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THE NATION: Burma's foreign curre
- Subject: THE NATION: Burma's foreign curre
- From: suriya@xxxxxxxxxxxx
- Date: Fri, 24 Apr 1998 19:27:00
Editorial & Opinion
Burma's foreign currency
'success'
Rangoon has turned back to its isolationist
policy to protect the country from the
financial turbulence in Asia, Mya Maung
writes.
UNLIKE other Asian countries, Burma has
not been extensively covered in the
international news media, seemingly
suggesting that it has been able to ward off
the domino effect of the ongoing Asian
financial debacle and economic crisis.
Burma seems to have successfully averted
the speculative attacks on the financial
markets and the currency crisis of a number
of Asian miracle economies and Asean
countries.
Unlike the baht, the Indonesian rupiah and
the Malaysian ringgit, the accelerated
depreciation of value the Burmese currency
towards the end of 1997 seems to have
been arrested in 1998 by the monetary
authorities of the Burmese military regime.
The unofficial/parallel market price of the
US dollar that climbed upward to a panic
level of 380 kyats was brought down and
stabilised at around 240 kyats in January.
The apparent success of Burma in avoiding
the contagion of the Asian financial debacle
stems from the nature and functioning of the
Burmese economy, on the one hand and
the policies of financial repression adopted
and enforced by the government on the
other.
Burma has virtually no modern private
financial markets, institutions and banking
system that are directly linked to the
regional financial markets and system.
The two basic policies of trade and
financial repression adopted and enforced
by the Burmese military government to
avoid the impact of the Asian currency
crisis and bring down the escalating
unofficial market price of the US dollar and
the parallel dollar-denominated currency,
the foreign exchange certificate (FEC), are:
the stoppage of cross-border trade with
China and Thailand and the crackdown of
official and unofficial trading of both the
black US dollar and the FEC. As in the past
whenever the black market price of the US
dollar and the FECs, nicknamed the
Burmese dollar, rose to a crisis level, the
authorities began arresting traders and
revoking the licences of FEC traders.
The stoppage of imports or reducing the
demand for foreign exchange and at the
same time, the arrest of unofficial foreign
exchange dealers and rationing the amount
of trading of FEC at the legal trading
counters in Rangoon by the military
intelligence officers seem to be the cause
for the stabilisation of the unofficial foreign
exchange rate of Burmese kyat.
However, this stopgap measure of avoiding
the Asian financial crisis by isolating Burma
from the outside world is not going to solve
the deep-seated economic problems of
pervasive poverty, escalating inflation due
to shortages of basic necessities, including
the Burmese staple diet rice, dwindling of
foreign exchange and massive
unemployment.
Many economists believe the underlying
cause of the unexpected Asian financial
debacle lies in the non-transparency of
information and crony capitalism of an
authoritarian state with unmonitored and
corrupt regulators of financial institutions
compromising their fiduciary
responsibilities.
Burma exemplifies the classic case of
non-transparency of information and crony
capitalism of an authoritarian state
controlled and managed by powerful and
corrupt military ministers.
The recent dissolution of the Slorc -- and
ousting of 14 military commanders charged
with corruption -- to be replaced by a new
19-member junta was a political manoeuver
to improve the image of the military rulers.
It did not constitute a genuine cleansing of
the economy that seethes with corruption
from top to bottom. The reality of the Asian
financial debacle is that the largest
investors in Burma, the Asean states, with
their own financial and economic crises, will
not be able to finance their committed
investment projects in Burma, let alone
make new investments.
In addition to no new investments by US
firms due to the US government 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 Yadagan 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 ongoing economic and financial crises
of Asean have also led to a massive
deportation of Burmese illegal migrant
workers that will certainly deepen the
economic and financial crisis of Burma.
The two countries from which Burma can
hope to secure funds to remain afloat
amidst the Asian financial and economic
crisis are Japan, historically the largest
creditor of the military regime of Burma,
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 a
case in point of Japanese vested economic
interest in Burma.
China, on the other hand, has provided
several economic and military aid and
concessional loans far greater in value than
those of Japan, to finance various
infrastructure projects, especially the
construction of new roads and bridges and
refurbishment of the 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. 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 Burma's infamous drug kingpins such as
Khun Sa and Lo Hsing Han in complicity
with Burmese generals.
However, the Burmese economy under the
gross mismanagement of incompetent
military rulers is in a downward spiral with
escalating inflation, shortages of rice and
other basic necessities, rampant
corruption, massive unemployment, and
pervasive poverty with the threat of another
massive political convulsion and violent
killing like the 1988 political uprising.
Mya Maung is a professor of finance at the
Wallace E Carroll School of Management,
Boston College.
The Nation