A New 'Burmese Way' from Asiaweek,

[brelief@xxxxxxx]

Subject: A New 'Burmese Way' from Asiaweek, Jan. 5, 1996

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ASIAWEEK, JANUARY 5, 1996

RE - EMERGING MARKETS

Myanmar Takes a Circuitous, Rocky Route Toward
Prosperity

By Susan Berfield YANGON

Wanted:  Investors with nerves of steel to take advantage of
Myanmar's economic opening.  The ideal candidate would be
comfortable operating in a country emerging from decades of
decline.  He or she should have a proven ability to meet
deadlines and wait -- patiently -- for returns.  Experience with
military governments is greatly preferred, but not essential. 
We offer a vast store of natural resources, relatively cheap
labor and some 100,000 tourists a year.  Please contact the
appropriate minister with proposals.

That, roughly, is the message Myanmar's ruling military
government has been sending out to entrepreneurs around the
world.  Since late 1988 the junta, known as the State Law and
Order Restoration Council (SLORC), has slowly begun
steering the economy off the disastrous "Burmese way to
socialism." It has done that by taking the first steps to sell off
government assets, permitting some private domestic banks to
operate, promoting foreign investment and allowing greater
economic freedom for farmers and the burgeoning business
elite.  The emphasis, though, has clearly been on foreign
investment.  "No matter what else the reforms accomplish,"
says a businessman in Yangon, "the government wants to suck
foreign currency into the country like a black hole."

In a move designed in part to increase that inflow, the military
junta released opposition leader Aung San Suu Kyi from six
years of house arrest in July 1995.  That has sparked some
new investor interest, particularly from the Japanese.  Despite
the uneven pace of reform and serious questions about the
country's economic stability, many other Asian firms have
been eagerly staking a claim.  But so far few are willing to
make major commitments.  Most prefer, for now, to invest
their time establishing contacts rather than their money.

Renewed interest from Japan may change the equations.  Many
Japanese have been sitting on their hands as Southeast Asians,
particularly Singaporeans and Thais, have opened their wallets
in Myanmar.  Before the military crushed a democracy
movement and retook power in 1988, Japanese trading houses
had a strong presence in Yangon.  But when Tokyo followed
the West's lead and suspended its generous aid program after
SLORC came to power, corporate Japan pulled back.  Now
that Suu Kyi is free, Japanese executives appear poised to go
on a buying binge and Tokyo has promised to resume aid.  As
Uchida Katsumi, a Japanese diplomat in Yangon, puts it,
"Now it's time to encourage Myanmar to move ahead."

Among those eager to give Myanmar a helping hand are 21
major Japanese firms, including Fuji Bank, Hitachi and
trading giant Marubeni.  Company bosses visited the country
in early December "to window - shop first," as an observer
described it.  Few doubt they will be back to invest.  One
leading plant engineering firm, Chiyoda Corp., recently
announced it will propose development projects in Mandalay,
700 km north of the capital.  And Japan and Myanmar recently
agreed to open a direct air route.

Opportunities are springing up elsewhere.  Myanmar is likely
to become an official observer of ASEAN this year and could
join the organization by 2000.  The country recently received
an International Monetary Fund team to upgrade its ability to
collect economic statistics.  It is a "step in the right direction to
seek further IMF support," a Fund spokesman says.  The IMF
and the World Bank stopped aid and assistance to Myanmar in
1990, when SLORC ignored the results of an election in which
Suu Kyi's National League for Democracy won a landslide
victory.

A MATTER OF TIMING

Suu Kyi has asked investors and donors to wait and see if
SLORC is really serious about democracy before pouring
money into the country.  "That's a joke," replied Brig. - Gen.
David Abel, minister for national planning and economic
development.  "Money motivates big businessmen.  They are
not worried about what politicians say."

Maybe not.  In the seven years since SLORC began courting
investors, foreign money has helped reinvigorate Yangon and
Mandalay.  Four- and five - star hotels are rising against the
capital's colonial - era skyline; a few modern office buildings
have appeared along the city's airport road and in its still -de-
crepit central district.  Billboards advertising imported
Japanese and Korean TVS, refrigerators and karaoke machines
stand next to those touting military slogans.
Other signs of modernity are creeping in.  Japanese cars and
pickup trucks are replacing the vintage Morris sedans at a
quick pace.  The government has started collecting parking
fees; residents even talk about the beginnings of traffic jams. 
They also compare notes on new restaurants.  "The city is
more vibrant than it was just 18 months ago," says Bernard Pe
- Win, a Hong Kong - trained businessman who negotiated and
oversaw the renovation of Yangon's venerable Strand Hotel in
the early 1990s.

