Tuesday, October 16, 2007

How the IMF wrecked Myanmar

Too late for Naomi's book, sadly. This interesting backgrounder on the Myanmar economy appeared about 6 weeks ago on Asia Times Online. The recent upheavals in that impoverished state were triggered by fuel price rises, or to be more precise, the end of fuel price subsidies. These price hikes were no doubt a huge shock to the locals. Transit costs in Yangon (formerly Rangoon, for colonialist nostalgia buffs) doubled overnight; for low-wage workers the new costs may be as much as three-quarters of daily income. Food prices, which also reflect transport costs, have also jumped – by multiples of 10% So its understandable that “the people” were a little miffed.

And what nefarious forces are behind the end to subsidies which the working poor rely on? why, of course, it was "International Monetary Fund (IMF) and World Bank officials, who have long pressed the junta to reduce or abolish a range of price subsidies."

Its a shock doctrine classic. Of course, a little further reading reveals some interesting details.
Some economic analysts have speculated that the SPDC rolled back fuel-price subsidies because it is strapped for cash. In particular, the analysts believe the massive expenditure associated with building the new capital at Naypyidaw, some 400 kilometers north of Yangon, has depleted the national coffers. The government is also reportedly building a massive new Internet and communications-technology center known as Yadanapon Cyber City near the newly built capital.
In view of all the protest footage that went out over the Internet, they may be rethinking that last part. There is also major spending on new dams and a nuclear reactor.

Ironically, perhaps, the junta had recently attempted to improve the national finances through better tax collection. The IMF and World Bank had warned the regime this time last year that if it did not reduce its high budget deficits - which it has traditionally covered by rolling the monetary presses, sparking inflation - the economy would suffer.
In other words, all the usual suspects: overspending, deficits, inflation, subsidies. And the usual outcome: the system chugs along for a while in its miserable way and then it blows a gasket. And the usual lessons – including that deficits and inflation can’t go on for ever, and that the resentment provoked by the (inevitable) termination of subsidies is always greater than the gratitude occasioned by their introduction.

With regard to national differences, it is worth noting that although Myanmar is on the other side of the world, and culturally very different from Canada, their fiscal bad habits are exactly the same as ours. From the point of view of financial mismanagement, if the generals traded places with David Miller probably nobody would notice. And in contrast to the global varieties of food and folk dances, the kinds of fiscal misbehaviour are always the same stereotypical few, which turn up with depressing regularity almost everywhere.

With regard to the IMF, it is pretty improbable that the government would plunge the country into political boiling water on just their say-so; much more likely that it finally got squeezed by its own overspending. But that won’t stop the anti-glob mob from filing it as another “shock doctrine” case study.

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