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Tim Harcourt is a professional economist specialising in international trade and labour economic issues in the Asia Pacific region and in the emerging economies. Tim's passion is Australia's engagement with the global economy and the challenges and opportunities it offers business and the Australian community as a whole.

Tim has broad experience in public policy and in communicating international economic issues widely in the community. He has held senior roles in both the public sector and private sector in Australia and internationally and in the community and education sectors. In Australia he has worked for the Reserve Bank of Australia, Fair Work Australia, the Australian Council of Trade Unions (ACTU and the Australian Trade Commission (Austrade).


The Airport EconomistAustralian exporters conquering global markets
Beyond Our ShoresEssays on Australia and the Global Economy By Tim Harcourt, Chief Economist, Australian Trade Commission
Going The DistanceEssays on Australia and the Global Economy: 2004-2008 By Tim Harcourt, Chief Economist, Australian Trade Commission

Burmese Days – the economics of sanctions

Posted by on August 1st, 2012 · Publications

Burmese Days – the economics of sanctions

By Tim Harcourt*

The world economy is used to surprises – usually on the downside. But one on the upside over the past year has been the reforms in Burma and the lifting of economic sanctions. The surprise reforms of the new Burmese government of President Thein Sein, the election of Aung San Suu Kyi to parliament and the latter’s call for Burma to open up to trade and investment have been monumental changes given Burma’s recent past. Australian Foreign Minister Bob Carr was one of the first foreign politicians to visit Burma since the new developments and other western nations have lifted sanctions and made (tentative) moves to invest in and trade with Burma under the new regime.

But what is the economic impact of sanctions and what happens to economies after sanctions are lifted? The economic evidence is mixed when looking at trade sanctions against South Africa, Southern Rhodesia (now Zimbabwe), Cuba, Fiji and now recently Burma. According to Yale University economist Philip Levy the economic sanctions against South Africa were more ‘psychologically hurtful’ to the apartheid regime than economically damaging, although there is evidence that disinvestment by major institutions like Chase and Barclays had more of an impact than trade sanctions. As in the case of Cuba and Southern Rhodesia, trade sanctions did not have as much impact as restrictions to foreign investment and in any case the economic distortions in the domestic economy (like South Africa’s apartheid labour market distortions) were as damaging as external sanctions. Levy believes that the collapse of the Soviet Union was the key factor in enabling the white minority government to start negotiating with Nelson Mandela and the African National Congress, making South Africa a ‘special case’ in terms of effectiveness of sanctions.

But what about Burma? Will it be a special case? It is clear that Burma has some big mountains to climb economically given the long days of military rule, isolation and the fact that it is a very poor and populous country. As the world’s leading Burma expert economic Professor Sean Turnell says: “Burma is paradoxically a resource rich but economically poor country.” One reason has not just been the isolation due to sanctions but also the enormous economic distortion of maintaining such a large military presence with no external defence purpose. According to Turnell, Burma kept “300,000 men under arms” (i.e. almost the population of Canberra) despite there being no obvious “genuine external threat”, which is similar to the economic burden placed upon South Africa of the vast bureaucratic apartheid apparatus (not to mention the ethical burden). The defence overhang for Burma has put its fiscal policy under serious strain and created inflationary issues dissuading investment. Maintaining the military apparatus in Burma has also created bureaucratic distortions, sucking away resources from much needed infrastructure, health and education and handicapped Burma’s human capital development (creating too many idle low skilled soldiers and not enough farmers, teachers or other skilled workers).

The military overhang is the most pressing constraint on Burma’s return to any form of economic normalcy. But now Thein Sein has made some moves in the pro-democracy direction, what can Burma do straight away economically? Turnell has identified ‘low hanging fruit’ such as providing visa on arrivals for tourists, eliminating export taxes and import licences, allowing banks to lend to farmers, and deregulating interest rate ‘caps’ and other financial regulations. But at the end of the day, economic development must come in the agricultural sector and in resources and Burma needs to develop institutions in areas like banking and finance where there is almost no viable sector to speak of. And that’s all dependent on the capacity of Burma to reduce the military presence in the economy and society and create ‘room’ for other sectors. In a country where the armed forces have had so much control for so long, that’s a big ask.

So can Australia play a key role? Bob Carr gave Aung San Suu Kyi a strong assurance that Australia was willing and able to play an important role in Burma’s return to democracy and long term economic viability. Australia has a big role to play in infrastructure given the need for roads, rail, ports and telecommunications to serve its 62 million plus population, BHP Billiton can help in the development of oil and gas, and ANZ can play a similar role to its Pan Asian banking strategy in neighbouring Vietnam, Laos and Cambodia, and Australia’s education institutions can help with human capital development. But most of all Australia’s comparative advantage in agriculture, as well as our expertise in education and tourism, means we are well placed to help with Burma’s capacity building in the same was as we’ve helped the developing economies of Burma’s neighbours in the Mekong Delta. But it will be gradual and ‘softly, softly’ as the world investment community monitors the progress of the pro-democracy reforms.

It will take years to recover from what has happened in Burma since the 1960s, economically, politically and psychologically, but the lifting of sanctions and some luke warm (but positive) responses from investors and exporters (including from Australia) may signify some small steps to recovery on the new road to Mandalay.

*Tim Harcourt is the J.W.Nevile Fellow in Economics at the Australian School of Business, UNSW in Sydney and author of The Airport Economist: www.theairporteconomist.com











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