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Monday March 10, 3:26 PM
ASEAN, Japan begin talks to
create free trade area
KUALA LUMPUR, March
10(AFP) - Senior officials from the
Association of Southeast Asian Nations (ASEAN) and Japan began negotiations on a
framework to create a regional free trade agreement (FTA) within a
decade.
The meeting in Kuala Lumpur Monday was the first since
Japanese Prime Minister Junichiro Koizumi sealed a pact with ASEAN leaders at
their summit in November to work on a framework to set up a free trade
deal.
Philippines' trade official Ramon Kabigting, who is
co-chairing the talks, said the committee hoped to complete a draft on the
"rules of the game" for negotiations on the FTA to give to ASEAN leaders at
their summit in Bali, Indonesia, in October.
"We are going to
discuss a framework that will govern the negotiations for the closer economic
partnership," he told AFP.
"I think this can be a very strong
building block for an entire East Asia free trade area.
The
framework would contain a statement of objectives, the guiding principles,
recommended measures and the fields of cooperation, he
added.
Japan, one of the biggest investors in the region, is
striving to ensure it is not left behind after ASEAN leaders in November signed
a pact with China to create the world's biggest FTA between 2010 and 2015,
embracing 1.7 billion people and trade worth 1.2 trillion
dollars.
China accounts for only five percent of ASEAN exports,
less than Japan's 10-15 percent share but Japan is losing ground due to its
economic slump.
From 1993 to 2000, Japan's trade with ASEAN
increased at an annual rate of 15 percent.
With an FTA, ASEAN
exports to Japan would likely rise 20.6 billion dollars or 44.2 percent from
1997 levels by 2020, while Japanese exports to the region are seen rising 27.5
percent or 20 billion dollars, officials said.
It would also boost
ASEAN's gross domestic product (GDP) by two percent and Japan's GDP by 0.07
percent.
But officials said Japan's reluctance to open up its
sensitive agriculture sector was a key obstacle, with Tokyo refusing to offer
immediate tariff reductions for agricultural products from Southeast
Asia.
On the other hand, analysts said ASEAN might use its newly
established political, economic and security links with China to seek trade
concessions from Japan.
ASEAN comprises Brunei, Cambodia,
Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and
Vietnam.
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Monday March 10, 5:32 PM
ASEAN foreign ministers' retreat in Malaysia to focus on
Iraq
KUALA LUMPUR, March 10 (AFP) - Southeast Asian foreign ministers will hold
their retreat in Malaysia's Sabah state this month, focusing on the looming war
in Iraq, Foreign Minister Syed Hamid Albar said Monday.
The
three-day informal meeting, starting March 18 at a luxurious beach and golf
resort northeast of Sabah's capital Kota Kinabalu, would examine the possible
consequences of a US-led attack on Iraq on the region, he said.
The Association of Southeast Asian Nations (ASEAN) ministers would
also discuss other global and regional issues, Syed Hamid was quoted as saying
by Bernama news agency.
"All the 10 ASEAN foreign ministers have
confirmed their attendance for the meeting," he added.
ASEAN
groups Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines,
Singapore, Thailand and Vietnam.
The retreat would be followed by
a two-day meeting of senior officials from the ASEAN Regional Forum (ARF),
Asia's top security group, on countering terrorism and transnational crimes,
officials said.
The ARF meeting is likely to seek ways to enhance
security cooperation after the emergence of a heightened threat of terrorism in
Southeast Asia following October's deadly bombings on Indonesia's resort island
of Bali, they said.
ARF includes the 10 ASEAN states, along with
Australia, Canada, China, the European Union, India, Japan, Mongolia, New
Zealand, South Korea, North Korea, Papua New Guinea, Russia and the United
States.
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Monday March 10, 2:54 PM
India to Invest in Overseas
Oilfields to Reduce Imports
KOLKATA, March 10
Asia Pulse - India has decided to
invest in oil and gas fields abroad in order to reduce dependence on imports,
Federal Minister for Petroleum and Natural Gas Ram Naik said.
ONGC
Videsh Limited had already made the largest investment by India abroad by
putting in Rs 82 billion (US$1.72 billion) to pick up 20 per cent equity in the
Sakhalin oilfield in Russia.
The country would annually get 4 to 8
million tonnes of crude oil from 2005 and 5-8 million cubic metres of gas from
2008 from Sakhalin oilfields, he said.
The federal government,
through ONGC, was also speaking to Nile Oil Corporation of Sudan for picking up
25 per cent stake in the Sudanese company, which would cost around Rs 36
billion, he said.
An agreement to this effect had been signed by
ONGC Videsh Limited in October last year, the Minister
said.
Besides this, the OVL had spent Rs 9.8 billion for commercial
production of gas in Vietnam beside acquiring interests in attractive
exploration blocks in US, Myanmar and Libya this year.
Naik said as
oil imports bill was ballooning, the federal government found it was more
prudent to invest in overseas oil and gas fields for an assured
supply.
The Minister said in the last three years, the federal
government has given 70 blocks for exploration under the New Exploration
Licensing Policy.
The results of these efforts had been extremely
fruitful, he said.
Currently, 70 per cent of the country's crude
requirement was met through imports costing Rs 780 billion.
