[Date Prev][Date Next][Thread Prev][Thread Next][Date Index ][Thread Index ]

RICEBOWL: 1ST HELPING



 
                  ONCE THE RICE-BOWL OF ASIA 
        The military destruction of Burma's economy (1) 
                                
                         by David Arnott
 
PART 1 (POSTED IN TWO PARTS FOR EASIER DOWNLOADING)
 
PREFACE
 
This article originally appeared in French in the Autumn 1997
issue of "Relations Internationales et Stratgiques" a journal
widely read in French government and military circles. The 
research and writing were done in May and June 1997. Clearly a
lot has happened in Burma since then, including the widespread
floods that destroyed a large proportion of Burma's paddy
crop, a disaster whose consequences will be seen in a few
weeks at harvest time; the re-constitution of the junta (now
called the State Peace and Development Council -- the SPDC);
and the further decline of the economy and the value of
the kyat, a process exacerbated though not caused, by the
financial crises in the region.   
 
In my view the most significant feature of the reconstituted
junta is that the regional commanders, brought into the SPDC,
are reported to be retaining their commands. This may be seen
as an attempt to consolidate the different elements of the
armed forces and discourage further fragmentation of the
country into fiefdoms ruled by the regional commanders and
others, a possibility touched on in this article. Power in the
re-constituted junta is also much more centralised.
 
No major revisions of the article seem necessary.  A few
alphabetically-marked updates are added to the endnotes. 
 
5 February 1998
 
 
           ********************************************
 
 
"States are weak because of the fragile nature of the civil
society upon which they have been built, their undeveloped
institutional structures, which are often unable to contain
and channel political tensions, and their problems of poverty
and economic adjustment.  These weaknesses can lead to
breakdowns of law and order, to secessionist movements, to
outright civil war. The most susceptible states combine
structural weaknesses with a regime which is divisive in
representing only one part of the community."
 
Lawrence Freedman, "War", Oxford 1994, p359
 
(Note: in place of italics, this Text version uses UPPER CASE
for emphasis and "inverted commas" for Burmese words and
publications)
 
 
ABSTRACT
 
The Burmese military's linked objectives, expanded military
control of the country and large-scale international
investment to pay for it, are mutually incompatible. Following
their suppression of the 1988 Democracy Movement, the generals
decided to increase the size of the armed forces from 186,000
to 500,000 in order to have a permanent military presence in
most parts of the country. This involved up to US$2 billion of
arms imports, mainly from China, a large recruitment drive and
a reordering of the military command structure.  Lacking the
necessary funds to pay for military expansion following the
failure of the previous regime's economic autarchy (and/or
seeking a credible source of income to launder the revenues
from Burma's illegal exports, mainly herooin), the junta
opened the country to international investment, but the
increased militarisation of the state and the military's
continued stranglehold on the main sectors of the economy
impeded the economic liberalisation and institutional reform
needed by investors. In the civil war, the enhanced capacity
of the re-armed and enlarged Burma Army allowed it to move
from a strategy of seasonal combat to one of occupation.
 
However, lack of discipline and the low level of soldiers' pay
have led to the army living off the land, destroying the local
economy, carrying out massive violations of human rights,
further alienating the local population and creating refugee
flows to neighbouring countries. The combination of a sinking
economy, a large, badly-paid army and a tradition of
warlordism could lead to a break-up of the country into a
number of fiefdoms run by regional commanders or ethnic
chiefs. Such a scenario should be taken seriously by the
"Tatmadaw" the neighbours and the international community.
 
