Burmese Way to Capitalism (AsiaWeek

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Subject: Burmese Way to Capitalism (AsiaWeek 17.2.89)

/* Posted 7 Jan 10:00pm 1997 by drunoo@xxxxxxxxxxxx in igc:reg.burma */
/* -----------" The Burmese Way to Capitalism (17/2/89) "----------- */

ASIAWEEK, FEBRUARY 17, 1989. PP-47
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ECONOMIES: The Burmese Way to Capitalism
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For all the worldwide attention fcused on Burma's explosive social climate
over the past six months, it is the economy, not politics, that has
witnessed real change. Rangoon's military regime has still to deliver
promised civil rights and elections, but new timber and fishing concessions
have been granted, border trade with China has been legalised and a new,
albeit sketchy, foreign investment law has been promulgated. Officials
declare that the resource-rich country is abandoning former strongman Ne
Win's "Burmese Way to Socialism." The new capitalist push, they hope, will
bring a measure of prosperity to a country beset by decades of poverty and
stagnation.

The Trade Ministry's 55-page hand book on business for commercial attaches
and foreign businessmen lists all the state trading organisations. After Ne
Win resigned late last year, the government in Rangoon indicated it was
veering off the strongman's path. In November the words "Socialist
Republic" on the cover of the booklet were crossed out leaving only "Union
of Burma". But inside, the list of government bodies that dominate the
economy remains the same.

Economic development, however, has to take a back seat while important
political issues are resolved -- notably whether and when promised
elections for a civilian government will be held. Nonetheless, Rangoon has
been making gestures which must be seen, given its record, as rather bold.
The four-month-old military regime has promulgated a new foreign investment
law. Fishing and timber concessions are repidly being granted to overseas
companies. Officials have stated baldly that the government intends to move
the economy from socialism to free-market capitalism. Beams trade minister
David Abel, an army colonel: "We're not an insular country now. We have
opened."

Burma has much to overhaul. It suffers from the classic symptoms of an
economy under pervasive state control. Inefficient government enterprises
monopolise resource exploitation and commerce, stifling entrepreneurs or
driving them underground. Price controls discourage production -- except
for things sold in the black market. There is a deep distrust, not easily
eradicated, of foreign capital and expertise, which is generally seen as
only seeking to strip Burma of its natural wealth. The country could be
sitting on billions of barrels of oil reserves, yet it imports petroleum
products and is one of the world's poorest countries (per capita income:
not more than $200 a year). No one can state with certainty how much oil
there is; no comprehensive survey (which would require foreign experts and
technology) has ever been commissioned.

Trade has plummeted. In the fiscal year that ended last March, imports fell
by half to $266 million. Exports, at $79 million of the six months to JUne
1988, were also half the level of a year earlier. In troubled August,
exports may have sunk to as low as $3 million, according to reliable
estimates. Overseas sales of rice dropped to 293,100 tons in 1987-88, down
from 600,000 the year before. For April-October, shipments barely exceeded
24,200 tons. In the years before Ne Win's coup, annual rice exports were
about 2 million tons. Rice, along with teak hardwood, is a key
foreign-exchange earner. International reserves dwindled to around $8
million late last year, observers reckon. The economy, wihch had averaged
5.5% annual expansion between 1982 and 1986, slowed to 2.2% growth in 1987
and almost certainly contracted last year. Foreign loans totalling $4.9
billion go largely unpaid.

THINGS were much worse at the height of the anti-government demonstrations.
The economy came to a virtual stand-still as first Ne Win's and then two
other governments fell. An estimated 3,000 people were killed before the
military under Gen. Saw Maung took power in September. Markets along
Rangoon's Strand Road by the docks now have plenty of fruit, at least, and
residents and diplomats say there is no hunger. But there continues to be a
tight supply of consumer goods. Gasoline is rationed: 18-23 litres a week
per vehicle at  around 55 cents a litre (13 cents last July) at the
official exchange rate of 6.6 kyat per $1. The black market has gas for
$3.20.

The cost of living -- about $50 a month for a family of four at the
black-market rate of 40 kyat to the dollar -- is now 30% higher than it was
a year ago. Distribution problems, scarce fuel and the black market play
havoc with prices. Low quality rice has risen 150% over the past year. IN
November onions were 350% dearer than in September. Rations are mostly for
those in government service. One unemployed man, trailed by his young son,
says his family can't get onions, cooking oil or rice from state-run
stores. "I'm at the mercy of the street."

The Working People's Daily runs articles on inflation and the need to
control prices and curb greed. People survive by petty trading, borrowing
from relatives and living in overcrowded quarters. "They are doubling and
tripling up in housing all over the place," says a Rangoon-based Western
economist. One resident notes that even in more affluent areas outside
central Rangoon, families are taking in lodgers to defray costs. The
military set up shops after the coup to sell staple commodities at
lower-than-market prices. Some fifteen outlets in Rangoon and other in
Mandalay are open, but availability of goods is unpredictable and purchases
are limited. People line up for four hours to get a day's food.

