How the coup is destroying Myanmar’s economy

Authors: Htwe Htwe Thein, Curtin University and Michael Gillan, UWA

The military coup in Myanmar in February has reversed or put at risk a decade of gradual economic progress. In the last decade, the Myanmar economy benefited from significant economic and political reforms, achieving above 7 per cent annual growth, reduced poverty and a significant increase in international investment.

These gains are being unwound by the impacts of the COVID-19 pandemic and, more so, by the coup, with the World Bank forecasting a 10 per cent contraction in GDP in 2021 and the UNDP warning of a possible doubling of the poverty rate.

While there has been attention in the international media on the potential economic impact and effectiveness of international trade sanctions, the biggest economic impacts so far have been driven by internal factors. The anti-coup civil disobedience movement (CDM) drew in millions of public and private sector workers who refused to work until democracy is restored. In doing so they effectively shut down most sectors of the domestic economy.

Transport and internet services have been disrupted. The participation of port workers, truck drivers and officers from various government agencies in the CDM has had a crippling effect on international trade. The military government has imposed periodic shutdowns and limits on internet connections to try to stifle political opposition, which has led to operational difficulties for businesses, as well as grave concerns about human rights.

When banks closed at the height of the CDM, most households and businesses experienced cash shortages. This problem remains even after banks were forced to reopen by the military government. Retail and service-based businesses either shut or drastically reduced their hours of operation because of the CDM, but even businesses that have now reopened find it difficult to access cash to pay wages and suppliers. There are serious risks to the stability of the banking and finance sector. Chief among these is a widely shared loss of trust in the integrity and management of the banking system under military rule. Consumers have rushed to withdraw deposits to purchase US dollars and gold, leading to a rapid depreciation of the Kyat.

With many factories closed and business activities down, employment opportunities and incomes have reduced. In some major industrial zones which have been sites of public protests and violent military repression, hundreds of thousands of workers fled to their homes in rural areas out of fear for their own safety and a lack of jobs and income. Some of these workers have returned but only to eke out a meagre income from insecure and poorly paid daily wage work. Overall, the viability of manufacturing is threatened by the crisis, especially in industries like garment manufacturing, where some global fashion brand buyers suspended orders from Myanmar.

Boycotts have affected military owned or controlled conglomerates across a variety of industries, facilitated by a smartphone app that helps consumers avoid military-linked businesses. Consumers have also boycotted Chinese made goods because of the perception that China backs the junta. There is a lack of reliable data on the impact of the consumer boycotts, but some reports have indicated that sales of Myanmar beer — a dominant military owned beer brand — have declined by somewhere between 80 and 90 per cent since the coup.

For all of its impact, there is now an open question as to whether the CDM can be sustained in the face of pressure from the military to force employees to return to work and businesses to reopen. Many of the movement’s participants are unable to access solidarity income support and are being gradually ground down by economic hardship and the coercion of the military regime.

Yet even if the military succeeds to some degree in normalising economic activity, the economic damage done will be profound and lasting. The destabilisation of politics and governance is also likely to play out in unpredictable and unforeseen ways — including the likelihood of ongoing urban violence and safety risks — and so Myanmar will be a volatile and difficult business environment. Many international businesses will reconsider their investments in the country. Development and infrastructure project funding from donor countries will also be adversely impacted, although the regime may hope that China will fill the void.

The trade sanctions announced by the European Union, the United Kingdom and the United States have thus far targeted military owned enterprises. Meanwhile, the National Unity Government, a parallel government in exile comprised mainly of deposed elected parliamentarians, has asked foreign investors not to pay tax to the military regime government until democracy is restored.

If the military regime prevails and consolidates its rule, Myanmar will almost certainly revert to its historic status as a relatively isolated, underdeveloped and impoverished economy that benefits only a small military elite and their crony business associates. Inevitably, this will mean that the economy and the people will continue to suffer. In a sea of sadness and despair one of the poignant aspects of this crisis is the sense of lost hope — felt most keenly by young people — in a once promising economic future.

Htwe Htwe Thein is Associate Professor of International Business at the School of Management, Curtin University.

Michael Gillan is Associate Professor at the UWA Business School, The University of Western Australia.

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