Ride the Storm: Navigating Through Unstable Periods / Katerina Rudko (Belka G...
Fdi and burma
1. The Economy of Burma (Myanmar) is one of the least developed in the world, suffering from decades of
stagnation, mismanagement, and isolation. Burma’s GDP stands at $42.953 billion and grows at an
average rate of 2.9% annually – the lowest rate of economic growth in the
[2]
Greater Mekong Subregion. Among others, the EU, United States and Canada have imposed economic
[3]
sanctions on Burma.
Historically, Burma was the main trade route between India and China since 100 BC. The Mon
Kingdom of lower Burma served as important trading center in the Bay of Bengal. After Burma was
conquered by British, it became the wealthiest country in Southeast Asia. It was also once the world's
[4]
largest exporter of rice. It produced 75% of the world's teak and had a highly literate population.
After a parliamentary government was formed in 1948, Prime Minister U Nu embarked upon a policy of
nationalization. The government also tried to implement a poorly thought out Eight-Year plan. By the
1950s, rice exports had fallen by two thirds and mineral exports by over 96%. The 1962 coup d'état was
followed by an economic scheme called the Burmese Way to Socialism, a plan to nationalize all
[5]
industries. The catastrophic program turned Burma into one of the world's most impoverished countries.
In 2011, when new President TheinSein's government came to power, Burma embarked on a major
policy of reforms including anti-corruption, currency exchange rate, foreign investment laws
and taxation. Foreign investments increased from US$300 million in 2009-10 to a US$20 billion in 2010-
[6]
11 by about 667%. Large inflow of capital results in stronger Burmese currency, kyat by about 25%. In
response, the government relaxes import restrictions and abolishes export taxes. Despite current
[7]
currency problems, Burmese economy is expected to grow by about 8.8% in 2011. After the completion
of 58-billion dollar Dawei deep seaport, Burma is expected be at the hub of trade connecting Southeast
Asia and the South China Sea, via the Andaman Sea, to the Indian Ocean receiving goods from countries
[8][9]
in the Middle East, Europe and Africa, and spurring growth in the ASEAN region.
2. INTERNATIONAL TRADE
Historically, most of Burma's export-import trade was with Asian countries. In 1999, more than 80 percent
of the country's export-import trade was with Asian nations, including about half with ASEAN countries.
Japan, Singapore, Malaysia, and China are its major trading partners. Singapore is the single most
important partner both in terms of imports and exports, providing 31 percent of imports and taking 10
percent of exports. There has been a decline in trade with Europe and the United States since the 1988
military crackdown on the democracy movement. Burma's export-import trade with the United States
constitutes about 5 percent of the total foreign trade.
The country's exports are mostly agricultural products. They include pulses and beans, teak, prawns,
rubber, rice and other agricultural products. There is a large black market that smuggles live animals,
gems, minerals, teak, and rice into the neighboring countries. Burma
Trade (expressed in billions of US$): Burma
Exports Imports
1975 .173 .197
1980 .472 .353
1985 .303 .283
1990 .325 .270
1995 .846 1.335
1998 1.067 2.666
SOURCE: International Monetary Fund. International Financial Statistics Yearbook 1999.
also conducts brisk trade in narcotics. During the 1997-98 fiscal year, imports included raw materials,
transport equipment, construction materials, and food items. While priority was given to the importation of
materials needed for the Yadana natural gas pipeline, the government took measures to control
importation of non-essential goods.
In 1998 the country exported $1.2 billion in goods and services while importing $2.5 billion, reflecting a
steady increase of imports over exports during the 1993-98 period. In fact, the trade imbalance has been
a chronic problem for the country for well over 2 decades. During the 1965-75 period, rice exports fell,
and Burma cut back on imports. During the 1976-80 period, although exports increased, there was a
corresponding increase in imports. By the mid-1980s, exports declined, but imports continued to soar.
The adverse balance of payment situation continues to plague Burma.
This imbalance has a negative impact on the economy as a whole, forcing Burma to spend its precious
foreign exchange reserves. To compensate for this situation, the government has printed currency to buy
foreign exchange, thereby accelerating the inflationary tendencies of the economy. This inflation has
wiped out many of the gains the country made as a result of economic liberalization in the 1990s. Making
matters worse, the government had to buy foreign exchange from foreign sources at commercial rates.
Consequently, Burma was unable to service its debt payment, prompting the World Bank to sever ties
with the country. The net effect for Burma's people is that their purchasing power and standard of living
declined.
