Myanmar’s economic crisis has grown increasingly dire over the two years since the military coup, marked by rising commodity costs, a weakening of the kyat and a loss of public trust in the banking system.
A World Bank report published in mid-2022 described the country’s financial sector as having returned to levels of stagnancy associated with previous periods of military rule prior to 2010.
To better understand the state of the economy under the military regime, Myanmar Now spoke with Sean Turnell, Australian economist and former economic policy advisor to Aung San Suu Kyi’s National League for Democracy (NLD) government. As the coup unfolded, ousting the elected NLD administration, Turnell—like Suu Kyi—was arrested by the junta on February 1, 2021. He was later sentenced to three years in prison for allegedly violating the Immigration Act and the Official Secrets Act but was released and repatriated to Australia in November of last year.
Turnell outlined the NLD government’s financial plans for their second term in power, if they had been allowed to take office, describing the banking sector reforms that he had hoped to see implemented and contrasting it against the current threat of economic collapse.
Myanmar Now: The NLD government carried out reforms of the banking sector through the Central Bank of Myanmar (CBM), including by reducing overdraft loans annually. As a top economic advisor, you were involved in these processes. Could you tell us more about the plans that were in place to continue these changes before the February 2021 coup took place?
Sean Turnell: Yes, the NLD government was working very hard to reform Myanmar’s banking system and to ensure its stability. A program of loan reclassification and bank recapitalisation was in place to fix the situation.
This program was ready to go in February 2021. It would have been announced early in the second term of the NLD government. The program not only dealt with legacy bad debts [which dated back to previous military regimes], but also loan arrears arising out of the Covid [pandemic period]. It was an incredibly well-crafted strategy that enjoyed the support of the multilateral financial institutions as well as other key allies.
It was fully costed, fully funded, and based on accurate information about the state of the banks. Depositor protection was uppermost, as was the need to avoid a crisis that would have destroyed the economic reform process and retarded growth.
MN: We are hearing that more than 90 percent of loans in private banks are non-performing, known as NPLs. What can you add to this? Are we looking at a potential banking collapse?
ST: Now the situation of the banks must be desperate. In the wake of the coup, their NPLs must be truly enormous, and there is no backstop of the sort that the NLD government had created. And meanwhile, the best people languish in prison.
MN: What was done during your tenure to try to prevent this from happening?
ST: What we did was to insist that banks make proper term loans, not simply allow overdraft facilities. Proper credit analysis was done on each and every loan, [so it was] not simply a source of funds that could be pulled down according to the relationship of the borrower to parties they might be connected with in the banks.
In other words, there was proper arms-length lending on the basis of objective information—an attempt to end the old crony relationships that created these vast pools of NPLs that have always threatened to bring the sector down.
The numbers you mentioned before [placing the NPL rate at 90 percent] do not surprise me. They are what I would expect, given what has happened, and given where they were. This would not have happened had the [NLD’s] recapitalisation and restructuring plan been put in place.
MN: What can you tell us about private banks in Myanmar in terms of regulation, commercial experience and capital wealth?
ST: All of the above they were weak in. I knew the banks very, very well: some were impressive, many were not good at all. Some banks are nothing more than vehicles for extending favours between cronies. Others are little more than money-laundering institutions.
MN: Do you think the military regime will favour private banks somehow to prevent collapse?
ST: I would imagine all sorts of rules have been waived, including any sort of minimum capital ratios. [Editor’s Note: This refers to the requirement that banks hold a minimum of around 10 percent capital against their risk-weighted assets, such as loans. Myanmar banks had historically exceeded such limits in the credit they distributed.]
MN: Could you tell us more about what the NLD government had planned to implement regarding banking reforms, and the role international institutions were expected to play?
ST: International organisations were [working] in an advisory capacity. The recapitalisation program was run out of, and by the MoPF [the Ministry of Planning and Finance]. Some key figures in the Central Bank program were involved in making sure deposits were safe, but it was not a ‘bail out’ of bank owners. Government money was available but this would have been accompanied by bank owners injecting more capital into their banks. Bank owners would have to bear some consequences of their own past poor decisions and the ‘moral hazard’ was to have been avoided.
But again, ordinary depositors, borrowers, consumers and business [would have been] broadly protected. One of the advantages of the NLD government being so fiscally prudent was that it had the money to do this. Likewise, it was open to the best minds in Myanmar who really understood the complexities of modern banking and knew what to do to put the sector back on track. I cannot stress enough how well prepared the government’s key monetary institutions were for this. It was an issue worked on throughout 2018 and onwards.
Likewise, the international dimension was understood and things like anti-money laundering policies were well underway for implementation. The NLD government would never have sat back and waited for Myanmar to be blacklisted by the FATF [Financial Action Task Force]. This issue had been worked on since 2016, right from the outset. [Editor’s Note: Since the coup, Myanmar has again been placed on the FATF’s blacklist of countries not in compliance with international standards against money laundering.]
MN: Could you comment on the financial reserves in Myanmar’s Central Bank? The country owes major foreign debts.
ST: The situation is now very tricky—much money wasted, much caught up in sanctions. Foreign debt was incredibly low under the NLD government. It has more than doubled since the coup.
MN: What is your assessment of the reforms that were carried out during the NLD’s first term?
ST: The CBM had great management throughout the NLD government era but especially via the appointment of Dr Bo Bo Nge as deputy governor. His PhD is in banking from the University of London, on top of which he is greatly experienced via Wall Street and commercial banking in Myanmar itself. Nobody understands banking in Myanmar better.
The CBM was greatly supported by the State Counsellor [Aung San Suu Kyi], who very cleverly let it enjoy policy-making independence in all of these matters, free from political interference. The likes of Bo Bo could go about their business of reforming, fixing and safeguarding Myanmar’s monetary and banking system, understanding that she had their backs. Sometimes good economic policymaking is knowing what not to try and do.
MN: Bo Bo Nge too has been imprisoned by the military, sentenced to 20 years for alleged corruption. Were you able to meet him during the time in which you were incarcerated by the junta?
ST: I did see Bo Bo in the prison and a great and a courageous figure he was in that context, too—no better patriot, no more incorruptible figure of public life. I am in awe of Bo Bo. History will be very kind to his outstanding legacy. A great reformer, a truly great man.
MN: Do you think he will be released?
ST: I hope they will release him, of course. Bo Bo is revered all around the world.
MN: Do you still have contact with your friends in Myanmar—are you able to talk with them frequently?
ST: Myanmar is so closed off now. I have some contacts, but the policy institutions have locked themselves away. Hermit caves they have become!
MN: What do you think are the intentions of international financial institutions regarding Myanmar since the coup?
ST: These institutions are lost to Myanmar now. They will lie low for a bit and wait for political change in Myanmar before revisiting past plans and projects.
This interview has been lightly edited for clarity.
