FOREIGN ECONOMIC TRENDS REPORT: BURMA, 1997
[Section 2. Note, section
headings are for this Internet version only and do not reflect divisions in the original
document.]
[Begins at page 15 of printed version]
Defense
Since 1988, when military rule was first
seriously challenged by the pro-democracy movement, defense has been one of the
fastest-growing sectors of Burma's economy. The number of active-duty personnel in the
GOB's armed forces is estimated to have grown from about 175,000 in FY 89/90, when the
SLORC came to power, to about 350,000 in FY 95/96. (Meanwhile, the number of all central
government employees rose only from 552,000 to 587,000, and the number of SEE employees
fell from 355,000 to 305,000.) The stated intent of the SLORC is to expand the number of
armed forces personnel to at least 475,000; the authorized personnel level of the armed
forces is now about 550,000.
There is no evident external military
threat, and both the order of battle and the deployment of the armed forces indicate that
its primary mission is domestic. Since 1989, the SLORC has signed cease-fires in place
with sixteen armed ethnic insurgent groups. However, since the 1995/96 dry season, the
SLORC has been engaged in active hostilities with Karen, Karenni, and Shan insurgent
groups. Military units were deployed in Burma’s main cities during and after
widespread student demonstrations in November and December 1996.
Within the Ministry of Defense, supervised
by the Directorate of Defense Industries (DDI) and funded as part of the central
government budget, are twelve distinct "defense industries" that make products
ranging from weapons to sports balls; some products from each of these twelve
"industries" are displayed at the Defense Services Museum in Rangoon. By far
largest of these "industries" is the one that makes weapons, transport and tools
for the armed forces. DDI operates complexes of factories in and around Rangoon and at
Malun, west of the Irrawaddy River near Magwe. During the early 1990s, the governments of
Australia, the E.U. member states, Japan, Korea and the U.S. stopped approving
applications for licenses to export military equipment to Burma. The GOB, cut off from
most of its traditional arms suppliers, launched an import substitution effort in the
defense sector. DDI is in charge of this effort. It has expanded and modernized its
defense industries, and is reported to have imported substantial amounts of capital goods
for this purpose. DDI has a close relationship with "Ministry of Industry-2,"
which overseas the operation of the state-owned heavy industrial plants. During the 1990s,
the ministry has modernized two iron and steel mills at Ywama, outside Rangoon, and
Maymyo, a town east of Mandalay that is near a large state-owned iron ore mine and is home
to the GOB's new Defense Services Institute of Technology, as well as its military
academy.
Another economic agency of the Defense
Ministry is the Directorate of Defense Procurement (DDP), which procures imports of
finished goods for the military, including most weapons other than small arms. DDP also
has a large quasi-private income-generating affiliate: the Union of Myanmar Economic
Holdings, Ltd. (UMEH), a specially privileged holding company formed in February 1990. As
stipulated by its charter, 40% of its equity is owned by the DDP; the remaining 60% is
owned by "defense services personnel," notably senior military officers
including SLORC members, and by "military regiments and war veterans (organizations
or individually)." UMEH, as stipulated by its charter, operates "under the
guidance of the Directorate of Procurement," with which it is co-located across the
street from the Defense Services Museum in Rangoon. UMEH was exempted from commercial and
profit taxes in 1995. It wholly owns the Myawaddy Enterprises Group, including Myawaddy
Trading Company, Myawaddy Tours and Travel, and Myawaddy Bank (located since 1996 in the
former central bank building). In 1994 and 1995, UMEH non-competitively acquired from the
GOB Ministry of Mines not only four jade mines, mostly in Kachin State, but also mines
near Mogoke and Taunggyi in Shan State that account for most of Burma’s production of
rubies and sapphires. In exchange for 40% of output, UMEH leases these mines to private
operators, some of whom are reputed to be affiliated with ethnic minority narcotics
trafficking organizations. UMEH also owns and operates, on land formerly part of a
military logistics base, the Pyin-ma-bin industrial park just north of Rangoon, where
several of UMEH’s textile and other manufacturing joint-ventures with foreign
investors are located. During the mid-1990s, UMEH was increasingly the local joint-venture
partner with which the GOB encouraged foreign investors to affiliate.
In early 1997, the Defense Ministry
established a second privileged holding company, called Myanmar Economic Corporation
(MEC), with private shares that can be owned only by active-duty military personnel. It,
too, is co-located with DDP.
In addition, the Defense Ministry’s
Directorate of Security Printing (DSP) administers the "Wazi Project," which is
responsible for the printing of paper currency, some of which has been done in recent
years by private contractors overseas. DDI, DDP and DSP are all under the Defense
Ministry’s Quartermaster General’s Department. In 1996, according to the GOB
press, the Quartermaster General’s Department was the GOB agency that received
payment for a block of downtown Rangoon sold to a foreign investor for development as an
office and shopping complex.
In FY 88/89, the year the SLORC was formed,
recorded defense operating disbursements were only 1.8 billion kyat; they constituted
22.9% of recorded central government operating disbursements, equivalent to 2.3% of
recorded GDP, in exchange-rate-unadjusted terms. By FY 95/96, defense operating
disbursements had increased to about 23.8 billion kyat, although some of them were not
recorded as defense expenditures in central government budget accounts for FY 94/95 and FY
95/96. From FY 93/94 through FY 95/96, defense operating disbursements constituted about
40% of central government operating disbursements, and from 3% to 4% of recorded GDP, in
unadjusted terms. From FY 88/89 to FY 95/96, unadjusted defense operating disbursements
grew at an average annual rate of 45% in current kyat terms, or 13% in real terms derived
by applying the GOB's overall GDP deflator.
These figures for defense operating
disbursements exclude hidden subsidies to the Ministry of Defense from other parts of the
public sector, in the form of costless or below-cost provision of goods and services. For
example, the Ministry of Defense receives but does not pay for about one-fifth of Burma's
centrally generated electricity, with a value in FY 95/96 of about 2.3 billion kyat at
domestic industrial prices, more at international prices. (See the section on
"infrastructure," below). The Defense Ministry also purchases large amounts of
fuels from the state petrochemical monopoly, Myanmar Petroleum Products Enterprise (MPPE),
at official prices far below market prices. In FY 95/96, the Defense ministry purchased at
least 12 million gallons of fuel, chiefly diesel and gasoline, from MPPE at about 20 kyat
per gallon for diesel and 25 kyat per gallon for gasoline, for which the market prices
were about ten times higher. This implicit subsidy appears equivalent to about three
billion kyat in FY 95/96. Together, the Defense Ministry's fuel and electricity subsidies
from state-owned monopolies, worth 5.3 billion kyat or more than 0.7% of URGDP, bring
defense operating disbursements and subsidies to at least 29.1 billion kyat, or about 4.1%
of GDP, in exchange-rate-unadjusted terms. In addition, a substantial share of the GOB's
declining real expenditures on health is said by health industry experts to be used to
provide medical services to military personnel, and is not included in the defense budget.
The Defense Ministry also receives large amounts of rice from the state-owned Myanmar
Agricultural Produce Trading (MAPT) at a steep discount from the market price; this is
milled from the paddy that MAPT procures from growers at below-market prices. (See the
section on agriculture, below.)
The GOB publishes no data on its defense
imports or foreign-currency-denominated defense spending; as the IMF points out in every
issue of IMF/IFS, the GOB’s "current [account] data exclude military
goods." Defense imports of finished goods also appear to be substantially excluded
from the UNCTAD data on Burma’s imports. Their omission from the UNCTAD data is
presumably responsible in large part for the large negative error and omission terms in
this report’s UNCTAD-data-based BOP accounts (Tables D.1.b and F.2) from FY 89/90
through FY 93/94. These error terms indicate recorded foreign exchange inflows in excess
of recorded imports by amounts ranging from US $125 million to $250 million.