The regime, while continuing to increase military spending, was forced to cut back on education, health,
and other essential services. Growing international concern about human rights abuses and the regime's
inability to tackle narcotics trafficking have led many countries, including the United States, and
international financial institutions, to refuse aid or loans to the country. The government's use of forced
labor has also led to boycotts of Burmese goods.
MONEY
Adverse balance of payments, decreasing tax revenues, high defense spending, and deficit financing all
have led to the printing of more currency and price inflation. The official exchange rate of the kyat to
dollar, however, remains unchanged. There are 4 different rates for currency exchange: the official
3. exchange rate, the customs rate, the official market rate, and the black market rate. Officially, US$1
equals 6.73 kyats, whereas in the black market the dollar may fetch 375 or more kyats.
Exchange rates: Burma
kyats per US$1
Jan 2001 6.5972
2000 6.5167
1999 6.2858
1998 6.3432
1997 6.2418
1996 5.9176
SOURCE: CIA World Factbook 2001 [ONLINE].
The Asian currency crisis of 1997 added to Burma's currency woes. The sharp decline in the Thai bhat
had a negative impact on the kyat. During the 1997-98 fiscal year, according to U.S. embassy estimates,
the kyat lost 54 percent of its value. Between April and December 1997, the kyat declined from 167/dollar
to 257/dollar. In 1997 and 1998, when the kyat fell, the government intervened to prop up the value of the
kyat and took strong measures to keep foreign exchange from leaving the country. It put a monthly cap of
$50,000 on remittances , cut the number of banks allowed to handle foreign exchange transactions, and
placed stiff controls on trade.
The Asian economic crisis prompted foreign investors to either withhold investments or stay out of the
Burmese market. Crises in the neighboring countries, Burma's principal trading partners, cost the country
its export markets. The resultant ballooning of the trade deficit prompted the country to expand its
money supply and draw down on foreign exchange reserves. According to the U.S. State
Department Commercial Guide for 1999, the country was "virtually bankrupt."
FUTURE TRENDS
Burma is a resource-rich, naturally beautiful, and culturally significant country. Its potential for growth and
prosperity is tremendous. Yet Burma can never reach its potential until the military regime negotiates with
the opposition and transfers power to the elected representatives of the people. The regime, however,
has been trying to eradicate the opposition. Most international observers agree that the government must
end human rights violations, release political prisoners, establish sound monetary policies , increase the
tax base and revenue, enhance the infrastructure, and further liberalize the public sector if the country
has any hopes of taking its place in international commerce. Despite announcing plans for such
improvements, however, the ruling SPDC seems most concerned with retaining its grip on power through
violence and intimidation of internal opposition and disengagement with the international community. In
the absence of a change in this program, economic stagnation, poverty, disease, and illiteracy will remain
Burma's most notable features.
4. TOURISM.
Like the cash-strapped countries of Jamaica and Cuba, Burma is also actively promoting itself as an
island paradise to increase tourism. Both the government and private enterprises are heavily engaged in
the tourism industry. In order to attract tourists, the country has improved roads, built international
standard hotels, and other facilities. In 1988, roughly 40,000 foreigners visited the country, although
following the suppression of the democracy movement that same year, tourism decreased. Between 1993
and 1996, tourism once again revived. The government proclaimed 1996 as "Visit Burma Year" and
hoped to attract 500,000 tourists. However, only 180,000 people showed up. In the 1997-98 fiscal year
191,000 tourists visited the country. Both the government and the private sector, having invested heavily
in new tourist facilities, were disappointed.
Nevertheless, Burma—the land of Buddhist pagodas—has great tourism potential. Rangoon, Mandalay,
Pagan, Pegu, and Tawnggys, with their palaces and shrines and pagodas, are the centers of tourism.
However, the tense political situation, human rights violations, and boycotts by the international
community have deterred many people from visiting. Tourism, so far, makes up only a small percentage
of the GDP.
FINANCE.
During the post-independence days, most financial institutions were private. In 1964, the military junta
nationalized all of the country's 24 banks. In their place, the government created 4 state banks. In 1990,
the financial sector was revamped under the provisions of the Central Bank of Myanmar Law. Since then
the financial institutions are the Central Bank of Myanmar, the Myanmar Agricultural and Rural
Development Bank, the Myanma Economic Bank, the Myanma Foreign Trade Bank, the Myanma
Industrial and Commercial Bank, the Myanma Small Loans Enterprise, and Myanmar Insurance. The
1990 law also allowed for both private and foreign banks. As a result, by February 1996, 16 private banks
were formed, most of them in Rangoon. During the same period, more than 20 foreign banks opened
branches or offices in Myanmar.
The banking sector is still underdeveloped. The people have yet to maintain regular banking habits.
