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World Bank:Myanmar An Economic and



Subject: World Bank:Myanmar An Economic and Social Assessment

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<b>Myanmar: An Economic and Social Assessment<br>
Human Rights Watch<br>
<font size=3D4>December 16, 1999<br>
</font><font size=3D3>Bradley Babson<br>
<br>
</font><font size=3D4>Senior Advisor, World Bank<br>
<br>
Introduction<br>
<br>
</font></b><font size=3D3>I appreciate the invitation to meet with you
today to discuss the Economic and Social Assessment report that the Bank
has recently prepared on Myanmar. I propose to first give you some
background on the report, and then discuss some of the main findings and
recommendations.<br>
<br>
It is important to note before we begin that this report is in draft
form. It thus is not yet an official public document, and while copies
have gotten around, at this stage the purpose is to obtain comments and
to make improvements before the report is finalized, Thus it is not a
secret document and is meant to be widely available when it is finalized,
but we are still at the discussion draft stage.<br>
<br>
</font><font size=3D4><b>Background<br>
<br>
<br>
</font></b><font size=3D3>=95 The draft report was prepared based on a
mission last June that was conducted in a low key way in parallel with
the IMF Article IV Consultation mission. The mission received a high
degree of cooperation from the government and also the UN agencies and
INGOs working in Yangon. The two senior members of the mission were
invited to meet with Aung San Suu Kyi at a luncheon organized by the
Australian Ambassador, and iscussed their preliminary findings with her
in a pleasant and substantive meeting.<br>
<br>
=95 The last Bank economic report on Myanmar was prepared in 1994/5, and we
felt that it was important to update our knowledge of the situation and
especially the poverty and social conditions, in view of increased
international attention to the situation in Myanmar and the impact of
both economic policies and the Asian financial crisis on economic and
social conditions.<br>
<br>
</font><font size=3D4>=95 Collaboration with the IMF has been an important
part of this process. In previous years, Bank staff were invited to
participate in the Fund=92s annual Article IV onsultation missions. These
are conducted under the surveillance mandate that the Fund has with all
its member countries. This year, we decided to send a separate mission in
parallel with the Fund in order to undertake a broader economic and
social assessment, with a particular focus on poverty. The Fund report
incorporated information from the Bank=92s assessment and our report draws
heavily on the macroeconomic and financial sector assessment provided by
the Fund. The two reports&nbsp; provide the most comprehensive
surveillance assessment ever conducted on Myanmar.<br>
<br>
</font><font size=3D3>The draft report was given to the Myanmar authorities
during the Annual Meetings here in Washington last September. We also
sent a number of copies to the UNDP Resident Representative in Yangon and
asked him in his capacity of UN Resident Coordinator to make copies
available to local Embassies and to give one to Aung San <b>Suu </b>Kyi
in anticipation of a proposed visit in October by the UN Special Envoy
Alvaro Dc Soto with <b>Bank </b>participation. The report <b>was
</b>discussed in general terms during that visit,<br>
<br>
The government has not given us detailed comments on the report, but has
requested that a Bank mission visit Yangon to obtain comments and discuss
the reports findings and recommendations, with the intention of
finalizing the report. We have asked the government for a clear
indication in writing that the SPDC is prepared to address the core
issues raised in the report and to provide their general comments, and
this will affect the scheduling of any further mission. What we are
looking for is some concrete indication that the SPDC is prepared to take
the report=92s assessment seriously and to discuss the issues in a spirit
of genuine policy dialogue. We are also insisting on an open process that
includes the comments and concerns of civil society and the private
sector. While the Bank is not permitted under our Articles of Agreement
to take sides in the political debate, we do believe that all interested
groups should have access to the report and have an opportunity to share
their views and concerns. This is very similar to how we have conducted
our role in Indonesia during the past year in a situation of significant
political flux. As I mentioned before, the draft report has been provided
to the NLD.<br>
<br>
</font><font size=3D4><b>Major Findings and Recommendations<br>
<br>
</font></b><font size=3D3>=91 Let me now give you some more details of the
reports findings and recommendations.<br>
<br>
 First, the basic conclusion of the report is that the kind of growth
that Myanmar has been achieving has not been delivering improvements in
employment, human development and poverty reduction that will be needed
if Myanmar is to achieve its potential. Our bottom line assessment is
that Myanmar needs both major reforms and external finance to obtain the
kind of development that would best serve the country=92s long term
interests. Progress on removing core inefficiencies will be needed before
a broad structural reform process can get underway. Foreign investment
and ODA will be needed, but these will only be forthcoming if Myanmar can
satisfy the social justice concerns of the international community that
are reflected in UN resolutions.<br>
<br>
 The core program that we recommend would seek to reform anchor dismantle
(i) the fictitious official exchange rate and its rationing; (ii) the
complex and inefficient mechanism for rice procurement, its domestic
distribution and export; (Iii) wide-ranging restrictions on private
sector activity; (iv) budgetary priorities that squeeze expenditure on
social services and infrastructure; and (v) inefficient state enterprises
that claim a large share of public resources and government attention.