However, as Table G.5 shows, the Embassy
estimates that the Defense Ministry’s disbursements for imports rose steadily from
about US $75 million in FY 91/92 to about $270 million in FY 95/96. Disbursements for
imports of inputs into domestic defense production (capital goods and intermediate goods
imports for DDI) appear to have increased more rapidly than those for imports of finished
goods and services, growing from about one-fourth to about one-third of disbursements for
defense imports. In exchange-rate-adjusted terms -- equating kyat- and
foreign-currency-denominated spending at the market rate of exchange rather than the
official rate -- defense operating disbursements appear to have grown from about 6% of
recorded GDP in FY 91/92 to more than 8% of recorded GDP in FY 95/96. The sharp increase
in defense imports in FY 95/96 appears to have been made possible by the increase in the
GOB’s foreign exchange receipts caused by the quadrupling of state-monopolized rice
exports in FY 94/95. (See Tables D.2.a[3] and G.2.) Defense operating disbursements are
also believed to have exceeded 8% of recorded GDP, in exchange-rate-adjusted terms, in FY
90/91, when the GOB imported at least US $200 million worth of finished defense goods,
paid for in part with proceeds from the 1989 sale of part of the GOB’s diplomatic
mission in downtown Tokyo. That sale increased the GOB's net foreign assets by more than
US $300 million in FY 89/90 (Table D.1.a); the GOB drew down its own portion of net
foreign assets by roughly US $250 million in FY 90/91 (Table E.2), only partly to cushion
the inflationary impact of import liberalization. In sum, whenever, since 1988, the GOB
received large infusions of foreign exchange, its defense imports increased sharply the
following year.
Although it is still too soon to venture
estimates, both the value of the GOB’s defense imports and its real
exchange-rate-adjusted defense operating disbursements appear to have decreased in FY
96/97, apparently under pressure of the financial difficulties caused by the decline of
public sector export receipts (shown by Tables D.2.a[3] and G.2).
In addition to its defense operating
expenditures, the GOB appears to have substantial defense-related financial expenditures.
Much of its military imports, especially those from China, are credibly reported to have
been financed by medium- and long-term foreign-currency-denominated loans, which (despite
concessional terms from China) have generated substantial external debts and external debt
service obligations apparently excluded from the publicly available data on its external
debt --as is suggested by the low levels of outstanding debt to China, the GOB’s
major arms supplier since FY 90/91, in Table D.4. Payment of a single installment of debt
service to the Government of China in mid-1996 is reported to have been largely
responsible for an otherwise unexplained decline in Burma’s recorded foreign reserves
from about US $300 million to about US $200 million in June 1996. Much of that payment is
believed to be related to previous defense imports.
The Embassy estimates that in
exchange-rate-adjusted terms, the GOB's total defense-related disbursements, including
both operating expenses and service of undeclared debt related to prior-period military
imports, may have been consistently equivalent to between 8% and 10% of recorded GDP from
FY 91/92 through FY 94/95, and to more than 10% of GDP in FY 90/91, FY 95/96 and FY 96/97.
Again, these estimates exclude implicit subsidies to the Defense Ministry from other parts
of the public sector, notably the health system, the state petrochemicals monopoly (MPPE),
the state electricity monopoly (MEPE), and the state paddy quota procurement agency
(MAPT).
Although the value of imports consumed by
the central government is not known, the ministries of defense, construction and
agriculture are authoritatively reported to have accounted for the preponderance of its
consumption of imports in recent years. It seems likely that defense disbursements have
made up over half of central government operating disbursements, in exchange-rate-adjusted
terms, every year since FY 90/91. It seems very likely, if implicit subsidies are counted
as disbursements.
In exchange-rate-adjusted terms, as Table
G.5 shows, the share of public sector non-financial expenditures constituted by defense
operating expenditures appears to have grown from about 13% in FY 91/92 to about 21% in FY
95/96. Between FY 91/92 and FY 95/96, annual defense operating expenditures were
equivalent to between 59% and 139% of the annual recorded public sector cash-basis
operating deficit based on all recorded and apparent financing.
The above-cited figures on the Defense
Ministry’s spending and subsidies from other parts of the public sector do not
capture the substantial social welfare costs of military rent-seeking, which appears to be
institutionalized and openly tolerated due to low official salaries. Regional and local
military commanders, especially in rice-surplus regions, often procure unmilled rice from
villages at below-market prices, in addition to the rice that the Defense Ministry gets
from MAPT at below-market prices. Much of the gasoline openly sold at the market price
throughout Burma is widely and credibly alleged to be supplied by military officers, who
obtain it from MPPE at the far lower official price. Some command-grade officers are
reputed routinely to sell promotions to the highest bidders among their subordinates,
fueling demand for extra income at lower levels of the officer corps. The above-cited
figures also do not capture the substantial social costs related to domestic military
operations, including deaths, mutilations, population displacement, and uncompensated
labor contributions in the form of forced porterage, which remains widespread.
Agriculture
In exchange-rate-unadjusted terms,
agriculture generated about 63 percent of employment and about 51 percent of recorded GDP
in FY 96/97. GOB statistics suggest that the agricultural sector's share of recorded GDP
grew rapidly during the early 1990s but declined during the mid-1990s (Table B.3.a). In
part, this is an illusion created by increasing overstatement of rice production in GOB
data for FY 92/93 through FY 94/95, and partial correction for that overstatement in FY
95/96 and FY 96/97. However, much of the initial acceleration and subsequent deceleration
of agricultural production implied by GOB statistics was real.
During the early 1990s, agricultural
production did grow even faster than GDP, in response to a substantial albeit incomplete
liberalization of agricultural production and marketing from 1987 to 1991, when the GOB
for the first time allowed private domestic trading of agricultural surpluses and private
exportation of all crops except rice, and promised to allow farmers to manage their own
production, subject to the constraint that paddy (unmilled rice) must be grown on
"designated paddy land," which appears to constitute 12 million of the 22
million acres sown in FY 96/97. However, the GOB has continued to own all farmland, and to
monopolize export marketing of rice. During the mid-1990s, the growth of agricultural
production was slowed by GOB efforts to increase public sector foreign exchange receipts
by forcing farmers to grow more rice and to sell increasing quantities of paddy to the
state at prices increasingly below market. Since 1996, the SLORC has retreated from this
highly coercive policy, which failed to achieve a sustainable increase in rice exports due
to widespread non-cooperation and passive resistance by Burma’s farmers.
Burma's two most valuable crops are diverse
strains of rice and diverse beans and pulses. Exports of both have been major sources of
foreign exchange. However, whereas bean and pulse cultivation and exportation are largely
privatized, nearly the whole burden of the state on the agricultural sector is borne by
the rice subsector. The resulting tension, between private efforts to increase bean and
pulse cultivation and exports, and state efforts to increase rice cultivation and exports,
has been a central theme in the development of Burmese agriculture under SLORC rule.
-- Paddy (unmilled rice) production
The production of rice, Burma’s
staple food, is by far the largest industry in Burma’s recorded economy; although
prices are distorted and production data is flawed, rice production appears to account for
between one-fourth and one-third of recorded GDP, in either exchange-rate-adjusted or
-unadjusted terms. Cultivation of paddy (unmilled rice) is concentrated in lower Burma,
and particularly in Irrawaddy Division, which normally has a rice surplus several times
greater than the national rice surplus.
