EUROPEAN COMMISSION
BURMA/MYANMAR CONFERENCE 2005
MACROECONOMIC POLICY DIALOGUE
WITH
CHALLENGES AND OPPORTUNITIES
Bradley O. Babson
I am
grateful to the organizers of this conference for the invitation to make this
presentation on challenges and opportunities for macroeconomic policy dialogue
with
What I would like to do to frame our discussion this afternoon, is first to try to draw some lessons from the initiatives that were taken over the past 15 years, then to make the case why economic policy dialogue should be given high priority now, and finally to suggest some approaches that might be pursued. I hope that this might contribute to the discussions underway in the European Commission about future engagement strategy.
The major efforts of the international community to engage in macroeconomic policy dialogue over the past decade and a half have been the Article IV Consultations of the International Monetary Fund, which typically occur every 12 to 18 months; two reports prepared by the World Bank in 1995 and 1999 that looked at structural and social issues and advocated reforms to increase economic growth and efficiency and to reduce poverty; a similar report prepared by the Asian Development Bank in 2002; and a Japanese bilateral economic policy project that involved joint working groups on four major issues under a cloud of secrecy. Both Alvaro De Soto and Ismail Razali, the Special Envoys of the United Nations, sought to link promotion of economic dialogue and potential future assistance for economic reform and development, with political dialogue on reconciliation and movement towards democracy.
What lessons can be gleaned from these experiences?
First,
all attempts to link economic dialogue with political dialogue on democracy and
human rights issues have failed to produce any serious economic dialogue. It is noteworthy that economic reform has
tended to be seen as following rather than leading political reform in the eyes
of the main players in the democracy movement and international community. Indeed, the idea of the government adopting
reforms that would lead to economic success has been seen as threatening the
prospects for democratic political change, and international efforts that might
support real economic success have been actively opposed by the proponents of
sanctions. This fear was certainly borne
out in the early 1990’s when reforms aimed to stimulate economic growth did
result in an influx of foreign investment and expansion of the private sector
in
A second lesson is that economic policy dialogue has not been productive in the absence of prospects for financing. To illustrate this point, let me quote from the statement made by Hla Tun at the last meeting of the Board of Governors of the IMF and World Bank in October 2004: “Although Myanmar has been a legitimate member of the World Bank and IMF since 1952, both of the institutions have suspended their assistance to Myanmar, based mainly on political considerations. In actual fact, the objectives of the founders of these two institutions were purely economic in their nature and character. We would therefore urge these institutions to adhere to their founding principles.…I would like to call the IMF and World Bank to further enhance their assistance to countries facing macroeconomic difficulties without any discrimination.” This points to an important dilemma in the pursuit of macroeconomic policy dialogue, which is that it is difficult to conduct discussions of policy responses to external developments and internal structural problems in the economy without also talking about resource requirements and their financing. The unwillingness of the international community to engage Myanmar on these financing issues except as carrots for political reform, has indeed inhibited the ability of the International Financial Institutions to carry out normal discussions of policy and financing strategies. This has had the effect also of reducing incentives for the government to pursue policy reforms that could have major positive impacts on poverty and social equity, if the necessary financing and technical assistance to design and implement reforms is not expected to be forthcoming. If the European Commission is considering promoting macroeconomic policy dialogue in a new engagement strategy, then it too will need to consider how to deal with this dilemma and whether to back up advice with resources. It is noteworthy that the government has been signaling that it would be responsive, if the statement made by Hla Tun quoted above can be taken at face value.
A third lesson from experience
in macroeconomic dialogue with Myanmar is that the realities of the military
domination of the government and economy have trumped all efforts to engage in
discussions of systemic economic reform, although some reform measures have
been taken in recent years. The
vested interests of the military in the political economy of
Finally,
it has been possible to engage mid-level officials in constructive exchanges of
information and dialogue on economic issues. But the impact of this has been
limited not only by lack of interest and support from the top, but also by the
poor quality of statistical information available to support policy dialogue,
and limited analytical capacities due to lack of training opportunities and
exposure to global best practices and knowledge. Isolation of economic technocrats, which
has been reinforced by the policies of the international community, and also by
the absence of a domestic culture of economic policy research and internal
debate, have been constrained the ability of well-intentioned officials
to conduct policy analyses and promote new approaches. There have, however,
been some promising initiatives in data collection and analysis, notably
through the working groups set up under the Japanese bilateral project in the
early 1990’s and more recently by UNDP’s effort to assist the National
Statistics Office to undertake a major national household survey. A lot more could be done to strengthen the
base of knowledge and technical capacity at to support the economic policy making
process in
I would like to turn now to the question of why macroeconomic dialogue should be given priority at the present time. This is a question for both sides of the dialogue. Why should the SPDC shift its long-standing resistance to open discussion with foreign partners on macroeconomic issues? And why should the international community shift its position of the past 15 years to avoid what it takes to really engage the SPDC on economic policy?
The
argument I want to make is that the motivation for SPDC to engage on
macroeconomic issues must be tied to the deeper drivers of regime legitimacy
and strategic national interests, and language that is meaningful to the senior
leadership. Much of the unwillingness of
both the democracy movement and the international community to support economic
advice and assistance to the
Another important motivator for SDPC is the
value they place on stability for national security. Economic policy dialogue with the SPDC needs
to be placed in the language of security and not just social justice. These are not incompatible rationales for
good policy, and in my view part of the difficulty of engaging the military
leadership in economic policy issues in the past is because the language that
we have used has not resonated with their driving concerns. In this context, the case for significantly
increasing investments in education and health and promoting rural development
can be made on national security grounds.
Stability has always been the highest priority for the military
government, but in the long-term, stability will be best ensured by a strong economy
and democratic society. Education and
health are the foundations for both a vibrant private sector dominated economy
and a creative society with functioning democratic institutions. A pro-poor and pro-private sector economic
policy should be seen as the way to increase stability and national strength in
the long-term. Coupled with a commitment
to improve economic efficiency for sustainable growth and suppression of
corruption,
For the international community, a realistic posture would be to see improved economic policies contributing to building the underlying conditions for a successful democracy, which will take time. A good reason to promote macroeconomic policy dialogue now is to try to reinforce new national dynamics of cooperation and nation building linked to the Constitutional process, and the opportunity this affords to introduce new policies than can turn the tide of social disintegration that has been eroding the nation’s strength for decades.
There are three areas of initiative that I would like to suggest be considered as a way forward.
The first is to work with responsible government agencies and also local government authorities to help improve the quality of statistics for economic policy analysis and monitoring of progress, and also to help develop policy analysis capacities. UN agencies including UNDP and UNICEF are already undertaking some important work in this area, but reinforcement and support for this agenda more widely among the donor community is needed, and much more needs to be done. In my view, the European Commission and the International Financial Institutions could provide significant leadership in this area, and a jointly supported economic policy capacity building effort should be launched in partnership with the government, with a good local coordination mechanism.
The second
suggestion is linked to the first and would be a joint assessment of poverty
reduction strategy based on the new national household survey carried out by
the National Statistics Office and UNDP.
In effect this could lead to an update of the 1999 World Bank Poverty
Assessment report and form the basis for dialogue with the