases are down to 150 that they have.
Zach Abuza 12:41
I mean, very clearly, the estimates of the light infantry battalions even at the start of the quit 500 men was was clearly an overstatement. They just don't have researchers Jaebum Hain us Institute of Peace after self from Griffin university in Australia, I've kind of looked through some of the leaked data and really found the those were very on paper. Yes, in reality no. And then you start to look at the these battalions that comprise them. And everything we're seeing right now from defectors or documents that have been leaked, are showing that they're they're running very light.
Host 13:32
But so the line infantry divisions, possibly because of that psychoses have shown characteristically very low levels of defection. We've seen defection from the military, but largely for as far as I know, the defections have predominantly come from back end, logistics teams, you know that there was an announcement made recently of an actual combatant defecting with a rifle and and you know, five, five magazines 30 round magazines. And this was considered newsworthy. So if the light infantry divisions numbers are so low, and if they're not known for their defections, what's what's driving that?
Zach Abuza 14:14
They are losing men. Without a doubt, the PDFs are better armed. They're getting a steady supply of ammunition. So there are battlefield losses. We also know that the military doesn't really have great battlefield medicine. So people that are wounded that should live her are often dying. It's what they call the golden hour and they're losing troops they should not lose. The second thing is that we don't know that much. It's it's really impossible to come up with a figure for desertions, people that are just coming disappearing, rather than defecting. Those that defect we do have kind of a good idea because it's been handled by a couple different civil society organizations. They're getting access to the media. Those announcements are coming out, as you noted, I think it's important to ask the question, Why are defections so low? And they really are. I think that's taken a lot of people, including myself by surprise. So you got to kind of ask what, what is the basis that the military can keep these people in. And a lot of it is just actual physical control. They live on military bases, their families live in military bases, their money, what little they have, are in military banks, they monitor large withdraws. People use my tell cell phones, and they monitor communications and social media posting. So there's a lot of internal policing. They live in such a bubble, of family members are often working at military owned corporations, so that they live in this entire ecosystem where they are policed. And then on top of it, if you think about just the daily war crimes that they commit, I think there would be a lot of nervousness about defecting and thinking that you would be embraced, or whether, you know, you think that you will get a fair hearing, because they know exactly what they're doing every day in the villages, whether it's sexual violence, or arsenic or intentionally killing civilians. So there's kind of this sense right now of either we hang together, or we hang separately. And finally, just never forget the power of indoctrination. They've always been told that they're the only people that can hold this otherwise fractious country together. This has been beaten into them literally beaten into them, since the first day they join the military. So there are many reasons why you have individual defections. And yet we're still not seeing unit level defections.
Host 17:45
So would it be a matter of that just paranoia and mistrust. And that fear that if you talk to your your unit, mate, and you say, Well, I'm thinking of defecting? That they might turn around and hand you into the authorities?
Zach Abuza 18:00
There is that what we're also seeing, though, in lieu of defections, are a growing number of commanders who are refusing orders. So recently, there were three light infantry battalion or two light infantry battalion and one other commander that refuse to attack the KIA (Kachin Independence Organization). They were arrested. And their replacements, two of them kind of refused orders as well. So we're starting to see this. I don't want to say it's a trend. But we're starting to see more and more instances of these, you know, they come up because the people are arrested and put on trial. So it is happening. It's just probably not happening enough.
Host 18:57
He's there. It makes sense to me. If I were in that situation, and my choices were pretty grim. Is there a sense where soldiers at the lower levels and even at at NCO level, might do what you would do in a company that pays your wages, but you hate working there, where you you look busy, you look as though you're compliant, but you make sure that you never actually do anything particularly well. You don't defy orders, but you just find ways to not actually put yourself at risk.
Zach Abuza 19:33
I think we see that in the non Light Infantry Division units. So you have territorial forces that are, you know, where units are, are from that region. They tend not to be used as much in kinetic military operations. They're more on defensive postures. And I think that's exactly what you see. places like that they're not used for frontline duties very much they try to stay within the wire. It's those light infantry battalions, though that are constantly on the move, they're being moved around the contrary, they're constantly engaged in operations, milling, moving from from village to village. So it's it's really hard for those people to look busy because they're, they're just not sitting still.