According to published GOB statistics (GOB/RFESC/97
and previous), national production of paddy rose from 13.2 million metric tons (mmt)
in FY 91/92, to 14.8 mmt in FY 92/93, 16.8 mmt in FY 93/94, 18.2 mmt in FY 94/95,
declining to 18.0 mmt in FY 95/96 and 17.1 mmt in FY 96/97. The U.S. Department of
Agriculture (USDA) estimates that production rose from around 12.0 mmt. in FY 91/92, to
13.4 mmt in FY 92/93, 15.1 mmt in FY 93/94, and 16.0 mmt in FY 94/95 and FY 95/96, but
declined to about 15.5 mmt in FY 96/97.
Neither area cultivated nor average yield
(per crop per acre) has increased much. The area sown with paddy in the wet season, the
only season in which paddy was traditionally cultivated in all but a few places in Burma,
remained constant at 11.9 million acres until FY 93/94 and had increased only to an
estimated 12.4 million acres by FY 96/97. This constitutes almost half of Burma's
cultivated land (including fallow land), which has remained at about 25 million acres
since FY 88/89. However, it constitutes only 22 percent of Burma's unforested arable land,
less than half of which is cultivated. The Embassy's production estimates and official GOB
sown crop-acreage figures jointly imply that from the early 1990s to FY 96/97 average
nationwide yield per crop/acre of harvested paddy land rose only from about 1.05 to 1.08
mt (from 51 to 52 baskets). Nevertheless, yields have been relatively low and static, due
both to seed quality problems and to low usage of chemical fertilizers, pesticides and
herbicides.
The increase in paddy output from FY 91/92
to FY 94/95 was achieved almost entirely through the expansion of multiple cropping. Half
of Burma's farmland was used as a government laboratory for experiments in centrally
planned agriculture conducted with a view to maximizing the GOB's foreign-currency
receipts from its rice export monopoly; the freedom of farm households to make their own
production choices was increasingly constrained. Before each cropping season, the GOB
extensively publicized, through all the state media organs, nationwide instructions to
farmers of when and what to cultivate on designated paddy land. The Ministry of
Agriculture deployed (and still deploys) a force of about 7,000 "agricultural
supervisors" throughout the countryside, chiefly to communicate these instructions
and monitor compliance.
From FY 92/93 through FY 95/96, the GOB
instructed farmers assigned to paddy land with year-round access to water to grow paddy
during the dry season, as well as the wet season. In many cases, this involved replacing
traditional dry season crops, such as beans and pulses, export of which had been
privatized, with unfamiliar and for some farmers less profitable dry season paddy, export
marketing of which the state continued to monopolize. Dry-season paddy planting increased
from negligible proportions in FY 91/92 to 3.0 million acres in FY 95/96, according to GOB
statistics. Dry season paddy production as a share of total paddy production (by weight)
rose steadily to 23% in FY 95/96, according to GOB statistics. Although GOB statistics for
these years appear to overstate dry season paddy production, dry season production clearly
grew rapidly as a share of total production.
In FY 94/95, the GOB instructed farmers to
triple-crop paddy in areas with year-round access to water. This involved replacing one
wet-season crop of slow-maturing long-stalked paddy with two wet season crops of
fast-maturing short-stalked paddy that is more vulnerable to flooding. Moreover, the first
wet-season crop had to be harvested midway through the rainy season, usually in the
absence of either mechanical dryers or humidity-controlled storage areas.
In some regions, multiple-cropping
increased farm incomes with little risk and farmers complied willingly and successfully
with the government's new production directives. In some other areas, including regions
near the sea in Irrawaddy, Rangoon and Pegu divisions -- Burma's rice-surplus regions --
salinity problems, high flood risks, and seasonal pest problems made multiple cropping
inappropriate; it was nevertheless imposed on villages, with sometimes disastrous results,
by regional and local military authorities who had production targets to meet. On much
land in many regions, dry-season paddy cultivation was technically feasible, but often
less profitable than bean and pulse cultivation, due in part to the costs of fertilizer
and diesel fuel for water pumps required to grow dry-season paddy. In areas near roads,
where cropping patterns could readily be monitored, village headmen imposed the multiple
paddy cropping directives under the sometimes explicit threat of dismissal from their
positions, and individual farmers complied under the sometimes explicit threat of loss of
access to the land or other state-allocated inputs. However, in areas distant from roads,
grossly underpaid agricultural supervisors could often be bribed to overlook dry-season
cultivation of beans and pulses on designated paddy land, which continued to be widespread
even after a sharp rise in world and domestic rice prices in late 1994 and most of 1995.
The introduction of dry-season paddy
cultivation required a rapid expansion of irrigation systems. From FY 91/92 to FY 96/97,
total irrigated area increased from 2.5 to an estimated 4.8 million acres (Table G.6), and
from 2.9 to 4.7 million crop acres (GOB/RFESC/97). From FY 91/92 to FY 95/96,
irrigated paddy cultivation increased from 2.1 to 4.4 million crop-acres per year, that
is, from 75% to 90% of total irrigated crop-acres. The area rendered irrigable by projects
of the Ministry of Agriculture's Department of Irrigation, which had grown at an average
annual rate of only 1.9% (from 1.5 to 1.65 million acres) from FY 86/87 to FY 91/92, grew
at an average annual rate of 6.0% (to 1.96 million acres) from FY 91/92 to FY 95/96. The
yearly addition to irrigable area achieved by village irrigation projects rose steadily
from 14,600 acres in FY 92/93 to 138,000 acres in FY 95/96. From FY 92/93 to FY 95/96, the
number of diesel-powered water pumps in use rose by 20%, from 46,000 to 72,000.
Until FY 96/97, this rapid expansion of
irrigation systems was achieved through a large increase in the GOB's use of uncompensated
"people's contributions," largely of labor, and of labor compensated at wages
far below market, in irrigation construction projects, chiefly during the dry season. The
official assessed value of new irrigation works constructed by local projects was about
55.4 million kyat in FY 93/94, 54.7 million kyat in FY 94/95 and 154.5 million kyat in FY
95/96, compared to only 126.7 million kyat for the entire 31-year period from FY 62/63 to
FY 92/93. Of this value, "people's contributions," evaluated at GOB shadow
prices, accounted for 46.4% in FY 93/94 and 51.6% in FY 94/95, but only 25.6% in FY 95/96,
due to increased use of earthmoving equipment (Table G.6.b). The value of these
"people's contributions" of labor appears to be evaluated in GOB statistics at a
government day labor contract wage that fell from parity with the market wage for
dry-season rural day labor before 1988 to about one-third the market wage for dry-season
rural day labor in FY 93/94 and FY 94/95. Consequently, the real increase in
"people's contributions" to these local irrigation projects may be as much as
three times greater than the already large increase indicated by official GOB statistics.
(See the section on infrastructure, below.)
In addition, the GOB, through regional and
national projects, built 64 reservoirs and dams, as well as numerous canals and
embankments, from 1990 to early 1996. State expenditures on construction of new irrigation
and embankment works through regional and national projects rose at an average annual rate
of 123% in current kyat terms (from 232 million kyat to an estimated 5,800 million kyat)
from FY 91/92 to FY 95/96. Moreover, the increase in irrigated area per million constant
kyat spent by the state on new irrigation and embankment construction works by regional
and national projects increased from negative 0.13 acres in FY 89/90 through FY 91/92, to
2.09 thousand acres in FY 92/93, 1.80 thousand acres in FY 93/94, and 1.86 thousand acres
in FY 94/95 (Table G.6.c). This sharp increase in the ratio of output to expenditure is
consistent with widespread allegations of a substantial increase in the exaction of
uncompensated "people's contributions" of labor on regional and national as well
as local irrigation construction projects from 1993 through 1995. During those years,
gangs of people working on irrigation ditches, canals and dams, were commonly observed
during the dry seasons throughout lower Burma's rural areas. This work was generally said
to be involuntary and, in most cases, uncompensated.
