THE NATION: Burma's foreign curre

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Editorial & Opinion 

      Burma's foreign currency
      'success'

      Rangoon has turned back to its isolationist
      policy to protect the country from the
      financial turbulence in Asia, Mya Maung
      writes. 

      UNLIKE other Asian countries, Burma has
      not been extensively covered in the
      international news media, seemingly
      suggesting that it has been able to ward off
      the domino effect of the ongoing Asian
      financial debacle and economic crisis. 

      Burma seems to have successfully averted
      the speculative attacks on the financial
      markets and the currency crisis of a number
      of Asian miracle economies and Asean
      countries. 

      Unlike the baht, the Indonesian rupiah and
      the Malaysian ringgit, the accelerated
      depreciation of value the Burmese currency
      towards the end of 1997 seems to have
      been arrested in 1998 by the monetary
      authorities of the Burmese military regime. 

      The unofficial/parallel market price of the
      US dollar that climbed upward to a panic
      level of 380 kyats was brought down and
      stabilised at around 240 kyats in January.
      The apparent success of Burma in avoiding
      the contagion of the Asian financial debacle
      stems from the nature and functioning of the
      Burmese economy, on the one hand and
      the policies of financial repression adopted
      and enforced by the government on the
      other. 

      Burma has virtually no modern private
      financial markets, institutions and banking
      system that are directly linked to the
      regional financial markets and system. 

      The two basic policies of trade and
      financial repression adopted and enforced
      by the Burmese military government to
      avoid the impact of the Asian currency
      crisis and bring down the escalating
      unofficial market price of the US dollar and
      the parallel dollar-denominated currency,
      the foreign exchange certificate (FEC), are:
      the stoppage of cross-border trade with
      China and Thailand and the crackdown of
      official and unofficial trading of both the
      black US dollar and the FEC. As in the past
      whenever the black market price of the US
      dollar and the FECs, nicknamed the
      Burmese dollar, rose to a crisis level, the
      authorities began arresting traders and
      revoking the licences of FEC traders. 

      The stoppage of imports or reducing the
      demand for foreign exchange and at the
      same time, the arrest of unofficial foreign
      exchange dealers and rationing the amount
      of trading of FEC at the legal trading
      counters in Rangoon by the military
      intelligence officers seem to be the cause
      for the stabilisation of the unofficial foreign
      exchange rate of Burmese kyat. 

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

      Many economists believe the underlying
      cause of the unexpected Asian financial
      debacle lies in the non-transparency of
      information and crony capitalism of an
      authoritarian state with unmonitored and
      corrupt regulators of financial institutions
      compromising their fiduciary
      responsibilities. 

      Burma exemplifies the classic case of
      non-transparency of information and crony
      capitalism of an authoritarian state
      controlled and managed by powerful and
      corrupt military ministers. 

      The recent dissolution of the Slorc -- and
      ousting of 14 military commanders charged
      with corruption -- to be replaced by a new
      19-member junta was a political manoeuver
      to improve the image of the military rulers. 

      It did not constitute a genuine cleansing of
      the economy that seethes with corruption
      from top to bottom. The reality of the Asian
      financial debacle is that the largest
      investors in Burma, the Asean states, with
      their own financial and economic crises, will
      not be able to finance their committed
      investment projects in Burma, let alone
      make new investments. 

      In addition to no new investments by US
      firms due to the US government 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 Yadagan 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 ongoing economic and financial crises
      of Asean have also led to a massive
      deportation of Burmese illegal migrant
      workers that will certainly deepen the
      economic and financial crisis of Burma.
      The two countries from which Burma can
      hope to secure funds to remain afloat
      amidst the Asian financial and economic
      crisis are Japan, historically the largest
      creditor of the military regime of Burma,
      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 a
      case in point of Japanese vested economic
      interest in Burma. 

      China, on the other hand, has provided
      several economic and military aid and
      concessional loans far greater in value than
      those of Japan, to finance various
      infrastructure projects, especially the
      construction of new roads and bridges and
      refurbishment of the 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. 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 Burma's infamous drug kingpins such as
      Khun Sa and Lo Hsing Han in complicity
      with Burmese generals. 

      However, the Burmese economy under the
      gross mismanagement of incompetent
      military rulers is in a downward spiral with
      escalating inflation, shortages of rice and
      other basic necessities, rampant
      corruption, massive unemployment, and
      pervasive poverty with the threat of another
      massive political convulsion and violent
      killing like the 1988 political uprising. 

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

      The Nation