Host 20:35
Okay, so let's, let's talk about that element of its allied infantry divisions. Again, I'm not I'm not familiar with military internal operations, but from my understanding the light infantry divisions themselves are just trigger pullers. They don't have internal support networks, they don't have transport capabilities, they have to rely on other units to do that. Is that the case?
Zach Abuza 21:01
That's mostly the case? I mean, they have a small kind of battalion headquarter staff with some transportation units, you know, lorries and things like that. But I think you're exactly right, that they're completely dependent on other units, you know, maybe the Air Force for helicopter lift in and out of, you know, Chin State where they're responsible reliant on other units for artillery support. For the most part, the light infantry battalions, you're really talking almost all our ground pounders, just guys with guns marching from village to village doing the real dirty work.
Host 21:56
But so if if there is weakness within the military structure when it comes to logistics, and transportation, does that even if the light infantry divisions were at their full hypothetical capacity of you know, 60,000 armed men, would that seriously limit their capacity to get from point A to point B and do the things they want to do?
Zach Abuza 22:18
Well, right now just look at the number of fronts that they're fighting. Right. You know, they're in fighting in Chin State Maguey manda he could change different parts of Shan states Kai is the Kobuk Cayenne, I mean, they're just fighting everywhere right now. They're very few parts of the country that are free of violence. And even if they were at full Manning, I'm just not sure how they would be able to do this. They've they've never been able to do it in the past, which is why they had this long history of divide and conquer and you know, the fight until they were really spread thin, reach a temporary ceasefire and then move the troops to where they're needed. This is just unsustainable.
Host 23:16
Interesting. And let me just, it's a small technicality. But what about fuel I mean, moving people from point A to point B has to be difficult. And fuel is increasingly hard to come by Myanmar, or at least that's what the civilian experience is, is there going to be appointed which, as we've seen with the military economizing on artillery shells, they're going to have to start economizing on fuel expenditure to move their units around.
Zach Abuza 23:43
Yes, fuel is getting more costly and simply because of inflation and other economic mismanagement. My guess is that they will always be able to seize the fuel that they they need when they're rolling through towns, they're fueling up and they're not paying for it. This they're I'm sure they're taking quite a bit at gunpoint. So, but your point stance, and the military gave themselves a 50% increase in their budget this fiscal year. So they're up to about $2.7 billion. If you assume that a piece of that off the top is just going to be lost to corruption. And that's a good assumption to make in a place like Myanmar. But I think it shows the military's frustration and basically saying we really have to end this soon because the money is running out. But $2.7 billion doesn't go very far in modern war. Have those artillery shells, the planes they fly the spare parts for the helicopters, the rockets, for the helicopters, the bombs, they're dropping from their mate Su fighter jets, you know, these are really costly things. They're trying to manufacture as much as they can in their own Cape ASAF factories. But those are state run entities, they are poorly administered, they're poorly managed. We know there's a lot of waste coming out of those. So even doing that is not a silver bullet for them to deal with their dwindling resources.
Host 25:54
I mean, do they do they have the capacity because I think a lot of people, those of us who don't have a military background, we tend to think like, you know, a bullet, the bullet, he goes in the gun, it goes, bang. But when you start talking to sort of weapon people, you start talking to military people, they'll say, Well, no, like bullets that were produced in this time period, or that were produced in this particular country are highly unreliable, some of them may have very, you know, they may be spiked, some of them may be very low. You get bullets lodged in barrels, and you'll get explosions, you know, in the chamber that aren't supposed to be there. Is the Myanmar military in a capacity to actually produce these things other than just making a bullet that looks like a bullet? Is it capable of producing stuff that is going to be reliable in combat?
Zach Abuza 26:38
Yes, I mean, simple field grade ammunition, they do have the capacity to make the, you know, is it the best quality in the world? No. But but they do are able to manufacture that they're able to manufacture other like mortar shells and artillery shells. They've been doing this for a long time. And over the years, they spent a lot of money on kind of these 14 Key factories to build up indigenous capacity. I still think quality control is an issue. You certainly in swampy Southeast Asia. You know, our ammunition has a shelf life of about a year, before it starts to really degrade in terms of its quality when you start getting a lot more duds, but you know, I think that they are able to produce enough from these factories. But again, money is tight.