While Myanmar doesn't yet have many publicly owned
companies, the government is bullish on the prospects for a
stock market.  Some 20 local firms have already sold stakes to
individual investors.  More than a year ago, the government
and Daiwa Securities Co. of Japan began working together to
establish a formal exchange.  Once Yangon enacts securities -exchange laws, Daiwa and the state - owned Myanmar
Economic Bank are to start up a joint venture to supervise the
existing trading.  This could happen within the next six
months, says Martin Pun, CEO of Serge Pun Associates and a
consultant to Daiwa.  A full - fledged bourse could be up and
running within six years.

The government claims that its reforms helped the economy
grow by 6.8% in 1994 and that the private sector now
accounts for just over 75% of the country's output.  Total
approved foreign investment since 1990 is about $2.5 billion. 
Myanmar, as advertised, has an urban labor force willing to
work for an average of about a dollar a day - not to mention
gas reserves, teak, rubies, unpolluted rivers, fertile land and a
virtually untouched domestic market of some 46 million
people.

In short, it could be a nimble investor's land of opportunity. 
"Myanmar is like Malaysia in the 1950s," says Hishamuddin
Kob, whose Kuala Lumpur - based WHS Resources is just
digging into the mining sector.  "But its economic take - off
will be faster because they have Asian models to emulate." Lt.-Gen. Kyaw Ba. minister of hotels and tourism, agrees: "We
won't make the same mistakes as other countries."

THE DOWN SIDE

But a closer look reveals that SLORC's reform program does
not measure up to the hype, and wide spread corruption and
some government policies still weaken the economy. 
Foreigners can wholly own certain businesses in Myanmar. 
But if a company needs a local partner, most get better initial
results if that partner is connected to the government.  SLORC
maintains a monopoly on the export of rice, teak and minerals. 
This means that the government's claim to account for only
22% of the country's output is a bit disingenuous.  Agricultural
production makes up about 40% of the country's GDP and is
still basically government - controlled.  Privatization has
hardly advanced; the government so far has succeeded in
unloading a few cinemas.  The financial sector also remains
closed to foreigners.  The generals, one Yangon resident says,
can set their own agenda, and the command economy is still
very much the order of the day.  Meanwhile, the black market
remains huge and flourishing.

The biggest drag on growth, and perhaps investor confidence,
may be Myanmar's grossly overvalued kyat.  The country's
official exchange rate is about six kyat to the dollar; in the
"free-market," a greenback fetches about 123 kyat.  The
distorted rates make many government statistics suspect.  It is
also why nearly all of the money entering the country goes into
industries that generate foreign currency.  The fat kyat is one
of two principal reasons that multilateral lenders like the
World Bank don't loan money to Myanmar to build badly
needed roads, ports and power plants. 

The other reason is that major Western donors want to see
more political reform and fewer human rights abuses before
they help SLORC.  The generals have so far shown no
inclination to reconcile with the opposition.  When in late
November Suu Kyi's NLD boycotted the military - run
National Convention drafting a constitution, SLORC replied
that it would "annihilate" troublemakers.

Little international support and years of bad management have
left the economy in a shambles.  Inflation is high, official
savings are low and Myanmar isn't paying back its foreign
debt, half of which is owed to Japan.  The World Bank reports
that investment in such areas as health and education as a
percentage of GDP has been decreasing over the past five
years.  About 75% of Myanmar's children don't complete
primary school, according to the UN Development Program in
Yangon.  Only defense spending is protected.  Since 1989 it
has gobbled up between 36% and 45% of the government's
budget.  Vietnam, by contrast, spent less than 10% on defense
in 1994.

HURRY UP AND WAIT
 
To invest in Myanmar you have to bet long on the government,
or on peaceful political change.  The country is too risky for
many Western companies - with the exception of large
investments in gas exploration.  The favored phrase among
Asian entrepreneurs is "it's still the early days." Of the $2.5
billion worth of projects approved since 1990, at the most
about $190 million has actually been implemented each year. 
In comparison, Vietnam has approved $13 billion of
investments since 1988.

The big question is when is the right time for investors to jump
in.  "The government is going through some growing pains,"
says Pat James, a U.S. business consultant who has lived in
Myanmar since the late 1980s.  "But the next four years will
give new meaning to the phrase sleeping tiger."' Until then, he
counsels executives to spend money and time cultivating
contacts among Myanmar's officials and fledgling business
class.  The Singaporeans and Japanese, James says, "are very
smart about doing business here." They pay to train workers
and they provide technical expertise to the government.

But the Singaporeans are not just building trust; they want
short - term gains as well.  "None are as single - minded about
Myanmar as the Singaporeans," says an observer in Yangon. 
They have stakes in hotels and in Myanma Airways, an agree-
ment to build an international airport in Mandalay, and banks
just waiting for permission to start up.  The emphasis, in other
words, is largely in tourism, where companies earn dollars, not
kyat.  Indeed, at most hotels, everything from postcards to car
service is priced in dollars.

