By U AC
ONE year has passed since the current administration took control of the government due to NLD and its appointed elections committee’s failure to investigate significant voting fraud. A lot has happened since then; many innocents were assassinated for supporting the new administration, many were killed for refusing to support NNCP (NUG, NLD, CRPH, PDF) terrorists, many businesses were destroyed due to social punishment decided by street justice, many civil servants murdered for simply not supporting the CDM movement, many monks executed simply for being in an area where the terrorists operate. Bombing campaigns against public infrastructure have hurt many services; banks, schools, hospitals, bridges, roads, terminals, and petrol stations are all not spared. The most impacted ones remained the bombing of telecom and electricity transmission towers. All could be easily destroyed with a single explosive device, yet the restoration of services back to normal would take months.
Maybe due to lack of education or judgement, Myanmar people are easily swayed by fake news, gossip and misinformation. Yet, most are beginning to realize the crimes that NNCP terrorists have committed as well as the rampant corruption that happened under the NLD administration. Now the crimes stated above have been put under control and the country is now on a clear path towards prosperity in the coming years.
Yet the challenging issue that Myanmar is facing right now is not any of the above described. This is not to advocate that tackling terrorism and cyberterrorism should not be on top of the priority list. Yes, stamping out terrorists should be number one on the to-do list of the government because the people and businesses would not prosper as long as they are around. Because of the terrorist activities against major businesses in Myanmar, the economy contracted quite significantly in 2021. World Bank, International Monetary Fund and Asia Development Bank put the GDP contraction figures between 15-20 per cent. Yet the actual numbers might be higher. For the current year 2022, the three international organizations put the forecast around three per cent as GDP growth. The country’s output and productivity have ground to a halt last year. Combined with an increase in import costs due to Kyat depreciation, fuel cost increases, and rises in logistics fares, the country is facing significant cost-push inflationary pressures. Factoring in businessmen’s and general traders’ expectations of inflation, we now have a recipe to enter into a period of high inflation.
How does hyperinflation set in, in the first place?
Myanmar has now all the right ingredients.
Tax revenues reduction: Due to CDM and general boycott against the new government of last year, a significant population of people refuses to pay taxes they owed to the government and even electricity that they personally consume. Combined with the lower government income from corporate taxes due to economic contraction, a sizeable portion of the government’s revenues would be missing for 2021 and 2022.
Quantitative easing: In order to keep the economy growing and save the banking sector (so far no banks have gone out of business, since the change of government), the government has to print more money, especially since the banks no longer allow cash withdrawals on demand. This adds more money to the hands of the people and businesses as cash in hand. Not trusting the banks, people are still holding onto this cash or converting them into gold or the US dollar and holding onto these.
Cost-push increases: Myanmar is essentially an import-dependent country. From raw materials to construction equipment to consumer electronics, imports are an essential part of the country’s economic machine. The fuel and dollar cost increases hit the imports hard. Even the locally made products are not spared either, due to the former increase. Bricks, sand and gravel for construction are produced locally, not affected by the exchange rate, yet, the prices for these are now nearly twice as much as a year and a half ago.
These three ingredients, once they take shape, will have the multiplier effect, seeding further inflation and eventually a hyperinflationary environment. If uncontrolled, it can lead to the collapse of the currency and finally the economy.
What actions can the government take?
Obviously, drastic situations called for drastic measures. Every action in economics comes with a side effect. The government can mitigate these yet they cannot be avoided.
The government can use wage and price controls to fight inflation, but the downside would be a likely recession and further job losses. The State Administration Council (SAC) is doing it right. CBM is funding the purchase of fuel, edible oil, etc., to stem the tide of cost-push price increases, through discounted exchange rates. Labour market wages have been left to operate without interference. The upward pressure on wages is still not in existence at this level, due to structural employment arising from the economic contraction.
