Time to collect: SAC’s actions are coming to bite Myanmar’s economy

In June 2023 issue Its two years Myanmar Economic Monitor, the World Bank predicts that Myanmar’s GDP is „expected to grow by 3% in the year to September 2023, still 10% lower than in 2019”. Recent Activities of SAC Escalation in fighting From October 2023 onwards, suggest significant obstacles to this predicted sluggish performance.

Allegations of corruption Lieut-General Moe Myint Tun against the State Administrative Council’s (SAC) claims of efficient and clean governance. Mo Myint Tun was once regarded as the senior general Min Aung Hlaing A potential successorAlong with his accomplice, he received a 20-year „equivalent to life” sentence in early October 2023. fee Failure to take action against high treason, bribery, illegal possession of foreign currency and price gougers. Their arrests and convictions continued announced investigations including merchants Cooking oil Importers used their connections and access to scarce key commodities to sell at market prices above SAC’s official rate.

Given the weak governance environment and rent-seeking incentives, it is not surprising that Moe Myint Tun extorted businesses from seeking official permission for essential business activities. After the February 2021 coup he took over as chairman of the Myanmar Investment Authority and was given responsibility for two other post-coup institutions: Central Trade Facilitation Committee In 2021 and Foreign Exchange Supervisory Board In 2022. Through these organizations, the SAC attempted to control parts of the economy by issuing import/export permits and regulating access to foreign currencies at official rates for trading purposes. Faced with inflows of aid, investment, and other funds after the coup, the SAC attempted to encourage import substitution, preserve foreign currency earnings, and artificially set prices using non-market instruments to create the appearance of controlling inflation.

Escalating fighting from October 2023, including along the key border trade route between Myanmar and China, will further challenge SAC’s ability to transform the economy.

In September 2023, Min Aung Hlaing Appointed General Myat Tun Oh, SAC Deputy Prime Minister and Minister of Transport and Communications, A A former rising star, headed all three groups. However, the SAC is unlikely to bring inflation under control and stop the Kyat from further weakening in the face of external pressures compounding structural flaws in the post-coup economy. The Escalation in fighting From October 2023, including the key border trade route between Myanmar and China, will further challenge SAC’s ability to turn around the economy.

Myanmar’s post-coup foreign currency crisis exemplifies this challenge. America announced Obstacles June 2023 against two Myanmar state-owned banks handling SAC’s foreign currency transactions. US sanctions aimed at limiting SAC’s access to foreign earnings to fund military operations against civilians led to the Bank of Bangladesh. Freezing Fund Those are held in correspondent accounts by Myanmar state-owned banks. New restrictions added at the end of October include Financial Services Prohibition Order By US persons to the Myanmar Oil and Gas Company.

Separately, sanctions continue to increase compliance costs Financial Action Task ForceBlacklisting of Myanmar in October 2022 and reputational risks contributed to Singapore United Overseas Bank Regulates maritime transactions with Myanmar.

On the demand side, sanctions have heightened concerns about a future shortage of US dollars, leading to an overall increase in demand and the rate. Since June, SAC has tried to secure more foreign currency inflows Taxes migrant workers And remittance is required Registered money transfer channels. These registered companies apply Exchange rates (Below the market rate) fixed by the central bank, workers’ earnings are affected by exchange losses. These measures, which are highly unpopular with Myanmar’s foreign workers, will further force Myanmar’s business community to structure foreign currency transactions and payments and limit domestic exposure to foreign currency risks.

exchange rate Differences (SAC set the official exchange rate at 2,100 kyat/USD in August 2022, but the real, volatile market rate is 3,000 kyat/USD or higher) and people who access US dollars at the official rate make financial gains by arbitrage and resale at the market rate. There is SAC He threatened legal action Such abuses must be stopped. Regardless, such irregularities are and will continue to be inherent in Myanmar’s multiple exchange rate system. Arbitration was formerly common Exchange rate reforms In the 2010s, incl Gas export revenue.

Other post-coup dynamics are also affecting Myanmar’s economy. In September 2023, the World Bank Report on Power Sector Highlighting how the ongoing conflict in Myanmar has affected transmission infrastructure. Most of the power investments planned before the coup have now been put on hold or cancelled. Prolonged power outages across the country are a daily occurrence, affecting homes and businesses, and increasing.

In October 2023, the International Labor Organization (ILO) published Report of its Commission of InquiryThe findings indicate that „measures taken by military authorities since February 2021 have resulted in long-term restrictions on the exercise of basic civil liberties and trade union rights”. The SAC has three months to review the findings and take action, failing which the ILO will refer the matter to the International Court of Justice. Concerns about labor rights violations have led to European companies H&M And Zara announced in August that it would stop sourcing from Myanmar, while the EU limited trade concessions to Myanmar for „everything but arms” or EBA scheme. The decision will affect tens of thousands of manufacturing jobs in Myanmar.

Three years after the regime was toppled, Myanmar’s faltering economy shows the extent to which the SAC’s actions are having consequences other than the intention of a regime that unduly coerces subservience to market forces.

2023/280