Implementation of these reforms would set the economy on the path to
broad-based growth and would create the room for implementing the large
agenda of structural reform.<br>
<br>
<br>
<br>
</font><font size=3D4><b>Poverty and Human Development<br>
<br>
</font></b><font size=3D3>Although Myanmar=92s economy continues to register
moderate income growth (GNP growth was <i>5 </i>percent in 1998/99), the
benefits of<b> </b>this growth are poorly distributed since most poverty
and human development indicators are unsatisfactory. At <i>$300 </i>per
capita, Myanmar is one of the poorest countries in the World. Life
expectancy at birth is 60 compared with an average in East Asia of 68;
<b><i>infant </b></i>mortality is 79 per thousand births, compared with
the Eat Asia average of 34; child malnutrition rates are very high and
represent the =93silent emergency=94 in Myanmar. Wasting affects 30% of
children under age 10, reflecting long term deprivation. Education is
also a major concern. Official statistics indicate that a quarter of
school age children never even enroll in primary school, and that drop
out rates are very high. Of those who begin the primary education
program, only a third complete the full <b><i>5 </b></i>years.<br>
<br>
=95 According to a government determined poverty line, about one quarter of
the population of Myanmar lives below minimal subsistence levels. Poverty
rates are approximately the same in urban and rural areas, but most of
the poor (71) percent) live in rural areas. There is considerable
regional variation in poverty rates. The highest rates of poverty are in
the Chin State, Magway Division, and Kayah State, and the lowest rates
are in the Tanintharyi Division and Shan State.<br>
<br>
<b>Structural Imbalances and Proposed Reform<br>
<br>
</b>=95 Looking back over the past decade, the economy responded well to
the liberalization of 1988. There was a significant expansion in
investment, which reached US$800 million in 1996/97 compared to US$58
million in 1990/9 1. Exports tripled to US$ 1 billion a year between
1988/39 to 1997/98. GDP growth averaged over 7% per year up until 1997.
In recent years, however, growth has run out of steam and has not
benefited the poor, an acute currency shortage has emerged, and private
capital flows have collapsed. The growth last year is estimated to have
been 5%, fueled mainly by disbursements of foreign private investment on
projects committed in the mid 1990=92s. Continued decline in growth is
inevitable, unless Myanmar is able to attract new foreign investment,
obtain aid flows that were cut off after 1988, or undertake reforms in
public finance and banking to increase domestic resources for investment,
which are extremely low by international standards. This has led to a
situation where Myanmar is caught in a low-level equilibrium trap with
serious macroeconomic imbalances.<br>
<br>
<b><i>Macroeconomic imbalance<br>
<br>
</b></i>=95 The official <b><i>exchange rate </b></i>is pegged to around 6
Kyatsi per US$1, while the June 1999 market exchange rate was 340 Kyats
per US$1. Following the economic slowdown, tighter administrative
controls have been put in place to ration foreign exchange. The foreign
exchange controls generate substantial protection for state enterprises
in their imports and create strong incentives for rent-seeking
activities. Relative prices are distorted thus impeding agricultural and
private sector development, and rendering official statistics less
credible.<br>
<br>
Unification of the official and parallel market exchange rates would be
equivalent to a significant <i>trade reform. </i>The present exchange
rate system results in a large protection to the favored State
enterprises, much larger than implied by the average tariff rate of 6
percent. In addition, the extensive trade barriers also need to be
eliminated.<br>
<br>
The <i>government budget </i>has remained unbalanced with substantial
deficits during much of the 1990s. Fiscal deficits are financed
automatically by credit from the Central Bank, a source of domestic
inflation and instability in the economy. The ratio of taxes to GDP, at
<i>3.5 </i>percent, is very low by international standards. Although the
government has sought to broaden the tax base by bringing more services
into the commercial tax net (similar to a VAT), the system is riddled
with exemptions given to both foreign as well as domestic investors. Tax
revenues are also eroded by poor tax compliance (caused by corruption and
a weak valuation system for imports) and inflation.<br>
<br>
State enterprises are a drain on the budget but their true impact is
clouded by the dual exchange rate system. <i>State enterprise reform and
privatization must be pursued more vigorously. This must accompany a
reform of the budget process </i>which, at present, continues in the
tradition of central planning, with state enterprises driving the process
rather than broader economy-wide revenue and expenditure projections.