Host 27:58
That's that's very fair. And I assume that the military must be aware of these things. I mean, they're they're stupid, but they're not that stupid. So has there been any change in their tactics and their operations? Or are they just sort of holding on for dear life thinking? Well, as long as the PDF breaks, you know, a fraction of a second before we do everything will be okay.
Zach Abuza 28:16
You know, the one thing you can say about them is that they haven't changed their tactics at all. You know, here we are. Well, over 30 months since the coup, they control less territory than before the end, ug is increasingly able to arm and provide a steady stream of ammunition to their fighters. The military has to worry about their supply lines through the one secure Bama Heartland. You know, life has gotten a lot harder for them. But there's been no fundamental reassessment of their strategy. What they're doing is simply doing more of what they had done previously. So more attacks on civilians, more arsenic, more of the four cut strategy to terrorize the population into submission. And he has failed.
Host 29:27
I mean, that's, you would you would think that people who have been in military leadership positions and who have gone through the the academy and who have come from this culture, the military has been running the country on and off for the last 60 years. Surely, they would have developed a slightly more nuanced and robust approach to try you saying they've been doing the exact same thing for the last 60 years and never once thought maybe there's a better way.
Zach Abuza 29:54
I don't want to go back and revisit history. I'm just thinking about what they've done since since the coup, there's been no kind of reassessment of the fundamental military strategy. And they cannot sit there and think that they're winning. Now we've seen them kind of say, Alright, so last December, there was an important meeting headed by the Ministry of Interior, but all the major players were there. And we know about it, because the minutes were leaked. And there, they basically said, Alright, we've got to do a couple of new things. We've got to go after the new GE supply of money, how are they raising funds? What can we do with the banks? So they were trying to do things like that. But you didn't see a fundamental shift in their military strategy. Right? That they're not trying to, to say, you know, maybe the four cut strategy is driving the people into the arms of the N ug, which is more legitimate than ever. There's been no drop off in public support for them. So, you know, that, to me, just says that the military is so indoctrinated, they're so convinced of their superiority, just the chauvinism, that they, they've demonstrated that they're impervious to innovation.
Host 31:30
But so Okay, so what's the prognosis than purely military terms? If the military is slowly collapsing, and they're losing people to defection, and they're losing people to military like Battlefield losses? How much longer are they feasibly able to hold on? Well,
Zach Abuza 31:50
they're not going away anytime soon. You know, they can still raise and spend $2.7 billion on their military budget. They have natural resource rents, they're still selling oil and gas to China and Thailand. Sadly, there's still some foreign investment coming into the country. You know, revenue across the board is pretty flat, other than those natural resource rents, but but that's, you know, over a billion dollars a year just there. They're still selling, Jemison, timber, you know, so there are other sources of revenue for them. The increasing poverty of the country actually helps them in some ways in terms of being able to pay off people to join the militias who do some of their real dirty work that even they don't want it. People are just desperate for jobs, especially at in some of the more impoverished regions in the countryside, where food insecurity is a growing problem. So I think, you know, they're not going to collapse anytime soon. You know, they can still sell bonds, they can still get support, they can still import weapons at Friendship prices from from key allies and supporters. They can buy on credit. That's all in in very sharp contrast to the national unity government who's basically spending right now about $60 million a year, which is a considerable sum for and, you know, how they've done it is a innovative, you know, it's it's well thought out, but still, they're operating on a shoestring compared to the military.
Host 34:05
That's, I mean, is there is there a possibility of, I don't want to say sort of North South Korea situation but a possibility that the military's area of of control shrinks around their sort of Heartland Navy though and surrounds and, and you have like an effective bifurcation of the country into clearly military controlled territory and clearly an EEG controlled territory with whether the frontline is small enough that the military can sustain pressure on on all sides.