Investors don't like to deal in the over - valued kyat partly
because Myanmar prohibits foreigners from freely converting
currency to dollars.  Nearly three years ago, the government
introduced Foreign Exchange Certificates and last month
opened 10 official kyat - FEC exchange centers.  But
companies that earn kyat can only convert their profits into
foreign currency by exporting goods from Myanmar.  Usually
that means shrimp or pulses.  "That kind of counter - trade
may be OK for half a million dollars," says Bangkok based
lawyer Gary Biesty, "but there's just not enough shrimp in
Myanmar for multimillion - dollar projects."

Yet another economic drawback is infrastructure: there is no
efficient transport, constant power supply or reliable telecom-
munications.  How bad is the situation?  A local distributor of
Rothmans cigarettes in the central town of Taunggyi told her
managing director that she preferred to transport shipments to
her hometown by air rather than by land; the 400-km journey
takes a good truck driver five days.

SMOKY SIGNALS

Then there is the bureaucracy.  Business consultants bullish on
Myanmar say the approval system is straightforward and the
government's reform program is on track.  "It's a two - step
process," says John Lunbeck, Yangon research manager at
Kerry Securities Limited.  "You need ministerial and
Myanmar Investment Commission approval" Sure, says James,
and then the Cabinet could veto the idea and you have to start
wooing ministers all over again.  "There are no guarantees in
Myanmar," he warns, "until you're operational and have
proven yourself."

Though the legal code is British - based and well - entrenched,
it is also antiquated and largely untested.  Tun Shin, legal
advisor to the Myanmar Investment Commission, insists there
is no cause for worry.  "Our legal system is solid and stable,"
he says.  "It wasn't born yesterday."  Still, some say negotiating
a more a matter of personal finesse than legal skill.  "If a
company is looking for everything in black and white," says
Pun of Serge Pun Associates, "then this is not the right time to
come in."

That could sum up the recent experience of foreign
businessmen in Myanmar.  "There's no transparency," says one
investor.  "No one knows what SLORC is planning." Most
agree that the generals are cautious; some say risk - averse. 
"They haven't taken the kinds of tough decisions that Deng
Xiaoping did in the late 1970s," says Gerald Segal of the
International Institute for Strategic Studies in London.

There are good reasons for SLORC to hesitate.  It's been
burned by investors out to make a fast buck, such as
unscrupulous Thai logging and fishing companies.  And
though there are some very capable ministers in the
government, the overall level of economic expertise is low. 
The biggest obstacle to reform, though, could be the junta's
fear of unrest if economic reforms cause high inflation or put
people out of work.  "The potential for experiment is less than
it was when China first opened up," Segal says, "and the
potential for things to go wrong is greater."

Given these uncertainties, foreign punters are waiting for
substantive changes.  "In Myanmar, most are optimistic in the
long - term," says one observer, "but few in the short - term."
In other words, in this volatile emerging market, the weak-hearted need not apply.        

MONOPOLY
THE HIGH PRICE OF RICE

If there is one thing that can unsettle Myanmar's tough ruling
generals, it is watching the price of rice increase.  The high
cost of the grain and other essential goods was one of the
sparks that fueled anti - government protests in 1988.  Today,
the price of the staple is on the rise again; it has doubled in a
year.  Even some middle - class entrepreneurs complain they
have to dig deep into their pockets to buy enough rice to feed
their families.

Though no one is predicting renewed protests, the government
is not taking any chances.  The Ministry of Trade, the sole
legal rice exporter, announced in November that it had
postponed all exports of the grain in order to ease prices in
domestic markets.  Foreign contractors who ordered 700,000
tons of rice for delivery by December will have to wait at least
until the end of January.

What went wrong?  Rice production in Myanmar has actually
increased 35% since 1990.  That's largely because the
government has increased the amount of land under cultivation
and upped the number of harvests per year from two to three. 
In past years, rice has made up about 15% of Myanmar's
negligible exports.

The trouble began in the fiscal year that ended March 1995. 
That's when rice accounted for 40% of all exports, edging out
timber as the top foreign - currency earner.  Officials boasted
that they had sold 1 million tons of rice, nearly five times the
previous year's exports.  The huge increase was made possible
by setting aside more of the domestic rice output for foreign
buyers not by increased yields.  Yangon normally gets its rice
by requiring farmers to sell a percentage of their grain at below
- market prices.  But to fill the giant export contracts, Yangon
was forced to buy from private traders, who are increasingly
asking top kyat for the grain.  And with demand up, traders are
hoarding rice in anticipation of even higher prices, further
exacerbating the situation.

It is not quite accurate to say there is a domestic rice shortage,
says Kyaw Tin, general manager of the private cargo inspector
SGS (Myanmar) in Yangon.  Better, he says, to call it "a
miscalculation by the government." In the meantime, it is the
average family in Myanmar who is paying the high price for
the mistake. 


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