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Bangkok Post - Monday 10 March
2003
Burma moving against opium, not speed, says former envoy
Crop substitution going too slowly
Alan
Dawson
Burma may stop opium growing in the Golden
Triangle within three years but there is no clear policy against the
methamphetamine trade, an American expert says after a one-month investigation
in northern Burma.
Pao Yu Chan, leader of the United Wa State Army,
told a documentary film crew he has ordered replacement of all opium by the end
of 2005. ``Thailand should not worry about methamphetamine after 2005,'' Mr Pao
said.
He would move Wa out of the most rugged hills, which only
support opium, to lowland areas near Thailand in order to grow other
crops.
But Barry Broman, a retired US diplomat whose last posting
was in Rangoon, said Mr Pao was evasive on the specifics of his campaign against
speed pills.
``He invited us back in 2006 to see if opium has been
eradicated,'' Mr Broman said after leaving Burma last
week.
Questioned for the Adventure Film Productions documentary
Death of the Golden Triangle, Mr Pao was less specific about speed tablets. He
blamed China and Thailand for producing the chemicals used to make
methamphetamine.
``He also said there are non-Wa producing ya ba
and selling it with fake Wa `trademarks','' Mr Broman said.
Left up
in the air was how Mr Pao could assure Thailand production of speed would end in
2005.
The film crew, based in Paris, was more interested in the
Burmese campaign to end production of opium. They said Burmese, United Nations
and US officials agreed the campaign to end opium farming and close the heroin
trade appeared serious and effective.
Kokang officials in the north
pledged to switch or destroy all opium in their areas by the end of this year.
``In our visit to the Kokang area north of the Wa along the border with China,
we saw no evidence of opium growing,'' Mr Broman said.
On the other
hand, the crew filmed the extensive harvest of huge opium fields in Wa areas
further south.
Experts in the region estimate Burmese opium
production has fallen from a peak of 2,500 tonnes in 1995 to 880 tonnes in the
latest harvest.
He said Burmese officials were putting pressure on
the Wa and Kokang leaders who were, in turn, putting pressure on the farmers.
But there were signs the crop substitution programme was inadequate. Kokang
leaders said only one foreign assistance project, a Japanese buckwheat project,
was in place.
Many Kokang remain unconvinced they should stop
producing opium. Officials fear remote villages will continue or resume growing
poppies unless there is a strong, clear substitute crop
project.
Some American officials recommended moving Burma off the
list of ``de-certified'' countries which were not fighting drugs. Burma is the
only nation on the US list of countries ineligible to get aid to, for example,
help to finance the UN crop substitution programme, which Mr Broman described as
``active but under-funded''. The effort failed, mainly because of concern over
how Rangoon treated democrats like opposition leader Aung San Suu
Kyi.
``A few congressmen and their staffers seem more interested in
putting pressure on the Burmese government than in worrying about drugs flowing
into the US market from the Golden Triangle,'' Mr Broman said. Adventure Film
Productions, owned and operated by Neil Hollander, are editing the documentary
in Paris. Its release is likely by September.
-----------------------------------------------------------------
The Nation
Opinion
REGIONAL
PERSPECTIVE: Fire of nationalism is burning out of control
KAVI CHONGKITTAVORN
Published
on Mar 10, 2003
In coming weeks, months and years there
will be great uncertainty, turmoil and surprises in Thailand's relations with
neighbouring countries. It is the sine qua non of the Thaksin government
continuing to whip up Thai nationalism and assert its can-do
superiority.
In the past weeks, all of a sudden, Thailand has been
under siege from squabbling coming out of Cambodia, Burma and Laos, not to
mention international outrage about the senseless killing of drugs suspects and
innocents.
In Thai-Cambodian negotiations over compensation,
conflict has reared its ugly head. The government's tough approach to Cambodia
since the torching of the Thai Embassy and business premises has backfired. Even
Cambodian Defence Minister General Tea Banh, who is considered the closest
friend of Thailand, is lashing out at perceived unfair
policies.
The continued ban on Thai-Cambodian border contacts will
continue to foment unease among the people who used to cross on a daily basis.
In response, the Cambodian government has retaliated and banned Cambodians from
entering Thailand. Such tit-for-tat responses, even on mundane issues, could
make Thai-Cambodian relations deteriorate further. His angry radio address
Saturday could also spin Thai-Cambodian relations out of
control.
Under the veneer of friendship, epitomised by
leader-to-leader contacts and rapport, Thai-Burmese relations are but a web of
deceit. Thailand's efforts to combat narcotics and amphetamine pills is
currently taking a high toll on the Thai people. Without active Burmese
cooperation, which Thailand claims it has, the drug inflows continue unabated.
Now the government is considering sealing off the border with
Burma to stop an increase in drug-smuggling spurred by high demand resulting
from the crackdown. The tension on Thai-Burmese border at Doi Lang has begun to
heat up again in recent days.
Since Thaksin came to power two
years ago, Thai-Burmese ties have improved superficially but without much change
in real terms.
As cooked-up Thai-nationalist sentiment trickles
down to the border areas, it will be hard, if not possible, to contain.
Take the Thai-Lao border. Thai villagers living in Chiang Rai at
Phu Chi Fah ("Sky-pointing Hill") have staked a claim saying Laos is trying to
take back this popular tourist destination.
Nationalist feelings,
in such a volatile time, can run amok. Unchecked, they can permeate quickly to
other areas including the Thai-Cambodian and Thai-Malaysian borders. Thailand
has yet to conclude any successful land demarcation lines with its neighbours.
