Bradley O. Babson

April 5, 2005



            I am grateful to the organizers of this conference for the invitation to make this presentation on challenges and opportunities for macroeconomic policy dialogue with Myanmar.   I must confess that this is a somewhat humbling task, as the track record for decades has by and large been dismal.  And I am afraid that we need to admit that a meaningful dialogue on economic policies has never been a high priority either for the government or, honestly speaking, for the democracy movement or the international community.  I do believe that a hard look at the past is needed to face up to these realities, and that for the sake of the 50 million people who live in Myanmar, we need to try our best to find a way to stimulate fresh ideas and ways to promote cooperation on economic policy matters.


            What I would like to do to frame our discussion this afternoon, is first to try to draw some lessons from the initiatives that were taken over the past 15 years, then to make the case why economic policy dialogue should be given high priority now, and finally to suggest some approaches that might be pursued.  I hope that this might contribute to the discussions underway in the European Commission about future engagement strategy.


Some Lessons from Past Initiatives


            The major efforts of the international community to engage in macroeconomic policy dialogue over the past decade and a half have been the Article IV Consultations of the International Monetary Fund, which typically occur every 12 to 18 months; two reports prepared by the World Bank in 1995 and 1999 that looked at structural and social issues and advocated reforms to increase economic growth and efficiency and to reduce poverty; a similar report prepared by the Asian Development Bank in 2002; and a Japanese bilateral economic policy project that involved joint working groups on four major issues under a cloud of secrecy.  Both Alvaro De Soto and Ismail Razali, the Special Envoys of the United Nations, sought to link promotion of economic dialogue and potential future assistance for economic reform and development, with political dialogue on reconciliation and movement towards democracy.


            What lessons can be gleaned from these experiences? 


            First, all attempts to link economic dialogue with political dialogue on democracy and human rights issues have failed to produce any serious economic dialogue.  It is noteworthy that economic reform has tended to be seen as following rather than leading political reform in the eyes of the main players in the democracy movement and international community.  Indeed, the idea of the government adopting reforms that would lead to economic success has been seen as threatening the prospects for democratic political change, and international efforts that might support real economic success have been actively opposed by the proponents of sanctions.  This fear was certainly borne out in the early 1990’s when reforms aimed to stimulate economic growth did result in an influx of foreign investment and expansion of the private sector in Myanmar.  Dialogue on economic reform in this period was thus marked by ambivalence and unwillingness of the donor community to commit resources to support implementation and expansion of the reforms. This was reinforced in 1995 when the constitutional convention collapsed and Aung San Suu Kyi was placed under house arrest.  It was only after the impact of the Asian financial crisis and the rapid rise in the unofficial exchange rate and inflation that proponents of political dialogue in the international community saw including economic dialogue as a potentially useful tool – introducing carrots as well as sticks in the equation.  This did not go over well – as reflected in David Abel’s comment to the press that the government was not a monkey grabbing at bananas.  Ambassador Razali’s later efforts to revive a linkage of economic and political dialogue also fell on deaf ears. The bottom line message from all of this is that if economic dialogue is going to be effective, it must be genuinely motivated by a desire to help the country achieve economic success.  Ambiguity about why you are having the dialogue on economic reforms undermines the process.


A second lesson is that economic policy dialogue has not been productive in the absence of prospects for financing.   To illustrate this point, let me quote from the statement made by Hla Tun at the last meeting of the Board of Governors of the IMF and World Bank in October 2004:  “Although Myanmar has been a legitimate member of the World Bank and IMF since 1952, both of the institutions have suspended their assistance to Myanmar, based mainly on political considerations.  In actual fact, the objectives of the founders of these two institutions were purely economic in their nature and character.   We would therefore urge these institutions to adhere to their founding principles.…I would like to call the IMF and World Bank to further enhance their assistance to countries facing macroeconomic difficulties without any discrimination.”  This points to an important dilemma in the pursuit of macroeconomic policy dialogue, which is that it is difficult to conduct discussions of policy responses to external developments and internal structural problems in the economy without also talking about resource requirements and their financing.  The unwillingness of the international community to engage Myanmar on these financing issues except as carrots for political reform, has indeed inhibited the ability of the International Financial Institutions to carry out normal discussions of policy and financing strategies.  This has had the effect also of reducing incentives for the government to pursue policy reforms that could have major positive impacts on poverty and social equity, if the necessary financing and technical assistance to design and implement reforms is not expected to be forthcoming.  If the European Commission is considering promoting macroeconomic policy dialogue in a new engagement strategy, then it too will need to consider how to deal with this dilemma and whether to back up advice with resources.  It is noteworthy that the government has been signaling that it would be responsive, if the statement made by Hla Tun quoted above can be taken at face value.


A third lesson from experience in macroeconomic dialogue with Myanmar is that the realities of the military domination of the government and economy have trumped all efforts to engage in discussions of systemic economic reform, although some reform measures have been taken in recent years.  The vested interests of the military in the political economy of Myanmar are obvious.  Economic dialogue that ignores this reality is bound to fall on deaf ears, and the door will remain closed.  The challenge is how to find a way to open a discussion on the negative effects of the huge distortions that exist in the present system with a military leadership that espouses democratic change and economic development but is pressing for a continued leading role the governance of the country.  This requires either a belief that sanctions will produce a change of heart, which is not likely based on 15 years of experience, or a willingness by the democracy movement and international community to take a phased and longer-term approach and not let perfection become the enemy of the good.  This means being willing to work with the military authorities to increase transparency and rationality in economic decision-making gradually.


