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NEWS - Burma's Debt Is Pushing Econ
Subject: NEWS - Burma's Debt Is Pushing Economy to the Brink, the World Bank Warns
Paris, Monday, November 15, 1999
Burma's Debt Is Pushing Economy to the Brink, the World Bank Warns
By Thomas Crampton International Herald Tribune
BANGKOK - While much of East Asia has emerged from
economic
crisis, a confidential World Bank study of Burma
details an economy
locked in a sharp downward spiral.
The report, secretly given to Burmese leaders last
month, is one of
the most comprehensive economic studies conducted on
Burma since
the military took power there more than a decade ago.
Burma's currency, temporarily stabilized by a clampdown
on
transactions, faces irresistible downward pressure and
the economy
is undergoing rapid dollarization, said the report, a
copy of which was
obtained by the International Herald Tribune.
More than 20 percent of bank deposits are now
denominated in
foreign currency, twice the level of two years ago, the
report said.
The report warns that a dangerous buildup of debt due
to agriculture
subsidies could erupt into a systemic banking crisis,
similar to those
experienced elsewhere in Asia.
Inflation now is running at its fastest pace in a
decade, with the
increase of consumer prices peaking at 68 percent in
mid-1998 while
averaging 49.1 percent for the last fiscal year.
New foreign investment approvals plunged 95 percent in
the last fiscal
year, and early indicators suggest a further sharp
retraction this year.
This trend is particularly worrying, the report said,
since less than half
of approved investments generally come to fruition.
Informal surveys and anecdotal evidence suggest that
the rate of exit
of foreign firms and collapse of local companies may be
higher than in
previous years. Sanctions imposed on Burma have played
a role in
damaging exports and investment, the report said.
Net international reserves at Burma's central bank,
normally a closely
guarded state secret, were $295.7 million at the end of
the last fiscal
year. This compares with a foreign reserve level of
$231.7 million a
year earlier and $400.5 million in the fiscal year that
began in 1994.
Bad economic policies lie at the heart of environmental
problems such
as increased deforestation and mangrove destruction,
the report
said. National deforestation rates have doubled since
the late 1980s,
the report said.
Any recent economic growth has been beset by dangerous
macroeconomic imbalances, the report said.
''These factors do not bode well for Myanmar's economic
future,'' the
report said, going on to describe what it called
''eminently doable''
reforms needed to unlock Burma's economic potential.
Central
recommendations in the report are a gradual flotation
of the Burmese
currency, budget and tax reform and a liberalization of
the rice trade.
Even as the government reduces much social spending,
its
participation in economic activities has gone virtually
unchanged over
the past three years, with the state dictating the
business climate in
almost all sectors.
''At present the government is all pervasive,'' the
report said. ''This is
a hugely demanding role that few societies have been
able to
sustain.''
Burma's tax collection rates are among the world's
worst because of
tax exemptions and lax enforcement, the report said.
The poor, as well as ethnic groups out of favor with
the government,
have disproportionately been hurt by Rangoon's economic
policies,
the report said.
Military spending accounted for 32 percent of last
year's budget and,
on a per capita basis, was nine times that spent on
health and two
times that spent on education.
There has been a sharp decline in spending on primary
education,
with funds for children between the ages of 5 and 9
falling more than
90 percent over the past decade.
The state's role in health care has diminished, with
spending on
public health in almost constant decline since 1991,
the report said.
Cambodia, which has a smaller income per capita than
Burma,
spends three times more on public health as a share of
gross
domestic product.