BURMA ECONOMIC WATCH
ISSUE NO.1 JUNE 2001
Welcome to the First Issue
Burma Economic Watch (BEW) is a quarterly journal that aims to provide up-to-date and reliable economic data and commentary on Burma’s economy. BEW is founded on the principle that it is only when democracy and freedom return to Burma that the country and its people will be able to achieve their economic potential.
Information on Burma’s economy is both difficult to obtain and notoriously unreliable. BEW aims to rectify this by disseminating dependable information on Burma compiled by the IMF, the World Bank, embassy and foreign government reports, economic journals, news and business publications and other verifiable sources. Information gleaned from official Burmese Government sources is used with caution. Burma’s military regime stopped publishing its own national accounts data in 1998.
BEW is produced by economists and other specialists who volunteer their time. It is free and, with appropriate acknowledgment, its contents may be quoted without restriction. BEW is edited by Sean Turnell and Alison Vicary of the Economics Department, Macquarie University in Sydney, Australia. We welcome correspondence, contributions and enquiries. Please address all correspondence to:
Dr Sean Turnell
Economics Department
Macquarie University
NSW 2109 Australia
e-mail:
ISBN: 1 86408 697 1
Contents
I. EDITORIAL COMMENT
The FEC Crisis…………………………………………………..3
II. BEW NEWS…………………………………………………………………………..5
III. IN FOCUS
Foreign Direct Investment……………………………………….9
IV. TABLES AND DATA
a) Burma’s Economy at a Glance………………………………29
b) Selected Social Indicators…………………………………...31
c) Output and Growth…………………………………………..31
d) Foreign Trade and Payments………………………………...33
e) Government Spending and Taxation…………………………37
f) Monetary and Banking Indicators…………………………….38
g) Agricultural Output and Yields………………………………39
V. USEFUL REFERENCES………………………………………………...…………41
What You’ll Find in BEW
A typical issue of BEW will contain five sections. Section I will be an editorial comment. This will feature a topic of some immediate importance to Burma’s economy, and often one that will be revealing of political conditions inside the country. Section II will contain miscellaneous news items concerned with economic developments relating to Burma. These will be gleaned from many different sources, and we particularly welcome outside contributions for this section. Section III will contain our In Focus feature. This will be a longer piece of analysis highlighting an important sector of Burma’s economy, or an issue warranting in-depth analysis. In Focus will provide an original and important new source of commentary on Burma. Section IV consists of the tables, data and analyses that give an overall picture of Burma’s economy. Some of this information is available elsewhere, but we believe nowhere in the coherent form that is presented here. It is BEW’s hope that the information brought together in this section will provide something of a ‘one-stop shop’ for economic data on Burma, and will prove useful to other researchers and activists. Section V will contain links to other sources of information on Burma and its economy.
I. Editorial Comment
This space in BEW is devoted to economic questions of immediate interest for current advocacy. In this first issue, we’d like to highlight the crisis that is rapidly descending upon Burma’s Foreign Exchange Certificates (FECs) system.
FECs were established by Burma’s military regime in 1993. Originally created as a means by which tourists could avoid having to purchase the Kyat (Burma’s near-worthless official currency) at the grossly overvalued official exchange rate, FECs were sold against foreign currency at an exchange rate that approximated that prevailing in the free market. Each FEC was nominally worth US$1. In order to create confidence in what was, in effect, a new currency, the regime maintained that each FEC was ‘backed’ by reserves of its US dollar equivalent. In December 1995 the regime declared that FECs could be exchanged for Kyat as well as foreign currency – making them the internal currency of choice for many locals too.
1996 / 1997 / 1998 / 1999 / 2000FECs Issued (US$m, at Official Exchange Rate) / 29 / 65 / 108 / 150 / 212
The value of FECs critically depends on confidence. Confidence that the regime has sufficient foreign currency to back them, confidence that the regime has not employed the printing press for FECs in the way that they do for the Kyat. At many points over the last eight years, this confidence has been undermined by Burma’s chronically low foreign exchange reserves and the suspicion that there were indeed too many FECs around. For some time, FECs have traded at a discount (at present around 25%) against their face value.
