Leading Indian economists Prof. C P Chandrasekhar and Prof. Jayati Ghoshof Jawaharlal Nehru University are visiting Myanmar at the invitation of Action Aid Myanmar and the Mizzima Media Group to meet with Myanmar policy makers, academic scholars, civil society, government officials and NGOs in order to share perspectives on economic development strategies.
They are holding discussions and open forums in Nay Pyi Taw and Yangon on their visit from August 25to 27.
In the following interview, carried out by e-mail just ahead of the visit, Prof. C P Chandrasekhar discusses Myanmar’s geopolitical position, India’s “Act East” policy, and the concerns and opportunities for development of Myanmar.
Myanmar sits between India and China. If we are looking at economic development, what opportunities does this present?
Immense opportunities, both in terms of being markets to cater too and sources of investment, including in areas like infrastructure.But we need to make a distinction here between China and India. China is Myanmar’s leading trading partner and principal source of imports. It is also likely to emerge an important buyer of gas from Myanmar. India is way down in the list of trading partners, though it has been important as a market for beans and pulses. But having these two giants in the neighbourhood also generates competition that can work to the benefit of Myanmar.
What opportunities do you think PM Narendra Modi’s “Act East” policy offer Myanmar? The focus of PM Modi’s policy has been to move from “looking” east to taking action. But is this action taking place and how much does the string of local challenges in northeastern India hamper progress?
This refurbished version of the “Look East” policy, with a significant economic content, has the strengthening of trade and investment ties as its prime thrust. Progress has been slow. If we take Cambodia, Myanmar, Laos and Vietnam together, bilateral trade with India has increased from $4.97 billion in 2010 to $11.85 billion in 2014. But total foreign investment by Indian firms is still in the $1 billion plus range, and mostly in Vietnam. The scope is immense, but the Indian private sector needs to be persuaded that the returns can be attractive. It is not clear that the government is doing much of that, and Indian business has a host of problems at home to tackle.
What would you say are the key components the Myanmar government will need to keep in mind in terms of its move to industrialize?
There is a misconception among some that deepening democracy requires deregulation and reduced state intervention, with a much greater role for markets. This view misses the point that markets are not benign, and can be extremely inequalising and environmentally damaging if unregulated. So any strategy that focuses on getting the State out, and making markets the driver, is I think misplaced. The real challenge is to make the state more accountable and responsive to popular needs.
The availability of gas, hydroelectricity generation potential, gems and precious stones, tourism opportunities, and exportable agriproducts do give Myanmar the capacity to export and earn the foreign exchange it needs for greater maneuverability. What is needed is to use that advantage (in a sustainable manner) and support it with infrastructural investments and increases in agricultural productivity so that manufacturing growth based on both the domestic and external markets may be pursued. Labour intensive manufacturing catering to final consumption or in segments that are part of global value chains should be the focus, since to garner the benefits of increased productivity in the agricultural sector it is necessary to absorb the surplus labour force in manufacturing and services. But given its proximity to countries that are host to firms that are technological leaders in modern manufacturing Myanmar need not spurn opportunities in such areas, though it is unclear how much value may be added in the country and how much of the resulting benefit would accrue to Myanmar.
When it comes to Myanmar’s push for increased trade and investment, what should the government keep in mind?
On trade it is important for Myanmar to sustainably maximize foreign exchange earnings, since its import requirements are bound to rise sharply as development accelerates. In today’s world where WTO rules and trade agreements dominate, imposing quantitative restrictions on imports would be difficult. But, within those rules, mechanisms must be found to permit imports essential for development and penalize those that are not.
Given the actual and potential access to foreign exchange that Myanmar has, foreign investment is not needed just for the foreign exchange it brings in. Hence the priority should be to attract foreign investments in certain infrastructural areas, with the foreign exchange costs being met from the foreign exchange kitty that exports ensure. The other should be investments in manufacturing linked to global value chains and global markets, where the project earns the foreign exchange it spends. Foreign investment geared to catering to the domestic market should be given the lowest priority.
Myanmar’s experience with foreign investors and projects focused on natural resources has been mixed, partly as a result of how this was handled by previous military governments. Now the new government is having to sort out such issues as the Myitsone dam project and the Letpaduang mining project. How do you view these challenges?
These are major challenges in terms of loss of land and livelihoods, the displacement large numbers and environmental consequences. It is inevitable that some projects would have to be carried through with development in mind. But it is necessary to have an independent environmental impact assessment and clear directions on measures to be taken up to mitigate environmental damage. As for displacement, a democratically discussed and accepted rehabilitation and resettlement plan should be framed and implemented and a scheme for sharing the benefits of the proposed project-land value appreciation benefits should be worked out.
When we look at countries in ASEAN, there appears to be a willingness to sign up for major US-sponsored trade agreements, such as the TTIP (Thailand is now keen to join). As we know, these agreements are often controversial. What should Myanmar keep in mind when it considers these types of agreements?
There are some relationships such as those entered into by the ASEAN that Myanmar would find difficult to keep out of. But the experience with NAFTA and a host of other plurilateral agreements is that market access gains as a result of agreements involving major developed country partners are not large. On the other hand, investment- and IPR-related clauses opens the developing country partner to predatory foreign capital that repeatedly uses investor-state dispute settlement clauses to extract huge benefits. Such agreements and such clauses are best avoided.
In simple terms, Myanmar is presented with an opportunity in terms of development. It could be considered to be in the situation Thailand was in about four decades ago. What would be the ideal way forward? And what could go wrong?
The period when the second tier, newly industrializing countries like Thailand registered high growth was one when the world economy was in much better shape than it is now. Finding a niche in global markets and using FDI to occupy it would be much more difficult. Therefore, some effort to expand the home market and grow based on that is unavoidable. Moreover, even Thailand paid a heavy price for agreeing to liberalise its economy to appease foreign capital and the international institutions, in the form of the 1997 crisis. The danger for Myanmar is pursuing a similar strategy may bring it less benefits while it would have to pay the costs much sooner. In any case, even when successful such strategies do little for the poor, as the social and political crisis in Thailand makes clear.
When we look at Myanmar’s economy and the potential for economic growth, how much will this be driven by the government and how much by the business and market system?
Given Myanamar’s level of development, the structure of its economy, the state of its agriculture and degree of development of its private sector, the state would have to play a major role. If not the private sector that will come to dominate would be foreign private capital, which will in all likelihood merely focus on exploiting Myanmar’s rich resources till they last. The state must help build a robust domestic private sector, but also regulate it to make it deliver on a range of goals and not just aim for short term profits.