 
INTRODUCTION
 
The massacres conducted by the Burmese Armed Forces (the
"Tatmadaw") in 1988 led to the suspension of international aid
and development assistance, with the result that in early
1989, foreign currency reserves were reported to be down to
US$9 million. At this point the new incarnation of military
rule, the State Law and Order Restoration Council (SLORC)
decided to reverse the previous policies of isolation and
neutrality and "turn to foreign sources to obtain the means of
enforcing law and order and to compensate its major
constituency, the  Tatmadaw'"(2)  The decisions in question
were: 
 
1) To seek substantial arms imports from China in order to
secure military rule by strengthening the "Tatmadaw" and
further militarising the state. This also involved a
large-scale recruitment drive, significant adjustment of the
command structure of the armed forces and the reorganization
and extension of military control in districts, townships and
villages. The target was a force of 500,000 to allow a
permanent military presence in most parts of the country; 
 
2) To pay for this undertaking by opening the country to
international investment. The neighbours came for fish and
teak; oil companies paid for exploration rights and SLORC sold
off part of Burma's Tokyo embassy. The quick money from these
sales saved the virtually bankrupt regime from its immediate
financial problems, but there was no major investment except
in hotel building and the offshore oil and gas sector. Here,
discoveries by European and US companies of large offshore
deposits of gas, which Thailand has contracted to buy, promise
substantial long-term revenues. However, the proposed pipeline
to bring the gas to Thailand crosses Karen and Mon territory,
where insurgencies still continued, thus increasing the
pressure on SLORC to end the civil war. The lack of enthusiasm
on the part of investors was due in part to the low level of
human and physical infrastructure, the continuation of the
civil war, but primarily to SLORC's refusal or inability to
liberalise more than the fringes of the economy, which
remained dirigiste, with the principal sectors remaining
firmly in military hands.
 
 
These linked projects, of strengthening military rule and
attracting investment, proved incompatible.  Not surprisingly,
it was the former which prevailed; and now that the fish and
teak are sold off, "Visit Myanmar 96 Year"(3)  has fallen
flat, no substantial investment is in sight and the gas
revenues are not due to come on stream until 2001, the economy
is once more in crisis. The bulk of the army is hardly paid,
and to a large extent, lives off the land, further alienating
the civilian population. 
 
The de facto alliance with China implied by SLORC's massive
arms acquirements and the increased Chinese presence and
investment in Northern Burma(4) and, reportedly, access to
naval and electronic monitoring facilities, is opposed by many
Burmese civilians, as well as groups within the armed forces
who have spent much of their career fighting Chinese-backed
troops. Burma's growing dependence on China is also a matter
of concern to India and the ASEAN countries, which see China
as a commercial and military threat, if not now, then in a 20-
or 30-year time scale. This is one of the reasons why India
and the ASEAN countries are interested in consolidating their
mutual relationship. The invitation to Burma to join ASEAN and
the newly-formed BIST-EC (Bangladesh-India-Sri Lanka-Thailand
Economic Cooperation [a]) are in part intended to prevent
Burma falling further into the Chinese sphere of influence and
thus threatening Burma's (geographical) bridge function
between ASEAN and India. An unknown factor with regional and
international implications would be China's reaction to a
major disintegration in Burma. Such a disintegration is one
of the possible results of the deepening economic crisis,
combined with a large, poorly-paid and badly-disciplined army
and the tendency of the regional commanders to turn their
command areas into personal fiefdoms.
 
 
THE EXPANSION OF THE ARMED FORCES (THE "TATMADAW")
 
In 1988 the "Tatmadaw" numbered 186,000. Following a visit to
China by Burmese defence officials in 1989, an arms deal of
$1.4 billion was signed in mid-1990, and one for $400 million
in 1994. The arms thus purchased allowed a major expansion of
the armed forces, whose strength is currently estimated at
380,000, with the stated goal of being a well-equipped force
of 500,000 by the end of the decade. SLORC's intention to
establish military control throughout the country, and thus be
able to dispense with the need to rule by consent, is
indicated in the following extracts from Andrew Selth's 1996
book, "Transforming the Tatmadaw" (5):         
 
"The first and most important priority for the SLORC after the
1988 massacres was to consolidate its grip on government.  As
a longer term goal, it was determined to put into place all
necessary means to ensure that the "Tatmadaw" would remain the
real arbiter of power in Burma.  To achieve these aims, the
armed forces needed to be large enough and strong enough to
answer any future challenge to military rule.." p129  
 
