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Subject:     Re: US Embassy BURMA ECONOMY REPORT, 1997
Sent:        11/9/97 11:27 AM
Received:    11/9/97 1:58 PM
To:          ktint@xxxxxxxxxxxxx

Please email me a complete Burma Economics Report

David Aung

K. Tint wrote:

> from:
> BurmaNetNews
> September 1997
> Burma, renamed Myanmar by the military State Law and Order Restoration
> Council (SLORC) that has ruled it since 1988, is a resource-rich but
> poor country with a population estimated by its government at 47
> million. Most of recorded GDP derives from agriculture. Although
> economic data are incomplete and distorted, annual per capita GDP may be
> between US $200 and $300 on a money basis, perhaps $600 to $900 on a
> purchasing power parity basis.Burma's principal legal merchandise
> exports are wood, beans and pulses, fish, garments, precious stones, and
> rice. Burma is also the world's leading producer and supplier of
> opiates. Most heroin consumed in the United States in believed to
> originate from Burma. Other U.S.-Burma trade is growing but remains
> relatively small, worth less than $200 million in merchandise trade in
> 1996, including $87 million worth of Burmese garment exports to the U.S.
> and perhaps $10 million worth of Burmese travel services consumed by
> U.S. visitors.
> Burma's economy stagnated under policies of state socialism and national
> self-sufficiency during the 1962-88 military dictatorship of General Ne
> Win. From 1988 to 1993, the SLORC partially liberalized economic
> activity and reduced obstacles to foreign trade and investment, inducing
> substantial albeit unevenly distributed real growth. Since 1993, the
> pace of economic reform has slowed, with the state continuing to
> monopolize some major exports and to own 58 firms that dominate many
> sectors of the non-farm economy. From 1993 to 1996, liberalization was
> reversed in the rural economy, as the Government of Burma (GOB) applied
> increasing coercion in an unsuccessful effort to boost state-monopolized
> rice exports by multiple-cropping and expanding irrigation, but resumed
> again in 1997.
> The GOB's chronically large fiscal deficits were the main obstacle to
> continued economic liberalization, as well as the main cause of Burma's
> chronically high money supply growth and price inflation. These deficits
> were caused in part by low and declining tax revenues and overreliance
> on nontax receipts. They were also caused in part by high defense
> spending, apparently equivalent to at least half of central government
> spending and to 8% to 10% of recorded GDP, that has funded a doubling of
> armed forces personnel despite the absence of any evident external
> military threat and the signing of cease-fires with most internal
> insurgent groups. Since 1995, increased spending on public works has
> also contributed to the deficit.
> As liberalization slowed, so did growth. GOB data suggest that recorded
> money GDP grew in real terms by 7.5% in fiscal year (FY) 94/95, 6.9% in
> FY 95/96, and 5,8% in FY 96/97. Although these figures may overstate
> real GDP growth, the recent slowing of growth that they indicate is
> largely genuine and likely to continue absent substantial further
> economic or political liberalization. During the mid 1990s, an illusion
> of sustained rapid economic growth was created by consumption growth
> much in excess of GDP growth. This reflected a widening of the recorded
> trade deficit -- to 20% of recorded GDP in FY 95/96 -- financed largely
> by increased workers' remittances and by increased unrecorded net
> foreign exchange inflows possibly caused largely by increased domestic
> retention of receipts from exports of narcotics. These rental (easy
> money) foreign exchange inflows caused the real exchange rate to
> appreciate during the mid- 1990s, discouraging production of
> manufactured exports and import-substitutes.
> Since 1995, merchandise exports have stagnated and public sector exports
> have declined, resulting, since early 1996, in a foreign exchange
> shortage concentrated in the public sector. In response, the GOB has
> printed kyat to buy dollars, restricted private imports while spending
> private sector foreign reserves for public sector imports, accelerated
> sales of real estate and mineral exploration rights for foreign
> currency, and borrowed foreign exchange on commercial terns from foreign
> investors and import suppliers while not paying much of its large prior
> external debt service obligations. During FY 96/97, the GOB's fiscal
> deficit grew relative to recorded GDP; money supply growth and price
> inflation appear to have accelerated; and foreign reserves fell to less
> than one month's import coverage. Severe flooding in July and August
> that damaged the rice crop is likely to further exacerbated inflation.
> In the long run, prospective natural gas export receipts may improve
> Burma's balance of payments situation insofar as they are invested in
> producing exports and import substitutes. In the short and medium term
> they will not, partly because they are already largely effectively
> obligated until well into the next decade. The GOB appears to have no
