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Date: Wed, 1 Apr 1998 04:55:20 -0500
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From: Alex G Bardsley <bardsley@ACCESS.DIGEX.NET>
Subject: Fwd: BU: Despite economic woes,
the generals' jobs are safe (Asiaweek)
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Hard Times In Yangon: Despite economic woes, the generals' jobs are safe

By Roger Mitton, AsiaWeek, [1 April 1998]

IT IS NOT JUST POLITICS THAT is slowing Myanmar's economic development these days. It is the financial crisis too. “If money is to be made, no matter how tyrannical or corrupt the regime, businessmen will flock there,” says Malaysian Syed Ahmad Idid, who recently visited Myanmar with an ASEAN business delegation. But Asia's economic problems have forced companies to curb overseas investment. “With the exception of Singapore, the financially distressed members of ASEAN can be expected to halt their investments in Myanmar,” says U.S.-based academic Mya Maung.

During a March visit to Yangon, Malaysian PM Mahathir Mohamad said his country—the fifth-largest investor in Myanmar after the United Kingdom, Singapore, Thailand and the United States—would like to increase its presence in the country, but is constrained by economic troubles at home. “The focus today is more on trade than investment,” said Mahathir. That is probably true for most of ASEAN, and may not be such a bad thing. As cabinet minister David Abel points out, 46% of Myanmar's trade is with ASEAN. Much of it involves food and raw materials, commodities less affected by the economic downturn. “People still need to eat,” he says.

It is one of the ironies of the regional crisis that the more isolated a country, the less affected it is by the turmoil. This is as true for Myanmar as it is for Vietnam and Laos. As one of Myanmar's military leaders says: “We are self-reliant, so it's not as bad as all that.” And it is unlikely to get bad enough to threaten the junta, or the totalitarian regimes in Hanoi and Vientiane. Few expect the economic troubles to have a dramatic political impact.

The changes to the government last November—which included the abrupt sacking of many ministers—did have a strong economic motive, though. New men took over the finance and commerce portfolios. Foreign Minister Ohn Gyaw told Asiaweek: “We knew that we could not go on as we were. We know that we have been left behind for 30 years. What we need most of all now is economic development.”

But no one likes a military dictatorship, and the generals who usurped power and are ruling (or perhaps misruling) Myanmar, rightly come in for their share of condemnation. Despite its undeniable progress, Myanmar still has a long way to go. In truth, everyone knows that the economy will not take off until the political deadlock is resolved. Even some in the junta concede this. The nation's most prominent leader, Khin Nyunt, says: “In any country, political and economic changes occur hand-in-hand, and economic development is possible only if there is political stability.” Privately, the government and the National League for Democracy are showing some flexibility. Informed sources say this has led to recent clandestine meetings between the NLD head, Aung San Suu Kyi, and Khin Nyunt that could lead to a major breakthrough this year. Partly at the behest of ASEAN leaders, the notion of power-sharing is being considered. Suu Kyi has not ruled this out.

Meanwhile, the economic slowdown is real enough. Since July, the kyat has lost about 35% against the U.S. dollar. The official exchange rate is six kyat to the dollar, but the sanctioned “commercial” rate (that tourists use) is about 250. Businessmen are allowed to convert their kyat earnings into foreign-exchange certificates (technically equivalent to dollars) at the commercial rate. But they can repatriate only $50,000 a month, if the currency is available.

Foreign-exchange reserves have fallen, though officials are reluctant to admit by how much. In mid-1997, the World Bank estimated Myanmar's foreign reserves at about $150 million—less than one month's worth of imports. The government has imposed severe import controls over the past nine months, yet hard currency is still at a premium. An Asian diplomat struggling to encourage his countrymen to invest in Myanmar says: “The present situation is not easy, especially because of the shortage of foreign exchange.” Already, representative offices of Malaysian, South Korean and Thai banks have cut back staff or temporarily closed their doors. Myanmar was counting on tourism to help increase the reserves, and has enough hotel rooms for the next five years. But fewer Asians are traveling now.