In a boarder context, Thailand is struggling to save its reputation from
plunging into an abyss, if it has not already.
The shoot-to-kill
policy against 1,140 drug suspects since February 1 has become the benchmark of
Thailand's lawlessness, turning it into a pariah state. None of the Thai
bureaucrats and/or Foreign Ministry officials dares to say anything against
Thaksin.
Some of the diplomats from 52 countries who listened to the Foreign
Ministry's briefings last week on the extrajudicial killings expressed serious
concern in private about Thailand's bruised human-rights record.
To them, the most troubling aspect has been the attitude of
impunity now prevailing among the Thai leaders.
It is one thing
for police officers to defend themselves in the anti-drug campaign. But it is a
different ball game altogether if the killing spree is the result of
state-sanctioned killing. The diplomats were not convinced that only less than
three dozen were considered extrajudicial killings. Future investigations will
confirm or deny this assertion. Any delay in findings will only harm Thailand's
reputation and damage Thaksin's credibility.
As Thailand prepares
for the second ministerial meeting of Asian Cooperation Dialogue in June and
Asia Pacific Economic Cooperation in October, it will need all the support and
understanding it can get from countries near and far, Asian or non-Asian. But
the Thaksin government cannot expect the international community to keep silence
for ever.
Vitriolic attacks on the United Nations High
Commissioner for Human Rights and the international community have added salt to
the wounds. Indeed they will have far-reaching implications on Thailand's
international endeavours, including its recent application to rejoin the
Geneva-based Committee on Human Rights.
After weeks of
ambivalence, the government proceeded on this, hoping it could quell criticism
from abroad amid the controversy over the shoot-to-kill policy. Thailand will
need a miracle and an extraordinary lobbying effort to win the three-year seat
again.
In the longer run, the controversy will further delay the
ratification of the International Criminal Court's Rome Statute, which Thailand
signed in October 2000 under the Chuan government. The government repeatedly
pledged it would ratify the statute after completing amendment of domestic law.
If Thailand does ratify it, the families of victims of mad
killings, or civic groups acting on behalf of them, would certainly demand
justice from the International Court of Justice in The Hague. They have no hope
for now that perpetrators in their various guises will be punished.
Thaksin's brand of personalised "high-risk, high-yield" diplomacy
towards neighbouring countries, which he touted as better than that of his
predecessors, is unravelling.
Just look around at what has
happened to our country. And this is only the tip of the iceberg. Never in
modern Thai history have we made such fools of ourselves all at once and
everywhere, at home, regionally and internationally. When the government ignites
nationalism and vanity, it is playing with fire; when fire rages, it knows no
bounds.
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BBC News - Monday, 10 March, 2003, 12:21
GMT
Thai princess heads for
Burma
Princess Maha Chakri Sirindhorn of Thailand
is beginning a five-day visit to neighbouring Burma.
The visit comes as
relations between Thailand and Burma are again under strain over the issue of
cross-border drug-trafficking, a long-standing irritant between the two
countries.
Last month, Bangkok launched a tough anti-drugs
campaign, during which officials say around 1,500 people have been killed.
The royal household says during her visit, the princess - the
third child of the Thai King and Queen - is scheduled to attend a dinner hosted
by the Burmese military leader, General Than Shwe.
From the
newsroom of the BBC World Service
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The Straits Times - MARCH 10, 2003
MON
Malaysia a major hub for trafficked women
Syndicates
bring in women and girls as workers, tourists or foreign students before forcing
them into prostitution
KUALA LUMPUR - Malaysia has become a
major transit centre and destination point for the trafficking of women and
young girls.
Many are brought in by syndicates as legitimate
workers, tourists or foreign students and subsequently forced into the flesh
trade.
In the past three years, police have detained about
13,000 foreign 'students' and 'tourists' for involvement in such activities in
the country.
These women and girls come from places such as
Indonesia, Thailand, Taiwan, Sri Lanka, India, Pakistan, Bangladesh, the
Philippines, Cambodia, China, Russia and Eastern European
countries.
Lured into Malaysia by syndicates with the promise of
lucrative jobs, these women find themselves trapped in an unending nightmare of
forced prostitution.
Their passports are taken away and they are
constantly watched to ensure they have no chance of
escaping.
International Federation of Women Lawyers president N.
Saraswathy Devi said: 'The women who are targeted by traffickers are typically
poor, single or divorced, have little education and are from remote rural
areas.
'They are recruited in poor villages in countries like
Indonesia, the Philippines, Thailand, China, Myanmar and
Nepal.
'The agents inform the parents that their daughters can get
a good job and earn RM1,000 (S$457) a month in Malaysia,' she
said.
'Due to the disturbingly high demand for sexual services in
Asian countries, trafficking and prostitution also benefits the nations that
these women work in.
'For example, in Japan, prostitution makes up
1 per cent of their annual gross national product.'
Former Supreme
Court judge Harun Hashim said there was a need for stepped-up enforcement
efforts by police.
'The police should carry out regular raids on
karaoke lounges and other places that they are known to frequent,' he
said.
Under Malaysian law, individuals found guilty of trafficking
in human beings are liable to a fine of not less than RM10,000 but not more than
RM50,000 and to imprisonment for a term of not less than two years but not more
than five years and whipping of not more than six strokes.
