With Its Economy in Free Fall, Myanmar Braces for the Worst

by BLOOMBERG

With a tea shop right next to key protest zones in Myanmar’s biggest city, Soe is never quite sure whether he should keep the business open.

If protesters enter to evade authorities, the 43-year-old risks getting shot, arrested or having his property destroyed as the military and police hunt them down. But if he turns away fleeing demonstrators, he may face a backlash on Facebook and a boycott of his tea shop, among hundreds in Yangon that have long served as de facto community centers.

“Now we can’t open our shop on a daily basis but we have to pay regular rental fees, municipal fees, labor wages,” said Soe, using only his first name because of concerns for his personal safety. “Many tea shop owners in Yangon are not sure how long they’ll be able to survive if this crisis continues.”

Small businesses like Soe’s are on the front lines of an economy now seemingly in free fall after a group of generals seized power on Feb. 1. The junta has killed at least 614 civilians since then, driving away foreign investors as Western nations put on new sanctions. Their opponents in the Civil Disobedience Movement, meanwhile, are pushing to tank the economy to deprive the military of financial resources.

Shipping lines have suspended operations as truck drivers strike, leaving cargo containers trapped at the ports. Restrictions on cash withdrawals have businesses struggling to pay employees. The military has restricted internet access, making it harder to reach customers. And thousands of civil servants aligned with the protesters are refusing to work, leaving areas with limited public services.

Altogether it amounts to a speedy erosion of the economic gains Myanmar reaped after investors rushed in a decade ago following a shift toward democracy. An economy that averaged growth rates of more than 6% over the past 10 years — more than doubling gross domestic product — is now projected by the World Bank to shrink 10% in 2021, by far the worst in Asia as countries rebound from a pandemic-induced slump.

“We are deeply concerned,” Aaditya Mattoo, the World Bank’s chief economist for Asia, said in an interview. “A 10% contraction in growth for a poor country seems to me disaster enough already. And when I add to it all the other costs, which have an impact on long term growth, I think we have a pretty dismal scenario.”

Some analysts are expecting things to get even worse: Fitch Solutions is projecting a “conservative” 20% contraction for the 2020-21 fiscal year. It said this month the rising death toll combined with increased social instability means “all areas of GDP by expenditure are set to collapse.”

“There is no worst-case scenario on the economy which we can rule out,” Fitch said.

At the moment in Yangon, there’s still no sign of a humanitarian crisis. Supermarkets, convenience stories and small shops still have plenty of food, and prices of rice and other staples are relatively stable. But signs of distress are popping up, like long queues outside banks and ATMs after some banks capped daily withdrawals from ATMs at 200,000 kyat ($135). Demand for gold and U.S. dollars is rising.

“We understand that only 10% of the total number of branches in Myanmar have reopened, and we are aware of the difficulties to withdraw cash at ATMs,” junta spokesman Major General Zaw Min Tun said on Friday at a news briefing.

The junta is vowing to ride out the storm. Aung Naing Oo, the regime’s investment minister, said last month the government expects to see a “slight impact” on foreign investment. 

But even business elites in Myanmar aren’t convinced that this is merely a temporary blip.

“No one can predict how long it will take to get back to normal,” said Maung Maung Lay, senior vice president of the Union of Myanmar Federation of Chamber of Commerce and Industry. “Frankly speaking, the future of our economy is now uncertain.”

Western investors have largely shunned Myanmar since allegations surfaced in 2017 of genocide against minority Rohingya Muslims, prompting the government to focus on attracting capital from Asian countries like Singapore and China. But even though China blocked the United Nations Security Council from imposing sanctions after the coup, it remains wary of supporting Myanmar’s generals — particularly after several Chinese-owned factories were torched amid the protests.

“Beijing’s displeasure with the coup and its aftermath, and the attacks on its businesses, mean that neither the Chinese state nor many Chinese companies are likely to rush to invest,” the Brussels-based International Crisis Group said in a report this month.

That doesn’t leave the junta many places to turn to revive growth. Myanmar’s purchasing managers index last month fell further to a record low 27.5, according to IHS Markit data — well below the 48.9 average since the series began in December 2015 for a measure in which 50 is the dividing line between respondents seeing an expansion and contraction in demand.

“The generals had a big miscalculation in going through with the coup,” said Moe Thuzar, a fellow at Singapore’s ISEAS-Yusof Ishak Institute. “They wanted to project a more business-friendly attitude — and thought this is where they could have an edge over the National League for Democracy government — and it backfired big time.”

Now the question is just how bad things might get. The World Bank last month warned of a “sharp increase in poverty,” while the United Nations World Food Programme said the crisis “will severely undermine the ability of the poorest and most vulnerable to put enough food on the family table.”

The situation on the ground is likely to turn into a “withering stalemate” as the army seeks to take control of the streets while the civil disobedience campaign keeps much of the country ungovernable, according to Thant Myint U, author of “The Hidden History of Burma: Race, Capitalism, and the Crisis of Democracy in the 21st Century.”

“The economy will collapse, destroying the lives of millions of people,” he said. “Whatever happens afterward it will be impossible for Myanmar to recover for many years.”