The results of the FY 94/95 experiment in
wet-season double-cropping of paddy proved disappointing: due to heavy rains late in the
season, and to GOB orders to plant early so as to facilitate dry-season planting while
water remained plentiful, not only the first wet-season crop, but also the second, was
harvested in the rain and was seriously damaged by excessive moisture. The 1995 wet season
harvest was adversely affected by unseasonably late rains at harvest time, and by an
infestation of grain borer beetles in storage facilities in Mon state, much of Pegu and
some of Irrawaddy Division. In some villages, farmers claim that the pests reduced milling
outturn by about 85%. The 1995/96 dry season harvest was good. However, the 1996 wet
season harvest was adversely affected by diverse problems, seed quality problems, leaf
blight, floods in Irrawaddy Division, and a reduction in fertilizer inputs due to a
shortage of foreign exchange. The amount of chemical fertilizers distributed by the
state-owned Myanmar Agricultural Service (MAS) for application to wet season paddy
decreased from 206,700 mt in 1995 to 197,200 mt in 1996; meanwhile, the acreage planted
with wet season paddy rose from 12.1 million acres in 1995 to 12.4 million acres in 1996.
Since FY 95/96, the GOB increasingly has
recognized that its effort to increase its foreign exchange by monopolizing rice exports
and forcing farmers to increase rice production was unsuccessful. Partly in response to
this recognition, and partly in response to a foreign exchange shortage created partly by
declining rice exports, the GOB has tentatively and incompletely liberalized rice
production. The GOB's nationally published instructions to farmers for the 1995, 1996 and
1997 wet season crops abandoned the 1994-95 experiment in obligatory wet-season
double-cropping; most although not all paddy farmers chose to return to cultivating a
single long-stalked wet-season paddy crop. In FY 96/97, Ministry of Agriculture and
Irrigation stopped requiring farmers to grow paddy during the dry season, due to lack of
foreign exchange to import the necessary fertilizer and irrigation pump fuel. From FY
95/96 to FY 96/97, according to GOB statistics, the area sown with dry season paddy fell
from 3.0 million acres to an estimated 2.0 million acres; dry season paddy production fell
from 4.1 mmt (23% of total paddy production) to an estimated 2.9 mmt. (17% of total paddy
production); and irrigated paddy crop-acres fell from 4.4 million acres to an estimated
3.9 million acres. USDA estimates that dry season paddy production fell from 3.0 mmt in FY
95/96 to 2.5 mmt in FY 96/97. Continued GOB paddy quota delivery requirements made the
reduction in dry season paddy cultivation and production less than it might otherwise have
been.
From late 1995 through early 1997, high GOB
officials, SLORC Secretary-2 and economic policy coordinator Lt.-Gen. Tin Oo, the Minister
of Agriculture and Irrigation, and SLORC Chairman and head of government Senior General
Than Shwe, in speeches published in GOB-owned newspapers, have called for an end to
submission of inflated paddy production reports by local officials of the Ministry of
Agriculture and Irrigation; in early 1997, the GOB revised its estimates of recent
years’ paddy production downward. On 24 April 1997, Senior General Than Shwe, in a
major agricultural policy speech, called for diversification of agricultural export crops
away from rice, authoritatively signaling a reversal of the main direction of GOB
agricultural policy since 1993.
The GOB's five-year-plan for FY 1996/97 -
2000/01, formulated in 1995, envisioned further expansion of multiple cropping of paddy,
through construction of an additional 75 reservoirs and dams that will increase irrigated
area to 6.67 million acres, or 28% of total net sown acreage, and for the construction of
which the GOB planned to spend 44 billion kyat. However, the GOB’s mid-1990s program
of rapidly increasing irrigated area, intended chiefly to facilitate the policy of
increasing dry season paddy cultivation, lost momentum as that policy faltered. According
to GOB statistics (GOB/RFESC/97), the annual increase in irrigated area fell steadily from
560,000 in FY 93/94 to an estimated 443,000 acres in FY 96/97; state expenditure on
construction of irrigation and embankment works through regional and national projects is
estimated to have decreased slightly, to 5.7 billion kyat, in FY 96/97; the augmentation
of irrigable area by village irrigation works fell from 138,000 acres in FY 95/96 to an
estimated 104,000 acres in FY 96/97; the annual increase in the number of water pumps in
use slowed to about 3%, to an estimated 74,000, in FY 96/97; and the irrigated area sown
with all crops fell by 11%, to an estimated 4.7 million acres in FY 96/97. Casual
observation, anecdotal evidence, and a decline in irrigated area per constant kyat spent
by the state on construction of regional and national irrigation works (Table G.6.c), all
suggest that use of uncompensated labor on such projects decreased substantially after FY
94/95, due both to a slowing in the pace of irrigation works, and due to increased use of
imported heavy construction and earth-moving equipment. However, use of uncompensated
labor in local irrigation works construction projects appears to have increased in FY
95/96 (Table G.6.c), and no data for FY 96/97 is yet available.
As of mid-1997, GOB policy for increasing
paddy production appears to have been re-oriented to focus not on increasing cultivated
area, but rather on increasing yields per acre through mechanization and increased use of
chemical fertilizers, pesticides and herbicides, and through improving seed quality.
-- State procurement of paddy
Since the partial agricultural
liberalization of the late 1980s, households assigned to work designated paddy land --
virtually all the land on which paddy is grown -- have remained obliged to deliver a
per-acre quota of paddy to MAPT at a price set by the SLORC. This quota increased steadily
from year to year until 1995. In FY 94/95 and 95/96, it was set at 12 baskets per acre in
rice surplus regions, and 5 baskets per acre in rice deficit regions, although, in
practice, the amount of "quota" paddy procured per acre reportedly deviated from
these levels in some regions. Given that one basket of paddy weighs 20.87 kg, and that 60%
of Burma's estimated 11.9 million acres of designated paddy land is in rice surplus
regions, the official quota due, gross of exemptions for crop failure, appears to have
amounted to about 109.5 million baskets, or 2.3 mmt, equivalent to about 14% of the 16.0
mmt of paddy production estimated by USDA for FY 94/95 and FY 95/96. GOB data indicate
that MAPT collected 1.93 mmt in FY 95/96, up from 1.65 mmt in FY 92/93 and 1.31 mmt in FY
89/90 (cf. IMF/RED/97, p. 69). These paddy quota collection figures consistently
represent about one-eighth, or slightly more than 12%, of USDA’s estimate of national
paddy production.
In addition, reports from rural rice
surplus regions indicate that villages have routinely been required to sell paddy, over
and above the MAPT quota, to the regional military command or to the local government at
the same price at which MAPT procures its paddy quota. No data on this non-MAPT
below-market paddy procurement are publicly available. However, it appears likely to have
amounted to several percent of paddy production on average.
From FY 90/91 to FY 95/96, the price paid
by MAPT for the quota paddy it procured decreased steadily relative to the market price
prevailing in lower Burma (for data through FY 94/95, see WB/PSER, p. 36). By FY
95/96, the ratio of the state quota procurement price to the market price had fallen to
about one-third in lower Burma. In rice-deficit regions, where prevailing market prices
are higher than in lower Burma, the state procurement price was am even smaller share of
the market price -- as little as one-fifth of the local market price in some remote
regions in FY 95/96, according to some reports.