> immediate prospect of regaining access to significant amount of
> concessional external financing from sources other than the Government
> of China, its foremost aid donor.
> On the other hand, since 1989, the real incomes of most farmers have
> increased, although those of some urban workers, notably including
> government officials, have decreased. Since 1993, the GOB has launched
> conservation measures to curtail unsustainable logging in areas it
> controls, and has launched numerous public works projects to improve
> Burma's woefully inadequate hysical infrastructure. From 1993 to 1995,
> this increase in infrastructure building was accomplished in part by a
> large increase in uncompensated rural labor. However, since mid- 1996,
> the GOB appears to have curtailed this practice somewhat, at least in
> central Burma, relying increasingly on imported heavy construction
> machinery to build regional irrigation works, and on army labor and paid
> contract labor to build railroads. During FY 96/97, the GOB adopted less
> coercive rice production and procurement practices, reduced rice
> exports, and reduced the growth of its defense expenditures. And during
> FY 96/97, for the first time since FY 92/93, the real exchange rate did
> not appreciate.
> The persistence of an official exchange rate at which Burma's currency,
> the kyat, is now worth about 30 times more than the market exchange
> rate, facilitates official rent-seeking, but does not greatly
> misallocate resources or retard growth, since few transactions occur at
> prices reflecting the official exchange rate.  However, the GOB's
> practice of equating kyat-denominated and foreign-currency-denominated
> transactions at the official rate in its national accounts distorts
> those accounts and reduces economic transparency. New attempts to deal
> with the foreign exchange problems involving imposition of tight
> controls over the market rate of exchange and of import licenses have
> created problems both for Burmese and foreign traders.
> Burma remains the world's largest producer and exporter of opiates with
> a potential annual production of about 2,500 tons. In recent years it
> appears that an immensely large percentage of profits from the narcotics
> trade have stayed ashore. The government has reached cease-fire
> agreements with ethnic minority groups involved in narcotic trafficking
> and leading narcotraffickers and has encouraged them systematically to
> invest in infrastructure and other domestic projects. Burmese import
> division growth in excess of production and export growth in the
> mid-1990's appears to have been fueled largely by increases in workers'
> remittances and domestically returned narcotic receipts. Though we lack
> adequate information to quantify these amounts, narcotic proceeds are
> still known to be invested also in Thailand and other countries in the
> region.
> The deterioration of public education since the onset of military rule
> in the 1960s will affect growth and development prospects for years to
> come.This appears to have accelerated since 1988, as the SLORC has
> reduced real spending on education and health. Between two-thirds and
> three-quarters of Burmese school children drop out before fifth grade,
> and primary school enrollment has declined in recent years, apparently
> largely in response to rising formal and informal school fees. Schools
> at all levels were closed for much of 1997 out of apparent GOB concern
> that students might publicly protest to challenge GOB policies, as they
> did in October and December 1996.
> Public concern in the U.S. and other countries about the GOB's human
> rights abuses, its suppression of Burma's pro-democracy movement since
> 1988, and its failure to suppress narcotics trafficking, poses diverse
> political risks for firms doing business in or with Burma, and has
> induced many foreign firms to discontinue or restrict their activities.
> The consequent decline in foreign investment has exacerbated the balance
> of payments crisis. Since 1988, the GOB has lost access to most foreign
> aid, including financial assistance from the international financial
> institutions, which the U. S. Government is required by law to oppose.
> The governments of the U.S. and of E.U. member states grant no GSP
> tariff preference to imports of Burmese origin, provide no preferential
> financing in support of exports to Burma or investments in Burma, grant
> no licenses to export military equipment to Burma, and refuse to issue
> visas to senior members of the military government or to military
> personnel. Since 1994, ten U.S. cities, one county and one state have
> enacted laws barring their governments from buying goods or services
> from firms that invest in or buy from Burma. Since May 1997, the
> U.S. Government has prohibited new investment in Burma by U.S. firms and
> nationals, and is the only government to have applied such legal
> constraints on its business relations with Burma.
> Consumer opposition in the U.S. and some other countries to the military
> government's refusal to honor its pledge since 1988 to transition to a
> multiparty democracy has also discouraged U.S. and other countries'
> private sector to do business with Burma.