(In US$ millions. Source: IMF and BEW calculations)
1996 / 1997 / 1998 / 1999 / 2000Net International Reserves / 381 / 188 / 232 / 296 / 242
Reserves Cover (Months Imports) / 2 / 2 / 2 / 2 / 2
External Debt / 5,479 / 5,485 / 5,610 / 5,915 / 6,470
External Debt Arrears / 1,480 / 1,455 / 1,608 / 1,913 / 2,309
Now matters are much worse. Burma’s foreign exchange reserves (above) remain critically low, but the situation has approached meltdown as a result of a recent decision by the regime to bribe its officer class. This bribe came in the form of a declaration in January of this year that henceforth military officers are to receive half of their pay in the form of FECs. An attempt to buy off trouble by giving sections of the military a hedge against inflation and the falling value of the Kyat, it is an implicit recognition that inflation in Burma (the measure by which purchasing power is decreasing) is catastrophically beyond the levels officially reported.
As shall be examined in BEW, this move will not likely succeed, given the very low levels of Burma’s foreign reserves. Amidst speculation that FECs are soon to be abolished because of the discrepancy between issue and reserve-backing, U Than Lwin, Deputy Governor of the Central Bank of Myanmar (CBM), said recently that ‘FECs are fully backed by the Central Bank against the acquisition of US dollars, and even if they were to be withdrawn, the bank would hand out the greenback equivalent’.[1] An implausible assertion in the view of BEW.
Notwithstanding the assurances of the Deputy Governor, and adding to the sense of crisis in the FEC system, the CBM announced in June that it was revoking the licences of all 10 of the existing money-changers authorised to sell FECs. These are to be replaced by 5 new operators (two of which are the junta-owned Myanmar Economic Holdings and the Myawaddy Bank) who will be required to report all of their deals on a weekly basis to the Department of Foreign Exchange Management. The CBM has established buying and selling rates of FECs at 490 and 500 Kyats respectively to $1US.
Meanwhile the Kyat continues its slide into almost complete worthlessness, recently recording an all-time low free market rate of over 800 to $US1. It is worth remembering that the ‘official’ exchange rate is around 6 Kyat to $US1.
As BEW was going to press, the Burmese regime announced that it was ordering all licensed money-changers to reduce the price of FECs to 450-460 Kyat to $1US.
Lenin once famously observed that the best way to bring down a political system was to debauch the currency. Burma’s military regime has now managed to debauch two. Its fall surely cannot be long postponed.
II. BEW News
Sanctions
· USA
In May a group of Senators led by Jesse Helms (Republican, North Carolina) and Tom Harkin (Democrat, Iowa) introduced legislation banning all imports from Burma. The legislation was in response to the ILO call (below) and to the strong advocacy of US unions and human rights groups. For it to become law, the legislation must be passed by both houses of the US Congress, and gain the approval of President George Bush
On April 5 a bipartisan group of 35 US Senators sent a letter to President Bush urging him to maintain the sanctions imposed by the US in 1997 against new investment by American firms in Burma.
In December 2000 the state of Massachusetts’ passed a bill requiring that its pension fund divest from companies doing business in Burma. The local governments of Los Angeles and Minneapolis passed similar laws earlier in the year. Of interest is the fact that these are measures relating to capital and not just trade - long the subject of selective purchasing laws in the US and many other countries.
· ILO
In November 2000 the governing body of the International Labour Organisation (ILO) called on its members to review their relations with Burma because of its persistent and egregious use of forced labour. This move from the ILO is most significant, legally and morally preparing the way for far more effective international measures against the regime than have hitherto been considered.