<br>
<br>
A monetary policy that accommodates the flawed budgetary process
contributes to the double-digit <i>inflation, </i>which peaked at 68
percent in mid-1998 and fluctuated widely during most of the=20
decade.<br>
<br>
A <i>public resource mobilization </i>effort needs to be geared up to
protect public expenditures on basic services. The poor resource
mobilization activity has adversely affected maintenance of essential
infrastructure and the delivery of social services, impeding in turn
broad based economic growth and human development. <i>The structural
reforms recommended (including reform of the exchange rate, the budgetary
process, state enterprises, tax policy and tax administration and others
that follow) are urgently needed to strengthen resource mobilization to
promote broad-based economic growth and human development. </i>Clearly a
major issue is the balance between military expenditures and social and
infrastructure expenditures. Published budget figures show that per
capita spending on the military is <i>9 </i>times that of health services
and twice that of education services, and the trends have been worsening.
It seems that military expenditures have also been declining because of
poor revenue performance, which means that a major area for policy
dialogue <b>and </b>change is in the allocation of future incremental
revenues.<br>
<br>
<br>
<b><i>Agricaulture and the Environment<br>
<br>
</b></i>Rural poverty and agriculture are closely linked in Myanmar: for
over half of poor rural households, agricultural production is the
primary economic activity. And yet, agricultural growth has stagnated
since the mid 1990s. The decline is even more dramatic in growth per
capita. This lends support to the claim that recent overall GDP growth
has not been sufficient nor has it benefited the poor. Also, it
underscores the need for a second generation of structural reforms to
rejuvenate agriculture.<br>
<br>
<b><i>Rice Procurement and </b>Export. </i>Rice is the most important
crop in the Myanmar economy and removing distortions on procurement and
export of rice would have wide repercussions.<br>

<dl>
<dd> <b><i>First stage: Removal of exchange rate distortion: </b></i>As a
first step, the state enterprise exporting rice, Myanmar Agricultural
Produce Trading (MAPT), be turned into an autonomous corporation with
independent management.<br>
<br>
<b><i>
<dd> Second stage: Removal of price </b>distortion: </i>The second stage
of reform would aim at removing the distortions in price policy.<br>
<br>
<b><i>
<dd> Third stage: Removal of </b>MAPT <b>monopoly </b></i>on exports;
elimination of compulsory rice procurement; privatization of MAPT.
</dl>Agricultural Inputs The reform program would not be possible without
market based delivery of inputs to farmers. In particular, farmer access
to credit needs to be improved.<br>
<br>
 <b><i>Land reclamation: </b></i>The reform program outlined above would
improve the use of existing cultivated land and move toward bridging the
large yield gap between Myanmar farmers and their counterparts in the
Association of Southeast Asian Nations (ASEAN). It would also redress
rural poverty frontally by increasing agricultural income &amp; The
government has been following a different approach in recent years that
emphasizes increasing agricultural output by bringing new lands under
cultivation. We have some serious questions about the environmental and
economic cost of these schemes and have suggested that there be a halt
until further study and debate can take place.<br>
<br>
 <b><i>Preserving forest: </b></i>Annual de-forestation rates have
doubled (to 1.4 percent) since the late 1980s. Population growth,
inappropriate land use and poor forest tenure policies account for this.
