7/9)WORLD_BANK:POLICIES FOR SUSTAIN

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/* Posted 18 Apr 11:00am 1998 by drunoo@xxxxxxxxxxxx(Dr U Ne Oo) in
maykha-l */
/* -------------" Policies for Economic Reform 7/9 "------------ */

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MYANMAR: POLICIES FOR SUSTAINING ECONOMIC REFORM (7/9)

WORLD BANK Report No. 14062-BA, October 16, 1995.

REORIENTING INCENTIVES

41. EXPANDING EXPORTS. If the incentives for export production are
to be improved, the main action required is an adjustment of the
official exchange rate to a level closer to the parallel market
rate. Despite the de facto devaluation of the Kyat with the
recognition of the parallel market, the absolute profitability of
export production has declined since 1989. Adjusting the official
rate would also mean that private exporters would not face the risks
and costs of transacting on the parallel market, while the managers
of SEs would be encouraged to expand their exports. Apart from
removing the export ban on paddy and rice (as discussed below), the
requirement that private importers be required to import
government-specified priority goods should also be eliminated.

42. PROMOTING AGRICULTURE. The key policy distortions that need to
be eliminated are tha ban on exports of paddy and rice, and the
paddy procurement system. By reducing farmgate prices by about a
third, such implicit taxation reduces farm incomes to the tune of
over K46 billion. It also lowers paddy production by reducing its
profitability. Thus, removing the export ban would not only
encourage rural growth by increasing farm incomes; it would also
result in additional production of about 1.9 million tons of paddy
annually, much of which would be exported. Although the procurement
system benefits urban consumers by providing them subsidized rice,
it is highly regressive since the paddy farmers who are being taxed
are poorer than the consumers who benefit. If targeted subsidies to
rice consumers considered desirable, the other taxes to finance
these would be less costly than an export ban. Action is also
required to  clarify the legal basis for private ownership and
leasing of agricultural land, as well as to end government control
over cropping choice and access to complementary inputs. Adjusting
the official exchange rate would also encourage private-sector
involvement in provision of fertilizers and seeds.

43. REDUCING BIASES AGAINST PRIVATE BUSINESSES. The ability of most
private businesses to expand further and develop into potential
exporters as well as credible competitors to SEs in domestic markets
is compromised by the discrimination they still face. Therefore,
steps must be taken to reduce the favored access of SEs.
Specifically, the interest rate subsidies on borrowing and the
exchange rate subsidies on imports that SEs enjoy (constrained as
both are) should be eliminated by adjusting both "prices". The
preferential access of SEs to such services as transportation,
telecommunication, and electric power should be reduced with
systematic government efforts to expand private-sector access to
heses. It would also be helpful in dealing with many of these
constraints if the GOM formalized and broadened its dialogue with
representatives of the domestic private sector. Private sector
access to credit can be expanded if public-sector credit demand can
be further reduced while positive real interest rates are used to
allocate credit.

(8/9) REFORMING THE SE SECTOR

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