THE BURMESE ECONOMY (r)

[shar@xxxxxxxxxxxxxxxxxxx]

Continued from 1 August 1997.

                    BUDGET DEFICITS
                    ===============
                    
High  fiscal  deficits  are the  principal  cause  for high
inflation in Myanmar.  They reflect the slow but persistent
break down of the state in Burma which has been at the root
of  the political problems over the last ten years,  if not
much longer.

Government  revenue has been falling in real terms in every
year  since 1968 with the exception  of the first two years
of  the SLORC.  The reason is a continuous shrinking of the
revenue base. Tax income has fallen to less than 5 per cent
of  GDP,  lower than the budget deficit.  Government grants
have  literally ceased,   due to  the SLORC's  human rights
record.

Expenditure has also fallen as a percentage of GDP, but the
government  is visibly trying to resist this deterioration,
as  manifested by  the high  deficit.  Cuts  have been more
pronounced  in capital expenditure and public sector wages,
excluding  military.   The  only  category  that  has  been
protected  against cuts  has been defence.   Whose share of
total   expenditure  has   risen  to  over   33  per  cent.

The  deficit has recently started to close,  mainly because
of  a reduction  of public  expenditures.  But  despite the
economic recovery, revenue shares have continued to shrink.
This  points at  an unsustainable trend  in public finance,
for  the breakdown of infrastructure is only too obvious to
anyone   loving,    working  and   traveling   in  Myanmar.

Monetary  financing (printing money) has filled most of the
gap.   Under Ne Win's socialism the domestic banking system
played  literally  no  role  in  providing  finance  to the
government.    After  the  establishment   of  the  Myanmar
Investment  and Commercial Bank in  1989,  new bank laws in
1990  and new  rules and  procedures in  1991,  the banking
system  started to take greater prominence in financing the
public deficit.

Thus  the dire public finances and the irresponsible way of
financing  them are an essential element for explaining the
disastrous  state of the Burmese economy.  The also explain
the  growing intensity  of forced  labour and  human rights
abuses.   The L\SLORC  sets revenue  collection targets for
each administrative district. At different levels (regions,
towns,   tax and customs  offices etc) the "administration"
(mainly  the  army) then  has to  raise  the income  by all
means. Alternatively, they may replace financial outlays by
forced  labour.  If targets are  not met,  the commander or
responsible person loses his job. This system also explains
why the problem of drug traffic is so intractable: in order
to  raise the required revenue,  "one closes one's eyes' to
all kinds of illicit activities.

The  described  "system" may  not  be alien  to traditional
Asian  societies  of  past  millennia  and  to  the earlier
"Burmese  way to socialism".  But it is incompatible with a
transition  from  the  state oriented  to  a  modern market
oriented  economy.  Given  these  circumstances,  the  only
attractive  opportunity for foreign investment are projects
of  very high short term profitability,  normally linked to
the  exploitation of natural  resource rents (forests,  oil
etc).  The  absence  of  a  properly  functioning  monetary
economy  creates the conquistador economy.  The solution to
these   problems  will  only  be  found  in  an  acceptable
political  settlement;  Burma is to poor to buy its way out
of its troubles.

          THE STRUCTURE OF THE BURMESE ECONOMY

Recent  catch-up  growth  to  long  term  trend  levels has
extended  to all sectors  of the economy,   although it has
been  most  rapid  in  the  primary  sectors,  particularly
agriculture  and forestry.;  Within the industrial sectors;
mining and construction have grown faster. This reflects in
part an inflow of foreign investment into these activities.
Manufacturing  growth has resumed but has remained variable
due  to its  links to agricultural  performance (World Bank
1995).

The  evolution  of  Burma's production  sectors  is  at the
opposite  end of those of  high performing Asian economies.
Typically,   as an economy develops,  agriculture shares in
GDP  decline  and industry  and  services expand.   In high
performing   countries  like   Indonesia,   Japan,   Korea,
Malaysia, Thailand or Taiwan, this transition has been more
rapid  than  in  other developing  countries.   In Myanmar,
however,   the trend is for  agriculture's share to grow at
the  expense of services,  while industry and manufacturing
have  stagnated of declined  since 1988.  Thus,   it is not
surprising  that agriculture's contribution  to growth (and
recession)  is substantially higher  than that of industry.
Part  of this sector expansion has come from forestry,  due
to  increased timber  extraction.  Agricultural  output has
grown as well, reflecting a timid response to
liberalization measures.  But the production of many crops,
including paddy, has only just returned to mid-1980 levels.
Moreover, yields of all crops including paddy have remained
stagnant   (World  Bank,   1995).   Despite  this  mediocre
performance,  Myanmar has exported 1.2 million tons of rice
(valued  at 100 to  130 million US  dollars) in 1994-95 for
the first time in thirty years, which implies that domestic
consumption   is  still  at  low  levels  and  a  political
contingency.

                                           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

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