Because the paddy quota has been based on
land acreage rather than total or surplus production, without respect to the number of
crops produced per year, its burden has fallen disproportionately on farmers assigned to
relatively low-yielding land, especially low-yielding land not well suited to multiple
cropping. However, this policy facilitated the introduction of multiple-cropping of paddy.
Households assigned to designated paddy
land may satisfy their quota obligation by purchasing paddy on the market. Some households
prefer to do this in order to put their land to more profitable uses than growing paddy;
official toleration of this technically forbidden practice has varied from place to place
and from year to year. Other households sometimes have found themselves obliged to buy on
the market to meet their quota because of poor crops. Paddy prices tend to rise every
March, when the paddy quota falls due, because of this additional demand.
Until 1996, the consequences of failure to
supply one's quota varied from place to place. In areas near Rangoon, where land is
relatively valuable, households might lose their access to the land. In other areas, such
as Irrawaddy Division, heads of households that had failed to meet their paddy quota were
sometimes required, during 1993 through 1995, to work off their quota debt in labor camps,
from which some did not return. In Irrawaddy Division, regional military authorities
reportedly ordered that no household in a village be allowed to mill its paddy until every
household in that village had satisfied its paddy quota obligation.
Since 1995, as the GOB has retreated from
its policy of relying on rice exports as its main source of foreign exchange, it has
modestly and tentatively liberalized its paddy procurement practices. In mid-1995, the
SLORC ordered that households whose paddy crops have failed be exempted from the paddy
quota. Since 1996, loss of land has been the most severe penalty for failure to supply
one’s quota, even in Irrawaddy Division. During 1996, the Ministry of Agriculture
erected billboards declaring "Lazy Farmers Lose Their Land" throughout Irrawaddy
Division. In early 1997, these billboards had been taken down, and MAPT was accepting late
delivery of paddy to satisfy quota obligations, even in Irrawaddy Division. In FY 96/97,
MAPT began to vary the price it paid for quota paddy according to quality; the price MAPT
paid for top-quality paddy rose to almost one-half the market price, while the price is
paid for low-quality paddy fell to about one-fourth the market price. In addition, the
procurement quota per acre was set on a township-by-township basis, with lower quotas for
townships with fewer farm households per acre. In FY 96/97, MAPT paddy procurement fell by
21% by weight, to about 1.52 mmt, less than 10% of total production as estimated by the
Embassy.
The five-year plan drawn up in 1995
envisioned the imposition, starting in FY 96/97, of a water tax payable only in kind, on
irrigated designated paddy land in both rice-deficit and rice-surplus regions, of 5
baskets of paddy per acre for dry season paddy, and 2 baskets per acre for wet season
paddy, in addition to the MAPT paddy quota. However, these plans have not been
implemented.
-- Rice exports
Throughout the period of SLORC rule,
all GOB domestic rice distribution has come from MAPT procurement; so, until FY 94/95, did
all declared GOB rice exports. Due to the dilapidated condition of Burma's antiquated rice
mills, 1.00 mt of paddy is milled, on average, into about 0.63 mt of rice, of which
roughly 25% is broken, causing Burma's rice to sell at a discount overseas. On this basis,
the Embassy estimates that the amount of rice that the GOB obtained from the paddy that
MAPT procured at below-market prices rose steadily year by year from about 0.83 mmt of
rice in FY 89/90 to 1.21 mmt in FY 95/96, but fell to less than 1.0 mmt in FY 96/97. The
amount of rice that the GOB distributed domestically -- chiefly to military and civilian
GOB employees and to selected ethnic minorities, largely at prices far below market --
varied from 0.64 mmt in FY 91/92 to an estimated 0.84 mmt in FY 95/96 (IMF/RED/97 and
95). The amount of GOB-recorded rice exports (shipments basis, in gross weight terms,
and including exports of 100% broken rice) rose steadily from 0.14 mmt in FY 90/91 to 0.26
mmt in FY 93/94, quadrupled to 1.03 mmt in FY 94/95, then dropped to 0.35 mmt in FY 95/96
and 0.10 mmt during the first nine months of FY 96/97 (GOB/SMEI/96.11-12 and
previous). The Embassy estimates rice exports (tare weight, excluding 100% broken rice)
for FY 96/97 at about 0.11 mmt.
The GOB decided, with great publicity, to
increase rice exports four-fold in FY 94/95, to 1.0 mmt. This decision appears to have
been in part a response to a sharp rise in world rice prices that began in mid-1994, and
in part due to the GOB's decision to reduce its teak exports by more than 40% and its
seaborne hardwood exports by almost 90%, in cubic tonnage terms, from FY 93/94 to FY
94/95. (See the discussion of merchandise exports in the section on the balance of
payments, below.) It appears also to have been based on inflated estimates of both paddy
production and GOB rice stocks.
Exporting 1.0 mmt of rice in FY 94/95
entailed increasing the sum of rice exports and GOB domestic rice distribution to about
1.80 mmt, some 0.48 mmt in excess of the estimated amount of rice derived from FY 94/95
MAPT procurement. Since the GOB could not cover this shortfall out of government stocks,
which proved to be smaller than anticipated, the Ministry of Agriculture purchased about
0.2 mmt of rice at domestic market prices during FY 94/95 in order to meet the 1.0 mmt
export target.
The proportion of Embassy-estimated paddy
production accounted for by recorded rice exports appears to have risen from about 2% (0.3
mmt) in FY 92/93 and about 3% (0.4 mmt) in FY 93/94 to 11% (1.7 mmt) in FY 94/95, but
dropped to about 3.5% (0.56 mmt) in FY 95/96 and to about 1% (0.2 mmt) in FY 96/97. From
FY 93/94 to FY 94/95, the 1.3 mmt increase (from 0.4 to 1.7 mmt) in paddy transformed into
exports exceeded the increase of 0.9 mmt (from 15.1 to 16.0 mmt) in national paddy
production. Consequently, the amount of new paddy production available for domestic
consumption fell by about 0.4 mmt or 3%, from 14.7 mmt in FY 93/94 to 14.3 mmt in FY
94/95. This, together with a 1.9% estimated annual population growth, the inelasticity of
Burmese demand for rice, and the paucity of domestic rice stocks, caused domestic rice
prices to rise sharply from late 1994 through late 1995. According to GOB/SMEI, the
retail price of emata rice in Rangoon rose by 86%, from 33.3 kyat per pyi to 61.5 kyat per
pyi, between October 1994 and October 1995. (One pyi equals 4.6 pounds avoirdupois.)
Meanwhile, the GOB's Rangoon CPI increased by only 22%; rice prices clearly led inflation.
Since late 1995, domestic rice prices have risen less rapidly than consumer prices
generally, as the reduction in exports has permitted a rebuilding of domestic stocks,
which were severely depleted by FY 94/95 exports. However, despite a near-cessation of
rice exports since mid-1996, the decrease in paddy output during FY 96/97 could cause
domestic stocks to be drawn down again during the second half of 1997. Consequently,
short-term rice export prospects remain poor; Myanmar Export-Import Services (MEIS), the
GOB parastatal that monopolizes rice exports, contracted less than 0.03 mmt of new export
sales commitments during the first half of 1997.
