THE BURMESE ECONOMY

[shar@xxxxxxxxxxxxxxxxxxx]

    BURMESE ECONOMY AND THE WITHDRAWAL OF EUROPEAN TRADE
                        PREFERENCES
===========================================================

Stefan Collignon

The  purpose of this report is  to assess the impact of the
temporary  withdrawal  of the  scheme of  generalized trade
preference  for Burma (Myanmar) as  has been decided by the
EU Council of Ministers in March 1997. The European Union's
Generalized System of Preferences (GSP) envisions
suspension in the following cases:  Practice of any form of
forced  labour.   Export of  goods  made by  prison labour.
Inadequate  controls  on  the export  or  transit  of drugs
(illicit substances) or of money laundering.

There  is  ample  evidence  that  each  of  these practices
applies to Myanmar.  However,  the withdrawal of GSP is not
automatic,   but subject to  a political assessment.  Other
countries  have taken the  lead.  Thus,  since  1991 the US
government  has not  granted GSP preferences  to imports of
Burmese  origin  and has  declined  to renew  its bilateral
textile  and  garment  trade  agreement.  Suspending  trade
preferences for Burma by the European Union should take the
following considerations into account:

What impact will it have on the Burmese economy?
What impact would it have on the political regime in
power?
What impact would it have for the long term transition
to a democratic regime in Burma?
In this report I will concentrate on the economic side
of the assessment.

=======================================================
The  European Union is sending strong signals to SLORC that
the   "constructive  engagement"  approach   is  no  longer
supported,   and without significant reform,  both economic
and political,  the EU is not prepared to endorse the SLORC
regime.
=======================================================

                      The country
              ==============================
Burma  is a  large country  in Southeast  Asia,  in surface
equivalent   to  Spain,   Portugal  and  Austria,   with  a
population  of 45  million,  slightly  less than  Spain and
Austria.  It is surrounded by the Indian Ocean, Bangladesh,
PR  China, Laos and Thailand. With 140 ethnic groups, Burma
is the country with the largest ethnic concentration in the
world  (one group per 5000 sq km the equivalent of a French
department).   Politically,  it became  a British colony in
1886 and attained independence in 1948 under the leadership
of General Aung San, who was assassinated in 1947. The first
independent   democratic  government  under   U  Nu  proved
unstable and incapable of dealing with the ethnic issue. It
was  replaced in a  coup d'etat by General  Ne Win in 1962,
who nationalized most of the economy and set the country on
the  "Burmese way to socialism".   During this time,  Burma
became one of the most isolated countries in the world.  In
1988, a general uprising by the impoverished population was
violently  repressed by the  army.  Approximately,  2000 to
3000 people were shot dead in the streets.

Subsequently, the army set up a military junta called SLORC
(State  Law and Order Restoration  Council) which has ruled
the country since then. Although the government held fairly
free  elections in  1990,  it  never recognized  the result
which  gave  82  per  cent majority  of  the  seats  to the
opposing  National League  for Democracy (NLD)  led by Aung
San  Suu Kyi,  winner of the  Nobel Peace Prize in 1991 and
daughter  of the Independence Hero.   In fact,  she was put
under  house arrest for six years  and her freedom is still
heavily constrained to this day.

        Economic growth and standard of living
===========================================================

Foreign  visitors arriving in Burma  often notice a visible
improvement  in  apparent  signs  of  wealth  in  the major
cities, particularly Rangoon and Mandalay, since 1988. This
is  manifested in the substantial construction boom between
1988  and 1991,   although it  has somewhat  faltered since
then. However, as soon as one leaves the larger cities, the
situation  becomes  different.  Poverty  is  widespread and
infrastructures  like roads and  railways are derelict.  In
fact,   despite apparent  improvements,  sustained economic
growth is still not taking place.

After   the   military   coup  of   1962   with  widespread
nationalization  and the embarkation of the "Burmese way to
socialism",   growth became volatile  and per capita income
stagnated. Negative growth lead to hunger riots in 1967 and
a change in policies: East-European-style industrialization
were  to  improve  economic  growth.  This  inward-looking,
import-substituting development strategy turned out to be a
disaster, despite significant investment in heavy industry.
Growth  rates  fell and  real standards  of living  did not
improve.  In  1974,  antigovernment  riots  sparked  by  UN
General Secretary U Thant's burial again led to a change in
policy  (though not in the political regime).  The internal
rice  price was raised,   the agricultural sector expanded,
and  growth resumed at  a decent rate,   supported by loans
from  international  donors and  agencies.  In  fact,  some
observers  argue  that economic  growth only  started after
Myanmar  began  to accept  Overseas Development  Aid (ODA).

