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Bangkok Post April 5, 1998 GUEST C (r)
- Subject: Bangkok Post April 5, 1998 GUEST C (r)
- From: brelief@xxxxxxx
- Date: Tue, 07 Apr 1998 09:05:00
Bangkok Post April 5, 1998
GUEST COLUMN / BURMA
The sole survivor
How has Burma been able to avoid the Asian flu?
MYA MAUNG
Unlike other Asian countries, Burma has not been covered extensively in
the international news media, which suggests that it has been able to
insulate itself from the ongoing Asian economic crisis. Burma seems to
have successfully averted the speculative attacks on financial markets
and the currency crisis which have affected a number of Asian economies.
Unlike the Thai baht, the Indonesian rupiah and the Malaysian ringgit,
the accelerated rate of depreciation in the Burmese currency which
occurred toward the end of 1997 seems to have been arrested in 1998 by
the Burmese military regime's monetary authorities. The
unofficial/parallel market price of the US dollar that climbed to the
panic level of 380 kyats per dollar has been brought down and has
stabilised at around 240 kyats as of January 1998.
The apparent success of Burma in avoiding the contagion of the Asian
financial debacle stems from the nature and function of the Burmese
economy, on one hand, and the policies of financial repression adopted
and enforced by the government on the other.
Unlike other rapidly developing Asean economies, the so-called
"open-door, market-oriented" economy of Burma is neither truly open nor
market-oriented. State control of foreign trade and a monopoly on
exports and enterprises with foreign exchange earning power, such as
those dealing in rice, teak, gems, oil and natural gas, is more or less
absolute. A foreign exchange regime has been relentlessly maintained
with an unrealistic official exchange rate of 6 kyat to the dollar, 20
to 30 times the unofficial market price.
Burma has virtually no modern private financial markets, financial
institutions or banking system that are directly linked to the regional
financial markets and financial system. The entire financial system is
centralised and tightly controlled, regulated, and managed by the state
with respect to free convertability between domestic and foreign
currencies. The consequence has been the development of foreign exchange
black markets.
To avoid the impact of the Asian currency crisis on the unofficial
market price of the US dollar and the parallel foreign exchange
certificate (FEC), or "Burmese dollar", the Burmese military government
halted cross-border trade with Thailand and instituted a crackdown on
official and unofficial trading of both the US dollar and the FEC.
As in the past, whenever the black market price of the US dollar and the
FEC rose to a crisis level, authorities began arresting traders and
revoking the licences of FEC traders.
By halting imports, reducing the demand for foreign exchange, arresting
unofficial foreign exchange dealers and rationing the amount of FEC
trading at legal trading counters in Rangoon, the government was able to
stabilise the unofficial foreign exchange rate of the kyat.
However, this stopgap measure, avoiding the Asian financial crisis by
isolating Burma from the outside world, will not solve the deep-seated
economic problems of pervasive poverty, escalating inflation due to
shortages of basic necessities such as rice, dwindling foreign exchange
and massive unemployment.
Many economists believe that the underlying cause of the unexpected
Asian financial debacle lies in the non-transparency of information and
crony capitalism of authoritarian states with unmonitored and corrupt
regulators of financial institutions compromising their fiduciary
responsibilities. Burma exemplifies the classic case of
non-transparenncy of information and crony capitalism of an
authoritarian state controlled and managed by powerful military
ministers.
The recent dissolution of the Slorc and ousting of 14 military
commanders charged with corruption and replaced by a new 19-member junta
is a political manoeuvre to improve the image of Burma's military
rulers. It does not constitute a genuine cleansing of the economy that
seethes with corruption from top to bottom.
In addition, two incidents occurred that will lead to an economic crisis
for Burma, one hidden from the public by the Burmese government: the
worst flood to hit the region in 30 years, during August and September
1997, and the ensuing shortage of rice for both domestic consumption and
exports.
According to the UN and foreign reporters, the flood has affected nine
out of Burma's 14 states, inundating hundreds of thousands of paddy
fields, destroying roads and bridges with some 100,000 farmers losing
their homes and livestock.
The United States Department of Agriculture reported that in the first
10 months of fiscal 1997/1998 rice exports declined from an average
level of 300,000 tons a year in the mid-1990s to a mere 15,000 tons,
with foreign exchange earnings from rice exports plunging downward from
an average of $400 million a year to a mere $3 million. It is more than
likely that rice exports will not exceed 20,000 metric tons for the
entire fiscal year 1997/98.
Like its predecessor the Slorc, the newly formed military junta, the
State Peace and Development Council (SPDC), has been counting heavily on
real and potential incremental foreign direct investments into Burma to
initiate and sustain economic growth.
However, the Asian financial debacle seems to have shattered the
possibility of this. The reality of the Asian financial debacle is that
the largest investors in Burma, other Asean nations, with their own
financial and economic crises, will not be able to finance their
investment projects in Burma, let alone to make new investments.
In addition to no new investments by US firms due to sanctions imposed
in April 1997, there is a strong possibility of divestment by US oil
companies. Cases in point are Texaco's withdrawal from the Yadagun
natural gas project in 1997 and Arco's revelation of its intention to
liquidate its newly acquired natural gas project in the Bay of Martaban.
The controversial billion-dollar Yadana natural gas project, the largest
joint venture between Unocal (US), Total (France), the PTT and the
Myanmar Oil and Gas Enterprise (MOGE), also seems to be in trouble, with
legal disputes and a sit-in protest by conservationists in Thailand
against the PTT's pipeline project.
In addition, border conflicts between Burma and Thailand due to changes
in the SPDC's trade policy led to the stoppage of cross-border trade.
The ongoing economic and financial crisis in the region has also led to
a massive deportation of illegal Burmese workers that will certainly
depeen the economic and financial crisis of Burma.
The two countries from which Burma can hope to secure funds to remain
afloat are Japan, historically the largest creditor nation of Burma's
military regime, and China, Burma's greatest ally since 1988.
Two-thirds of Burma's outstanding external debt of over $6 billion is
owed to Japan. The recent news of Japan's intention to resume its
Overseas Development Assistance (ODA) loans to Burma is an example of
Japanese vested economic interests in Burma.
China, on the other hand, has provided economic and military aid and
concessional loans far greater in value than that of Japan to finance
Burma's infrastructure projects, especially the construction of new
roads and bridges and the refurbishment of old ones that link the two
countries. China's vested political interest in providing aid to Burma
since 1988 has been to expand its naval power and presence in the Indian
Ocean via Burmese lands and waters.
Thus, it the Burmese junta's safety net of aid from Japan and China
seems to be in place. It must be emphasised, however, that the real
safety net of the Burmese junta lies not in the inflow of legal foreign
exchange from foreign investments and bilateral aid, but in the inflow
of illegal drug money and money laundering with impunity by infamous
drug kingpins in complicity with corrupt generals.
*Mya Maung is a professor of finance at the Wallace E. Carroll School
of Management, Boston College, USA.
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