The GOB’s overestimation of
Burma’s paddy production and stocks led it to generate a large backlog of export
commitments in late 1994 and early 1995. From February 1995 until well into 1996, MEIS
contracted no new rice export sales. Nevertheless, this backlog prevented the GOB from
benefitting from a 25% rise in the international prices for the low-quality rice that
Burma exports between January and October 1995. MEIS was obliged to continue delivering
rice to foreign buyers at the prices specified in contracts signed in late 1994 or early
1995, plus a 5% premium that it imposed on buyers as a condition of honoring its
contracts. Due to its low level of export shipments after April 1995, MEIS, in mid-1996,
still had more than 0.5 mmt of unfulfilled rice export shipment obligations contracted at
relatively low prices before February 1995 for delivery in less than six months. In August
1996, it unilaterally abrogated 0.45 mmt of these commitments, and then proceeded to
fulfill export sales contracts negotiated at higher prices during 1996. The resulting
damage to the GOB’s credibility as a supplier may oblige it to sell at a performance
discount on international markets for some time to come.
-- Beans and pulses
The export marketing of beans and
pulses, unlike the legal export marketing of rice, was privatized in the late 1980s.
Unlike the expansion of paddy cultivation under SLORC rule, the expansion of bean and
pulse cultivation and production appears to have been a purely voluntary response to the
liberalization of production and of output distribution in 1987-91. During the mid-1990s,
it was hindered both by the SLORC’s imposition of new constraints on the use of
designated paddy land during the dry season, and by its imposition of new export taxes and
new bans on the private export of some pulses.
In FY 96/97, according to GOB statistics (GOB/RFESC/97
and previous), an estimated 4.2 million sown crop-acres, 13.6% of Burma's total estimated
sown crop-acreage, were sown with leading varieties of beans or pulses: black gram, green
gram, pigeon pea, chickpea (gram), "pelun," soy bean, "sultapya,"
butter pea or garden pea, up from 4.0 million acres, or 12.6% of total sown crop-acreage
in FY 95/96. This was roughly a 200% increase from FY 89/90, when only 1.4 million sown
crop-acres, or 5.6% of total sown crop-acreage, were sown with leading varieties of beans
or pulses. From FY 89/90 to FY 95/96, Burma's production of leading varieties of beans and
pulses increased by 250%, from 0.337 mmt to 1.190 mmt. These figures suggest that average
bean and pulse yields may have increased by around 24%, from 0.241 mt/acre in FY 89/90 to
0.298 mt/acre FY 95/96. However, from FY 92/93 through FY 95/96, some land, possibly as
much as 0.5 million acres, indicated by GOB statistics as having been sown with paddy
during the dry season, may in fact have been sown with beans or pulses; in that case, the
increase in average bean and pulse yields from FY 89/90 to FY 94/95 may be as little as
10%, to only 0.264 mt/acre.
The expansion of irrigation associated with
the introduction of multiple cropping of paddy appears to have contributed little to the
growth of bean and pulse cultivation and production. According to GOB statistics (GOB/RFESC/97
and previous), irrigated crop-acres sown with black gram, soy bean, chickpea (gram), or
garden pea (the only varieties for which such data are available) decreased steadily from
0.099 million or 3.4% of total irrigated crop acres in FY 91/92 to 0.092 million or 1.7%
of total in FY 95/96, before growing to an estimated 0.100 million or 2.1% of total in FY
96/97. Irrigated crop acres sown with unspecified "other crops," possibly
including other beans and pulses, increased in absolute terms but decreased in relative
terms from only 0.184 million or 6.4% of total irrigated crop acres in FY 91/92, to 0.211
million or 4.0% of total in FY 95/96, before rising to 0.212 million or 4.5% of total in
FY 96/97.
FY 88/89 to FY 91/92, in response to the
GOB’s liberalization of agricultural production and marketing, farmers in lower Burma
increasingly cultivated beans and pulses during the dry season on land that had previously
lain fallow during the dry season, while farmers in upper Burma, a drier region,
increasingly cultivated beans and pulses during the wet season, partly by reducing the
stock of fallow land. During that period, according to GOB statistics (GOB/RFESC/95
and previous), total national sown crop acreage increased from 23.8 to 25.4 million acres,
even though the total land area under cultivation, including fallow land, remained
constant at 24.8 million acres. Of this 1.6 million acre increase in crop acres sown, 0.6
million were added by reducing the amount of fallow land, and 1.0 million were added by
multiple cropping. Moreover, of this increase, paddy accounted for only 0.1 million, or
7.9%, whereas leading varieties of beans and pulses accounted for 1.2 million or 75%. Crop
acres sown with paddy fell from 49.6% of total sown crop acreage in FY 88/89, to 49.5% in
FY 89/90, to 48.8% in FY 90/91, to 46.9% in FY 91/92. Crop acres sown with leading
varieties of beans or pulses rose from less than 7% of total sown crop acreage in FY 88/89
to 12.3% in FY 91/92.
The GOB's drive to expand multiple cropping
of paddy on designated paddy land during the mid-1990s slowed the growth of bean and pulse
cultivation. Nationwide agricultural statistics do not fully reflect this development,
because it was concentrated in lower Burma, where most designated paddy land is located,
and was largely offset by accelerated growth of bean and pulse cultivation in upper Burma.
From FY 91/92 to FY 95/96, according to GOB
statistics (GOB/RFESC/97 and previous), total national sown crop acreage increased
from 25.4 to 31.8 million acres. Of this 6.4 million acre increase in crop acres sown, 1.5
million were added by increasing the net area sown (largely by reducing fallow land, not
by clearing new land) from 20.1 to an estimated 22.6 million acres, and 4.4 million were
added increasing multiply-cropped area from 4.8 to 9.2 million acres. Of this 6.4 million
acre increase in crop acres sown, paddy accounted for 3.2 million, or about 50%, whereas
beans and pulses accounted for only about 2.6 million acres or about 40%, according to GOB
statistics. Crop acres sown with paddy rose from 46.9% in FY 91/92 and 46.6% of total sown
crop acreage in FY 92/93 to 49.8% in FY 93/94, 48.9% in FY 94/95, before falling back to
47.6% in FY 95/96 and an estimated 46.1% in FY 96/97. Crop acres sown with leading
varieties of beans or pulses fell from 13.6% of total sown crop acreage in FY 92/93 to
13.3% in FY 93/94 and 10.8% in FY 94/95, before rising back to 12.6% in FY 95/96, and
13.5% in FY 96/97. However, GOB data appear to overstate the area sown with paddy, and to
understate the area sown with beans and pulses, by an amount that increased during FY
92/93 through FY 95/96. Consequently, nationwide, the proportion of sown crop-acreage sown
with beans and pulses may have decreased little if at all during the mid-1990s.
However, regionally disaggregated GOB data
(GOB/SY/95 and previous), although publicly available only for two kinds of beans
and pulses (black gram and green gram), are consistent with abundant anecdotal evidence
that the growth of bean and pulse cultivation in lower Burma slowed markedly during the
mid-1990s, due to the GOB’s insistence that farmers plant paddy rather than other
crops on designated paddy land not only during the wet season, but also during the dry
season. Consider the data for Burma’s two largest rice-producing regions:
-- In Irrawaddy Division, from FY 89/90 to
FY 91/92, crop-acreage sown with black gram increased three-fold, from 0.146,000 to 0.425
million acres, and crop-acreage sown with green gram increased eight-fold, from 0.015 to
0.121 million acres, while crop-acreage sown with paddy increased by only 3%, from 3.154
to 3.245 million acres. The area sown with all three crops increased slightly in FY 92/93.
In FY 93/94 (the most recent year for which final regionally disaggregated data is
available), crop-acreage sown with black gram fell to 0.375 million acres, and
crop-acreage sown with green gram fell 0.081 million acres, while crop-acreage sown with
paddy increased by 34%, to 4.352 million acres.