However,
it is difficult for the police to bring the perpetrators to justice because the
women are passed through many hands.
Ms Saraswathy pointed out that
the recruiting agent would usually transfer the women to another agent, who
would take them to Malaysia where they were passed to another agent who then
delivered them to a pimp.
'The women know these people on a
first-name basis only. So, they can't identify who actually brought them in,'
she said.
Women's Aid Organisation law reform officer Lee Shook
Fong said most trafficked victims did not want to testify in court for fear of
harassment when they returned to their home countries.
It is the
victims rather than the perpetrators who usually end up being punished by the
Malaysian legal system.
'More often than not, they are treated like
criminals rather than the victims that they are. They are either jailed or
fined,' said Ms Lee, adding that the women could be charged for a range of
offences, including involvement in immoral activities, overstaying or not having
proper travel documents.
The situation is further complicated by a
shortage of court interpreters who are conversant in the native languages of
trafficked victims.
Both Ms Lee and Mr Harun stressed the
importance of greater co-ordination between the 'sending' and 'receiving'
countries, including the need to set up support systems for the victims. -- New
Straits Times
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Independent-Bangladesh
5 Padma staff taken on remand
for two more days
10-03-2003.
Court Correspondent
Five of the 13 arrested employees of the State Guest House
Padma were taken on another two daysâ?? remand yesterday. They were arrested
following an alleged illegal entry of a stranger into the bedroom of the guest
house at march 2 where Foreign Minister of Myanmar U Win Aung was staying at
that night.
Five persons who were taken on fresh remand are: Md
Alamgir Hossain, a telephone operator, two attendants, Nurul Amin and Nurul
Islam and two guards : Golam Rabbani and Lutfar Rahman of the guest house.
After completion of their four daysâ?? remand, all the 13 employees
were produced before the court of Metropolitan Magistrate (MM) Jahangir Hossain
with a prayer for granting remand for further five days to the above mentioned
persons.
Inspector Abdur Rouf of Detective Branch (DB) and
Investigation Officer (IO) of the case told the court that they have found proof
of involvement of those five persons in the incident. The court after hearing
the statements of the prosecution side granted two daysâ?? remand. The MM also
ordered for sending the remaining eight persons to Dhaka Central
Jail.
The visiting Foreign Minister of Myanmar U Win Aung left the
state guest house in the small hours of March 2 finding someone inside his
room.
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Malaysia National News Agency
March 10 , 2003
15:59PM
Malaysian Immigration Detects Five
Foreigners In Car Boot
JOHOR BAHARU, March 10
(Bernama) -- A Thai woman and a man,
two Myanmar citizens and a Chinese national all in their 30s were found huddled
in the boot of a car which crossed into Malaysia from Singapore via the
greenlane of the Johor Causeway last night.
Three people were
found packed in the first layer while two were on the top layer in the boot of
the Proton Wira which was stopped by alert Malaysian Immigration officials even
though it had escaped detection by Singapore Immigration.
Director-General of Malaysian Immigration Datuk Mohd Jamal Kamdi
said the 19-year-old Malaysian driver said he was paid RM500 for each person in
the boot.
Two of them had travel documents but had overstayed in
Singapore while three others had no travel documents, he told reporters here.
All the foreigners were being held at the Immigration lockup here
and would be charged under the Immigration Act 1959/63 (Amended) 2000 which
provides for a fine of up to RM10,000 and/or jail term of up to five years and
up to six strokes of the cane.
The Malaysian would also be charged
under the Act and could face a fine of up to RM50,000 and or jail term of up to
five years and six strokes of the cane.
Jamal also said five
people in Kuala Lumpur had been blacklisted for abusing and illtreating their
housemaids last year.
Being in the blacklist meant they would not
be allowed to hire foreign housemaids in future, he added.
Periodic checks would be made at their houses to ensure that no
foreign maids worked there, he added.
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Asian Tribune
Date : 2003-03-10
Throwing Good Money After Bad: The Banking Crisis in
Burma
By - Zaw Oo
Introduction:
Chinese soothsayers predicted
that the year of Black Sheep would be financially volatile. Right after the
Chinese Lunar New Year, a volatile bank run hit the Asia Wealth Bank, the
largest private bank in Burma, backed primarily by influential financiers who
have been involved in shadowy economic activities.
Starting from a
single â??black sheep,â?? the bank-run became quickly contagious, affecting other
private banks and heading toward a banking crisis, as thousands of depositors
tried to withdraw their savings from the banks in Burma. It is the severest
financial crisis to hit Burma since the demonetizations crisis of 1987 ended the
26-year rule of the â??Burmese Way to Socialism.â?? This crisis has prompted the
largest financial bailout in Burma's economic history; and it has involved a
huge fiscal cost to the regime that already faced a dangerously high budget
deficit that has built up over the past few years.
Given the
preexisting macroeconomic instability and mismanagement, the bailout has not
seemed to stop the bank panic. Since the State Peace and Development Council
(SPDC) lacks any credible commitment to policy reforms that can revive the whole
battered economy, and it has sharply increased the consumer distrust for the
rescue plan and future role of the financial institutions altogether. The
regime's reluctance to cooperate with the international community also made any
recovery plan less credible and even more ineffective.