Squeezed by cuts in aid from donors protesting the military crackdown, the
state is attemption a quick fix by selling off resources. Sixteen timber
concessions were granted to well-connected Thai companies along the border,
each with a minimum $50,000 down. Some 211 fishing licences have been
granted to Thai, Singaporian, Japanese, Hongkong, South Dorean and
Malaysian firms. In early November the fee was $650 per gross registered
ton of fishing vessels. It is now $1,000 -- but still very profitable. Says
one Rangoon-based Asian diplomat: "They're giving away natural resources to
keep themselves alive." Adds and Asian Economist: "If they sell assets they
can improve the situation for the short term, but it's not good for
development."

Foreign capital and expertise needed for real progress would not be long
coming, particularly from Japan, Burma's NO. 1 trading partner -- provided
conditions were right. Burma has 1.5 billion barrels of proven oil
reserves. Current production, hampered by a shortage of foreign exchange,
is around 13,000 barrels a day, less than half what was  being pumped a
decade ago and only a quarter of capacity. The country has 75% of the
world's teak and a wealth of gems and metals. But no one really knows for
certain how much.

Rangoon began trying to tap overseas capitals last November with a new
investment code. But it is far too unsophisticated. Says the Western
economist: "No businessmen can deal with the government if it has no idea
of how it is going to treat taxation, import freedom and labour. The
Burmese think the guidelines are specific." The law takes just fifteen
pages in a small booklet. China's regulations, by contrast, fill a book of
more than 300 pages.

Critics add that Burma's rules leaves far too much to the interpretation of
the Foreign Investment Commission. Chaired by the planning & finance
minister, the body includes heads of ten economy-related ministries. It
decides, among other things, the economic activities covered bythe law,
changes in terms and duration of business contracts and even which banks
investors must use.

One Bangkok trader, who does more than $1.5 million worth of business in
agricultural products and fish, finds the black market easier and cheaper.
"We'd need more guarantees before doing business directly, " he says. Adds
a Thai textile manufacturer:"Business with Burmese takes too much time
since everything has to go through the government." Rangoon is apparently
banking on its natural wealth. "If you want to invest in copper, can you do
that in Thailand?" asks Trade Minister Abel. If an investor takes up that
particular opportunity, he says, "the raw material is going to be really
cheap." The personable 54-year-old graduate of Britain's Sandhurst military
college also talks of more value-added products. "We export logs,"says he.
"Why can't we export veneer, furniture and building materials?"

Investors are so far unconvinced. Burma's leaders, serious though they may
be about reform, clearl lack expertise. All but one of the cabinet
ministers are military officers. One Burmese says Abel was picked for trade
"because he was the most articulate." Adds the Asian economist: "It's
unlikely anyone in government knows much about economics. there are some
good civil servants, but having good people at that level isn't enough."
Topping the list of suggestions to bring investors around: elections. "Most
people aren't willing to commit funds to a temporary regime," explains the
Western economist. A more realistic exchange rate is another awaited sign.
And Rangoon must decide soon about oil-exploration concessions.

Still wary of government motives, local entrepreneurs lack incentives.
There is almost no capital available for the private sector. The
government, says one diplomat, "think Burmese entrepreneurs have sources of
funding outside the country." The banking system is not big or efficient
enough to handle the transactions of a resurgent private sector.
Withdrawals, limited to $1,500, can be made only once a week -- and usually
take half a day. Foreign investors have their own sources of capital. Bur
what of local entrepreneurs ? Will there be enough for the new Burma after
26 years of socialism and the exodus decades ago of many businessmen and
professionals? A good number may came from the black market, which is
valued at a third of the whold economy. Says a Western expert: "They must
be clever just to keep their heads above water, just to keep up with the
confiscations and changes."

Border trade with China was legalised in October and Chinese goods
predominate in Rangoon and Mandalay, from pharmaceuticals to garments to
appliances. The flood of China-made bicycles has cut prices by half in some
cases but at $380 by the official exchange rate are still far too dear.
Trade between the two countries could reach $300 million this year.

BUsiness wiht the capitalist world looks far less promising. Col. Abel
claims that 1,000 businessmen have flocked to the company registration
office to enquire about setting up shop. Other sources say the response has
been tepid. The minister counts eighteen newly registered Burmese trading
companies, a number that one observer consider "far too small considering
the size of the country." In the short term, only those looking for a quick
buck are likely to put in money. But for a government in dire need of
revenues, even such carpetbaggers may be welcome.
****