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WHISPERS OF CHANGE
Part 2: Juggling the numbers By Lucy Murray YANGON - A stroll round Myanmar's capital reveals stalls piled high with everything from fancy sunglasses to new TVs, the streets jammed with imported Japanese cars. Yet despite this veneer of prosperity, all is not well. Yangon is ringed by half-built condos, the detritus of a property boom that went sour in the late 1990s, leaving the banks burdened with nonperforming loans. Even basic social services have broken down after years of stagnant investment. Venture out of the city, and most people are struggling to survive on the equivalent of US$170 a year. That makes Myanmar one of the lowest-income countries in the world. It is hard to tell just how deep the economic problems run. As much as half of all economic activity - including the huge narcotics trade - is not captured in the figures. To make matters worse, the ruling junta, known as the State Peace and Development Council (SPDC), stopped publishing key economic data two years ago. The SPDC claims Myanmar's GDP rose by 10.9 percent in real terms in 1999-2000 (the financial year ending in April), predicting a similar growth rate for 2000-01. Few believe those figures. Private sector economists in Yangon estimate the economy may be growing at perhaps half the rate claimed by the junta - at best. Slumping rice prices have hit farmers hard. Good rains and a modest increase in the area of cultivated land saw a two-year streak of good harvests. But the resulting large surplus - combined with weak world rice prices - brought down domestic prices. In 2000 the local market price of rice dropped, for the first time, below the price paid by the junta, which forces farmers to sell a portion of their harvest to the state. According to one agricultural specialist, this year's harvests could be disappointing, as many farmers cannot afford to buy key inputs such fertilizer and the diesel needed to run irrigation pumps. The generals will be watching closely. A jump in rice prices means a sharp rise in inflation - and that could spell unrest in the cities. Inflation is already painfully high. The junta claims inflation eased to around 4 percent year on year in 2000, down from 51.5 percent in 1998 and 18.4 percent in 1999. Yet private sector economists estimate inflation is still running at 20-30 percent year on year. The shortage of foreign exchange is another big problem. Officials estimate the country has around $270 million in foreign exchange reserves. However, one former central bank official states "the real figure could be half that - there's enough to pay for only a few weeks imports". One reason is Myanmar's reliance on expensive imported oil products. Four of the six turbines at the Lawpita power plant, the country's main source of electricity, are reported to have failed. Unable to afford repairs, the junta is now importing diesel at a rate of $30 million-$50 million a month in order to keep the nation's generators running. Japan has offered to fund repairs at Lawpita - in exchange for political reforms. Skeptics suggest the SPDC's surprising decision to begin secret talks last year with Aung San Suu Kyi, leader of the opposition National League for Democracy (NLD), is merely a cynical attempt to get the aid dollars flowing once again. There is little scope to boost foreign exchange reserves. Myanmar's main donors imposed an aid freeze in the late 1980s in protest at the military takeover. The expected export bonanza from the massive Yetagun and Yadana gas fields has not yet materialized. Tourist arrivals have sagged. Foreign direct investment (FDI) inflows - another potential source of foreign exchange - are drying up. According to the Central Statistical Organization, FDI approvals, an indicator of future foreign investment inflows, totalled a mere $56 million in 1999-2000, down from a peak of $2.8 billion in 1996-97. Foreign investors are put off by the threat of consumer boycotts, sanctions, and the difficult business climate in Myanmar. One foreign investor who has been in Myanmar for several years sighs, "This is a place for masochists." Winning approval for a project can be painful - and that is just the start. Imports are rationed, and restrictions on access to foreign exchange mean that firms without hard currency revenues must turn their kyat profits into dollars by finding domestic products to export. It's a tedious process, and not one likely to encourage more investors to set up shop. The resulting foreign exchange shortage has kept Myanmar's currency under pressure. The kyat dipped as low as Kt577:US$1 in mid-April - down from around Kt360:US$1 for the same period a year ago. Alarmed, the junta reportedly set a target exchange rate of Kt250:US$1, but its efforts to stem the fall backfired badly. In a bid to drive up the exchange rate, the junta began buying up Foreign Exchange Certificates (FECs), a unit introduced at parity with the dollar in 1993 and now widely held by locals who are restricted from opening dollar accounts. That buying spree simply caused fears that the FEC would be removed from circulation, causing people to switch their savings into gold, adding to the pressure on the kyat. The junta is unlikely to risk scrapping the FEC - the removal from circulation of a series of kyat notes in 1987, wiping out people's savings overnight, was a catalyst for the 1988-89 pro-democracy uprising. Sources estimate that the junta has printed some $400 million-$480 million in FECs - perhaps twice the size of the country's entire foreign exchange reserves. With the FEC no longer fully backed by dollars, any attempt to remove it from circulation would mean heavy losses for those holding FEC accounts. The junta is neither willing nor able to set things right. Among the business community - both Myanmese and foreign - there is agreement that economic policy-making has become increasingly ad hoc over the last two years, under the influence of General Maung Aye, the most hardline of the generals. Restrictions on imports and foreign exchange have been tightened, private banks have lost the right to handle foreign exchange business, the private sector has been banned from exporting many key commodities - the list goes on. Says one foreign consultant, "this place used to be better than Vietnam - laws were published, you knew where you were. That's all changed." Another local businessman snorts derisively when asked about the junta's economic management: "What economic policy?" Commentators suggest that some members of the junta, particularly Secretary-1 General Khin Nyunt, are starting to realize that a sustained upturn in the economy will not be possible unless international sanctions on aid and investment are relaxed. Yet even a flood of international assistance would not be enough to make up for years of economic mismanagement. The NLD - along with the World Bank and IMF - have long argued that what the country needs is a large dose of economic reform. Without it, the outlook it not good. An unpublished IMF report predicts that unless economic reforms are started soon, Myanmar's GDP growth will slow to around 4 percent over the next few years. Just don't expect the junta to publish these figures. (Some names have been withheld.) |