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The Post-Socialist Economic Transformation in Myanmar and Poland: The Consequences for the Investment Climate

Dr. Andrzej Bolesta Coordinator The Polish Reform Mission to Myanmar

Centrally planned, state-command, socialist economy


In Poland (1945-1989)
1982-1989 reformed socialism (J. Kornai, 1987)

In Myanmar (then Burma) (1962-1988)


1948-1962 - democratic socialism

Central Planning and Market in Europe


GDP per capita (constant prices 1990) in 1950 and 1990

14000

1 8 00 0

16 88 1

12210
1 4 00 0

10000
1 0 00 0

6000 2447 2397 2000 1950 Pola n d

5115
6 00 0 3 7 06 2 00 0 24 8 0 19 50 Hu n ga r y

6 47 1

1990 Spa in

1 99 0 Au s t r ia

Source: L. Balcerowicz 2008, after Maddison Database

Central Planning and Market in the World


GDP per capita (constant prices 1990) in 1950 and 1990

16000 12000

15732

12000

10950

8000
8000 4000 854 0 1950 2003 854 1127

4000 2046 0

3670 2569

1950

2003

Nor t h Kor e a

S ou t h Kor e a

C u ba

C h ile

Source: L. Balcerowicz 2008, after Maddison Database

The Initial Conditions for the Transformation


Macroeconomic situation Economic system Structural composition of the economy Financial liabilities to foreign actors Human capital

The Process of Post-Socialist Economic Transformation in Poland


The Shock Therapy (1989-1993, core period until 1991) The Incremental Changes (1993-1997) The Four Major Reforms (1997-2001) Polands EU Accession (2001-2004)

Post-Socialist Economic Transformation


S Stabilization L Liberalization I Institutionalization

Based on: Balcerowicz 1997

S Stabilization
reduction of the budget deficit strict control of money supply transition to positive real interest rates wage control

Based on: Balcerowicz 1997

L Liberalization
reduction of state intervention increase in elasticity of supply and of prices removal of restrictions on private economic activity removal of central allocation of goods and resources liberalization of prices removal of most quantitative restrictions on imports and exports unitary exchange rate internal convertibility of currency

Based on: Balcerowicz 1997

I Institutionalization
privatization antitrust/antimonopoly legislation strengthening of central bank independence banking sector reform insurance sector reform tax reform creation of local government social security network reform

Based on: Balcerowicz 1997

Changes in legal regulations - examples


Privatisation law Antimonopoly law Insurance law Law concerning establishment of the stock exchange and treasury bonds New foreign investment law Income tax law Budget law

Changes in the real economy


Reduction in macroeconomic imbalances e.g. the shortageflation syndrom Changes in the strcuture of industrial production and increase in effectiveness Positive impact on the natural environment Reduction in foreign liabilities

The Incremental Changes


Focus on development policy and economic reforms simultaneously Continuation in reducing the macroeconomic imbalances (decreasing inflation and unemployment at the same time) Private business development Management reforms: decreasing the number of ministries and affiliated institutes and delegating power downwards New Constitiution (1997)

Four Big Reforms


Administrative reform Pension reform Healthcare reform Education reform

The EU Accession
Poland benefited from EU technical and financial assistance prior to joining the Community

The process of accession was charactersied by adopting/negotiating the provisions of acquis communautaire The Community acquis or acquis communautaire, sometimes called the EU acquis, and often shortened to acquis, is the accumulated legislation, legal acts, and court decisions which constitute the body of European Union law.

During the process of the enlargement of the European Union, the acquis was divided into 31 chapters for the purpose of negotiation between the EU and the candidate member states for the fifth enlargement (the ten that joined in 2004 plus Romania and Bulgaria which joined in 2007). These chapters were: 1. 3. 5. 7. 9. 11. 13. 15. 17. 19. Free movement of goods Freedom to provide services Company law Agriculture Transport policy Economic and Monetary Union Social policy and employment Industrial policy 2. 4. 6. 8. 10. 12. 14. 16. 18. 20. 22. 24. 26. 28. 30. Free movement of persons Free movement of capital Competition policy Fisheries Taxation Statistics Energy Small and medium-sized enterprises Education and training Culture and audio-visual policy Environment Cooperation in the field of Justice and Home Affairs External relations Financial control Institutions

Science and research Telecommunication and information technologies 21. Regional policy and coordination of structural instruments Consumers and health protection 25. 27. 29. 31. Customs union Common Foreign and Security Policy (CFSP) Financial and budgetary provisions Others

GDP constant prices (bln PLN)


1400

1200

1000

800

600

400

200

0 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
Source: IMF

Change of GDP constant prices (%)


8 7 6 5 4 3 2 1 0 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
Source: IMF

GDP per capita constant prices (PLN)


40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
Source: IMF

The Process of Post-Socialist Economic Transformation in Myanmar


Phase I (1988-2011) reforms and retrenchments - liberalization and/or authorization of private enterprise activities - liberalization of international trade and foreign direct investments - financial sector reforms (incl. establishment of private banks)

Fujita et al. 2009

However
Attempts to maintain the dominant role of SEE (state economic entreprises) in some sectors of the national economy Reimposition of restrictions on private business activities and trade (e.g. by Trade Policy Council) Control of agricultural production (esp. rice) perhaps for social reasons Lack of adequate institutionalisation and liberalization within the financial system (restrictions after the bank run of 2003) Asian financial crisis 1997 International sanctions 1997

Phase II - 2011 onward


Economic liberalization and market institutionalization (gradual) new foreign investment law new exchange rate policy expansion of banking sector activities

Myanmar: In the Footsteps of Central-Eastern Europe Polands success: or East Asia? - doubled GDP;

- joined the group of 20 largest economies, OECD (1996) and EU (2004); - significantly increased the standard of living. The model: free market economy, transparent non-discriminatory regulations, few market access barriers East Asia success: historically Japan, South Korea, Taiwan, to some extent Malaysia, Thailand currently - post-socialist China, perhaps Vietnam The model: more interventionist, regulatory economic regimes with various non-tariff barriers focused on domestic business development

The Mixture of the Models: The Case of Myanmar? The Consequences for the Investment Climate
Myanmar will use its attractiveness to attract foreign investment. Due to its relative underdevelopment and potential untapped resources, foreign investors will have a broad pallet of economic sectors to choose from; Myanmar authorities will continue to support foreing investment related activities due to the countrys development necessities; However, Myanmar will restrict access to certain sectors deemed important, strategic, etc., The authorities will offer preferences to domestic companies; The state will continue to be involved in the economy through regulations, through state-owned companies, through state bureaucracy, as well as through privately-owned companies.

Thank you! andrzej.bolesta@msz.gov.pl

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