Zach Abuza 34:46
There are people far smarter than me that have tried to gauge what is under military control and what is under N ug or there are allied ethnic resistance organizations under control? My general view is that there's very little territory in the country that the military cannot get to. They cannot hold most of it, but but there's no place that they probably can't get to. So I'm a little bit skeptical with some of the estimates I've seen out there about effective control by the energy. But I look for other indicators, you know, the number of the townships that the N ug is actually collecting taxes, it is a very good indicator that they have control the military does not, you know, start to look at the number of townships where the energy is starting to set up civil administration schools, health clinics, and we know they're doing it because the military is actively targeting those institutions they are targeting and ug schools they're targeting and ug health clinics. They're targeting and ug offices. So the manifestation of energy state control is infuriating the generals and Naypyidaw I'm, I know, it's harder for the military to to operate in some places. I'm still cautious in a conflict like this, to make clear the limitations of land whether that this is an ug or Kitchin, independence, Army control territory, and this is military controlled territory, I think there's a lot of shifting space. What I will say is that the territory that is firmly under military control is diminishing, more and more of the country is contested.
Host 37:16
Interesting, so it's the ideas that we have, you know, transported from, from the conflict of, you know, the 20th century and earlier, where conflicts are defined by changes in territorial control don't really apply to this conflict, is what you're saying?
Zach Abuza 37:36
Yeah, I think that's an important point, um, who has legitimacy? Who collects taxes, who is providing a social services, I think are better ways to look at this. And, you know, that's not not for me, I was very influenced by the French historian, Bernard fall who, you know, was in Vietnam in the 1950s. And that's how he knew how ciments forces were going to defeat the French. Those were the metrics he looked at. And, you know, he didn't care about the number of military troops that were deployed or the number of bunkers they had on the road. I think those are false metrics are much better.
Host 38:26
Interesting. And in terms of those metrics, can we say that the energy is, is picking up steam? Or are we looking at a sort of stalemate effectively at the moment?
Zach Abuza 38:42
I think it's important to note that every day, from the northern most part of the country, to the southern most east to west, despite the threat of arrest. of terrible treatment upon arrest, whether sexual violence or pink, tortured or tortured to death, people are protesting military rule. Every day there are flash mobs in villages around the country protesting military rule. The courage of the people of Myanmar to do this for 30 plus months is astounding. The NUJ is not a perfect organization. But I think they've done very well under the circumstances. And I think it's very fair to say that they continue to enjoy very high rates of legitimacy.
Host 40:00
Fair enough. So let's see. Let's turn the focus then slightly to that broader context to civilize the civilians and what's going on in the in the rest of the country outside of the immediate conflict. What impact is this conflict having on Myanmar, and Myanmar 's ability to recover from? I mean, the destruction up until now and also the the economic decline that was caused by COVID prior to the coup.
Zach Abuza 40:31
Yeah, I don't think enough people outside the country are paying enough attention to not just the conflict, but to the very dire state of the economy right now. You know, in the the year following the coup, the economy contracted 18%. Now, of course, part of that was related to the pandemic. But the military's absolute incompetence in running the economy has exacerbated this. The World Bank has predicted that the economy is set to grow at two to 3%. This year. I personally think that's optimistic, I'm kind of waiting to see whether they're going to readjust their assessment. But still, they have come to the conclusion that the economy has contracted 12% Since the start of 2021, meaning that a decade's worth of economic growth was just eviscerated by the avarice, the greed, the desire for power of the military, you now have nearly 60% of the population living beneath the poverty line. And, you know, food insecurity is a growing problem. It wasn't lost on me that when minimum clang spoke to the Moscow International Security Conference and was railing against the Americans weaponizing the dollar, he made a very, very clear reference and saying that's impacted our ability to import fertilizers and pesticides. So he understands that that agricultural output is down throughout the country. So we've got all that foreign investment, by and large, is pulling out of the country, though it's still coming in from China, Thailand. But But by and large from the West, it's leaving. We know that the government's revenue is pretty flat. We don't their budget is a state secret. So so we don't really know all the numbers there. But what we do have are some predictions that are built into the Union taxation law. And every year when when they submit the law. They have their estimates built in to revenue. And if you kind of look through the three different union taxation law since the coup, it's very clear that the bureaucrats from the military government's own internal revenue department are painting a very grim picture revenue from lotteries from the income tax, corporate