THE BURMESE ECONOMY (r)

[shar@xxxxxxxxxxxxxxxxxxx]

  Continued from 31 July 1997

                 MACRO ECONOMIC POLICIES
                =========================
Lessons  from  high performing  East Asian  economies teach
that  stable  macro economic  policies and  performance are
essential  for private domestic investment and rapid growth
of   human  capital   to  become  the   driving  forces  of
development   (World  Bank,  1993).  the  Burmese  economy,
however,  is  profoundly  distorted  and  highly  unstable.

              INFLATION AND MONETARY POLICY 
             ================================
Statistics   on   inflation   in   Burma   are  notoriously
unreliable,  as often several prices for one product exist.

Official   prices  are  administrated  and  the  goods  are
sometimes  only  available  in special  stores  to  which a
government/army pass gives access. This is a relic from the
past   which  has   not  yet   disappeared,   despite  some
liberalization measures.


The free market has increasingly replaced the former "black
market".   Here imported goods are normally found at prices
reflecting  the unofficial exchange  rate".  The dual price
structure  between state controlled and private enterprises
also   makes   it   difficult   to   assess   true  prices.

Finally,   the black  market still  exists for  a number of
products where trade is illegal but often tolerated. Petrol
for cars is an example. Trade in these goods is widespread,
but  subject  to  risks and  uncertainty  related  to their
illegality.   Not paying the appropriate bribe to the local
policeman of army officer can have unpleasant consequences.

While  official  national income  data indicate  an average
rate  of inflation  (GDP-deflator) of 40-45  per cent p.a.,
some diplomats in Rangoon estimate the truer rate closer to
60  per  cent.  The  French  Trade  Commission  in  Rangoon
calculated  consumer price inflation of  20-8 per cent from
October  1982 to 83 for the capital,  after 33 per cent and
36.4  per cent in the  two previous years.  However,  their
index  includes a  large number  of controlled  prices with
zero variation and therefore does not fully reflect effects
of  repressed inflation.   The same  is true  for the SLORC
official Rangoon consumer price index,  the IMF index and a
UNDP  estimate.  However,  when  checked  against  monetary
aggregates  it  would  appear  that  the  IMF  index  is  a
reasonably reliable indicator,  broadly confirming the data
by  the French Trade Commission. Base on these data, annual
inflation  has roughly tripled in  the five years from 1986
to 1991 and doubled in the three years after the SLORC took
over.   Since then it has been volatile in the 20 to 35 per
cent range with a rising trend.

Monetary  growth  is essentially  determined by  the fiscal
deficit;   private sector credit remains  small with 14 per
cent  of  domestic  credit,  although  it  has  risen  with
economic  liberalization.  All interest rates,  deposit and
lending,   are  government  controlled  and  remain  highly
negative  in a  range from  12 to  23 per  cent (World Bank
1995).  The official exchange rate is fixed to the SDR and,
given  the high rate of inflation,  excessively overvalued.
The  weighted real  exchange rate index,   which takes into
account the parallel market rate, has risen by 200 per cent
since   1995  and   even  the  parallel   market  rate  has
appreciated by 40 per cent in real terms.  This observation
must  be explained by the  importance of border trade where
this  rate  is  applicable.  It  would  indicate  that  the
invisible  border trade yields substantial surpluses.  This
is  supported  by  manifold stories  which  circulate about
individuals with significant foreign asset holdings.  Given
that most of the illicit trade is in narcotics, this is not
surprising.   It  would  therefore appear  that  Myanmar is
suffering from a "Narcotics Dutch Disease".

                                          To be continued.

Note-  This article was  covered in "The  Other Side" July,
1997 issued by Samata Party in India.

News  and  Information Bureau,   All Burma  Students League

************************( End )****************************

    +=====================================+
    |  A  B  S  L                         |
    +-------------------------------------+
    |  All Burma Students League          |
    |  3, Krishna Menon Marg              |
    |  New Delhi - 110011                 |
    |  Ph    : 91-11-3017172/3016035      |
    |  Fx    : 91-11-3793397              |
    |  Email : shar@xxxxxxxxxxxxxxxxxxx   |
    +=====================================+