"Myanmar's mysterious boom" THE E

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Subject: "Myanmar's mysterious boom"   THE ECONOMIST

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The Economist
April 6, 1996

MYANMAR'S MYSTERIOUS BOOM

Scanning Southeast Asia for the next "tiger" economy, many
eyes have lighted on Myanmar (Burma).  Always rich in
resources, its government is now friendly to foreign businesses. 
Human rights groups may carp at foreigners for dealing with an
unpleasant military regime.  But businessmen are scared of
missing out on an economy that is now growing at tigerish
rates.

When it seized power in 1988, the military junta running
Myanmar inherited a closed, state - dominated economy, which
it has opened up to market forces and foreign investment.  Since
then, GDP grown rates have caught up with the feverish
regional norm.  Figures just released by the government claim
average growth of 8.2% over the past four years, which
suggests that growth is picking up again.

The capital, Yangon, certainly looks like a boom - town.  New
tower blocks are poking above the faded colonial facades;
streets that just a few years ago milled quietly with pedestrians,
bicycles, and the occasional pick - up truck now throb with
Toyotas and Nissans.  In one street, the pavement is stacked
with cardboard boxes of Toshiba television sets.  Well -
groomed young couples dine in busy restaurants.  Many see this
as evidence that -- whatever its other flaws -- the junta has at
least got the economy right.

Or has it?  The opposition leader, Aung San Suu Kyi, thinks
not.  "The so- called boom is an artificial one," she declared. 
The economy, far from being the general's saving grace "will
be their undoing."  Since Miss Suu Kyi was released from six
years of house arrest only last July, by a junta that still refuses
to talk to her, she might reasonably be suspected of bias.  But
the opposition is not alone in seeing the appearance of new
prosperity as in part a mirage.

Even the International Monetary Fund, in a report issued last
October and praised by the government as "very sound",
concluded that, on a per capita basis, "neither GDP nor
agricultural output have yet recovered to the levels reached in
the mid-1980s."  The IMF acknowledges that "real economic
activity has expanded strongly over the last three years."  But it
also identifies trends that make the government look less the
prudent liberalizers of their own propaganda, more the
spendthrift military dictators portrayed by their opponents.

Asian tigers tend to be noted for fiscal caution, small state
sectors and high levels of investment.  But Myanmar's budget
deficit has been widening.  Consumption has been increasing as
a percentage of GDP at the expense of investment and the
private sector's share in that investment has actually been
declining.  Foreign exchange reserves have been maintained at
their current low level only by failing to pay back some foreign
debt.  Civil servants' wages and social services have been cut,
while the junta has spent more on defense.  The IMF estimates
that defense expenditure accounts for 4% of GDP.  Arcane book
- keeping procedures, however, probably conceal an even
greater amount.

The prescriptive part of the IMF's report has not been made
public.  The World Bank, however, in a report also published
last October, put reform of the currency, the kyat, at the top of
its list of priorities.  There is an official exchange rate of about 6
kyats tot he dollar.  But on the streets of Yangon, it takes 125
kyats to buy a dollar.

Myanmar insists it will need a lot of outside financial support to
adjust the currency to market levels, if intolerable inflationary
pressures are to be avoided.  That is not true, or at least not for
the person in the street, who already pays for imports at a
realistic exchange rate.  Rather, unifying the currency would
encourage exports, and help with the budget deficit, by
increasing revenue from import duties and sales tax.

The World Bank has a more convincing explanation for the
government's reluctance to adjust the exchange rate -- "the fear
that influential groups in the population would lose as a result." 
That means those with access to imports at the official rate --
government departments, the army and state enterprises, as well
as some individual civil servants and soldiers.  The dual
exchange rate robs the poor to give to the comfortably - off and
the small but growing class of very, very rich.

It is also one reason why measuring Myanmar's economy is a
guessing game.  The use of the official rate hugely understates
exports and imports, and distorts year - on - year comparisons. 
The government's figures probably underestimate the size of the
economy while exaggerating the growth rates.

Growth in Myanmar's economy has come largely from
agriculture, which made up an estimated 62.6% of GDP in
1994, up from 57% in 1989.  The government says farmers are
doing nicely, thank you, and that savings in agricultural co -
operatives are rising.  Miss Suu Kyi says life is getting harder
and harder in the paddy fields, even though the price of rice is
soaring for consumers.

That, says Miss Suu Kyi, is why the government's economic
failings will become obvious this year.  But the foreign business
delegations and conferences are multiplying.  If the economy is
such a mess, why are investors flocking in?  The answer seems
to be that there is a lot more looking than investing.  The
government likes to quote a figure of $3 billion for the foreign
investment it has attracted.  But less than a third of that has
been disbursed.  Actual investment has been concentrated in the
oil and gas sector (41% in 1994- 95) -- almost all accounted for
by one massive project to pipe gas to Thailand -- and in hotel
development.  A third of disbursed investment in 1994 -- 95
went into the plethora of new hotels, often financed from
Singapore or Thailand, and built in anticipation of a surge of
visitors as the country opens up.

Miss Suu Kyi argues that business optimism about the military
junta is mistaken because "you cannot do business with people
who do not keep their word, who do not respect the law and
who are not prepared to allow healthy competition."  It is
perhaps a characteristic of soldiers not to like competition,
whether political or economic.  But these ones face a dilemma. 
To press political competition, they are maintaining military
spending at levels that are blowing holes in the states's finances. 
But they are also staking their future on economic growth.  In
which case, as one western observer puts it, they had better find
a cheaper way of dealing with ethnic insurgency in the border
regions and social discontent just about everywhere.

THE ROAD TO MANDALAY

No flyin' fishes play these days on the road to Myanmar's
second city, but the countryside still looks the "cleaner, greener
land" for which Kipling's old soldier waxed so nostalgic.  Lush
rice fields stretch to the distant hills and the barefoot women int
heir workaday sarongs smile and chatter at the approach of
foreigners.  Others, thigh - deep in the fertile paddy - slime, are
bent double transplanting rice.

They expect a good harvest soon.  Well irrigated by canals off
the Irrawaddy river, the area has long yielded tow or three crops
a year.  But these farmers say they will have to sell more than
half their crop to the government, at about two - thirds of the
market price.  The state's quota has gone up again this year.

A few miles away, at a roadside limestone quarry, the workers
are also smiling, despite an unforgiving sun and a shadeless
workplace.  Three youths are chipping at a rock face with a
pneumatic drill.  Below them, women and children, some just
ten years gold, gather the fragments, break them with stone
hammers, and carry them off in baskets on their heads for
sifting.  At the end of the day, a truck will arrive to take the
day's output to Mandalay and the workers will be paid the
equivalent of 40 cents.

Further down the road, traffic is held up for a crocodile of about
60 women in white uniforms under armed guards.  Assumed by
local residents to be prostitutes and drug addicts, even they are
smiling on their way back to prison after a day breaking rocks. 
It is not just prisoners who work involuntarily.  Village
headmen have to supply a quota of unpaid labourers to the
government.  Households that fail to supply a workers, or hire a
substitute, are fined.

Tourists travelling south from Mandalay to visit the remains of
a palace at Amarapura pass a new suburb of households
unaffected by such decrees.  Broad avenues lined with saplings
and streetlights bisect rows of palatial villas.  Even a western -
style supermarket is being built.  Locals say that most of these
villas house retired army officers.  Behind their high fences,
they are probably smiling too.



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