taxes, overall, natural resource rents and customs duties are either flat or have declined. The only thing that's really gone up for them are rents from oil and gas exports. So, you know, we know that the government has real financial problems in terms of the revenue. They're running out of ways to make money. So one thing that the new GE has been noticing, and trying to report on it is the fact that the central bank of Myanmar has been issuing bonds. Now, you can ask Who in their right mind would would invest in a central bank of Myanmar, under control of the military? Who in hell would buy these bonds? And this is probably the worst investment you could think of. And yet they're able to go to the cronies who own banks who own insurance companies and had to own large corporations. And they've been forcing them to buy these bots. We don't really know exactly how much. We have some estimates 26 trillion chat in the past couple of years, which is around $3 billion at black market rates. But, you know, this has to be considered a liability for all of those banks and financial institutions. The military government right now has no ability to repay those bonds. I don't know what the full timeframe of them but certainly short term bonds that they can't afford. And the NUJ has made it very clear that should there ever be a negotiated settlement or they take control, they will not honor those bonds. So you have these banks that are already in these very precarious financial positions, with all these liabilities now on their asset balance sheets. So this is something that we really need to think about long term. The military has to deal with inflation in the country. It's now 14%. It's down from about 18 to 20% last year, but 14% Inflation is still really high. This has not been helped by their own economic incompetence, their currency controls, issuing of a new 20,000 Chat denominated note, the highest denomination in the country created an inflationary spike and further decline in the currency's value. The chats value is declined by 300%. Since the coup, I mean, that just says so much about that the military's incompetence and the lack of faith anyone has. So, you know, I think the economy is the regime's real Achilles heel. They can't provide a any macroeconomic stability, they run the central bank, not as a normal central bank that's trying to deal with economic growth and controlling inflation. They're using it as a wartime bank to support the war effort. And, you know, you, you see whether in the price of dollars or the price of gold.
Host 47:50
So, I mean, you touched on a lot of different things. Let's let's try to break them down. Let's talk about the 20,000 chat, because I, that one's quite recent. So for those who are not aware, the military is issuing a new denomination of 20,000 Check the highest that is has yet been issued. And it is unusually for the other denominations. It is colored in military green, it features a white elephant which the military have been clean to as a symbol of good fortune for quite some time now with repeated reports of white elephants being discovered on the MENA lions tenure. Now, when the 5000 and the 10,000 were introduced some years ago, there were fears that this would lead to inflationary spikes. Do you know whether that there is meaningful comparison between the inflationary spikes that happened after the 5000 10,000 and now under the 20,000, or whether the 20,000 really is unusual in the impact it had?
Zach Abuza 48:50
20,000 Chat note when when they released it, they said it was going to be a limited run. So it was just to celebrate this white elephant. Not everyone believes that. And you know, there are people saying look, when you have 14 to 20% inflation, you actually need higher denomination notes with more zeros in them. But that, of course leads to inflation in itself. So I'm not sure what the military's thinking is on this. But when you have high levels of inflation, you know, simply issuing a new currency the highest denomination is absolutely asinine.
Host 49:45
Yeah, I mean, the big question for me, you know, I come from, I come from a country that has experienced a couple of hyperinflations. When you, you get to that point because hyperinflation And, again, for those who don't know is when the inflation rate goes so rapid that money effectively loses its meaning. And there is no definition of hyperinflation that that I've been able to find, like every economist will have a pet theory on what can define it. But it seems that it's more defined by characteristic behaviors of people. And one of the characteristics of hyperinflation is that people lose faith in the currency as a medium of exchange, and as a vehicle for the storage of of wealth. And they start looking for alternative currencies, or they start trading in non fiat currencies, you know, trading and alcohol and cigarettes and gold and jewelry and the like. Are we looking at the groundwork for a hyperinflation in Myanmar right now?
Zach Abuza 50:49
I'm not an economist, so I need to be very careful here. All I would say is, the chat was what 1300 to the US dollar, at the time of the coup, and it's now at record lows at almost 4000 chat to the dollar. So that's a 300% decline. The government is trying to order dollars, we know through their currency controls, that they are forcing corporations forcing banks, importers, exporters to sell dollars at the official pantry of 2100 chat to the dollar. So we know they're desperate for dollars, but but everyone else is desperate for dollars too, because of the inflation. People do not want to hold chat. And at the same time you see exactly the same thing with gold prices. You know, people want at least something in that's not going to be worthless the next day.
