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 RANGOON 00000861 001.2 OF 003 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 RANGOON 00000861 002.2 OF 003 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 RANGOON 00000861 003.2 OF 003 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