Months before General Aung San was assassinated in 1947, he said in a speech, "When we plan our economy, do not let us confuse issues by bringing in p well that the country's ailing economy desperately needs reforms, though they are reluctant to contradict leaders' view, yet prioritising their career-oriented option," sources close to Myanmar Institute of Economics Graduates Association said, adding that the leadership knowingly neglects to change attitude towards managing the country's economy.
Encouraged years of growth
Figures released by Central Statistics Organisation show the country achieved high growth rate in gross domestic product with annual average growth fate of 7.5 per cent during the first four year plan from 1992 to 1995.
The growth rate increased to an annual average of 8.5 per cent during the following five-year plan until 2000.
The year 2001 saw a higher growth rate of 10.5 per cent, and the following two years continued to be inspiring, coming up with double-digit growth rates respectively.
"But many have cast doubts about their reliability," a leading economist said, referring to the estimates by the Economist Intelligence Unit, which claimed 5.3 per cent and 1.0 per cent for 2002 and 2003.
Meanwhile, it is difficult to reconcile such high GDP growth rates officially proclaimed with official figures of investment trends.
"Normally, in order to achieve GDP growths of 6 per cent and above, investment rates of more than 20 per cent of achieved GDP would be required," he said.
In the fiscal year 1999-2000 (a fiscal year ending on April 30 every year), the GDP grew 10.9 per cent with an investment rate of 11.7 per cent, and the following fiscal year saw the investment rate 11.8 percent of the growth 13.7 per cent. The fiscal year 2001-2002 remained marginally the same as the year 1999-2000 in both GDP and investment rates.
Since the population growth rate is said to be 1.8 or 1.9 per annum, double-digit growth of GDP means per capita GDP growth rates of 8 per cent or more each year since 1999-2000. The growth of GDP per capital is not concentrated among the country's wealthy marginal population segment estimated up to one million people, the growth of purchasing power for the majority must also be high.
"The assumption represents the sales of businesses must be booming. However, informal enquiry emerges the downward trends in the sales value of many retail outlets," the economist said.
Just to see few major sectors
Therefore, an assessment of Burma's macroeconomic environment will have to rely upon the informal enquiry rather than on official GDP growth rates.
What's more, rather than paying much attention to the GDP growth rates, the performance of the agricultural sector should be more concentrated as the sector, which will trigger most of the action, is continuously dominating the economy.
However, given the limited availability of irrigated land that accounts for some 20 per cent of the total cultivated area 27 million acre as of early 2004, the performance of the sector is largely dependent on the weather.
"Needless to say, its performance also greatly influences the growth of the overall economy," the academic said.
In the structure of GDP by major sectors in 2002-2003, the agriculture sector's growth brought total value to Kyat 1,722,128 million by 53.3 per cent of the year's GDP achieved, and the industry sector accounted for Kyat 409,686 million by 12.7 per cent with the service sector claiming Kyat 1,100,613 million by 34 per cent.
The agricultural sector comprises agriculture, forestry, livestock and fishery. Energy, mining, manufacturing, electric power and construction are under the industry sector, and services are of mainly trading.
The structure of GDP by ownership indicates the private sector vis-Ã -vis the public sector. The large share of private sector and cooperatives was mainly due to the agricultural sector's dominance in GDP, which is taken as a private sector.
Asian Development Bank (ADB) 's 2001 figures show the public and private sectors shared 22.1 percent and 77.9 per cent in GDP in 1999-2000, increasing marginally compared with several preceding fiscal years.
At current market prices, consumption accounted for 88 per cent of GDP between 1996-97 and 2001-2002, and investment for the remaining during the same period.
The role of foreign trade, particularly exports, was not so significant, claimed 0.7 per cent of GDP in 1996-97, continuing to decline to 0.5 per cent in 2001-2002. The use of official exchange rate “Kyat 6.6 per US dollar“ hits hard the demand side of domestic consumption and inward investment.
Spiral Inflation
Since the military regime took over the power in 1988, Burma has become an inflation-prone economy.
According to official data, inflation averages more than 20 per cent annually in 1990s. The record hike was seen in 2002-2003, and the lowest rate of 1.7 per cent in 2000-2001.
Inflation rates of more than 30 per cent per annum or nearly 60 per cent per annum seriously erodes the real purchasing power of fixed earners, which is worsened by the fact that the rate of increase in food index was 69.9 per cent in 2002-2003.
It is likely that such earners may have found ingenious ways to supplement their income through petty corruption.
Burma's inflation mechanism may simply be seen as budget deficits financed by money printing, which leads to excess liquidity of the local currency in circulation, a condition that in turn raises inflation and depreciates Kyats.
Increased prices in Kyats of imported goods further accelerates the inflationary spiral, thus bringing in the vicious circle of inflation and currency depreciation.