Host 52:06
I mean, I can definitely understand that. And so what what is the reality now for for people on on the ground, because inflation is one thing. But the the big issue, in my experience has been when the cost of the things you want to buy is increasing faster than your salary. Yes. Are the people facing that type of a disparity? Are they are they saying, Well, my paycheck is obtaining the fuel items in the shops?
Zach Abuza 52:37
Yes, I think that is a problem. Again, 14 to 20%. Inflation is very high. You know, in a developed country, when when we have 5% inflation, it's a political crisis for governments, because people really feel it. You know, 15%, inflation is really hurting people, especially when salaries have been flat. The economy has contracted 12% In the past 30 months. So, you know, I think we do have to understand that that people the money isn't going very far. I asked one economist about the, you know, is the military printing money, are they are they starting to turn on the printing presses? Because if they did, that would lead to more inflation? And the answer I got is, you know, they probably are. And one of the reasons why we're not seeing more inflation is that demand for goods and services is so low right now, just because people are holding on to what they have. You know, by and large, they're not buying things other than what they need to survive, unless it's something that will hold value.
Host 54:17
I mean, that the one thing about that, that that sets of a red flag for me is I distinctly remember that it being a spiral that led to previous economic disasters, I remember this, this was something that happened in the lead up to the Great Depression when people stop panicking and they start withholding their money, it causes the economy to slow down which exacerbates the underlying problems which causes people to panic even more and so on, which is why governments have historically found it valuable to have investment projects and large scale infrastructure projects to start getting the money into the pockets of people reliably to improve that confidence. If if the Myanmar people are cutting back this March. And I respect that you're not an economist, but but I'm just asking for your your that's an informed opinion, is that not going to lead to bigger problems? Pretty soon?
Zach Abuza 55:13
Sure, but the military doesn't know what they're doing. Right? When they give themselves a 50% increase in their military budget, it's not because they have more revenue. For that they've taken money away from other departments or other social services, they're cutting back education or money for public health. So, you know, the military has less, even fewer resources to do exactly the type of spending and investment that that you rightfully know, they need to do.
Host 56:00
I mean, it's, I don't know, it just feels like sweeping problems under the rug, but the rug is already a foot higher than it previously was, from all of the problems, you've swept under it. And you're still just blindly standing there sweeping more problems under the rug, like it's all going to be okay. I mean, it's difficult to imagine that they would be even that incompetent and that stupid.
Zach Abuza 56:25
Well, they arrested their top, you know, internationally respected central bank heard of, you know, other economists and all the experts were either arrested or in exile. You know, the few people that are in left who actually have a good sense of the economy have have hitched their wagon to the junta and, you know, with devastating consequences for the economy.
Host 56:56
So, times like this when when we have conflict when we have economic uncertainty, I'm thinking of sort of post collapse of the Soviet Union, Russia comes to mind, we tend to have this wave of cronies coming in, thinking, Now is a good time for me to pick up some stuff. Now is a good time for me to make some moves. While everything is dirt cheap. And no one's really paying any attention to what's going on, are we are we seeing something like that happening?
