SOFT-GLOVE STOCKHOLM SYNDROME

Foreigners often fail to recognize that in economic and governance terms Myanmar looks much more like an African state than the next Vietnam


Earlier this year, the US-ASEAN Business Council published a report that detailed 12 “Practical, Quick and Effective” recommendations for improving the business environment for foreign investors. The recommendations varied from the practical (“make licensing processes clear” and guidelines “for the fair use of” religious symbols and “temple imagery”) to the quaintly non-laissez-faire (a request for state regulation of the advertising industry in order to eliminate the “discriminatory rates” charged to foreigners).

One investment banker who works regularly in Myanmar and has met some of the cabinet ministers (who responded on condition that he wouldn’t be quoted by name) said that while he agreed with many of the recommendations, in the prevailing environment they were variously “not going to happen”, “wishful thinking” and “fantastical”. The recommendation to “fully empower local banks to approve transactions” provoked this reaction from a corporate investigator: “Are you kidding me? The banks can barely function and they’re all money laundering houses.”

The US-ASEAN Business Council’s effort is perhaps symptomatic of a willful effort on the part of foreigners in Myanmar (businessmen, UN agency staff and diplomats) to recognize the genuine but modest reforms of the last four years as much more substantial than they actually are and to assume much greater capacity for further improvement than any evidence on the ground would suggest—a condition that veteran Swedish Myanmar-watcher Bertil Linter describes as “soft-glove Stockholm Syndrome.”

Stockholm Syndrome is a psychological phenomenon in which hostages come to identify with their captors. It is named after an abortive bank robbery in Stockholm in 1973 that metastasized into a six-day hostage crisis.

“Burma’s luckier than most countries in Africa,” a western commercial attaché told me way back in 2004. “Instead of having the Central African Republic and Congo as neighbours, it has China, Thailand and India” (he didn’t regard proximity to Bangladesh as quite such a great advantage). Yet Myanmar’s geographical advantage obscures the fact that in many other respects, the country more closely resembles a messily emergent state in Africa than Asia’s next economic tiger.

Similarly to many African nations, government hard currency revenues are dominated by royalties from foreign-managed extractive industries, chiefly natural gas exports to Thailand and China. In this respect, Myanmar is much luckier than it would have been if its neighbours were the Central African Republic or Congo, neither of which would have offered a viable market for gas. Also similarly to many African countries, the primary beneficiary of state spending is the military. Furthermore, the black economy may be bigger than the reported economy.

Power and the stars are also factors. The electricity supply remains intermittent and limited mostly to cities. As such, commerce is restricted to businesses that don’t require much power and that can run diesel generators during blackouts. Meanwhile, the public education system has long-since collapsed, replaced to some extent by privately-run vocational schools attended by the children of relatively prosperous families. It’s also an open secret that many members of the military elite have a fascination with the supernatural, and engage in occult rituals and consult astrologers.

“When we had visitors come through the embassy, I’d tell them that the SPDC took advice from fortune tellers,” another former Yangon diplomat said, talking about the old days. “My colleagues would complain that I was belittling the government and oversimplifying the situation. But when they arrested Khin Nyunt [in the 18 October 2004 palace coup], they also locked up his personal fortune teller.” (The fortune teller’s name was Bodaw Teinkyar Than Hla. At the time he was arrested, the diplomat commented: “When you raid the cathouse, you take the piano player too.”)

“They’re basically the same people running the country now as then,” the former diplomat noted. “Don’t expect them to behave too differently.”

The diplomat claimed that sources had told him that the decision to move the capital from Yangon to Pyinmana was also due to the advice of fortune tellers. “In late 2003 we heard that half the War Office was moving there, then following Khin Nyunt’s downfall that the whole government was shifting,” he said. In November 2005 the official move started. The new capital didn’t even have an official name till Army Day on 27 March 2006, when it was christened Nay Pyi Taw. “The numerologists had determined that it was the most auspicious date for the announcement,” the former diplomat said.

The relocation of the entire government, including all the significant civil servants, to a wasteland 320 kilometres north of Yangon, presented yet a further barrier between the regime and everyone else, including all the local and foreign businessmen and diplomats. But despite the distance, there has been some progress.

Belatedly recognizing that there wasn’t the financial, technical or management capacity among domestic companies to build out nationwide telecoms networks, the government opened telecoms to foreign operators (not so many years ago, handset SIM cards cost US$5000 apiece on the locally-owned networks). Nay Pyi Taw deserves some praise for recognizing this fact (albeit 15-20 years after all but the most obtuse and war-ravaged jurisdictions in Africa). And the buildout of nationwide cellular networks made viable the “new new thing” in the banking industry—mobile phone banking applications.

