A Myanmar shopkeeper counts out kyat notes in Yangon's Pazundaung market in in March 2020. Photo: AFP

As Myanmar descends deeper and deeper into civil war, a conflict driven by nationwide resistance to the military’s disastrous democracy-suspending coup, the economy is taking the brunt of the chaotic collateral damage.

The February 1 coup sparked countrywide labor strikes, runs on banks and now rising warfare punctuated by bomb blasts in key urban areas including the commercial capital of Yangon.

That’s all put the economy in a tailspin while raising stability risks that have caused a growing number of foreign investors to either suspend or abandon their operations and outlays, many committed earlier on the belief Myanmar’s “last frontier” market was moving in a new hopeful democratic direction.

The opposite has happened since the coup. According to the World Bank’s Myanmar Economic Monitor, the economy contracted a whopping 18% in the year period spanning October 2020 to September 2021. The bank predicted the number of people living in poverty is likely to more than double by the beginning of 2022, compared to 2019 levels.

The United Nations Development Program (UNDP) predicted back in April, before the full impact of the coup had been registered, that the Covid-19 pandemic and political instability would by next year plunge almost half of Myanmar’s 54 million population into poverty, reversing gains made over the past 16 years.

The country’s dire economic straits is being reflected in the Myanmar currency, the kyat, which has lost more than 60% of its value since the coup. The official exchange rate on February 1 was 1,395 kyat to the US dollar but the money changers who are still operating are now asking for anywhere between 2,700 to 3,000 kyats per greenback.

The sharp depreciation is driving up prices on fuel and food, with gasoline prices nearly doubled and a 48-kilogram bag of rice up 40% since the coup.

Those economic pressures are raising concerns about the stability of the banking sector, which was already laden with non-performing loans before the coup and collapse of the economy. The regime has imposed hard limits on the amount account holders at banks may withdrawal daily, including at ATMs.

Stacks of Myanmar kyat are seen on the counter before a client collects them, at a bank in Yangon, Myanmar. Photo: Agencies

Aung Naing Oo, the junta’s minister for investment and foreign economic relations, blamed “foreign-backed sabotage” for the country’s rising economic plight in an October 19 interview with Reuters. However, the minister did not specify which foreign powers were allegedly sabotaging the economy, or how.

The minister also claimed that Myanmar’s foreign reserves stand at $6.04 billion; the World Bank estimated foreign reserves at $7.70 billion in March. But it is impossible to gauge the accuracy of those figures, nor do they indicate the junta’s true underlying financial position.

Myanmar’s recent history – notably the economic collapse that followed the military’s brutal 1988 crackdown on pro-democracy protesters — shows the Tatmadaw has a remarkable ability to stay in power in the face of economic and financial calamity.

Economists and academics familiar with the Tatmadaw’s ability to survive past crises note that much of Myanmar’s economy transacts in black and otherwise illicit markets, and thus revenues and profits do not appear in official statistics or are recorded by international economic monitoring outfits like the World Bank.

The Tatmadaw controls large swathes of the economy through its controlled Myanmar Economic Holdings Limited and the Myanmar Economic Corporation, massive conglomerates that are engaged in everything from banking, industrial parks, shipping, real estate, sugar factories, tobacco companies and supermarkets.

The US has imposed targeted sanctions on the conglomerates since the coup, though it’s not clear if and how those punitive measures have crimped the junta’s commercial interests.

The conglomerates are not the only economic resource keeping the regime afloat, far from it. The Tatmadaw is known to be deeply involved in the nation’s sprawling black economy, illicit gains that are often funneled to top generals and officers to maintain their loyalty and underwrite the political status quo.

Commander-in-Chief of Myanmar’s armed forces and head of Myanmar’s coup regime Senior General Min Aung Hlaing in Moscow, Russia on June 23, 2021. Photo: AFP via Anadolu Agency / Sefa Karacan

According to the international environmental watchdog Global Witness, the jade trade in Myanmar’s far north is worth more than US$30 billion annually, representing nearly half of the country’s GDP.

“The industry buoys the weapons trade and enriches military officials, including the son of junta leader Min Aung Hlaing… Aung Pyae Son,” Global Witness stated in a June report, which added: “the generals enrich themselves and war continues to rage, the environment and the people who depend on it pay the ultimate price.”

Much of the jade trade is conducted off the books mainly Chinese buyers making bids and purchases on their mobile phones, far away from the mines in Myanmar’s north and market places on the Chinese border.

More insidiously, the illegal narcotics trade is also known to be worth billions of US dollars per year. While Myanmar’s production of opium and its derivative heroin has declined in recent decades due to reduced demand in China and Southeast Asia, methamphetamine and other synthetic drugs have replaced the old drugs.

Most of the narcotics are still being produced in Shan state and, to a lesser extent, Kachin, Kayah and Karen states, while the main manufacturers and dealers are local Tatmadaw-allied militia forces known as pyithusit.

It is impossible to quantify the total value of the narcotics trade, as it is conducted in an even more clandestine manner than the jade trade, but it is likewise believed to top $30 billion. The military is also believed to be involved in lucrative and largely unregulated exports of gold, primarily to China, the total value of which is unknown.

Despite all those hidden reserves and revenues, it remains to be seen how the current social, political and economic crisis will play out. The withdrawal of major foreign investors whose outlays were, directly and indirectly, enriching top generals and their subordinates is bound to have hit many where it hurts most.

In July, Norway’s telecom giant Telenor announced that it was selling its mobile operations to the M1 Group, a Lebanese investment firm, but the transaction was deemed invalid due to non-compliance with local regulations.

Telenor’s decision was apparently prompted by a demand that it had to install invasive technology that would allow the Tatmadaw to freely eavesdrop on user communications. Reports have indicated the firm has completely written off its $782 million investment in the country.  

A man uses the internet with a mobile phone in front of Telenor’s cheap sim card advertising in Yangon on September 26, 2014. Photo: AFP / Ye Aung Thu

Other companies that have pulled out, or are in the process of doing so, include the French renewable energy firm Voltalia and Japanese beverage company Kirin, which has written off its $193 million investment in the country since the coup. Japan’s Suzuki announced shortly after the coup that it was suspending production at its two factories, which produced 13,300 vehicles in 2019, mainly for the local market.

Several global clothing suppliers have also ceased producing in Myanmar, among them Italy’s Benetton. Within days after the coup, Amata, Thailand’s largest industrial estate developer, suspended work on a $1 billion project on the outskirts of Yangon that was designed to kickstart more modern manufacturing in the country.

The junta may have enough resources, guns and money to survive in the months ahead. But that could change if or when the junta’s coffers start to run dry, meaning less trickle-down of resources to mid-ranking officers as well as the rank and file.

Morale inside the Tatmadaw is reported to be lower than ever, as soldiers are not only fighting against ethnic insurgents in frontier areas but also their own kin, the ethnic Bamars in the Myanmar heartland. Whether the confluence of battlefield losses and economic decline starts to crack military cohesion is yet to be seen.

But it’s by now plain for all to see, including inside the Tatmadaw, the spiraling economic disaster caused by a coup that could have been avoided by sharing rather than grabbing power from Aung San Suu Kyi’s elected democratic government.