-- In Pegu Division, from FY 89/90 to FY
92/93, crop-acreage sown with black gram increased
almost four-fold, from 0.058 to 0.295
million acres, and crop-acreage sown with green gram increased eight-fold, from 0.026 to
0.216 million acres, while crop-acreage sown with paddy increased by only 6%, from 2.088
to 2.220 million acres. In FY 93/94, crop-acreage sown with black gram fell to 0.261
million acres, and crop-acreage sown with green gram increased by only 4%, to 0.226
million acres, while crop-acreage sown with paddy increased by more than 10%, to 2.450
million acres.
Even allowing for considerable
overstatement of paddy cultivation and understatement of bean and pulse cultivation, these
figures point to a dramatic slowing in the growth of bean and pulse cultivation in lower
Burma in the mid-1990s.
GOB-recorded exports of beans and pulses (GOB/SMEI/96.11-12)
surged from 0.056 mmt in FY 89/90 to 0.449 mmt in FY 92/93 and to 0.514 mmt in FY 93/94,
but fell to 0.410 mmt in FY 94/95. This was due in part to an initially unsuccessful
effort by private exporters to win exemption from a new 5% ad valorem tax on
exports, payable in hard currency, that the SLORC imposed on all legal merchandise exports
in FY 94/95: the exporters withheld beans and pulses from the export market. During FY
95/96, recorded exports of beans and pulses surged to an estimated 0.595 mmt, due partly
to the release of the stocks withheld in FY 94/95. In 1996, the GOB exempted all
agricultural exports, including beans and pulses, from the 5% tax imposed two years
earlier. GOB-recorded receipts from bean and pulse exports rose from US $19 million in FY
89/90 to an estimated $241 million in FY 95/96, but fell an estimated $207 million in FY
96/97 (Table D.2.a[3]).
Since December 1, 1995, the GOB has
prohibited private exportation of chickpeas, a staple food of Burma’s military
personnel. The share of national bean and pulse production procured by the state (by
weight) which had decreased from 10.6% in FY 89/90 to 5.9% in FY 90/91 and to 4.3% in FY
91/92, increased to 6.0% in FY 92/93, 9.1% in FY 93/94, and an estimated 17.2% in FY 94/95
(IMF/RED/97 p. 69, and 95, p. 37). However, unlike state procurement of
paddy, state procurement of beans and pulses, as well as of all other crops, occurs at
prices determined by relatively competitive markets.
-- Remaining structural issues in the
agricultural sector
The World Bank (WB/PSER, pp.
37-38) estimates that in FY 94/95, Burma's paddy growers lost about 46.5 billion kyat in
income, or about 25% of their potential gross income from growing paddy, due to MAPT's
below-market paddy procurements (15.3 billion) and the GOB's monopolization of rice
exports (31.2 billion). In return, they received from the GOB diverse input subsidies,
including 3.3 billion kyat in fertilizer subsidies (WB/PSER, p. 40), 2.0 billion
kyat worth of loans bearing negative real interest rates, and modest diesel fuel and
pesticide subsidies worth, in total, in the range of 5 to 10 billion kyat. The estimated
net loss to growers of at least 35 billion kyat, equivalent to about 7% of
exchange-rate-adjusted GDP, represented roughly 20% of their potential gross income from
paddy.
The GOB’s modest liberalization of its
paddy production and procurement policies since 1996, although welcome, does not address
the fundamental structural problem of Burma’s agricultural sector: the burden of the
state on the agricultural sector continues to fall largely on a single crop, paddy.
Consequently, the state must resort to highly coercive practices in order to keep
agricultural resources from leaving the rice subsector.
Moreover, this recent liberalization
remains both partial and tentative. Although the SLORC has declared its intent to
diversify its agricultural exports, it has relinquished neither its monopoly on rice
exports nor its right to procure paddy at below-market prices. It also has not explained
how the state will derive receipts from the agricultural sector, which appears to
constitute more than half of recorded GDP, if it allows rice exports to remain at low
levels. In particular, it remains to be seen whether the SLORC can devise a way to do this
that does not discourage agricultural exports. Consequently, the future prospects for
Burma’s agricultural sector remain unclear.
-- Living conditions in the agricultural
sector
There has been some substantial
improvement in some aspects of rural life during the past eight years. Consumer goods,
notably radios and bicycles, have become much more common, and many villages enjoy
privately-owned generator-powered VCR/television facilities that serve as community
theaters. Diesel-fueled irrigation pumps have widely replaced traditional animal- and
human-powered alternatives. However, relatively little of Burma’s farm population has
access to centrally-generated electricity, and electrification slowed during the
mid-1990s. Most plowing, threshing and transportation in rural areas is done by water
buffalo, oxen and horses; the number of "draught cattle" in Burma was still
growing, and approaching 7.0 million head, in FY 96/97 (GOB/RFESC/97). Worst of
all, access to basic health and education may be widely diminishing. (See the section on
infrastructure, below.)
Landlessness also appears to be widespread.
In early 1993, the Ministry of Agriculture, with technical assistance from U.N agencies,
conducted a census of agricultural holdings, covering a sample of 272 townships in all 14
of Burma's states and divisions. The results suggest a nationwide total of 2.95 million
households with agricultural holdings, each comprising an average of 5.4 persons, and,
thus, a farm population of about 15.9 million with direct access to at least some land or
other means of agricultural or animal production. However, the GOB estimates, based on a
1990 labor force survey, that 65% of the workforce was engaged primarily in agriculture,
and, based on a 1983 population census, that the 1993 national population was about 43
million; this suggests that about 28 million of Burma's people were supported chiefly by
agriculture. That, together with the results of the 1993 agricultural census, implies that
about 12 million people, or more than 40% of the population supported chiefly by
agriculture in 1993, had no land or livestock holdings at all -- over and above the 4.4
million people living in households with land holdings of less than 3 acres, generally too
small for subsistence even for a small household. Casual observation and anecdotal
evidence tend to confirm this result, according to a wide range of foreigners with
unrestricted access to rural Burma.
These data indicate a large landless rural
proletariat. Moreover, low education levels among these landless farm workers may hinder
their transformation into the labor supply of an expanded industrial sector. The 1993
agricultural census indicated that fewer than 13% of heads of households with land or
livestock holdings had completed four years of non-religious education; 9% had no formal
education at all, and nearly 46% had only religious education. The education levels of
Burma's landless farm workers are generally believed to be even lower.
The government’s role in the
economy
-- Historical background
During the centuries immediately
preceding its conquest by Britain, Burma was sparsely populated. Scarcity of labor, rather
than of land or food, was the binding constraint on economic development. Social and
economic institutions aimed chiefly at controlling labor, rather than at efficiency either
in allocating output or in using non-labor inputs: much of the population belonged to
hereditary crown service households from which the large standing army was drawn, and
which was subject to involuntary relocation; all other households were subject to
extensive labor conscription, both for war and for the building of roads and religious
shrines; all cleared farmland was owned by the king, and use of it was contingent upon
both continuous cultivation of it and provision of required labor services; most internal
and external commerce was monopolized directly or indirectly by the crown, which neither
struck coins nor otherwise issued money. There were no formal or recognized institutional
constraints on the power of the Burmese kings, who successfully asserted their prerogative
both to purge the clergy and confiscate its possessions, and to confirm or deny hereditary
succession to all offices and privileges. The limits of the king's power were largely
technological: inability to monitor distant agents, and to project power far from his
capital. Popular resistance chiefly took the forms of pervasive corruption of officials
and flight into the vast sparsely populated forests beyond royal control, in which
slash-and-burn agriculture could be practised but malaria was endemic.