The run on
Asia Wealth Bank was instigated by the earlier rounds of problems with the
collapse of dozens of A-kyoe-saung firms, shadowy private financial firms all
running â??investment servicesâ?? similar to â??pyramidâ?? or Ponzi schemes. [2] The
collapse of these A-kyoe-saung firms set the stage for panic withdrawals from
more established private banks like the Asia Wealth Bank. The spark that set off
the firestorm of collective panic was a rumor that Asia Wealth Bank Vice
Chairman U Aik Tun was placed under arrest by the military authorities for
irregular financial transactions. [3] SPDC did nothing to allay these fears in
spite of the wild spread of rumors spreading. Because of the official inaction,
people started queuing up in the private banks to withdraw their deposits around
the first week of February. The banks were unable to handle the sudden surge in
withdrawals. Asia Wealth Bank and Yoma Bank recalled cash reserves from their
branch banks and thus the problem then spread to the
districts.
Losing confidence in banks, people are turning to gold
as their store of value. As a result, the price of gold, gemstones and other
metals have risen rapidly. While a run on the deposits of Asia Wealth Bank may
be satisfied by disposing its assets, the crisis seemed to have already caused a
generalized bank panic affecting other private banks such as theYoma, May
Flower, First Private, Myanmar Oriental and Kanbawza banks.
The
direct consequence of banking panic is its disruption of valuable bank-borrower
relationships for all banks, the threat to the payments system, and ultimately
to the whole banking industry itself. In the worst case scenario, deposit
withdrawals can lead to a 'self-fulfilling' financial collapse, with the efforts
of all banks to dispose of illiquid assets in a hurry leading to falling asset
values and widespread insolvency.
On a parallel track, the Burmese
currency has been depreciating under a prolonged crisis from a fixed exchange
rate in chronic tension with the real exchange rate drifting further and further
from the official one. Domestic financing (printing of more paper money) to
cover the chronic budget deficit has led to a nearly continuous depreciation of
the kyat, while the country's worsening balance of payment conditions has also
exacerbated the fall in the value of the national currency.
In the
absence of a prompt corrective action, a run on the bank combined with an
exchange rate crisis can spiral rapidly into a complete economic collapse as
with what recently happened in Southeast Asia during 1997. The chances of
collapse are real as there is no credible plan and timely external assistance.
Bank Runs: The Evolution of the Crisis
The crisis
started when a dozen of A-kyoe-saung firms went into bankruptcy last year. These
firms provided informal financial services, as they sold shares to customers,
without permission from the Central Bank. The remaining survivors, Linn Thitsar
Company and the Ayeyar Myay General Service Company, got support from
authoritiesâ?? reassurance to investors that â??no financial improprieties were
found.â?? However, due to the poor returns from many economic ventures, Linn
Thitsar managers were compelled to issue a statement saying that they would
refuse customersâ?? withdrawals until 2004 but would continue to pay interest. [4]
The angry reactions to the statement snowballed into a general panic when the
news spread throughout the country.
In the meantime, the rumor that
Asia Wealth Bank (AWB), the largest among 20 private banks in Burma, lost out a
huge chunk on investments in deals with a company based in China fueled the
public panic. A business source in Rangoon said: â??We hear that the AWB has been
cheated by a Chinese company for millions. That's why the bank is about to
collapse and go bankrupt and the government is afraid.â??
So far, the
reassurances of bank officials do not seem to have contained the panic
withdrawals. Perhaps their explanations are too â??officialâ?? and evasive; as
Vice-Chairman U Aik Tun said, unlike financial services, the private banks are
organized systematically according to rules and regulations of the Central Bank
of Myanmar and the Financial Institutions of Myanmar Law. [5] As soon as some
panic withdrawals begin, AWB is said to have asked the Central Bank of Myanmar
(CBM) to release its security reserve of 52 billion kyat kept at the CBM, and
the sources said that the AWB finally got it from the CBM.
And
again on Wednesday, the AWB asked for an extra 30 billion kyat to meet ongoing
shortfalls, but the Central Bank was only willing to supply 12 billion kyat. [6]
The latest reports, anyhow, have indicated that the CBM loaned 25 billion kyat
in credit to the AWB, the Kanbawza Bank and the Yoma Bank, and â??loans to other
banks will follow,â?? said a bank official on condition of anonymity. [7]
When the banks opened on Monday, February 17, hundreds of people
queued outside bank branches to withdraw their savings after authorities imposed
a â??deposit freeze.â?? According to business circles, the depositors were allowed
to withdraw one million kyat per depositor; later, the authorities limited
withdrawals to 500,000 kyat per depositor per week. As of February 24, the
withdrawal limit was reduced to no more than 100,000 kyat per depositor per
week. [8] In addition, all ATM machines had been closed and the use of bank
credit cards stopped.
The CBM also instructed the banks to stop all
inter-bank transfers and payments. As a result, â??all medium and large-sized
businesses slowed down as business transactions could not be done through banks,
and business slumped due to uncertainty of the situation of the private banks,â??
said a pharmaceutical importer who asked not to be named. [9] Meanwhile,
business reporting inside Burma has come under tighter scrutiny by censors this
week, as tensions between private banks and depositors have continued to rise.