Zach Abuza 57:30
If you look at the government's investment data, whether you can trust this or not. According to their data, foreign investment is still in still coming into the country. The vast majority is Chinese or Thai. There is also money coming in from Singapore, but most of that is believed to be boomerang money. So money coming out of Myanmar, been incorporated in Singapore and invested back in Myanmar buying up distressed assets. So there's still some people in the country that have access to dollars that are still making money. And you know, they're getting the money outside the country and bringing it back. In terms of foreign investment, and that's probably why in places like Yangon or Mandalay, you still have this property boom, people are buying real estate, in part, that's people trying to deal with inflation, you know, trying to spend their money and have something that still going to be worth something you can still live in a house. When when your currency is losing so much value through depreciation or inflation. But at the same time, I think we also have to look at some of the larger properties and where the sellers are getting that money from, you know, who's coming in, who's buying the stuff and why. And an additional problem is, you know, when they shut down the corporate registry, to public access the Miko database, you know, it's very hard now to actually figure out who's buying what known corporations are reincorporating as different companies, you can't do searches of directors. You don't get to see shareholder information anymore. So they've created the system where where it's much easier to do this
Host 1:00:00
Fair enough. But so this is so this is the top brass taking care of their top people that you know their corporate allies. And that's something that we see in any crony capitalist structure. So what's what about the society itself? Like if typically when when the cronies are picking up everything that's not nailed to the floor that people have less and less and less are we seeing for? Are we seeing unemployment? For example? Are we seeing a rise in crime? Are we seeing a shift away from a more organized, reliable economy, even within the cities that have been reasonably free of military operations for over a year now and in theory have been allowed to continue economic operations? How has it changed as the surface of the cities
Zach Abuza 1:00:51
there's still a sense of normality in the big cities, according to my friends that I talk to on a pretty regular basis. You know, the restaurants are still open, people are still going to work. And I think you're exactly right, that the violence that the Annucci threatened to bring into the cities has largely gone away, the regime has really spent a lot of resources to keep the cities free of violence to kind of convince the urban middle class that they have things under control. That, you know, there's fighting, but that's in the border regions where there's always been fighting. Yet, there is growing unemployment, there are new stories about NGOs that are needed to provide more food assistance on a regular basis. So we know that that food insecurity is a growing problem. Without a doubt, crime is starting to climb up in the cities, just because police who normally had beat cop duties are increasingly being called to other security responsibilities.
Host 1:02:11
Wow. And, and so I assume we're seeing again, I don't know whether you would have information on this, but we often see the establishment of illicit markets, you know, black market trade, just something whether it's in, you know, goods that the military doesn't want you to have, for example, let's say US dollars, or whether it's in narcotics, or whether it's in, let's say, weapons for people who have a heightened fear that they might need to have access to weapons, should the West come up? Is there any way to to know whether we're seeing an increased sort of unofficial illicit market, propping things up?
Zach Abuza 1:02:52
No, we all we have as anecdotal evidence about this, I think it would be very hard to prove or get data on that in this environment where it's really restricted any access to things like that.
Host 1:03:09
Fair enough. So, okay, so let's sort of try to make meaningful, I'm gonna say predictions, but but let's let's sort of look to the future here. I mean, Myanmar has been doing horrifically economically, in 2021. From memory, every ASEAN member state not only recovered but rebounded from the economic downturn of COVID. Myanmar was the only country that that not only failed to reach pre COVID levels, but actually continued to decline in 2021. And that decline has only gone on through 2022. And now I think through 2023, what what are we looking at here, Myanmar was never operating at the economic level of some of the ASEAN member states. We're not, you know, Vietnam. When we did the power grid interview, I was I was being informed that Vietnam invested into its solar grid, only into the solar grid only in one year power capacity equivalent to the entire electricity grid of Myanmar. This has not been a particularly strong economy, even within ASEAN. What's the prognosis? Are we potentially headed towards a complete economic collapse? Can this be salvaged? Is it likely to be
Zach Abuza 1:04:27
Myanmar was not at that rate of some of the other ASEAN members but but for many years, they had some of the highest growth rates in Southeast Asia, they had a lot of catching up. And they had done some of the easy things and right before the coup happens, they were the NLD government was starting to take on some of the really hard things that were going to lead to more sustained Ain't growth over a longer period of time and most importantly, things like banking reform. So we'll never know where the country would have gone. That's a counterfactual right now. But we can focus on just the just criminal, economic stewardship of the country right now. I really don't know how the country will recover, should the military collapse even tomorrow, it would be a long, hard road for whoever governs the country. But I don't think it's going to end tomorrow, I think we've got probably a few more years of this slow hollowing out of the military, the hollowing out of the economy. The only thing that I really believe that could really bring the military to its absolute knees right now, is if their foreign reserves that are overseas right now. over $6 billion, were frozen. And I just don't see that happening. So, you know, the economy is going to continue to weaken, and the country is going to fall further and further behind its Ossian neighbors, and it's heartbreaking.
Host 1:06:46
So you're in despite, despite the fact that the military is not going well, despite the fact that the economy that they're exploiting to keep up their their military efforts is clearly floundering, you don't see the system itself collapse, like it needs external force, it's not just going to magically stop because the money runs out for the military.
