NEWS - Burma's Debt Is Pushing Econ

[douglas.steele@xxxxxxxxxxxxx]

Subject: NEWS - Burma's Debt Is Pushing Economy to the Brink, the World Bank Warns

Paris, Monday, November 15, 1999

Burma's Debt Is Pushing Economy to the Brink, the World Bank Warns


                 By Thomas Crampton International Herald Tribune

                 BANGKOK - While much of East Asia has emerged from
economic
                 crisis, a confidential World Bank study of Burma
details an economy
                 locked in a sharp downward spiral.

                 The report, secretly given to Burmese leaders last
month, is one of
                 the most comprehensive economic studies conducted on
Burma since
                 the military took power there more than a decade ago.

                 Burma's currency, temporarily stabilized by a clampdown
on
                 transactions, faces irresistible downward pressure and
the economy
                 is undergoing rapid dollarization, said the report, a
copy of which was
                 obtained by the International Herald Tribune.

                 More than 20 percent of bank deposits are now
denominated in
                 foreign currency, twice the level of two years ago, the
report said.

                 The report warns that a dangerous buildup of debt due
to agriculture
                 subsidies could erupt into a systemic banking crisis,
similar to those
                 experienced elsewhere in Asia.

                 Inflation now is running at its fastest pace in a
decade, with the
                 increase of consumer prices peaking at 68 percent in
mid-1998 while
                 averaging 49.1 percent for the last fiscal year.

                 New foreign investment approvals plunged 95 percent in
the last fiscal
                 year, and early indicators suggest a further sharp
retraction this year.
                 This trend is particularly worrying, the report said,
since less than half
                 of approved investments generally come to fruition.

                 Informal surveys and anecdotal evidence suggest that
the rate of exit
                 of foreign firms and collapse of local companies may be
higher than in
                 previous years. Sanctions imposed on Burma have played
a role in
                 damaging exports and investment, the report said.

                 Net international reserves at Burma's central bank,
normally a closely
                 guarded state secret, were $295.7 million at the end of
the last fiscal
                 year. This compares with a foreign reserve level of
$231.7 million a
                 year earlier and $400.5 million in the fiscal year that
began in 1994.

                 Bad economic policies lie at the heart of environmental
problems such
                 as increased deforestation and mangrove destruction,
the report
                 said. National deforestation rates have doubled since
the late 1980s,
                 the report said.

                 Any recent economic growth has been beset by dangerous
                 macroeconomic imbalances, the report said.

                 ''These factors do not bode well for Myanmar's economic
future,'' the
                 report said, going on to describe what it called
''eminently doable''
                 reforms needed to unlock Burma's economic potential.
Central
                 recommendations in the report are a gradual flotation
of the Burmese
                 currency, budget and tax reform and a liberalization of
the rice trade.

                 Even as the government reduces much social spending,
its
                 participation in economic activities has gone virtually
unchanged over
                 the past three years, with the state dictating the
business climate in
                 almost all sectors.

                 ''At present the government is all pervasive,'' the
report said. ''This is
                 a hugely demanding role that few societies have been
able to
                 sustain.''

                 Burma's tax collection rates are among the world's
worst because of
                 tax exemptions and lax enforcement, the report said.

                 The poor, as well as ethnic groups out of favor with
the government,
                 have disproportionately been hurt by Rangoon's economic
policies,
                 the report said.

                 Military spending accounted for 32 percent of last
year's budget and,
                 on a per capita basis, was nine times that spent on
health and two
                 times that spent on education.

                 There has been a sharp decline in spending on primary
education,
                 with funds for children between the ages of 5 and 9
falling more than
                 90 percent over the past decade.

                 The state's role in health care has diminished, with
spending on
                 public health in almost constant decline since 1991,
the report said.
                 Cambodia, which has a smaller income per capita than
Burma,
                 spends three times more on public health as a share of
gross
                 domestic product.