            Finally, it has been possible to engage mid-level officials in constructive exchanges of information and dialogue on economic issues. But the impact of this has been limited not only by lack of interest and support from the top, but also by the poor quality of statistical information available to support policy dialogue, and limited analytical capacities due to lack of training opportunities and exposure to global best practices and knowledge.  Isolation of economic technocrats, which has been reinforced by the policies of the international community, and also by the absence of a domestic culture of economic policy research and internal debate, have been constrained the ability of well-intentioned officials to conduct policy analyses and promote new approaches. There have, however, been some promising initiatives in data collection and analysis, notably through the working groups set up under the Japanese bilateral project in the early 1990’s and more recently by UNDP’s effort to assist the National Statistics Office to undertake a major national household survey.  A lot more could be done to strengthen the base of knowledge and technical capacity at to support the economic policy making process in Myanmar.       


Rationales for Macroeconomic Dialogue and Reforms


            I would like to turn now to the question of why macroeconomic dialogue should be given priority at the present time.  This is a question for both sides of the dialogue.  Why should the SPDC shift its long-standing resistance to open discussion with foreign partners on macroeconomic issues?  And why should the international community shift its position of the past 15 years to avoid what it takes to really engage the SPDC on economic policy?  


            The argument I want to make is that the motivation for SPDC to engage on macroeconomic issues must be tied to the deeper drivers of regime legitimacy and strategic national interests, and language that is meaningful to the senior leadership.  Much of the unwillingness of both the democracy movement and the international community to support economic advice and assistance to the Myanmar government has been driven by a perception of illegitimacy of SPDC rule.  The national convention presently underway represents an attempt to change the legitimacy equation.   If the convention does produce a new context for domestic cooperation between central and local authorities, then macroeconomic policies and how they impact on both national and local planning and governance will become critically important for enabling future government officials to exercise their legitimate responsibilities.   The SPDC should come to appreciate the value of well-designed and managed policies for translating the constitutional convention into a nation-building success, and a key question is whether any involvement of the international community will be welcome in pursuing a transformative process that is accepted as legitimate enough, if not ideal.  


             Another important motivator for SDPC is the value they place on stability for national security.  Economic policy dialogue with the SPDC needs to be placed in the language of security and not just social justice.  These are not incompatible rationales for good policy, and in my view part of the difficulty of engaging the military leadership in economic policy issues in the past is because the language that we have used has not resonated with their driving concerns.  In this context, the case for significantly increasing investments in education and health and promoting rural development can be made on national security grounds.  Stability has always been the highest priority for the military government, but in the long-term, stability will be best ensured by a strong economy and democratic society.  Education and health are the foundations for both a vibrant private sector dominated economy and a creative society with functioning democratic institutions.  A pro-poor and pro-private sector economic policy should be seen as the way to increase stability and national strength in the long-term.  Coupled with a commitment to improve economic efficiency for sustainable growth and suppression of corruption, Myanmar could well turn the corner to a new era of general prosperity marked by growing stability.  Economic policy dialogue can contribute to the possibility of moving down this path.


            For the international community, a realistic posture would be to see improved economic policies contributing to building the underlying conditions for a successful democracy, which will take time.  A good reason to promote macroeconomic policy dialogue now is to try to reinforce new national dynamics of cooperation and nation building linked to the Constitutional process, and the opportunity this affords to introduce new policies than can turn the tide of social disintegration that has been eroding the nation’s strength for decades. 


Some Possible Approaches


There are three areas of initiative that I would like to suggest be considered as a way forward.


The first is to work with responsible government agencies and also local government authorities to help improve the quality of statistics for economic policy analysis and monitoring of progress, and also to help develop policy analysis capacities.  UN agencies including UNDP and UNICEF are already undertaking some important work in this area, but reinforcement and support for this agenda more widely among the donor community is needed, and much more needs to be done.  In my view, the European Commission and the International Financial Institutions could provide significant leadership in this area, and a jointly supported economic policy capacity building effort should be launched in partnership with the government, with a good local coordination mechanism.


            The second suggestion is linked to the first and would be a joint assessment of poverty reduction strategy based on the new national household survey carried out by the National Statistics Office and UNDP.  In effect this could lead to an update of the 1999 World Bank Poverty Assessment report and form the basis for dialogue with the Myanmar authorities about policies and approaches that would best fit the decentralized framework for macroeconomic management and poverty reduction under the new Constitution.   By assessing the new institutional environment along with the disaggregated data, it should be possible to create a new context for economic policy dialogue aimed at building a strategy consensus that could be supported by central and local governments and by the donor community. 


            And the third suggestion is to begin a dialogue with the Myanmar government about the country’s external debt situation, and what it would take to mobilize an international effort to support Myanmar’s debt restructuring and forgiveness under the policies that have recently been adopted through the IDA replenishment negotiations and European debt initiatives in Africa.   By placing the debt and future ODA financing discussion in the context of these global policies, it should be possible to avoid the claim that the international community is treating Myanmar differently that it does other countries in the world with similar economic and policy performance problems.  At the same time, it is important that the SPDC understand that the development community has learned may lessons from the past that have led to a new consensus on development effectiveness embodied in the OECD/DAC Guidelines and these new debt and development finance initiatives.


            In conclusion, let me end by proclaiming my earnest hope that sooner or later it will be possible to engage Myanmar in a macroeconomic policy dialogue that will yield benefits to 50 million the people of  this wonderful country.   They deserve more from their government and the international community than they have been getting.