However,   the boom of the late 1970s and early 1980s,  but
more importantly because of the grossly overvalued exchange
rate and other incompetent policies. The Burmese government
started  to lose foreign currency reserves at a rapid rate.
Contrary to other South East Asian countries, the state run
economy  in Burma did not have the flexibility to adjust to
the  new environment.  With the official real exchange rate
being  hopelessly  overvalued,   competitive  exports  went
illegally  over  the border  to neighboring  countries.  At
first, the economic deterioration was masked by substantial
foreign  borrowing.  Burma's  foreign debt rose  from US $4
billion  in 1988. To alleviate this problem, the government
obtained  "least developed country" status in 1987.  In the
mid-eighties,  the bubble burst:  per capita income fell by
22 per cent from 1986 to 1988. Keeping with the established
pattern,   this deterioration in living standards again led
to  widespread public riots and  military repression by the
newly formed SLORC. Given the new government's human rights
record,  it was immediately considered as an outcast by the
world.   ODA was  stopped by  industrial countries  and the
SLORC  was forced to  open its economy  in order to attract
foreign   investment,   despite  a  fundamental  xenophobic
attitude.   This  new  development  strategy  ("open  door"
policy) has recently produced some improvements in economic
growth rates.  But even with a growth rate of nearly 19 per
cent in the budget year 1995-96, per capita income has just
caught  up with the  long term trend  over the last quarter
century  with an abysmal growth rate  of 1.12 per cent p.a.
Thus,   Burma  is far  from joining  East Asian  dragons or
tigers.  There is no evidence of a fundamental break in the
growth dynamics of Myanmar.

Today,   Myanmar  must be  counted  as one  of  the poorest
countries in the world. The World Bank ranks Myanmar as the
41st poorest country without indicating GNP data.  The UNDP
Human Development Index gives a real GDP per capita of US $
595, calculated at purchasing power parities; it classifies
the  country in  the "low  human development"  group (index
0.385)  on position 111 out of 160 countries. However, even
this  index seems  overstated,  for  evidence in  the rural
areas  of northern  Burma does  not coincide  with the high
literacy  and educational values which  keep the index from
falling.   Life  expectancy seems  to be  in line  with all
developing counties,  but the percentage of population with
access  to health  services,  safe water  and sanitation is
only  half of  this standard.   The UNDP  Human Development
Report  shows 16.7 per cent  of the total population living
below the poverty line.  this situation is also responsible
for   the  increasing  number  of  economic  refugees  into
neighboring  countries.  Two  hundred thousand  Burmese are
estimated to work illegally in Thailand.  According to Asia
Watch,   20,000 Burmese women were forced into prostitution
in Thailand alone during the last two years,  but many more
are working in Burma.

Estimating  growth  and  national income  is  precarious in
Myanmar.   Government and information  policies are opaque,
statistics  often  distorted,  This  report  primarily uses
World Bank statistics for the legal economy.  However,  the
black  market  economy  not  only  continues  to  exist  in
Myanmar,    despite  some  liberalization,   but  data  are
fundamentally biased by the illicit narcotics economy.  The
French  Observatoire  Geopolitique de  la  Drogue estimated
that  drug revenue from  2800 tons of  opium (producing 200
tons  heroin) would yield an illegal  income between US $ 2
and  8  billion,   which  compares  with  official  foreign
exchange reserves of $ 200-300 million and a GDP of $ 1.460
million  and a  GDP of  $ 1.460  billion at  the unofficial
exchange  rate and $  26.953 billion at  the official rate.
This  compares with opium production of 400 tons at the end
of  the 1950s  and 800-900  tons in  1987.  Other estimates
calculate  annual narcotic incomes  of US $  1.2 to 1.5 bn,
equivalent of 12-15 per cent of GDP.  In any case,  Myanmar
is  the  world's largest  opium producer,   responsible for
nearly  all of the heroin consumed in the United States and
a large portion of Europe's narcotic trade.

                                               To Continue.
    News and Information Bureau, All Burma Students league

************************( End )****************************

    +=====================================+
    |  A  B  S  L                         |
    +-------------------------------------+
    |  All Burma Students League          |
    |  3, Krishna Menon Marg              |
    |  New Delhi - 110011                 |
    |  Ph    : 91-11-3017172/3016035      |
    |  Fx    : 91-11-3793397              |
    |  Email : shar@xxxxxxxxxxxxxxxxxxx   |
    +=====================================+