[10]
Government Intervention: The Plot Thins
Prior
to the latest panic, the SPDC announced in early February that Finance and
Revenue Minister U Khin Maung Thein had been â??permitted to resign.â?? Although the
reason for his dismissal was never given, the scandalous bankruptcies of trading
firms may have resulted in the â??early retirementâ?? of the minister. Worse still,
the appointment of new minister, Brig. Gen. Hla Tun this month did not seem to
be a smart move, as the former director of military ordinance lacks any
managerial and financial experience that will be required to run the Ministry of
Finance.
Amidst the piles of rumors and uncertainty, the SPDC
organized a hasty press conference on February 10 where Central Bank Governor U
Kyaw Kyaw Maung came up with a rather evasive answer to the bank
crises:
â??There is no foundation to the rumors that are currently in
circulation and the public should not consider them to be true. The public
should put their trust in state owned and private banks and avail themselves of
their services without any reservations and open accounts as required.â?? [11]
Meanwhile, the State Peace and Development Council has come up
with a conspiracy theory that the recent bank runs in Burma are provoked by
â??destructionistsâ?? undermining the regime's effort in national development. Of
all the possible reasons for the bank panic, a conspiracy of external players
appears to be the explanation the regime finds most congenial. Accordingly, the
regime issued a stern warning to crack down on Burma's rumormongers. So far,
there is a dearth of evidence to back up SPDC's allegations. In a typical
blame-game played by the regime against democratic opposition, Secretary 1 Gen.
Khin Nyunt said on February 16:
â??Internal and external destructive
elements have concocted fabrications and recently rumors about the local banks
began to emerge due to such concoctions. The people, who are susceptible, began
to withdraw huge amounts of money from the banks unnecessarily, which should not
have occurred and is undesirable. People have had bitter experiences believing
in rumors. Therefore, the people are forewarned that if the banks are affected
due to the rumors maliciously spread by destructive elements, the country will
also have to bear the consequences.â?? [12]
The charges against
â??external elementsâ?? were unsubstantiated (bordering on ridiculous), as Burma's
financial sector is completely shut out from the outside. Looking for a
scapegoat for their ineptitude, the SPDC effectively lied to the public by not
disclosing all the relevant information.
The Costly Bailout That
Could Fail: Dangerous Implications of Recession and Collapse
At
this time of writing, the bank officials from AWB continued to maintain that
their portfolios are still solvent. Though the performance of AWB measured in
conventional financial ratios lies within a normal range common to other
transitional economies, although the credibility of its books is questionable.
Further, the bank runs have put a serious pressure on the day-to-day operations
of major agricultural trading firms that are unable to borrow fresh funds from
the banks in order to make advance purchase payments or to pay current debt
obligations. Over the years, the private banks in Burma have taken a central
role in an economy's system for clearing and settling payments. The inability of
the banks to provide fresh credit to the trading firms could eventually
undermine domestic trading operations, [13] the bulk of which have been released
from the governmentâ??s control since the SPDC came to power in
1988.
In Burma, almost all bank credits are collateralized in land
and properties, as the country's credit market is still in a very nascent stage.
Therefore, all of the assets owned by the private banks in Burma are illiquid
properties. Worse still, the banks have thrown substantial sums of good money
after bad, as they invested heavily in real estate projects that are also
illiquid. Under such circumstances, the inherent conflict between the liquidity
needs of some depositors and the liquidity of the bank's assets can easily
precipitate a bank run when depositors withdraw large sum of money out of the
banks. Consequently, a crisis of liquidity can quickly evolve into insolvency as
banks seek to dump illiquid assets.
If the crises in private banks
were just panic withdrawals; could they not have been avoided by appropriate
provision of liquidity? Maybe, although the chances of a bailout plan to
overcome the negative economic fallout are rather slim. While Burma's economic
fundamentals are weak, the causes of bank runs are more complex, involving
perverse financial incentives, distorted asset prices and misallocated
resources, leading ultimately to bank panic. The problems of private banks can
be easily found in a staggering growth of bank loans in these banks, which
outgrow the growth of bank capital, beyond what is permissible under the
existing laws of financial institutions.
Meanwhile, there was
strong evidence of a real estate price bubble in Burma in the period before the
crisis. The A-kyoe-saung firms that went into bankruptcy are in fact heavily
involved in the real estate sector. Many who survived the earlier crash are also
faced with a liquidity crisis as their loan limits depend on the value of
collateral in the form of land. The bursting of the bubble that reduces the
value of land collateral means loans are no longer fully collateralized. Banks
reduce loan limits accordingly. To repay loans in excess of these limits,
borrowers collectively sell land. But this action further reduces land prices,
and the sequence may repeat itself until complete bankruptcy occurs.
How significant are the losses arising from the collapse of
private banking sector in Burma? The initial bailout plan worth 30 billion kyat
is a great loss for the local taxpayers. The bailout plan is estimated at about
half of all revenues the government collected in 2002; estimated at between 2
and 3 per cent of GDP. The bill for clearing up after the crisis for
recapitalizing and restructuring can be much greater. This particular problem
could be a nightmare for the SPDC, which has already been facing a chronic
budget deficit for more than a decade. It has been a standard practice for SPDC
to finance budget deficit through bank borrowing and issuance of Treasury bills
and bonds; such practices have caused a rapid increase in the growth of the
money supply since 1988. [14]
There are widespread rumors in
Rangoon that the latest bailout plan was executed only by means of printing more
money, which could further accelerate the growth of money supply and drive up
the rate of inflation. The broader scale of economic decline combined with the
phenomenal growth in the money supply might be a perfect recipe for the
implosion of the country's economy. At this juncture, it appears that only a
comprehensive overhaul of the system with substantial international assistance
can avert the seemingly inevitable collapse of the economy.