To check this alarming trend, priority should be given to developing a
national land-use plan, clarifying land ownership and use rights, proper
land titling, encouraging leases for establishing community-based forests
in degraded forest areas and promotion of alternative fuels (including
kerosene).<br>
<br>
<br>
<br>
<i>Private S<b>ector Development<br>
<br>
</b></i>Myanmar=92s private sector is remarkably resilient and has survived
the socialist era and the many hurdles and controls that continue to
affect the costs of doing business. The need, of course, is to continue
the consolidation of the private sector via a new generation of
reforms.<br>
<br>
&gt; To allow the private sector greater room in the economy, the role of
<i>state enterprises </i>will have to be scaled down. The inefficient
state enterprises distort relative prices for the private sector, lay
claim to the bulk of scarce credit and attract most of the government
attention. Furthermore, their survival is possible only by curtailing
private sector competition. Thus state enterprise reform must be a top
priority.<br>
<br>
&gt; Following the establishment of a Privatization Commission in 1995,
the Government has undertaken some steps toward <i>privatization. </i>In
practice, however, progress has been slow. While it is difficult to make
outright sales in the context of macro-economic uncertainty and lack of
investor interest, authorities could do the ground work and clarify their
intentions by developing and announcing a systematic Privatization Master
Plan. This would focus on the institutional design for privatization,
valuation of entities to be designed, and developing an appropriate
regulatory framework for the privatized entities.<br>
<br>
A healthy financial <i>sector </i>is key to private sector development
and economic strength. Myanmar is seriously under banked, the accounting
and clearing systems need modernization, there is little competition to
the large state-owned banks and the administered interest rates do not
reflect scarcity of capital. Reform would require establishing a level
playing field for state-owned and private banks (particularly in foreign
exchange dealings and reserve requirements), a restructuring of
state-owned banks and granting of bank licenses to joint ventures, and to
foreign-owned banks to begin operations (initially for a limited range of
activities).<br>
<br>
&gt; The legal framework for conducting private business is badly in need
of modernization, particularly regarding the Foreign Investment Law, the
Citizen=92s Investment Law, the Financial Institutions of Myanmar Law,
accounting and auditing standards and the Insurance Business Law. The
legal changes would aim at reducing regulatory burdens and restrictions
on the private sector, simplifying transfer of ownership, facilitating
repatriation of profits, improving access to foreign and domestic credit,
and increasing the reliability of enterprise financial statements.<br>
<br>
&gt; Myanmar has taken some steps recently to improve its woefully
inadequate infrastructure via pricing reforms in electricity and
telecommunications. In the rural areas, isolation due to poor
infrastructure is as severe problem. It prevents access to markets and
delivery of social services. Improvement in rural infrastructure requires
urgent attention.<br>
<br>
<br>
<b><i>Delivery of Social Services<br>
<br>
=95 Health. </b></i>Some of the news on health outcomes is encouraging, but
declining public confidence in publicly-provided services is of concern.
A serious concern is that over the last 10 years, usage of public
hospitals and dispensaries has fallen by 80 percent. This stems
principally from low budgetary outlays (at about 0.2 percent public
expenditure in Myanmar, is far below regional and developing country
averages). This adversely affects availability of health care staff and
medicines and the quality of equipment.<br>
<br>
<b><i>=95 Nutrition. </b></i>Data collected by both the Ministry of Health
and UNICEF show high levels of moderate and severe malnutrition among
preschool-age children. There is substantial scope for expanding
supplementary feeding programs and maternal education programs. In
designing an effective program, national and international experience
suggests that the following should be borne in mind: i) food be supplied
to needy children along with information to the care givers about good
nutrition and feeding practices; ii) prevention of malnutrition is often
more important than reversing severe malnutrition; iii) maintaining the
already good breast-feeding practices is a priority; and (iv)
supplementary feeding programs need to incorporate affordable and
locally-available foods.<br>
<br>
<i>=95 Education.. </i>As I mentioned earlier, low enrolment in primary
education is a serious concern. It is impossible to provide good quality
education services with the substantial erosion in education spending
over the past decade, Current government spending in education as a share
of national income is among the lowest in the world. Official data shows
that real public spending per child has fallen from about 1200 Kyats per
child (5-9 years) in 1990/91 to a dismal 100 Kyats in 1999/2000.