"Under the rubric of "non-disintegration of the Union", the
SLORC has made renewed efforts to exert military control over
the country, and turn it into a highly centralised, ethnically
Burman-dominated(6) state, commanded by the armed forces or
its servants.  On this basis, any future distribution of power
or allocation of civic responsibilities to minority ethnic
groups seems bound to be an essentially token gesture.  Real
power will continue to reside in Rangoon and be exercised
through regional military commanders and pliant civilian
administrators. To ensure that this system works effectively,
and to guard against any upsurge of irredentism, the SLORC
envisages a permanent military presence in almost every part
of the country. ... the implementation of such a policy,
however, demands much greater manpower and resources."  
pp132-33
 
"[T]he rapid expansion and modernisation of the armed forces
after 1988 seems to have been based primarily on the fear that
it might lose its monopoly of political power.  The
"Tatmadaw's" recruitment campaign and arms procurement
programme seem aimed above all else at preventing, or if
necessary, quelling, renewed civil unrest in the population
centres.  Efforts to defeat ethnic insurgent groups in the
countryside have also been part of the regime's continuing
determination to impose its own peculiar vision of the modern
Burmese state upon the entire country.  Yet, "BY RELYING ON
ARMED FORCE TO GUARANTEE THE COUNTRY'S UNITY AND STABILITY,
THE REGIME HAS MORTGAGED BURMA'S VAST AND DIVERSE POLITICAL
ECONOMIC AND SOCIAL RESOURCES TO CONTINUED DEPENDENCE
ON MILITARY STRENGTH" p154 [emphasis added].
 
And of the command style of the "Tatmadaw" Selth writes:
"...[T]he Burma Army has largely rejected its British (and
British Commonwealth) traditions and relies instead on the
styles of command and instruction which it learnt from the
Japanese during the Second World War. This approach emphasises
centralised control, rigid discipline and unquestioning
obedience to orders, rather than the encouragement of
innovation and initiative, or attention to matters of
personnel welfare..." p62
 
 
THE STATE OF THE ECONOMY
 
Introduction
 
Apart from hotel construction in the cities, the military
sector, and the flourishing business in opium and heroin(7),
the economy is crumbling throughout the country. The ratio of
market to official currency exchange is now about 50 to 1(8) 
and SLORC's money presses have been working overtime (money
supply has more than tripled since 1988). Rice prices have
more than quadrupled since 1988, and refugees from the Delta
(the richest rice-growing region), quote the impossibility of
feeding their families as a major reason for their flight.
Light industry has been virtually destroyed by cheap imports
from China.  There is an increasing polarisation between urban
and rural areas, with reports of starvation coming from the
border regions. The hoped-for investment has not materialised,
apart from teak, fish, gas, jade and gem extraction, hotel
building and and the trade in opiates, none of which assists
genuine development.  
 
The fundamental cause of these and other problems is that the
structures, priorities, ideology and lack of competence of
SLORC rule are incompatible with a modern economy and the
needs of investors. Poor physical infrastructure is one
deterrent to investment; other factors are that unlike
Singapore, Indonesia and other economically successful Asian
countries,  the military has failed to institute the necessary
institutional reforms; there is a diminishing level of human
infrastructure, closely related to the lack of investment in
education; and defence spending, at an estimated 50% of
Government disbursements, is both ruinous to the economy and a
major political obstacle to multilateral and bilateral
financial assistance. 
 
 
A country of great promise 
 
Burma is a country of immense potential in terms of energy
(gas and hydro-electricity), minerals (it has large reserves
of copper, gold, tungsten, nickel, and other precious,
strategic and industrial metals, in addition to a wide variety
of gems and jadeite) and agriculture (it was once the main
rice exporting country in the world); and up to a few years
ago it had the largest hardwood reserves of any country in
Asia.  Of its human resources, Khin Maung Kyi writes that
"When Myanmar (then known as Burma) attained its independence
in 1948, international agencies identified it as one of the
most promising regional candidates for economic take-off. Its
modern technical and university education system, high rate of
literacy, well-trained civil service and a cadre of educated
middle class, basic infrastructure, and a well-run legal
system were considered as good ingredients for Myanmar's
expected take-off."(9).  
 