Theinflation rate is so high that the real rate of interest does not encourage deposits. But without
deposits, banks cannot provide credit. In contrast, during the 1970s, when the interest rate was raised,
people deposited more money in the banks.
The Burma Securities Exchange was founded in 1996 as a joint venture between Japan's Daiwa Institute
of Research and Myanma Economic Bank. The financial sector contributes only a small percentage of the
GDP.
5. POLITICS, GOVERNMENT, AND TAXATION
Burma fought for independence from Great Britain in the late 1940s under the Anti-Fascist People's
Freedom League led by Aung San, U Nu, and Ne Win. The independence movement was a pro-Burman,
anti-British, and anti-foreign movement that emphasized Burmese values, symbols, and experiences.
This movement had very strong socialist leanings in response to Chinese and Indian domination of the
Burmese economy during the British rule. In 1948, the country became independent under the leadership
of U Nu because his political opponents had already killed Aung San, the father of Burmese nationalism.
In 1962 the army, under the leadership of Ne Win, overthrew the democratic government and set up the
Burmese Socialist Party,nationalized schools, banks, and factories, and followed a policy of socialist
central planning and international isolationism. Later on, the party of the generals changed its name to the
Burma Socialist Program Party. In 1974, all political parties were abolished.
In September of 1988, amid massive demonstrations against the government, a new regime seized
power in a military coup. Calling themselves the State Law and Order Restoration Council (SLORC), the
new regime also changed the name of the country from Burma to Myanmar, something that opposition
groups still object to. Following the anti-government protests, riots, and bloodshed in 1988, the opposition
parties coalesced into the National League for Democracy (NLD) under the leadership Aung San SuuKyi,
the daughter of the martyred national hero, Aung San.
Responding to nationwide protests, the SLORC allowed national elections in May of 1990. The NLD
dominated the elections, winning 80 percent of the seats in the National Assembly, but the ruling SLORC
refused to concede power and imprisoned NLD leader Aung San SuuKyi. Since that time the SLORC has
exercised complete control over all branches of government. The National Assembly elected in 1990 has
in fact never convened, the judicial system is bankrupt, and all executive positions are held by military
representatives of the SLORC.
In 1997 the ruling SLORC was reorganized as the State Peace and Development Council (SPDC) amid a
shakeup that saw several high officials dismissed for corruption. Five top generals, including Secretary
KhinNyunt, consolidated their power but showed no signs of ceding control of the government to the
opposition, most of which was banned from any official forms of organization. Like the SLORC, the SPDC
is primarily concerned with cracking down on opposition and not on improving the economic fortunes of
the country.
The government's mounting deficit financing, resulting mostly from declining tax revenue and escalating
military expenditures, has had a negative impact on the economy. The regime's policies led to the growth
in the money supply and accelerated inflation. Mounting foreign debt and depleting foreign exchange
reserves also affected the health of the economy. Military expenditures increased while the funding for
health and education declined. The government's oppressive attitude towards the opposition has caused
international censure, prompting foreign firms to pull out or cut back on their activities. Because of foreign
economic sanctions, Burma is unable to get assistance from other countries or loans from international
funding sources.
The country's tax base shrank in the last years of the 20th century, due to the government's inability to
collect taxes because of a corrupt bureaucracy and a black market perhaps as large as the legitimate
market. The sources of government revenue include general sales and value-added taxes , income from
state enterprises, taxes on international trade, fees, and grants from donor nations and international
agencies. The government also collects customs at its border posts, but most of the border trade is
unrecorded.
The judicial system that Burma inherited from its British colonial masters was abolished in 1974. The new
constitution calls for a council of People's Justices. In addition, there are lower courts at the state, town,
village and ward level. The courts settle both civil and criminal cases. The armed forces—controlling most
aspects of the country's politics and government—also exert influence over Burma's judicial system.
6. Foreign Exchange Rate:
The exchange rate has moved from about 1300 kyat per dollar in 2006-07 to 800 kyat to the dollar in
January 2012 while the consumer price index has jumped by over two-thirds. World rice prices in dollars
have been generally strong, with Vietnamese five percent broken export prices at $520/ton in December
2011, 78 percent above their 2006/07 average. Wholesale paddy prices in Myanmar have plunged 30
percent in real terms from 2007 to 2012 and 25 percent in just the last year. For a variety of reasons, the
paddy price to farmers may have fallen even more. This results in less hiring of landless neighbors,
migration out of the village (often to a foreign country), less use of inputs and reduced summer paddy
planting. Sharp real price declines in pulses have also been reported, though the exchange rate is only one
contributing factor to their low prices. Poor quality pulses due to untimely rains and reduced demand from
India also play some role.