The follow-up to this decision is currently being discussed (June/July) at the annual meeting of the ILO. Burma’s military regime is attempting to stop the ILO from placing the issue of forced labour in Burma on to the agenda of the annual session of the Economic and Social Council of the UN.
· The European Union
On 8 April 2001 the European Union (EU) announced that it was renewing the sanctions it imposes on Burma for a further six months. These sanctions include an arms embargo, a visa ban on members of the regime and a suspension of humanitarian aid to Burma. The EU declared that the human rights situation in Burma remained ‘extremely serious’ and that while it welcomed initial contacts between the regime and the democratic opposition, noted that ‘no substantial progress’ had yet been made.
After announcing in May that 49 LDCs, including Burma, would enjoy tariff and quota-free access to the EU market, the European General Affairs Council clarified this later in the month to the effect that Burma was definitely not included because of its human rights violations.[2]
Burma's Economy in Brief
· Foreign investment in Burma continues to decline. According to China’s Xinhua News Agency (June 4), foreign investment in Burma totalled a mere $4.03 million in the first two months of 2001, a 53 percent fall from the previous year. Most of the investment ($US3.53 million) came from Singapore, with a small amount ($US0.5 million) coming from Canada. This slide in foreign investment began following the Asian economic crash of 1997, but seems to be driven now by the poor prospects Burma offers international investors.
· The Kyat continues its plummet, currently exchanging at a rate of around 750 to the US$1, but reaching an all-time low of close to 900 in May.[3] This is a dramatic drop with one US$ giving about 500 Kyat as recently as April. Meanwhile, the military is reported to be buying US$ on the black markets as foreign reserves continue to decline, exacerbated by the semi-closure of border trade with Thailand. Several border passes were closed after SPDC soldiers attacked the town of Chaing Rai in Thailand in May.
· Prices of Thai consumer goods imported into Burma rose sharply in the wake of clashes on the Thai-Burma border and the collapse in the Kyat. These factors have also exacerbated the shortage of pharmaceutical products.[4] Prices of all goods in Burma have been rising rapidly in recent weeks. The price of a standard sack of rice that sold for 2,400 Kyat in May is reportedly now selling for more than 4,000 Kyat. Meanwhile, the price of petrol on the blackmarket rose by 300 percent in June.
· The increase in world oil prices that began in 2000 is likely to provide a significant brake on Burma’s economic growth potential in 2001. The provision of electricity in Burma is notoriously unreliable, even in the major cities, and many factories, farms and individual homes rely on diesel generators for their energy supplies. In an attempt to deal with increases in world oil prices and a plummeting exchange rate, the SPDC decreased the weekly petrol ration from 3 to 2 gallons in late April 2001.
· Central government tax revenue continued its secular fall throughout 2000. This does not augur well for Burma’s already chronically large budget deficit.[5]
· Notwithstanding the general despair that surrounds Burma’s economy, the head of Burma’s military junta, General Than Shwe, forecast economic growth for Burma this financial year of an extraordinarily robust 11.3 percent. It would be difficult to find an independent observer of Burma’s economy who would be willing to forecast growth of half this amount (Reuters, June 28).
· As shall be examined in detail in BEW’s In Focus section, there has been a dramatic increase in Burma’s exports of apparel into the US and the EU. Apparel imports from Burma into the US have undergone a 372 percent increase in three years – from $US85.6 million in 1997, to $US403.7 million in 2000.
· In an effort to calm recent tensions, in June Thai Prime Minister Thaksin Shinawatra announced an offer to extend certain trade privileges to Burma that are currently available to Cambodia and Laos. At the same time Thailand’s army chief, General Surayud Chulanont, announced that Thailand may lift the ban on items classified as ‘strategic’ once border checkpoints between the two countries are re-opened. Such items could include vehicles and spare parts, fuel, medicines, rice and other foodstuffs (Bangkok Post, June 22).
· In March the Economist Intelligence Unit ranked Burma number two (behind Iraq) in its annual list of the most-risky countries in which to invest.