Cross-border trade with Thailand and China has been stymied by Yangon's curbs on imports. “It's bad, and worse is to follow,” says one trader. “We are facing a big crisis. No one is exporting or importing.” The restrictions on imports of luxury goods have led to shortages of such items as UHT milk, wine and liquor. Says an Asian diplomat: “Since last July, it has been difficult to get import licenses, except for essential goods. Cars, air conditioners and video players are all piling up on the docks in Singapore.” Yangon retorts that companies from Japan, Korea and even Singapore bring in products, such as second-hand cars, that they cannot sell at home. “It's a form of dumping,” says Abel. “Even the U.S. has rules against that.” Now there is a total ban on the import of new cars.

Still, Yangon's shops remain busy—though often there is a lot more window-shopping than buying. In the Yuzana department store consumers can still find everything from Samsung washing machines to Levi jeans to Johnnie Walker scotch (though increasingly Myanmar beer and Mandalay rum fill the shelves).

And despite hand-wringing about foreign debt, Myanmar's is still relatively small ($5.2 billion compared to Thailand's $92.9 billion and Indonesia's $137.4 billion). As well, Myanmar's annual 7% growth rate for the past four years is creditable—though some say it is only 4% in real local-currency terms. Abel says it should be 6% over the next five years.

That kind of confidence is due, in part, to the fact that some of Myanmar's top investors, including Japan, Hong Kong, Australia and China, have been relatively unscathed by the economic crisis. Says Mya Maung: “The two countries from which Myanmar can hope to secure funds are Japan, historically its largest creditor and supporter, and China, its greatest ally since 1988.” Because of this assistance, he says, “the safety net for the survival of the junta seems to be in place.”

In February, Japan pledged $25 million to upgrade the runway at Yangon's international airport. The resumption of full overseas development assistance, cut off when the generals ignored the NLD's victory in the 1990 elections, is expected to follow. Last month, Japan's Mitsui and Co. completed an 89-hectare, $20-million Mingaladon Industrial Park near the airport. Investors from Hong Kong, Japan, Korea and Singapore have already taken plots. Meanwhile, another Japanese firm, Marubeni, is working on several hydro-projects in northern Myanmar.

A $160-million Mandalay airport, built by the Italian-Thai Development Corp., will open this year. Israel's Telrad Ltd. has upgraded Yangon's telecommunications system. In March, the government signed an agreement with Thailand's Shinawatra Co. to use its satellite for telecom services. And sources say that in addition to Singapore and China (Yangon's main arms supplier), Israeli, Russian, Swedish and Swiss companies have sold the generals military equipment.

In addition, France's Total, U.S.-based Unocal and Mitsui are involved in a $1-billion project to build a pipeline from the Yadana offshore gas field to Yangon. A power station will be constructed at the gas terminal. A second pipeline will soon start to deliver gas to Thailand.

The big projects will pay off one day. But for now even Khin Nyunt concedes that Myanmar's economy, foreign-exchange reserves and infrastructure are in pretty lamentable shape. At a recent seminar, he said the budget deficit had burgeoned from $267 million in 1995 to $853 million in 1996 and has worsened since. The defense ministry still eats up 24% of revenue.

As Khin Nyunt pointed out, local quick-profit entrepreneurs, a Western lobby against foreign investment in Myanmar and poor domestic tax collection all contribute to the nation's dire economic status. Revenue collected totals a mere 3% of GDP (in other words, a paltry $165 million in 1995.) This has resulted in “the very fragile state of the Myanmar monetary situation,” he said. Although these shortcomings are no secret, it was unprecedented for a top military leader to admit such serious problems in the nation of 48.8 million.

Change cannot come soon enough. Academic Mya Maung says: “The real threat to the regime is that the economy under its gross mismanagement is in a downward spiral with escalating inflation, shortages of basic goods, rampant corruption and pervasive poverty that signal a massive political convulsion and violence like the 1988 uprising.” Others regard this doomsday scenario as highly unlikely—at least for the immediate future.

Abel says: “We will catch up. And we will do it our way. We know who our friends are—ASEAN, China, Japan, India.” With friends like that Myanmar may well be able to tough out the hard times. But it will not be easy.