Sources
of Vulnerability: Fundamental Weaknesses of the Banking Sector in
Burma
What really caused the banking crisis in Burma? The real
causes of banking crisis involve many factors, interacting in a vicious downward
spiral. The significance of these underlying causes is that any rescue plan
could fail unless it addresses the following sources of vulnerability of the
bank crisis:
(1) A Haven for Money-Laundering: Funny Money and
Uncertainty
In his survey on the banking sector of Burma, Dr. Sean
Turnell states that:
In June 2002 the Financial Action Task Force
on Money Laundering (FATF) declared Burma to be one of 16 jurisdictions it
deemed to be 'non-cooperative'. Being so listed is a serious matter since it
obliges FATF member countries (which include all the major financial centers in
Europe, the Americas and Asia) to adopt special measures against financial
transactions involving listed countries - on the not unreasonable grounds that
such transactions 'are more likely to be suspicious'. The existence of
substantial money laundering is, unfortunately, only the most obvious of the
problems inherent in Burma's financial system. [15]
In fact, the
Asia Wealth Bank, the center of the current financial storms in Burma, is
reputedly a haven for money laundering. According to news reports, AWB's vice
president, U Aik Htun, is a shadowy figure who emerged in the early 1990s from
Kokang, â??an area notorious for opium production.â??
The Asia Wealth
Bank does much of its business along the Chinese border, a prime transit point
through which drugs from Burma go out into the world. [16] Before the latest
bank panic, in fact, the AWB faced some panic withdrawals when the SPDC
introduced controls guarding against money laundering by law in June 2002 and
subsequently, the Home Minister threatened to investigate all big-time
depositors in the private banks. The SPDC quickly clarified the matter by saying
that â??only the offences committed after the issuance of the Law will be dealt
with it.â?? Nevertheless, the â??retiredâ?? drug lords are believed to be quietly
withdrawing from the banks and kept their wealth in more liquid assets. [17]
(2) Information Asymmetry and Public Trust
Several
institutional features of private banks in Burma also lead to the transparency
problem. The majority of depositors in these private banks are small, and
depositors are uninformed so they will not or cannot monitor bank operations
that are being implemented at the complete discretion of a handful of
executives. The law governing the private banks does not require full disclosure
of bank information to the public. The dearth of financial and investment
information overshadows the banking sector and creates uncertainty. Where hard
information is difficult to come by, it is tempting for bank depositors to use
the behavior of others as a proxy, attributing to panic the reactions of the
whole market.
In a closed country like Burma, the continuing denial
of the government only fuels general mistrust toward whatever the government
says about the country's financial situation. Information blackout is a
collective response when â??disaster myopiaâ???the collective belief that everything
is going wrong?sets in. While the financial market actors and regulators operate
in secrecy and not transparently, such practices, in times of volatility, also
tend to compound the general panic.
(3) Connected Lending, Looting
and Cronyism
Connected lending is a particularly acute problem for
the private banks in Burma. Capital is often both scarce and highly concentrated
in Burma and, as a result, a narrow cohort of individuals, families or business
elites typically owns private banks, all with strong links to the SPDC. [18]
By association with the government circles, the same group of
people also owns a majority of lucrative businesses in Burma. For instance, the
AWB through its vice chairman U Aik Tun has direct links to a huge construction
firm in Burma?the Olympic Construction Company that was established in
1990.
Chiangmai-based Irrawaddy magazine noted that â??[I]n
collaboration with the government Housing Development Agency and Yangon
Municipality, Olympic Construction Co. has engaged in recent housing projects
such as Wisaya Plaza, Myaing Haywin Housing, Kanthaya Plaza and Olympic Tower.
The Company is also engaged in agricultural projects in the Delta and Magwe
Divisions and the Eight Mile Junction Supermarket which has been in business
since 1999.â?? [19]
Like U Aik Tun, other bank executives are also
running real estate and construction businesses, which are believed to be
funded, by their own banks. This type of special relationship [see Appendix 1]
runs into a potential conflict of interests, as the executives fail to perform
his or her fiduciary duty as is required by the business entities they
represent. Moreover, the bankers in Burma may be engaging in widespread
â??lootingsâ?? where bank managers not only may invest in projects that are too
risky to be prudent, but they may also invest in projects that are sure failures
but from which they can divert money for personal gains. In such an atmosphere,
the banks are not hesitant to throw good money after bad, as the weak legal
system allows fraud to go unpunished.
The close proximity between
the government and the private banks also leads to â??moral hazardsâ??? it leads to
imprudent lending because it is believed that â??banks are too big to failâ?? and in
any event, the private follies can be saved by means of public resources. Many
of the private banks are simply the financing arms of larger corporate
structures - the servicing of which, indeed, was sometimes the primary reason
for their creation.
By 2001, the amount of commercial loans to the
private entrepreneurs amount to 32% of the total deposits [20]?out of which
non-performing loans are as high as 10% since most projects dealt with real
estate developments while their loans are collateralized in properties and land.
