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Junta hooked on $1.8bn drug trade,

The Sydney Morning Herald
(29 October 1997)

Junta hooked on $1.8bn drug trade, warns US analysis

in Bangkok

Burma's ruling military junta appears to be increasingly
dependent on profits from the drug trade, the country's
most valuable export.

The latest United States report on Burma estimates the
trade in narcotics at $US1.24 billion ($1.8 billion) in

According to the US report, drug profits have helped the
regime through a foreign currency crisis caused largely by
the increase in arms spending by the State Law and Order
Restoration Council (SLORC).

In the mid-1990s this arms spending rose to as much as half
of government outlays, amounting to the equivalent of 8 to
10 per cent of Burma's gross domestic product (GDP).

In the early '90s, the regime paid for its arms spending by
cutting funds for health and education, reneging on
interest payments on its debt and drawing down its foreign
reserves, according to the US report.

As a result, the Government's foreign exchange reserves
slumped from $US370 million at the end of 1989-90 to $US43
million in 1992-93.

But in the mid-1990s there was a sharp increase in gross
unrecorded foreign exchange inflows, equivalent to more
than 10 per cent of GDP in 1995-96.

The report says this was because more profits from
narcotics were remaining inside the country.

The regime encouraged this by its partial liberalisation of
the currency in early 1993, which allowed foreign
currencies to be converted into the local currency - the
kyat - at the market exchange rates, rather than at the
considerably higher official rates.

In the late '80s and early '90s, the SLORC - formed in 1988
- discontinued the Burmese Government's practice of
confiscating bank deposits that could not be shown to have
been legally earned.

The SLORC introduced a partial liberalisation of the
economy after coming to power in 1988, but these reforms
became untenable after the fiscal difficulties encountered
by the regime because of increased defence spending.

Exports and GDP growth slowed. However, fuelled largely by
drug profits, imports and consumption continued and created
an illusion of rapid economic growth.

According to Burmese Government figures, economic growth
slowed from 9.7 per cent in 1992-93 to 5.8 per cent in

The US report shows that the rise in retained drug profits
undermined Burma's fragile legal economy. The drug-related
foreign currency inflows led to an appreciation of the kyat
and discouraged the production of import substitutes.

Private firms found it increasingly difficult to compete
with the drug-financed imports, resulting in the failure of
many companies and a slowing of the economy.