Burma Economy: Asean's Black Sheep
Source : Business Asia
With no improvement in sight either in terms of political compromise or economic reform and recovery, Myanmar appears all set to remain on the back burner for all but the most risk-averse investors. Welcomed into the Association of South-East Asian Nations (ASEAN) during a phase of "constructive engagement", the belief was that, by joining the club, Burma's junta would learn more than better table manners. In the event, other ASEAN leaders are increasingly embarrassed by the presence or, more often, exclusion of Burma colleagues at international meetings. Change must come, but the more it is delayed, the more traumatic it will be when it happens.
Willingness to seek advice
Burma's continuing economic decline is motivating some members of the ruling State Peace and Development Council (SPDC) to seek outside advice. During a joint ASEAN-UN meeting in January, the junta's foreign minister asked the UN for greater assistance. And while the country's leaders rejected (on ground of political autonomy) the recent World Bank report on the economy (which dwelt on its ills and offered solutions), there nevertheless appears in this relationship, too, to be some eagerness to continue the dialogue (though any forthcoming aid will need to be prefaced with pledges of reform from the leadership, which seem unlikely). There is also greater willingness to reshuffle ministerial portfolios, which at least indicates a greater appreciation of the need for accountability, if not an insistence on new thinking among incoming appointees.
Enter Japan The older generation of Burma nationalists still recognise Japan as an historic friend and effective liberator, and may be more receptive to advice from Japan than from Western sources. Recent Japanese diplomatic initiatives, including a visit of a Keidanren delegation (of Japan's top conglomerates), have kindled hopes of a resumption of Japanese aid and investment. Despite Tokyo's continued insistence on democratisation and reform, there are signs that Japan is reluctant to see Burma's trade and foreign relations outlook dominated by China. Japan may be expected to lead the way for more flexible dialogue with Burma in the near future.
Back to school
Barely any tertiary education has been available in Burma for the past decade, creating a vacuum in the ranks of the educated labour force. The reopening of universities in recent months in part reflects a response to the urgent demands even of junta supporters for better opportunities for their families, and also a measure of confidence in the government's ability to control the dissent which traditionally emanates from the ranks of Burma's higher learning.
| myanmar vs asian |
|---|
| - | EXPORT | EXPORT-GDP RATIO |
| - | billion US$ | percentage |
| Indonesai | 48.2 | 57% |
| Thailand | 56.7 | 54% |
| The Phillipines | 34.6 | 48% |
| Myanmar | over 1 | 8% |
| Vietnam | 11.3 | 44% |
Economy heads on down
Despite the government's announcement of 5.6% economic growth in 1998/99, the reality appears much less promising. The EIU(Economic Intelligent Unit) estimates that growth expanded by no more than 4.4% in the past year, given the problems in the agricultural and industrial sectors.
Although manufacturing is now less starved of electricity than in the past, it remains hobbled by scarce resources. With virtually no new foreign investment, and some existing investment quietly downsizing, no additional facilities are coming on stream. Inflation remains in double-digit figures, the current-account deficit is widening, and foreign-exchange reserves are minimal. Against such a bleak backdrop, the government shows no signs of initiating reforms, allowing the situation steadily to worsen.
Kyat on the rocks
There is no fundamental reason to give any measure of confidence to the Burma currency, the kyat, which will continue in a downward spiral in its free-market value. The ludicrous differential between the official rate of Kt6.30:US$1 and the actual (free-market) trend to below Kt400:US$1 remains unresolved. There are some indications that the government may move towards a realignment, including a recent substantial increase in official salaries, in order to relate the official value of the currency more closely with reality. But any attempt at realignment would require the government to seek international financial assistance and advice. The requisite expertise in Burma is lacking, and a rash move would bring disaster.
Investors bow out
Despite continuing interest in investment from a succession of East Asian delegations, minimal inflows have ensued. Foreign direct investment approvals collapsed to US$29.5m in 1998/99, compared with US$777.4m in 1997/98 and a peak of US$2.8bn in 1996/97.Burma continues to offer little incentive to investors, domestic or foreign, and the business environment remains bureaucratic and cumbersome. The US embargo and various restrictions on imports of Burma-sourced goods eliminates the attractiveness of Burma as an export base. Tourism facilities, created to service an expected arrivals boom that never materialised, are now suffering from excess capacity. Investors risk home- country consumer boycotts, and most prefer to hold off until political change materialises.
No friends next door
Following the sieges to the Burmese embassy and Ratchaburi hospital in Thailand, and the increasing flows of narcotics from Burma into (and through) the Thai market, bilateral relations with Thailand are likely to worsen. The Thai authorities are under pressure to adopt an increasingly hard-line policy towards its intransigent neighbour, in light of the growing security risk from a conservative military junta that refuses to institute political reform.