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Bangkok Post News (301298)



Investors turn heel for home It was seen as a last business frontier, but
along frontiers all too often lurk dangers - in Burma's case the
snowballing economic crisis.
The plummeting Burmese economy has shaken the confidence of Thai investors
and they are packing their bags and leaving, or at least freezing, projects
in a country they once saw as Southeast Asia's new business frontier.
Loxley, after supplying telecoms equipment to Burma for five years, has
decided to call it quits next year after losing faith in the economy,
according to a senior officer.
"We have to leave the country," said the officer, who requested anonymity.
Before Loxley reached its decision, several other Thai firms, engaging in
activities as varied as port and road construction to cement production,
had already abandoned or put on hold multi-billion-baht projects in the
country.
But the hardest hit has been the banking sector. Rangoon once could boast
having the representative offices of six Thai banks, but now there is only
Krung Thai Bank.
Part of the Thai withdrawal stems from the insolvency of parent companies
at home after the battering of the 17-month-old financial crisis and its
devastating effect on the corporate and banking sectors. But there is no
doubt that the poor state of the Burmese economy, which has been further
weakened by the domino effect of the regional crisis, is making matters worse.
Loxley, for example, which also runs a trading business in Burma, is
uncertain about the ability of the Rangoon government to repay its debts
because of a shortage of hard currency, said the officer.
The Burmese economy has depended largely on foreign direct investment since
the country adopted a market-oriented policy in the early 1990s.
Investments from member states of the Association of Southeast Asian
Nations, led by Thailand, Malaysia and Singapore, top the chart, together
accounting for more than 50 percent of all foreign direct investment in Burma.
Unlike their Asean counterparts, Western firms were discouraged from
investing by their governments and public opinion at home over the military
regime's failure to respect human rights and democracy.
Similar to Thai companies, many investors from Malaysia and Singapore,
which too have been hard hit by the regional crisis and Burma's own
economic problems, also are on their way out.
"Burma is now at the crisis stage. [This is because] Asean investors have
withdrawn or delayed their investment," said one Thai commerce ministry
official.
Burma and Laos were admitted to Asean last year, joining Brunei, Indonesia,
Malaysia, the Philippines, Singapore, Thailand and Vietnam.
In addition to the decline in investment, Burma is suffering trade
problems. Its heavy reliance on the import of capital goods such as
machinery and equipment, and its reduced earnings from the export of
primary products, means Burma has notched up huge trade deficits in recent
years.
According to the Economist Intelligence Unit, the deficits rose steadily
from $570 million (20.5 billion baht) three years ago to $1.02 billion
(36.7 billion baht) in 1996 and S$1.19 billion (42.8 billion baht) last year.
The ruling State Peace and Development Council hoped sales of gas to the
Petroleum Authority of Thailand under the Yadana natural gas project -
eventually expected to produce annual incomes of $180 million-$200 million
(6.5 billion-7.2 billion baht) - would correct the imbalance.
But this opportunity is diminishing due to the delay in gas delivery while
the PTT tries to negotiate with developers for a relaxation of
late-acceptance penalties while work on the power plant in Ratchaburi is
still to be completed.
The Yadana development consortium, led by Total of France, is to develop
525 million cubic feet a day from a gas field located about 240 km south
off the Burmese coast in the Gulf of Martaban. The PTT has yet to pay for
an estimated five million cubic feet of gas it has received since July.
Despite the grim outlook, the [Thai] Export-Import Bank remains confident
in Burma's business future and is willing to finance independent projects
there.
Burma will regain its economic momentum because its human resources and
legal system are more developed than those of some other neighbouring
countries, according to Nampung Wongsmith, the first vice-president of the
state-owned bank's export credit insurance and foreign investment department.
"If Burma gains, we also gain," she said. "This will also improve relations
between the two countries."
While acknowledging that the two-tiered foreign exchange regime posed
setbacks, Ms Nampung said the bank preferred investment projects that would
generate hard currency.
The official exchange rate in Burma is six kyat a dollar, but the market
rate, which is commonly used for daily businesses, is about 360 kyats.
One negative repercussion of the current drop off in Thai investments in
Burma could be the hampering of Thailand's attempt to use economics as a
leverage in its relations with Burma.
Foreign policy makers in Bangkok subscribe to the idea that economic
interests can facilitate political cooperation and can eventually but
gradually bring about political change in Burma. They played a part in
convincing Thai investors to go to the country.
One analyst said the decline in Thai investments and the delay in the gas
purchase could upset hardliners in the ruling junta, who may not see any
use in respecting mutual economic interests that no longer exist. They
could eventually turn aggressive towards Thailand on sensitive matters.
This could lead to a renewal of conflicts previously kept at bay, including
border disputes, drugs and other security issues, he warned.
"When the ebb-tide comes, the stump emerges," he said, referring to a Thai
proverb which means wrongdoings emerge when the truth is revealed. "The
Thai government cannot ignore these sensitive problems."
Ill-defined demarcation of the 2,400-km-long Thai-Burma border has long
caused suffering for Thailand in terms of casualties, raids and influxes of
refugees, now numbering about 100,000 on Thai soil, when the Burmese army
launches offensives against minorities.
But Chaiyachoke Chulasiriwongse, a Burma expert with Chulalongkorn
University, doubts whether the shrinking of the Thai economic presence in
Burma will prompt Rangoon to resurrect long-standing political problems.
Thai bargaining power is unlikely to be affected by the crisis, he said,
because Burma has few alternative partners and recognises its long-term
economic interdependence with Thailand.

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