 
The economy in a state of collapse
 
In 1987, after twenty-five years of incompetent military rule,
Burma was granted Least Developed Country (LDC) status by the
United Nations. Japan, Burma's major ODA donor, had halted
major new projects in 1986 (two years before the suppression
of the 1988 Democracy movement) largely because, as Donald
Seekins comments: "Japan's powerful Ministry of Finance...was
increasingly concerned that more government funds not be
poured into a country that by the late 1980s was unable to pay
back its foreign debt, approximately US$5.0 billion.  Burma
had sought Least Developed Country status from the United
Nations in late 1987 in order to gain shelter from its
international creditors"(10).  The Japanese Ministry of
Finance  was unwilling to countenance  "LOAN FUNDS
TOSSED INTO THE BLACK HOLE OF THE BURMESE ECONOMY ..."(11)
(emphasis added)
 
The black hole is still alive and hungry.  According the
Economist Intelligence Unit's report on Burma for the 1st
Quarter of 1997, "The trade deficit soared in the first five
months of 1996,  traditional exports stagnated and imports
surged.  Private-sector exports have been languishing.  The
current account deficit is likely to have widened sharply, and
reserves have slumped"(12);  the Nikkei Weekly reports that
"[a]ccording to a report released by the International
Monetary Fund, the country's foreign-currency reserves had
plunged to $183 million as of August last year [1996] from
$663 million a year earlier"(13); in 1996 SLORC defaulted on
its rice export commitments and on payments for oil
deliveries, and in June 1997 was reported to be putting
pressure on foreign corporations doing business in Burma to
act as guarantors for loans from foreign banks (14).
 
In this country rich in energy, minerals and agriculture,
which was once the largest rice exporter in the world,  "[a]n
estimated 40 percent of the population lives below the poverty
line..."  according to the Asian Development Bank (15),  and 
"[t]he real incomes of many urban Burmese, including
government employees, have declined..."(16) 
 
 
Development is concentrated in the main cities
 
A major reason for rural impoverishment, with high levels of
malnutrition, infant and maternal mortality rates and other
indicators, reported by UNICEF and other international
organisations, is the transfer of resources to the city,
either by way of draconian paddy procurement policies (17) 
or by extortion by officers and men of the occupying army. 
See the following section on the Civil War for other factors. 
 
Economist Stefan Collignon writes that "In terms of political
economy, there are many indications that the SLORC has
attempted to pacify the political situation after 1988 by
improving the living conditions in the cities where the
potential for unrest was greatest. But if there are signs of
economic improvement, they seem to have taken place partly
because of slightly better growth, partly at the expense of
rural areas. This involved a strategic shift over the previous
"Burmese Way to Socialism" which had achieved a remarkable
degree of equality between rural and urban living conditions:
the UNDP indicator for rural-urban disparity in access to
water, sanitation and child nutrition services (67%, 87%, 93%
respectively) is significantly higher than for other low 
human development countries and above the aggregated values
for LDCs and all Developing Countries."(18)  
 
In a 1997 paper for the European Institute for Asian Studies,
Collignon wrote that "Foreign visitors arriving in Burma often
notice a visible improvement in apparent signs of wealth in
the major cities, particularly Rangoon and Mandalay, since
1988.  This is manifested in the substantial construction boom
between 1988 and 1991, although it has somewhat faltered since
then.  However, as soon as one leaves the larger cities, the
situation becomes different.  Poverty is widespread and
infrastructures like roads and railways are derelict.  In
fact, despite apparent improvements, sustained economic growth
is still not taking place."(19) 
 
