Myanmar: The Burmese Way To Economic Decline


Frank Milne

Myanmar enters the new millennium facing serious economic difficulties. The International Herald Tribune published in November the conclusions of a confidential World Bank study given to the Myanmar government in October. The report paints a very gloomy picture. The currency, although temporarily sustained by a freeze on transactions, faces further heavy downwards pressure. (The kyat is already trading around 350 to US $1, or less than 2 per cent of its official value). Agricultural subsidies are leading to a dangerous increase in debt, which could provoke a systemic banking crisis. Inflation in consumer prices peaked at 68 per cent in mid 1998, and averaged 49 per cent in the last financial year. Foreign investment virtually stopped in the last fiscal year, and little new investment is likely this year. The Central Bank's net foreign reserves were US $ 295.7 million at the end of the last fiscal year.

Bad economic policies have caused environmental problems; national deforestation rates have doubled in the last 10 years. Despite its ostensible commitment to a market economy, the government still dominates almost all sectors of economic activity, through inefficient state enterprises and official intervention. Tax collection rates are among the world's worst; the government devotes a major part (32 per cent) of the budget to the military, while expenditure on health and education has been sharply reduced. Although the government has invited the Bank to send a team to discuss the report, it seems unlikely that recommendations including the gradual floating of the currency, reform of the budget and tax collection system, and liberalisation of the rice trade will be implemented in the near future.

The regime's failure to adopt sensible economic policies, and its pursuit instead of a series of ad hoc and poorly coordinated measures, stem from its lack of a coherent strategy other than to hold on to power by whatever means are necessary. For the time being at least, this imperative overrides tensions within the leadership, where in the last resort all are hard-liners.

Despite some initial positive indications, it has now firmly rebuffed the carrot of investment and aid held out by the Japanese in return for progress on political reform, and coupled this with renewed condemnation of "national traitors". Similarly, its sharp response to the Thai government's handling of the temporary occupation of the Myanmar Embassy in Bangkok in October resulted in a serious rift in relations with an important regional neighbour and potential investor. Though relations have been partly patched up and the border has been reopened, fishing concessions granted to the Thais are still rescinded, and new restrictions have been placed on Thai Airways capacity on the route to Rangoon, apparently to boost passenger levels for the much less attractive Myanmar Airways flights. Somewhat inconsistently, given the frosty state of relations with Bangkok, the Myanmar Investment Commission has just approved a Thai company's proposal to build a $12 million hotel in Tachilek, close to the Thai border.

WATCHPOINT: In spite of Myanmar's worsening economic performance, the government seems unlikely to modify its hard line.


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