IMF PERSPECTIVES ON GOB ECONOMIC DECISIONMAKING

C O N F I D E N T I A L SECTION 01 OF 03 RANGOON 000861

SIPDIS

SIPDIS

STATE FOR EAP/MLS;
PACOM FOR FPA
TREASURY FOR OASIA:SCHUN

E.O. 12958: DECL: 09/11/2017
TAGS: EFIN ECON PGOV IMF BM
SUBJECT: IMF PERSPECTIVES ON GOB ECONOMIC DECISIONMAKING

REF: A. RANGOON 859


B. RANGOON 838

C. RANGOON 749

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Classified By: Economic Officer Samantha A. Carl-Yoder for Reasons 1.4


1. (C) Summary. The IMF team, during its Article IV
consultations August 22-September 24, observed that all
economic decisions, including the August 15 fuel price hike,
are made at the top, with some input from the Ministries.
The GOB ministries are highly compartmentalized, and economic
recommendations follow suit. Directors often fail to request
the advice of the technocrats before making recommendations
to the Ministers, and Ministers do not consult with other
Ministers before taking their recommendations to the Senior
Generals. The IMF also learned that some economic proposals
are made by an advisory committee appointed by the Prime
Minister. Decisions on monetary policy are not made by the
Central Bank, but rather by top level officials. The IMF,
finding that many working-level officials lack technical
capacity, plans to provide technical assistance to government
officials to help future decision making processes. End
Summary.

A Working Level View
--------------


2. (C) During the August 22-September 4 IMF Article IV
consultations, the IMF/World Bank team traveled to Nai Pyi
Taw to meet with the Burmese Minister of Finance, the Central
Bank Governor, and working level officials from the
Ministries of Finance, Agriculture, Oil and Gas, and Planning
and Development, among others (Reftel A). Prior to their
departure to Nai Pyi Taw, the IMF team asked foreign embassy
officials to explain how economic decisions are made now that
Prime Minister Soe Win, who showed an interest in economic
issues, is no longer in Burma. The Malaysian Ambassador
commented that he doubted any of the senior generals had any
interest in economic affairs since the Prime Minister's
departure. Economic decisions, he opined, are made by Than
Shwe alone, even when Soe Win was around. Econoff explained
that the top brass keeps trained economists on staff, not to
formulate a coherent economic program, but rather to
legitimize the government's unsound economic policies.
Because the generals dismiss their economic recommendations,
many trained economists refuse to assist the GOB. Indian DCM
Manoj Bharti confirmed that all economic decisions are made
at the top, with little input from those who actually
understand economics.


3. (C) Leslie Teo, IMF Deputy Division Chief for
Asia/Pacific, told foreign mission officials on September 4
that that the Ministries in Nai Pyi Taw were even more
compartmentalized than last year. Ministry offices are
insulated and government officials are cut off from other
officials. The situation makes coordination in policy making
virtually impossible.


4. (C) While in Nai Pyi Taw, working level bureaucrats
explained to the IMF the various hierarchical ways that the
government makes economic decisions. More often than not,
senior generals make decisions with no input from the
Ministries. Instead they just demand the Ministries
implement the policies. One technocrat cited the recent fuel
price hike (Reftel C) as a clear example. The IMF also
learned that at times, the top generals ask the Ministries
for advice on issues. In those instances, Ministers will ask
directors for recommendations on issues. On those rare
occasions when their advice is requested, directors
habitually fail to consult working-level officials, who often
have some knowledge, before proposing solutions to the

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Minister. Ministers rarely consult with other Ministers
before proposing ideas to the Senior Generals. The IMF also
gleaned that some economic recommendations are made by an
advisory committee appointed by the Prime Minister. Those
recommendations get forwarded to the senior level for any
decision.


5. (C) Teo noted that the IMF primarily met with
working-level officials in Nai Pyi Taw, although the team
also saw the Minister of Finance and the Central Bank
governor. One IMF team member told Econoff that the Minister
of Finance was "not impressive and did not grasp many of the
IMF's recommendations." Unlike last year, the team did not
meet with the Prime Minister, who is dying in Singapore, nor
were they granted a meeting with the Acting Prime Minister
Thein Sein. After meeting with the working-level officials
and assessing their capabilities, Teo opined that one reason
why decisions are made without technocrats' input may be
because many of them lack technical skills and competence.

Central Bank Worsens the Problem
--------------


6. (C) Ake Lonnberg, IMF Senior Financial Sector Expert,
told us that the Central Bank, which lacks operation
autonomy, also faces a crisis in decision making. The
Central Bank is not accountable for monetary policy, and the
IMF doubts whether there is any monetary policy at all.
According to the Central Bank law, the Central Bank is
responsible for maintaining internal monetary stability
(i.e., controlling inflation) and maintaining external
monetary stability by assuring a stable exchange rate.
Lonnberg pointed out that the multiple exchange rate system
provides no stability and inflation is more than 30 percent,
showing the Central Bank's poor performance. Another
problem, he asserted, is that the Central Bank, on the orders
from the senior generals, finances the budget deficit by
printing money, thereby fueling inflation.

Is Technical Assistance Valuable?
--------------


7. (C) While the new Central Bank governor and vice governor
showed an interest in monetary policy, they, like other
government economic officials, lack the technical skills to
do their jobs. In every meeting, officials requested IMF
support, prompting the IMF to propose that it will provide
technical assistance to government officials in the hope that
it will improve future decision-making. Teo asked foreign
missions whether this technical assistance would be valuable.
The Malaysian economic officer noted that Malaysia provides
technical assistance, offering government officials
scholarships to visit Malaysia to learn how that government
functions. A Singaporean official noted that, in conjunction
with ASEAN, the Embassy maintains a training center in
Rangoon, bringing in speakers to train the Burmese government
in the areas of trade negotiations, public speaking, and
information technology. Both the Malaysian and Singaporean
officials noted that they receive positive feedback on their
programs, but are unable to judge their effectiveness. The
Indian DCM commented that IMF assistance would help develop
the Burmese civil service and provide them opportunities for
open discussions. Businessmen, however, warned that the
current Senior General listened to no one, so doubted the
technical skills could be applied as long as he alone made
all the decisions.

Comment
--------------


8. (C) The generals' economic power cannot be separated from

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their political power. Over the last forty-five years, the
regime has built an elaborate system of patronage where the
generals and their military-owned enterprises dominate every
profitable natural resource industry and profit-making
enterprise. True economic reform would require the
dismantlement of this elaborate structure, threatening their
powerbase. That is why the civil servants have no authority
to make economic decisions or enact IMF recommended changes.
But the lack of economic skills at the working level is
worrisome, as these same technocrats will likely be called
upon to make economic policy in a political transition.
Technical assistance from the IMF and other organizations
would help prepare these officials for the day when the
Senior General no longer controls the economy, and expose
them to modern concepts of transparency and accountability,
as well as sources of advice. So the question becomes
whether it is better to begin preparing for a transition, or
waiting until after the transition begins but risking
economic turmoil until a new generation of technocrats can be
trained.
VILLAROSA