 
Reasons for the low level of investment:
 
In 1989, SLORC opened the country to international investment.
However, as Khin Maung Kyi notes, "Investment laws, rather
hurriedly passed in the early stage, were followed by the
formation of a few private banks and state-sponsored  
joint-venture corporations, but long-term foreign direct
investment in manufacturing or agribusiness areas has not come
in. Institutional development measures such as the
establishment of a civil service with a fair degree of
efficiency and responsiveness, the legal administration system
to dispense impartial justice, and development and training of
manpower for the next phase of growth were neglected or
sidelined"(20). 
 
 
Collignon lists some of the major obstacles to investment --
"Economic liberalisation since 1993 has slowed down and even,
at times, been reversed:
 
* Importers are required (and receive preferential licenses)
to import designated "priority" goods in amounts equivalent to
one fourth of their total imports or more.
 
* The SLORC refuses to comply with the exchange rate regime
precondition of an IMF staff monitoring program, i.e. a simple
market-determined exchange rate.
 
* As the investment ratio has declined, forced prison labour
and uncompensated people's "contributions" to state
construction projects have increased (Department of State,
1996) 
 
* No large State Economic Enterprises (SEE) have been
privatised.
 
* Most SEE monopoly privileges continue to dominate Burma's
economy.
 
* Fundamental macroeconomic disequilibria persist and distort
the incentive structure of the private and public sector."(21) 
 
 
He notes in his 1994 paper that "[T]he only attractive
opportunity for foreign investment are projects of VERY HIGH
SHORT-TERM PROFITABILITY, normally linked to the exploitation
of natural resource rents (forests, oil etc). The absence of a
properly functioning monetary economy creates the
CONQUISTADOR-ECONOMY.(22)  
 
Writing in 1991, David Steinberg, a former consultant to the
World Bank, looks at some of the political-economic obstacles
to investing in Burma:  "Political and economic pluralism
depend on complex and alternative centers of power --
political, economic, regional, institutional, or personal. 
Within those territories controlled by the state ... since
1962 only one institutional center of power has been allowed
to develop: the "Tatmadaw"...The military not only control the
state administrative apparatus, ruling under martial law (the
military have ruled by decree for fifteen of the twenty-nine
years (23)  since the coup of 1962), they have staffed and
effectively  militarized' the bureaucracy, established
themselves at the socio-economic pinnacle of power,
eliminated or controlled non-military approved avenues of
social mobility (education, the sangha (24), labor and mass
organizations and businesses), developed an elaborate set of
institutional perquisites and rewards of office, controlled
internal sources of information, and (as many charge) have
dominated the informal and illegal economy and its
fruits"(25). 
 
Khin Maung Kyi makes a similar point: "Military participation
in the administration will not be conducive to the development
of an independent and efficient civil service, given the habit
of the Myanmar military to want to do things its own way. As
it is, since the abolition of the old administrative system in
the 1960s the administration has functioned only at the beck
and call of the power-holders and their agents. Administrative
impartiality, the strict rule of law, or the reliability and
predictability of administrative actions have lost their
relevance. This overwhelming control will not further the
re-emergence of an efficient, impartial, and consistent
administrative system that is surely needed for an open market
economy.(26)  
 
 
Comparisons with economically successful [c] East Asian
countries
 
In his important 1994 paper in "Asian Affairs", "Myanmar: Will
Forever Flow the Ayeyarwady?" Professor Khin Maung Kyi,
Burma's most distinguished contemporary economist (27),
compares Burma's economy with that of several economically
successful Asian countries, including Indonesia: "In
successful East Asian states the government usually restricts
itself to providing basic services and maintaining law and
order and stability. The direction of the economy is guided
according to long-term objectives but the operation of the
economy is left to the private sector with a minimum of
interference from the government....
 