Zach Abuza 1:07:16
Yeah, this state always has these inherent advantages. I mean, they just have more resources, even in competently run. Economy, you know, has resources for for the government to mobilize for the war effort. I just say they have assets to sell, they have corporations. They have different taxes, they can collect, you know, the all these things that the government has, you know, they're trying to revitalize their their lottery, they now have a digital lobber lottery to compete with the MUFG. So, you know, they're trying they know that they have these financial weaknesses that they're trying to address. What they don't have is competent leadership. So they're not getting very far. But I don't see this conflict ending anytime soon. I think the energy strategy all along, has been hollowed out the military hollow out the economy, tried to deny the government revenue to the point that they can no longer conduct this war.
Host 1:08:37
And do you? So do you feel that that strategy is the correct strategy? Is it an effective strategy? Or do you think that a change in approach is needed?
Zach Abuza 1:08:48
I think it's the only strategy available to the energy right now. And I think they're executing it as well as they can given their limited resources. The PDFs are better armed. There is a steady supply of ammunition that's getting out to, you know, maybe not enough, but it's getting out to all 300 of their PDFs. And you start to see some of the results on the battlefield. They are gaining ground. There is more as I as I said before, it might be contested territory, but it's certainly not military controlled territory anymore. The NUJ is focused a lot more if you kind of look at what they've been doing and targeting in the past couple of months focusing on logistics networks, really going after the military's ability to wage war, and they're starting to see some more results and I think they deserve a lot of credit for Battlefield innovation and improve tactics. But all that said that stuff Energy is not going to bring the military to their knees. anytime soon, what they need to do is make sure that the military is aware that they cannot conduct military operations anymore. They simply don't have the manpower, they don't have the resources.
Host 1:10:22
Fair enough. Fair enough. So there is I suppose then, at the very least, there is a light at the end of the tunnel, that the the PDF and the N ug and the and the ethnic armed organizations are pursuing the optimal strategy, and the easiest strategy that is likely going to lead to successful outcomes down the road. And you are saying that they're improving their their operations, they're improving their capacity, they're improving their innovation. So all in all, compared to the last time that we that we spoken, I know the last time we spoke, it was it was quite negative, do you feel that the situation has become somewhat better, or are you at least feeling a little bit more optimistic than last time,
Zach Abuza 1:11:06
I am a bit more optimistic this time. Again, I, the energy really spent a lot of time last year on the logistics side, and you're seeing the results, making sure that they have a steady supply of weapons and ammunition. You know, that eats up most of their budget. They've worked very hard. In terms of things like stablishing, the spring development bank, which is not just a means to to raise funds, you know, as a commercial bank, they're they're trying to make money. But they're also trying to figure out ways that they can get money around to the different units, to get funds to different line ministries, better way to get money from outside the country inside and working. So they've been very creative. They deserve a lot of credit for what they've done in the past year. And again, you kind of look at what the military was not able to do during their dry season offensive, the lack of innovation just more just the four cuts on steroids kind of reeks of desperation. You know, they're not deterring the public from supporting the N ug are the PDFs. And finally, I would just say that the economic situation for the junta has just gotten so much worse. We're really starting to get a better peek inside through leaks from civil servants about just how dire the economic situation is.
Host 1:13:16
I mean, yeah, I think I think all of this is important to know, even if it's not, you know, the amazing happy news that we want to hear that the revolution is succeeding, and we are moments away from from a complete defeat of the military. I think it's still got that little light at the end of the tunnel, that that tells you that there is there is something to keep going for there is something to keep fighting for. And so I want to I want to thank you for coming. And I want to thank you for sharing these, these insights with us and helping us to develop a more nuanced perspective of the conflict. Yeah,
Zach Abuza 1:13:53
it's very hard, you know, with the daily barrage of human rights abuses and what fills our screens when we wake up in the morning. Because this is a military that just has no no bottom in terms of what they are willing to do. It's really easy to be disheartened when when you see the death toll rise every day. And yet, I think the people of Myanmar deserve such credit for the sacrifices they're willing to make for better life for their next generation to bring about a peaceful country. You know, that has a chance of establishing a true federal democracy and So I you know, whenever I get down about the situation which is often I'm just struck by the what the people of Myanmar are willing to shoulder every day and that's really inspiring.
Host 1:15:39
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