Bangkok Post April 5, 1998 GUEST C (r)

[brelief@xxxxxxx]

Bangkok Post April 5, 1998 
GUEST COLUMN / BURMA 

The sole survivor
How has Burma been able to avoid the Asian flu?
MYA MAUNG

Unlike other Asian countries, Burma has not been covered extensively in 
the international news media, which suggests that it has been able to 
insulate itself from the ongoing Asian economic crisis. Burma seems to 
have successfully averted the speculative attacks on financial markets 
and the currency crisis which have affected a number of Asian economies.

Unlike the Thai baht, the Indonesian rupiah and the Malaysian ringgit, 
the accelerated rate of depreciation in the Burmese currency which 
occurred toward the end of 1997 seems to have been arrested in 1998 by 
the Burmese military regime's monetary authorities. The 
unofficial/parallel market price of the US dollar that climbed to the 
panic level of 380 kyats per dollar has been brought down and has 
stabilised at around 240 kyats as of January 1998.

The apparent success of Burma in avoiding the contagion of the Asian 
financial debacle stems from the nature and function of the Burmese 
economy, on one hand, and the policies of financial repression adopted 
and enforced by the government on the other.

Unlike other rapidly developing Asean economies, the so-called 
"open-door, market-oriented" economy of Burma is neither truly open nor 
market-oriented. State control of foreign trade and a monopoly on 
exports and enterprises with foreign exchange earning power, such as 
those dealing in rice, teak, gems, oil and natural gas, is more or less 
absolute. A foreign exchange regime has been relentlessly maintained 
with an unrealistic official exchange rate of 6 kyat to the dollar, 20 
to 30 times the unofficial market price.

Burma has virtually no modern private financial markets, financial 
institutions or banking system that are directly linked to the regional 
financial markets and financial system. The entire financial system is 
centralised and tightly controlled, regulated, and managed by the state 
with respect to free convertability between domestic and foreign 
currencies. The consequence has been the development of foreign exchange 
black markets.

To avoid the impact of the Asian currency crisis on the unofficial 
market price of the US dollar and the parallel foreign exchange 
certificate (FEC), or "Burmese dollar", the Burmese military government 
halted cross-border trade with Thailand and instituted a crackdown on 
official and unofficial trading of both the US dollar and the FEC.

As in the past, whenever the black market price of the US dollar and the 
FEC rose to a crisis level, authorities began arresting traders and 
revoking the licences of FEC traders.

By halting imports, reducing the demand for foreign exchange, arresting 
unofficial foreign exchange dealers and rationing the amount of FEC 
trading at legal trading counters in Rangoon, the government was able to 
stabilise the unofficial foreign exchange rate of the kyat.

However, this stopgap measure, avoiding the Asian financial crisis by 
isolating Burma from the outside world, will not solve the deep-seated 
economic problems of pervasive poverty, escalating inflation due to 
shortages of basic necessities such as rice, dwindling foreign exchange 
and massive unemployment.

Many economists believe that the underlying cause of the unexpected 
Asian financial debacle lies in the non-transparency of information and 
crony capitalism of authoritarian states with unmonitored and corrupt 
regulators of financial institutions compromising their fiduciary 
responsibilities. Burma exemplifies the classic case of 
non-transparenncy of information and crony capitalism of an 
authoritarian state controlled and managed by powerful military 
ministers.

The recent dissolution of the Slorc and ousting of 14 military 
commanders charged with corruption and replaced by a new 19-member junta 
is a political manoeuvre to improve the image of Burma's military 
rulers. It does not constitute a genuine cleansing of the economy that 
seethes with corruption from top to bottom.

In addition, two incidents occurred that will lead to an economic crisis 
for Burma, one hidden from the public by the Burmese government: the 
worst flood to hit the region in 30 years, during August and September 
1997, and the ensuing shortage of rice for both domestic consumption and 
exports.

According to the UN and foreign reporters, the flood has affected nine 
out of Burma's 14 states, inundating hundreds of thousands of paddy 
fields, destroying roads and bridges with some 100,000 farmers losing 
their homes and livestock.

The United States Department of Agriculture reported that in the first 
10 months of fiscal 1997/1998 rice exports declined from an average 
level of 300,000 tons a year in the mid-1990s to a mere 15,000 tons, 
with foreign exchange earnings from rice exports plunging downward from 
an average of $400 million a year to a mere $3 million. It is more than 
likely that rice exports will not exceed 20,000 metric tons for the 
entire fiscal year 1997/98.

Like its predecessor the Slorc, the newly formed military junta, the 
State Peace and Development Council (SPDC), has been counting heavily on 
real and potential incremental foreign direct investments into Burma to 
initiate and sustain economic growth.

However, the Asian financial debacle seems to have shattered the 
possibility of this. The reality of the Asian financial debacle is that 
the largest investors in Burma, other Asean nations, with their own 
financial and economic crises, will not be able to finance their 
investment projects in Burma, let alone to make new investments.

In addition to no new investments by US firms due to sanctions imposed 
in April 1997, there is a strong possibility of divestment by US oil 
companies. Cases in point are Texaco's withdrawal from the Yadagun 
natural gas project in 1997 and Arco's revelation of its intention to 
liquidate its newly acquired natural gas project in the Bay of Martaban.

The controversial billion-dollar Yadana natural gas project, the largest 
joint venture between Unocal (US), Total (France), the PTT and the 
Myanmar Oil and Gas Enterprise (MOGE), also seems to be in trouble, with 
legal disputes and a sit-in protest by conservationists in Thailand 
against the PTT's pipeline project.

In addition, border conflicts between Burma and Thailand due to changes 
in the SPDC's trade policy led to the stoppage of cross-border trade. 
The ongoing economic and financial crisis in the region has also led to 
a massive deportation of illegal Burmese workers that will certainly 
depeen the economic and financial crisis of Burma.

The two countries from which Burma can hope to secure funds to remain 
afloat are Japan, historically the largest creditor nation of Burma's 
military regime, and China, Burma's greatest ally since 1988.

Two-thirds of Burma's outstanding external debt of over $6 billion is 
owed to Japan. The recent news of Japan's intention to resume its 
Overseas Development Assistance (ODA) loans to Burma is an example of 
Japanese vested economic interests in Burma.

China, on the other hand, has provided economic and military aid and 
concessional loans far greater in value than that of Japan to finance 
Burma's infrastructure projects, especially the construction of new 
roads and bridges and the refurbishment of old ones that link the two 
countries. China's vested political interest in providing aid to Burma 
since 1988 has been to expand its naval power and presence in the Indian 
Ocean via Burmese lands and waters.

Thus, it the Burmese junta's safety net of aid from Japan and China 
seems to be in place. It must be emphasised, however, that the real 
safety net of the Burmese junta lies not in the inflow of legal foreign 
exchange from foreign investments and bilateral aid, but in the inflow 
of illegal drug money and money laundering with impunity by infamous 
drug kingpins in complicity with corrupt generals. 

*Mya Maung is a professor of finance at the Wallace E. Carroll School 
of Management, Boston College, USA. 

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