"Myanmar's military has had no experience of running the
country under relatively pluralistic or permissive
circumstances. It has been used to operating as a stern
disciplinarian or a top-down decision-maker. Going by the
experience of successful East Asian countries, power-sharing
among different elites, relatively free flow of information,
rational economic decision-making, an efficient bureaucracy,
and an impartial and effective legal system are deemed to be
basic ingredients of all-round development....
 
"In Myanmar since 1962 the role of top civil servants whose
experience could be very useful even under the new
circumstances, had been down-graded and many of them replaced
by loyal cadres who subscribed to the new socialist order. The
continuity of the judicial tradition has also been disrupted
because only elected representatives could serve as judges
under the socialist regime. All this is in sharp contrast with
the situation in Indonesia where the military rulers co-opted
intellectuals, economists, and other professionals into the
ruling group from the outset. In fact, the so-called Berkeley
Mafia, a group of able economists, reputedly engineered the
Indonesian  modernization-cum-development process. It is
difficult to envisage the Myanmar military to radically change
its mind set, given its history of "absolutism" or the
tradition of "we alone can do" doctrine."(28)
 
Stefan Collignon presents a shocking comparison  of the export
performance of Burma and Thailand: "While high performing
countries, like Thailand, have persistently increased their
export and import shares as a consequence of their export
promoting development strategy, Burma's share has steadily
declined since the early 1980s....OFFICIAL EXPORTS AMOUNTED TO
2% OF GDP IN 1994, THE LOWEST IN THE WORLD." (World
Development Report 1996) (29) (emphasis added)
 
 
A dilapidated physical infrastructure
 
On the physical infrastructure Khin Maung Kyi states: "As
regards conditions for the rapid growth of the economy, the
importance of appropriate physical infrastructure cannot be
overstated. The existing stock of physical infrastructure is
so limited and dilapidated that large-scale international
official development assistance (ODA) will be needed.
Likewise, technological development and training will require
an equally large dose of investment. Retraining adult workers
technically and training and educating the youth need time to
take effect. Without these improvements, large inflow of
private entrepreneurial resources may not materialize."(30)
 
 
Disproportionate Defence Spending
 
In 1996, the US Embassy in Rangoon issued its annual Country
Commercial Guide, accompanied by a more technical report,
"Foreign Economic Trends".  One innovation made in the 1996
reports was to adjust the statistics to take into account the
different exchange rates used in official and unofficial
financial reports: of defence spending, the "Guide" states
that "Under the SLORC, defense spending appears to have grown
both in real terms and as a share of central government
operating expenditures.  In FY 93/94 and FY 94/95, defense
operating disbursements appear to have constituted at least
half of total central government operating disbursements,
despite the absence of any evident external military threat
and the successive pacification of most ethnic insurgent
groups."(31) 
 
"Burma's economic growth may continue to fall well short of
its potential so long as defense spending remains high and
continues to be funded disproportionately by implicit or
explicit taxes on the external sector (32). 
 
 
Forecast
 
The Economist Intelligence Unit, in its report for the 1st
Quarter of 1997, predicts  that: "Over the next two years, in
the absence of movement towards liberalisation, growth will
slow from recent levels and inflation will remain high.(33)  
p3 
 
In his 1997 paper Collignon states that "The SLORC is under
significant economic pressure: it cannot make ends meet,
foreign exchange reserves are running out and economic growth
is steadily faltering.  The economic bond fire of recent years
may have allowed the SLORC to stabilise its rule, but this
will not last.  Either it will change fundamentally, or it
will be confronted with a new public uprising -- as history
has shown consistently."(34)  
 
There will be no substantial economic progress in Burma under
the present system and priorities. Such progress requires
massive assistance for infrastructure development, on a scale
which can only be provided by World Bank, IMF, ADB, UNDP and
Japanese  funding.  Most of these multilateral and bilateral
sources were cut after the massacres of 1988 (35), and are
unlikely to be renewed while the black hole phenomenon
persists and until there is a significant and irreversible
political process leading towards higher levels of popular
participation at all levels of government.  
 
END OF PART 1