At first glance, that might seem a technological leap in line with the sophisticated wireless internet-platformed banking apps available in much of Asia, but the business model being introduced to Myanmar was actually pioneered in Africa 15 years ago for places lacking functional banking environments. Like many countries in Africa, Myanmar’s banking industry doesn’t offer basic services, such as a functional home mortgage market. But then the sector has been something of an enigma since the first private banks started operating in 1992.

The banks grew and apparently prospered despite the fact that both deposit and borrowing rates were capped far below the rate of inflation, which in any normal environment would have made the industry unviable. In Myanmar, a big proportion of banking business involved money laundering, much of it tied to border trade. In February 2003 there was a bank sector collapse, but almost all the existing institutions survived it, most of them retaining their pre-crash managements and shareholders. Where was the regulator?

The Central Bank of Myanmar (CBM) oversees the banking sector. In September 2003 the governor of the CBM at the time, Major-General Hla Tun, told the at the annual IMF-World Bank meeting in Dubai that “NPLs of the banks are at a very manageable level of 2.09 percent.” That’s a level that central bankers in properly regulated markets would be very pleased with. Moreover, CBM statistics put Myanmar’s 2003 GDP growth rate at a healthy 5.1 percent. His statistics indicated the most successful recovery from a banking industry collapse in history—almost too good to be true! But then statistics in Myanmar have long been used to support ideological or public relations arguments rather than to provide a map for understanding and managing the country.

According to an economist who worked in Myanmar before the palace coup against Khin Nyunt, the Office of the Chief of Military Intelligence (OCMI) had a permanent detachment at the CBM. He alleged that one of the detachment’s responsibilities was to massage the national accounts in order to obscure the scale of foreign currency receipts that originated in the black economy. Hence the curiously large position that services receipts played—and continue to play—in the current account balance (statistics for exports of physical goods can be compared against UNCTAD figures for imports declared by the trading partners of Myanmar; unrequited transfers, tourism receipts and other non-physical items can’t).

It’s likely that the genuine reform of the banking industry and the loosening up of the import regime that have taken place over the last five years were enabled in large part by sharply higher gas revenues. Gas exports to Thailand have increased somewhat in volume and risen sharply in price since early 2005 (including the pipeline transportation fee, Thailand paid almost US$12/mmbtu for gas from the Yadana and Yetagun fields in 4Q14 against about half that price in 1Q05). That enabled a previously cash-strapped government to stop printing kyat bank notes in order to cover expenses, causing the currency to stabilize and inflation to ease. Furthermore, detente with the West freed up the IMF and the World Bank to provide technical and financial assistance.

Since Myanmar’s detente with the West, numerous development agencies and even foreign banks have found budgets to hold a series of seminars teaching central bankers and the staff of financial institutions how to identify and deal with money-laundering. One suspects that many of the seminar attendees have much more experience with money laundering than the expert speakers.

Soft-glove Stockholm Syndrome manifests in some unusual manners. When I was in Yangon in April, an expat working for a local bank criticized Aung San Suu Kyi intensely for apparently encouraging garment workers at foreign-owned garment factories to seek higher wages. She went on to claim that garment workers at foreign-owned factories were already paid US400-600/month with overtime included (garment factory wages rarely exceed US$100/month for machinists, even including overtime).

Other foreigners point to the spectacularly high cost of real estate in Yangon (despite the near impossibility of getting a home mortgage) as proof of the strength of the wider economy rather than being indicative of the paucity of viable options for investment in productive industry. It’s easy to forget that before the relaxation of car import rules in 2011, a 1984 Toyota Corolla typically sold for more than US$30,000 (the flood of imports that started in 2011 caused prices to crash and considerable wealth destruction among people who had purchased vehicles as a store of value).

The flood of foreign firms opening offices in Yangon in recent years has caused demand to dramatically exceed supply of another resource—suitably qualified English-fluent clerical and technical staff (the last time this phenomenon manifested was when the country opened up to the outside world for the first time in 1990s). Myanmar trails far behind emerging countries such as Vietnam in the training of human resources and it’s difficult to see how it can correct this failing without a seachange in the government’s attitude toward managing education.

In the absence of a change in attitude, the economy will remain dominated by resource extraction, low-wage industries and (helped by its geographical advantage) tourism.


This Article first appeared in the June 11, 2015 edition of Mizzima Weekly.

Mizzima Weekly is available in print in Yangon through Innwa Bookstore and through online subscription at www.mzineplus.com

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