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(IHT) Burma's Debt Is Pushing Econo



Subject: (IHT) Burma's Debt Is Pushing Economy to the Brink, the World  Bank Warns 

International Herald Tribune (Neuilly-sur-Seine, France) 
November 15, 1999

Burma's Debt Is Pushing Economy to the Brink, the World Bank Warns 

By Thomas Crampton ; International Herald Tribune 

BANGKOK 

While much of East Asia has emerged from economic crisis, a confidential
World Bank study of Burma
details an economy locked in a sharp downward spiral. 

The report, secretly given to Burmese leaders last month, is one of the
most comprehensive economic
studies conducted on Burma since the military took power there more than a
decade ago. 

Burma's currency, temporarily stabilized by a clampdown on transactions,
faces irresistible downward
pressure and the economy is undergoing rapid dollarization, said the
report, a copy of which was
obtained by the International Herald Tribune. 

More than 20 percent of bank deposits are now denominated in foreign
currency, twice the level of two
years ago, the report said. 

The report warns that a dangerous buildup of debt due to agriculture
subsidies could erupt into a
systemic banking crisis, similar to those experienced elsewhere in Asia. 

Inflation now is running at its fastest pace in a decade, with the increase
of consumer prices peaking at
68 percent in mid-1998 while averaging 49.1 percent for the last fiscal year. 

New foreign investment approvals plunged 95 percent in the last fiscal
year, and early indicators suggest
a further sharp retraction this year. This trend is particularly worrying,
the report said, since less than half
of approved investments generally come to fruition. 

Informal surveys and anecdotal evidence suggest that the rate of exit of
foreign firms and collapse of
local companies may be higher than in previous years. Sanctions imposed on
Burma have played a role
in damaging exports and investment, the report said. 

Net international reserves at Burma's central bank, normally a closely
guarded state secret, were
$295.7 million at the end of the last fiscal year. This compares with a
foreign reserve level of $231.7
million a year earlier and $400.5 million in the fiscal year that began in
1994. 

Bad economic policies lie at the heart of environmental problems such as
increased deforestation and
mangrove destruction, the report said. National deforestation rates have
doubled since the late 1980s,
the report said. 

Any recent economic growth has been beset by dangerous macroeconomic
imbalances, the report said. 

''These factors do not bode well for Myanmar's economic future,'' the
report said, going on to
describe what it called ''eminently doable'' reforms needed to unlock
Burma's economic potential.
Central recommendations in the report are a gradual flotation of the
Burmese currency, budget and tax
reform and a liberalization of the rice trade. 

Even as the government reduces much social spending, its participation in
economic activities has gone
virtually unchanged over the past three years, with the state dictating the
business climate in almost all
sectors. 

''At present the government is all pervasive,'' the report said. ''This is
a hugely demanding role that few
societies have been able to sustain.'' 

Burma's tax collection rates are among the world's worst because of tax
exemptions and lax
enforcement, the report said. 

The poor, as well as ethnic groups out of favor with the government, have
disproportionately been hurt
by Rangoon's economic policies, the report said. 

Military spending accounted for 32 percent of last year's budget and, on a
per capita basis, was nine
times that spent on health and two times that spent on education. 

There has been a sharp decline in spending on primary education, with funds
for children between the
ages of 5 and 9 falling more than 90 percent over the past decade. 

The state's role in health care has diminished, with spending on public
health in almost constant decline
since 1991, the report said. Cambodia, which has a smaller income per
capita than Burma, spends
three times more on public health as a share of gross domestic product. 


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