Education financing is further confounded by the lack of affordability at
the household level. The cost barrier is compounded by the poor quality
of infrastructure and little adaptability of schooling (including
schedules and curricula) to local conditions.<br>
<br>
=95 A number of long-standing, and well-known, basic issues need to be
addressed to improve education outcomes in Myanmar: i) reversing the
trend of declining public resource allocations for primary education; ii)
exempting the poorest children from school fees and other substantial
contributions while providing additional support to help cover such
direct costs of schooling, as textbooks and uniforms; iii) developing
flexible school hours to enable participation by children who need to
contribute to family incomes; iv) increasing teacher salaries in real
terms, and (v) reviewing transfer and departmental policies that
encourage teachers to move out of rural areas.<br>
<br>
<br>
<i>Towards Better Economic Management<br>
<br>
</i>=95 Implementing the reforms outlined above implies a different role
for the government than the current one. At present the Government is all
pervasive. This is a hugely demanding role that few societies have been
able to sustain. It places a severe burden on scarce administrative
resources; civil servants can be good regulators to protect the public
interest but their training and education does not equip them to run
factories. Furthermore, the dominant government presence in key sectors
crowds out private individuals who could be generating economic growth
and creating sustainable job opportunities.<br>
<br>
<b><i>Choice of Development Strategy<br>
<br>
</b></i>=95 A macro-economic framework that is conducive to financial
stability and one that sends correct signals regarding relative prices,
including the price of foreign exchange;<br>
<br>
=95 Reduced government presence in direct production of goods and
services;<br>
<br>
=95 Increased administrative capacity to monitor and regulate (in the
public interest) private sector activity;<br>
<br>
=95 Use of appropriate fiscal tools (taxes and expenditures) to ensure that
only those strategies are chosen that result
in.equitable.income..growth;.and ~ - -<br>
<br>
=95 Ensure adequate financing and institutional capacity to deliver social
services that improve poverty and human development indicators and
facilitate broad-based participation in growth.<br>
<br>
<b><i>Civil Service Reform<br>
<br>
</b></i>=95 Myanmar has inherited a sound tradition of civil service that
is badly in need of rehabilitation. The key to the transition outlined
above would be the reform of the civil service to increase technical
capacity and reward performance. Key elements of the reform would be in
the areas of compensation and training:<br>
<b><i>
<dl>
<dd>~ Salary adjustment </b></i>Salaries of public servants are low and
have not been adjusted to keep up with inflation or with the private
sector emoluments. A thorough review of the salary structure is needed to
attract and retain the best talent in the civil service and to discourage
corrupt practices.<br>
<br>

<dd>- <b><i>Training: </b></i>Modern economic management requires
continuous training. The lack of training assistance for the past 10
years has taken its toll on the middle level of the government, and this
represents a significant drag on potential for improving policies and
implementation of programs. The question of providing technocratic
training assistance deserves to be revisited.<br>
<br>
<b><i>
</dl>Working with Civil</b> <b>Society<br>
<br>
</b></i>=95 NGOs already are playing an important if limited role in
efforts to reduce poverty and promote human development in Myanmar. This
can be strengthened by improving the working relationship of NGOs with
the Government. Specifically, (i) the process for obtaining memorandum of
understanding needs to be simplified and approyal time reduced; and (ii)
the framework for NGO operations should be clarified and standardized to
facilitate day-to-day operations and delineate longer term involvement in
human development in Myanmar.<br>
<br>
Conclusion<br>
<br>
=95 I have tried to give you a good understanding of the topics covered by
our report and our views. Fundamentally, Myanmar is facing two major
issues as the country grapples with its history and present day
challenges. The first is the relationship of the State to the peoples of
the country. And the second is the role of the State in the economy.
Since it obtained independence after World War Two, Myanmar has been
struggling to shape a national identity that can secure both stability
and wellbeing for the 48 million people representing over&nbsp; 100
ethnic groups. Social and economic policies followed by the military
government since the early 1960=92s have given a high priority to
maintaining stability at the expense of realizing Myanmar=92s potential for
economic and social progress. The result has been an erosion of social
capital and very low progress on building modern public institutions. Our
basic assessment is that the policies that Myanmar has been following
will not yield long term stability and development unless it adopts a
more =93pro-people=94 stance. It is for this reason that we believe that
World Bank collaboration with the United Nations is a practical way to
help Myanmar&nbsp; resolve long-standing political and human rights
controversies, tackle poverty, and improve the social welfare of the
diverse population. We hope that by working in a coordinated and not
disjointed way we can use our respective mandates to promote social
justice and poverty reduction to help Myanmar find the right path for the
future of the country. I hope that our draft report can make a
contribution to this objective.<br>
</font>
<BR>
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