In an outright conflict of interest, the banks also misdirect investment into
their failing business activities. AWB and other banks are believed to be
channeling investments into real estate in order to revive property prices. In
fact, one of the contributing factors in the bank run on AWB is essentially due
to the bursting of real estate bubbles in early 2000; there was a substantial
misevaluation of the assets on the banks' balance sheets. Financing illiquid
bank loans with deposits is a key source of instability in private banks in
Burma. Concerns about bank asset values have accumulated over time, and
depositors finally took actions to withdraw their funds en masse when the news
about bankruptcies of A-kyoe-saung firms hit the streets.
(4) Lax
Banking Regulation and a Weak Central Bank
The current bank crisis
in Burma also reflects a weaker role of the Central Bank of Myanmar. Ideally, a
central bank is supposed to ensure greater transparency and proper monitoring of
bank portfolios, and take prompt corrective actions whenever danger threatens
the system.
More importantly, central banks need to be
â??independentâ?? both politically and economically. In Burma, the regime appoints
the central bank's chairman and all board members. Besides, CBM's mission
statement never explicitly states that its chief responsibility is to achieve
price stability over any other policy concerns. [21]
Economically,
it is also doubtful that CBM is allowed to control the quantity of credit it
lends to the government. The following additional features of CBM listed by Dr.
Sean Turnell [22] indicate the inherent weakness in supervisory role of CBM in
Burma:
ï?· As [bank] supervisor, the CBM does not enjoy operational
independence from the government.
ï?· Whilst the CBM requires a
minimum amount of capital to start up a bank, it does not (cannot, given the
nature of the political-economy of Burma) have in place objective 'fit and
proper person' requirements for bank directors or executives.
ï?· The
CBM does not, as noted, ensure that Burma's banks are free from being used for
criminal activity. What might be the 'fig-leaf' of the recent anti-money
laundering laws notwithstanding; it is likely that Burma's banks are heavily
involved in what other jurisdictions would label as criminal
activity.
ï?· The CBM requires banks to furnish it with regular
statistical information, but there are no systems in place in Burma to provide
the necessary independent evaluation of this information. There is no use of
external auditors in the CBM's supervisory practice.
ï?· Basel
principles (regulatory principles for national and global financial institutions
also called Basel Concordant agreement in 1975 by a committee of central
bankers, representing the group og 10 countries affliated with Bank for
International Settlements that sets guidelines for international settlements.)
require a high degree of public disclosure of financial information by banks. No
such reliable disclosure takes place in Burma.
The inescapable
conclusion from all of the above is that Burma lacks a prudent bank regulatory
framework.
(5) Financial Repression and Credit
Risks
One of the sources of vulnerability of the private banks in
Burma comes from â??financial repressionâ???the interest rate ceiling imposed by the
CBM on the entire private banks in Burma.
When Burma's inflation
rate runs as high as 30-50% a year, interest rate controls create real interest
rates for the banks, which become negative. However, many depositors are lured
into saving their money at negative real interest rates because there is very
little investment opportunity elsewhere in the economy, whereas depositors find
some usefulness in the banks as financial intermediaries for their
payments.
In addition, all the black money illicitly gained outside
the official economy can also be saved at these private banks, as the
authorities guaranteed such depositors safe access to private banks (Implicit
money laundering was permitted until the regime belatedly enacted Control of
Money Laundering Law in June 2002). Under the conditions of financial
repression, 'credit rationing' occurs, as banks prefer to lend in large amounts
to keep overhead costs low. [23] Credit risks become higher as large loan
portfolios are given to fewer borrowers.
In addition, the value of
collateral is subject to fluctuation, and difficult to establish. Worse still,
they are subjected to similar risk factors with each other instead of spreading
risk diversely, as many projects tend to concentrate in a few lines of business
in Burma. [24]
Conclusion
What is happening to
Burmese banks is the first warning shot, signaling that crony capitalism and
authoritarian politics are coming to a crisis point. The longer Burma persists
under authoritarian political control, the greater the future vulnerability to
economic shocks and crises. The latest bank run shows that economic booms and
gains can be busted into ashes overnight. Burma does not need, as SPDC claims,
an â??external destructionistâ?? to upset its finances. Ill-informed bankers and
regime cronies sitting in Rangoon, Mandalay, Muse and Mong La, [25] managing
millions of investment funds, can do more damage to the Burmese economy than any
external players can influence. Greater damage can be inflicted, only faster and
more stealthily such that the authorities in Burma have very little control over
these operations and limited resources to undo the
trends.
Reforming Burma's banking and financial system will require
a host of initiatives. Before these can proceed, however, greater institutional
reform - often categorized under the rubric of 'good governance' - will be a
necessary prerequisite.
Such reform is required in the financial
sector to re-establish confidence in financial instruments (basically - the
currency itself) and in financial institutions. The foundations of a properly
functioning financial system are transparency, accountability and the effective
transmission of market signals.
Burmaâ??s authoritarian system,
unfortunately, explicitly and implicitly prevents these foundations from
existing. The most difficult problem facing Burma now is that there are
political constraints on instituting comprehensive economic reforms that will
strengthen the financial sector.
Successful resolution of the
crisis requires a political consensus because there is an unavoidability of
bearing huge costs to stabilize the economy, and the burden must be shared in a
manner that is equitable and acceptable to all stakeholders. Unlike these issues
are resolved, any rescue plan, no matter how large the bailout package can be,
would doom to fail miserably in Burma.
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