Moreover, negative real interest rates, which is motivated by low nominal interest in the country's banking sector, also contribute to lowering savings and raising excess liquidity of Kyat in circulation.
In recent years, it was the deficits of inefficient state-own enterprises, which came to constitute a major part of overall budgetary deficits amid continued declines in tax revenues from 6.4 per cent of GDP in 1987-88 to 2.9 per cent in 2001-2002.
For example, deficit generated by state-own enterprises, an obvious sign to watch out inflation, constituted 82.9 per cent of overall budgetary deficit, which grew 12 per cent to 92.7 per cent in the following fiscal year. To some extant, increased efforts to collect greater revenue will address inflationary pressure.
2003 Local Banking Crisis
Amid such complexity of the country's economy, another landmark has emerged as the domestic banking crisis of 2003, a liquidity problem. A bank's loans cannot account for more than 80 per cent of its total deposits, and the ratio of paid-up capital to deposits must be at 1:7.
The latter rule is referred to as a move, which requires uneasy shareholders to increase their capital input as deposits rise, regardless of the company's prospects for making profits.
As of a hypothetical calculation, the banks stand to make a small profit of some 7.5 per cent on paid-up capital, which is less than a 10 per cent interest that the shareholders could earn by simply depositing their money in the bank in savings and fixed amount.
The local banking sector is yet to begin healing.
Stagnant Inflow of Foreign Direct Investment
Regarding another characteristic of a fast devolitics. I appreciate that economics and politics are intimately connected, but let us keep politics out for the moment. Let us not indulge in attacks on imperialism; let us not look for excuses."
But actually, Burma's economy has since taken an adverse way throughout the history filled with catastrophic policy zigzags and alleged irregularities in economic management. The governments since the 1962 military coup have applied command economy.
"There are some military officials who knoweloping modern economy like Burma, a sizeable inflow of foreign direct investment is much needed. However, the inflow of FDI has dwindled to a trickle since 1997.
The decline was partly due to the indirect fall-out from the regional economic crisis alluded to earlier. But more than that, it was due in no small measure to cumbersome administrative procedures and unfavourable domestic investment including the dual exchange rate system. The investment climate has been worsened by some western countries' recent economic sanctions.
Mistaken Foreign exchange rate
What has happened to Burma's foreign exchange is suitably compared to weather in England, a hot topic which is closing any talks among English people when they get together. England's weather, which is hard to forecast, has a great impact on their daily activities.
That's a good example in Burma. Whatever local people talk about something earlier, they usually end with a talk about erratic movements in the free-market exchange rates, which shake up business decisions as well as consumers' purchasing power.
Burma still pactices dual exchange rate system, which results in a constant source of worry especially for the business community.
Long-term movements in the free-market exchange rates have largely influenced by the inflation differential between Burma and its trading partners.
Since the inflation rate in Asia between 1999 and 2004 is minimal at 1 or 2 per cent per annum, the dollar value of the Kyat in the parallel market can simply be considered as being closely and inversely correlated with domestic inflation.
In 2003, the free-market exchange rate is at Kyat 990 per US dollar, about 150 times the official rate of around Kyat 6.6 to US dollar. High inflation has led to a further weakening of the local currency in the parallel foreign exchange market.
However, a shortage of Kyat created by the 2003 banking crisis and by subsequent restriction on bank withdrawals in early the year came up with an upturn in the Kyat. The second quarter of 2003 seeing a fairly stable rate at some Kyat 950 a dollar, the fee-market rate dropped again in the wake of US ban on imports and freeze US dollar remittance.
Nonetheless, given little expectation of positive developments in the country's political economy, inflation and currency depreciation spiral is highly possible to continue.
External Trade Environment
In external trade, exports of natural gas continue to grow rapidly, now claiming some 30 per cent of the county's total exports. The value of gas exports jumped by 83.9 per cent to Kyat 5626.9 million in the first 11 months of the fiscal year 2002-2003, over the same previous period. Thanks to increased energy demand arising from Thailand's recent economic recovery and India's economic booming, the gas export surge is imminent in years to come.
It is likely that the commodity composition of exports will undergo some changes in the next couple of years or so. The share of garment exports is likely to fall, due to tougher US sanctions. On the other hand, the share of agricultural exports will rise again if the new rice trading policy is effectively implemented.
"However, it is by no means guaranteed", as a recent political upheaval has significantly hampered confidence in already-distorted investment climate, said some local industrialists.
Recent trade restrictions have made it difficult for many domestic and foreign trading firms in Burma to expand their activities. It is also likely to hurt firms that use imported inputs to produce export commodity, and hence adversely affect overall export performance.
Moreover, immediate changes in trade policies coming at insufficient explanations discourage any potential foreign firms that may be interested in investing in Burma.