The government can employ a contractionary monetary policy by reducing the money supply within the economy and through increased interest rates. For this to happen, the banking system has to be back to normalcy. As long as the banks refused to allow cash withdrawals on demand, the government has to augment the supply shortage through the printing of more money, thereby rising inflationary pressures. Some banks are working to get back as close to normal as possible, yet there are some below par, that still refuses withdrawals of any kind. These banks no longer have a role to play in society and the government must take tough action to shut them down or let them be absorbed by a larger organization. SAC has the hard task of having to restore consumer and business people’s confidence in Myanmar commercial banks and shutting down those errant banks would be one of the mandatory steps. So how does the government find out which banks are taking consumers for a ride. Simple, just look at the percentage that consumers have to give for cash withdrawals (CWD) to bank staff or brokers (illegal activity, of course). While mainstream banks such as AYA, KBZ and CB are running at less than two per cent, a smaller bank such as GTB still attracts around seven per cent as a CWD percentage charge. The rate is a reflection of how difficult it is to make a CWD out of a bank. The higher the rate is, the more difficult it is to take your own cash out of the bank that you once trusted.
The last tool that the government could use is to increase the reserve requirement of banks on the amount of money banks are legally required to keep with the central bank. The more money banks are required to hold back, the less they have to lend to consumers, which would consequently result in decreased spending in the economy. Again, this tool may not be suitable for Myanmar at this point in time, as the banks may be having a liquidity crisis and may not be able to accommodate an increase in reserve requirements. At the same time, not much lending is happening in the economy at this point in time, so an additional inducement to reduce spending may not be essential at this point in time.
Actions to be taken at an individual level
While it is the action of the government, CBM governor and Finance Minister that would halt the hyperinflation in its track, at the micro level, there are actions that we as individuals can take to mitigate the negative impacts of hyperinflation.
Reduce transport expenses: With crude prices hitting the roof and the US dollar following in the same direction, an oil-importing country like Myanmar, is facing significant increases in fuel prices. Ways to limit the increase would be to cut down unnecessary travel, carpooling, trying to organize, accomplish multiple tasks along the same route, switching to a more fuel-efficient car, etc. Every little thing helps and every little saving in fuel consumption will be keenly felt at month end. Take care of the pence and the pounds will take care of themselves.
Stop buying new things: New products, new items or new arrivals may look and feel good, yet they come with newly inflation-adjusted prices. Worse, the sellers may even input the expected higher inflation of the future into the products. The trick here is to look at second-hand products of good condition and quality. Social media pages such as Yangon Connection maybe a good start. People sell everything from used office furniture to household goods to generators. The sellers bought these goods at pre-inflation prices and these goods are being sold at a discount to that. You can even haggle and prices can go really low sometimes.
Have a backup plan for every home appliance, in case of breakdown: That would force us to think about whether we really need to buy new items in an instant. Air conditioner alternative fan, Generator alternative solar, TV alternative of YouTube or Netflix, should be considered in case of equipment breakdowns, saving your money from high product prices.
Gold and silver are very inflation proof, so it would be wise to consider converting part of your cash into these two inflation-proof assets.
Buy household supplies that are long-lasting, right now. Prices are going to go up later and you are definitely going to require these items. Baking soda, washing liquids, detergent, bleach, vinegar, insect repellent, etc., are examples of such items.
Commit yourself to lesser to no restaurant outings: As inflation sets in, the cost of everything would go up, including meals and dining. One of the best ways to shield yourself against the increases would be to stop going out to eat altogether. These include food delivery services too.
Convert your Kyats into stable currencies. It may sound non-nationalistic, yet it remains one of the solutions. Hard currencies seldom suffer from hyperinflation and holding notes in these currencies would be a wise move during the inflationary period.
Find new sources of income: Because of high inflation, your purchasing power has definitely gone down. Hence an alternative source of income or every single extra income would help at least maintain your current purchasing power.
Grow your own source of food and water supply: These are the staple items in your daily basket of necessities. If you have your own sources for that, you definitely would be better protected from increases in daily essentials. For those with land spaces, it would be a good idea to start your own homestead, with livestock and agriculture up and running.
Beef up home and personal security: We have not got the confirmed police statistics yet, but if the news is indicative of the general populous, more petty crimes are happening every day across major cities. These can suddenly escalate into muggings and robberies. So safety can security should be upgraded during this high inflationary environment.
Stay positive: High inflation would not be with us forever. It would be gone in a year or so. The world would go on. Businesses would continue. Some would come out better, some would be much worse. Keeping yourself in a positive frame of mind would keep you away from depression and encourage you to excel during this difficult period.
Good luck and get prosperous in the years ahead!
