Myanmarket.com’s editing team sat down recently with Dr Alexis Antoniades, Associate Professor, Director, and Chair of International Economics at Georgetown University Qatar to discuss the current economic developments and the recent decision of the Central Bank of Myanmar to cut interest rates.

Below is the excerpt of the interview.

Question 1: Dr. Alexis, why do we feel that the world economy is falling and is falling fast?

Dr. Alexis: COVOID-19 (or coronavirus as it is best known) has disrupted our everyday lives and the way we conduct business. Supply chain channels are broken and movement of people, goods, and services is interrupted. As all economies are interconnected, pulling apart so suddenly has stopped growth, brought anxiety, revealed structural problems in companies and weaknesses in nations finances and infrastructure.

Question 2: When will this end? Is there hope in sight or more pain?

There is hope. Scientists are working frantically to develop vaccines and drugs, governments are putting together measures to stop the spread, and companies learn how to adjust. But individuals should be more responsible. They must isolate themselves in order to slow down the spread and allow health care systems to manage the pandemic.

Unfortunately, the pandemic is estimated to affect our way of life for the next 18 months and things are expected to get a bit worse before they get better. But they will and life will return to normal.

Question 3: Who is affected the most?

It is hard to say who is not affected by the pandemic. We all are to some extent. But the impact is more painful for countries that depend heavily on tourism, with weak infrastructure and health care systems, and with limited ability to undertake massive fiscal stimuli. To manage the evolving crisis governments must be decisive, transparent, and effective in their policies and in their communication so that they can deal both with the economic consequences and the rising anxiety that can lead to panic.

Question 4: You recently wrote that the Central Bank of Myanmar (CBM) should cut rates. They did. Are you happy?

Well, this is not about me being happy or not. But the decision of the CBM to cut rates is a wise one and shows leadership and commitment from their part. The fact that after so many years they have decided that the time has come to cut rates is a major milestone that we should all acknowledge and appreciate. But this is not the end of a process, but rather the beginning of a new journey. The CBM must cut rates again, immediately, and this time go deeper.

Question 5: Why do you say that?

Because the global economic outlook is deteriorating fast and the case I made two weeks ago in my article for cutting rates (see https://myanmarkt.com/news/107) is even stronger. The Fed cut rates again on Sunday (their second cut this month). And many countries followed. Myanmar has to do the same. Even if we ignore the current pressing circumstances, high interest rates have brought a collapse of credit, a weakening of the banking sector, and a suppression of economic activity over the past years. This is noone’s fault by the way. The country is new and it takes time to build good institutions and processes. Challenges of the past are present and change takes time. But it is critical that the CBM steps in immediately and cut rates again.

Question 6: But low interest rates raise prices and bring inflation, right?

Absolutely not! There is a misconception here in Myanmar that high interest rates keep prices in control. While this may be true under certain circumstances in advanced economies, the exact opposite is true here. High prices are a supply side effect. Lack of infrastructure spending raises the cost of producing (e.g. need to use generators as electricity is not stable), discourages entry, and increases reliance of imported goods. Lowering rates will help economic activity and will resolve many of the supply-side factors that raise prices. Furthermore, the appreciation of the kyat (which hurts exports and tourism) and the collapse in oil prices ease pressure on inflation.

Note that inflation in Myanmar is not that different from other Asian economies; interest rates are though. And countries such as Vietnam and Thailand also had high interest rates a decade ago, but as the graphs show, they managed to bring them down significantly, while at the same time experiencing a decline in inflation and high growth.

Dr. Alexis, we thank you for your comments. We appreciate you taking the time to share your thoughts with myanmarkt.com and we hope to have you on our website soon with more insights on the economy. Thank you.