Burma's first experience of a relatively
open and market-oriented economy, under British colonial rule in the nineteenth and early
twentieth centuries, led to increases in food production, population, longevity and
education. However control of commerce and finance, ownership of the best land, and hence
the benefits of economic growth, accrued disproportionately to Indian and European
immigrants who had greater prior experience of competitive private production, trade and
finance. Following independence from Britain in 1948, Burma's government expelled many
immigrants, declared state socialism to be the goal of national economic policy, and
increasingly returned to traditional forms of state ownership of land -- processes that
continued and intensified after the military coup d'etat of 1962.
From 1962 to 1988, the military
dictatorship of General Ne Win imposed on Burma a centrally planned economy that aimed at
national self-sufficiency, styled "the Burmese way to socialism." Manufacturing
and internal trade were largely monopolized by the state, as was what little foreign trade
was allowed. Farmers' surpluses in Burma's largely agricultural economy were procured and
distributed by the state at prices set by the state. As in other command economies,
national income stagnated and, in the mid-1980s, began to decline, although a large
proportion of economic activity was extralegal and unrecorded in official statistics.
In 1988, following a poor harvest and the
third of Ne Win's demonetarizations of much of the local currency, anti-government
demonstrations erupted throughout Burma, and swiftly developed into a broadly based
pro-democracy movement, of which Aung San Suu Kyi, daughter of the leader of Burma's
struggle for independence in the 1940s, emerged as one of the leaders. In the face of this
movement, Ne Win resigned from office. In September 1988, the military bloodily suppressed
the pro-democracy movement. Immediately thereafter, it organized the SLORC, through which
Ne Win, now about 87 years old, is believed by many Burmese to continue to exert
considerable although selective and diminishing influence.
-- The extent and limits of economic
liberalization since 1988
Immediately upon being constituted in
September 1988, the SLORC proclaimed that it would move toward a market-oriented economy
and began to liberalize economic policy. During the late 1980s and early 1990s, the SLORC
allowed the private sector to engage in internal trade and many kinds of manufacturing,
external trade, and some financial activities. Some small state-owned enterprises, such as
theaters, flour mills, blanket factories and saw mills were privatized. State procurement
of agricultural surpluses at below-market prices was limited to a single crop, rice, which
the state has continued to buy at a discount both for export and for subsidized
distribution to military and civilian government employees and to members of ethnic
minorities that the government has sought to pacify. Private exportation of crops other
than rice was permitted. Border trade was legalized and allowed to be conducted at market
exchange rates. Exporters were permitted to retain their earnings in
foreign-currency-denominated bank deposits, although required either to use the bulk of
them for imports, or to exchange them for kyat with prospective importers. Foreign
investment was encouraged through the promulgation of a new foreign investment law,
although joint-ventures with local firms, usually state economic enterprises (SEEs), were
required or encouraged in some sectors, and broadcasting, telecommunications and
electricity generation remain state monopolies by law. The establishment of private banks
was permitted, although interest rates continued to be set by the government at rates well
below the rate of inflation, and only four parastatal banks were permitted to handle
foreign exchange transactions. The GOB promulgated a new domestic investment law, a new
mining law, and a new foreign investment law that permits foreign direct investment in
most sectors of the economy and 100% foreign ownership in some sectors.
Nominally, Burma still has a dual exchange
rate regime, including an official exchange rate which now values the local currency, the
kyat, at about thirty times its value on a legal and competitive parallel foreign exchange
market. However, since 1990, the GOB has implemented a gradual and now largely complete
liberalization of the exchange rate regime, in many respects tantamount to a de facto
devaluation of the kyat. From 1990 through 1994, the GOB reduced the scope of public
sector imports for private sector consumption and the scope of subsidies reflecting the
official exchange rate. In 1990, when it began to liberalize external trade, the GOB
allowed exporters to hold dollar-denominated accounts in domestic banks, and allowed such
dollar deposits to be traded legally for kyat at a parallel exchange rate. These dollar
deposits could be used to purchase imports, but could be converted into kyat at the market
rate to purchase domestic goods only for export, not for domestic consumption. In early
1993, the GOB relaxed this restriction, allowing foreign exchange to be converted into
kyat at the market rate to purchase domestic goods and services for domestic consumption.
To facilitate this, the GOB introduced a local currency pegged to the U.S. dollar, the
"foreign exchange certificate" (FEC), that could be used legally to buy local
goods and services, or deposited into dollar-denominated domestic bank accounts to buy
imports. Thereafter, the only transactions still occurring at prices reflecting the
official exchange rate were intra-public-sector transactions, customs and sales taxes on
imports, limited sales of imports by the state to state employees, limited sales of SEE
products with imported inputs to private firms "cost plus" prices, and rationed
sales of fertilizers and refined petroleum products directly to the general public.
Starting in late 1995, the GOB formally licensed private dealers to make a fully legal and
apparently competitive parallel market in FEC/kyat transactions. In June 1996, the GOB
began evaluating imports at an exchange rate of 100 kyat per U.S. dollar for import
taxation purposes, thereby further limiting the transactions that occur at the official
rate of exchange.
However, several recent highly-publicized
reforms in the financial sector have proved largely illusory. In 1995, the GOB raised
nominal bank lending rates to levels that were briefly positive in real terms for a few
months in late 1995 and early 1996; however, they quickly again became steeply negative in
real terms as price inflation accelerated. In late 1995, the GOB also announced its
intention to permit joint ventures between local and foreign banks; however, the GOB has
reneged on its initial assurances that these joint-venture banks would be allowed to
handle international foreign currency transactions, and no such joint ventures are yet
operating, due to a lack of interest on the part of foreign banks. In early 1996, the GOB
announced its intention to permit the creation of a securities exchange under the tutelage
of a major Japanese financial house, Daiwa; however, due to a paucity both of firms with
publicly tradable securities and of accurate and timely economic information, the
conditions for a securities market do not exist, and little progress toward creating one
has been made. In June 1996, the GOB authorized Burmese banks to pay interest on
foreign-currency-denominated deposits, and also eliminated a 10% tax on withdrawals from
foreign-currency-denominated accounts in domestic banks, apparently in an effort to
attract increased foreign currency deposits; however, less than a month later, with much
less publicity, the GOB began to restrict withdrawals of both principal and interest from
foreign-currency-denominated accounts, as it started to ration private sector imports.
Most sectors of the non-farm economy
continue to be dominated directly or indirectly by the 58 SEEs, some of which
enjoy monopoly privileges, or by UMEH, a military holding company that also enjoys special
privileges. (On UMEH, see the section on defense, above.) In FY 95/96, the after-tax
receipts of the SEEs -- gross of their non-tax contributions to the central government --
were equivalent to about 15.2% of recorded GDP, and their expenditures were equivalent to
about 16.4% of recorded GDP, in exchange-rate-unadjusted terms (Table G.1.b). From FY
90/91 to FY 96/97, the number of state-owned factories and establishments fell by 9%, from
1,765 to an estimated 1,609 (GOB/RFESC/97 and previous), due more to textile mill
consolidations and rice bran oil mill closures than to 43 privatizations including 13
leases to domestic entrepreneurs. The number of SEE employees fell by only 5%, from
323,000 in FY 90/91 to an estimated 305,000 in FY 95/96. No large SEE has been privatized,
and no major privatization initiative appears imminent. In 1996, Peregrine Capital of Hong
Kong, a firm specializing in investment banking, withdrew from Burma, publicly citing the
absence of privatization prospects.
The state remains especially deeply
entrenched, both directly and indirectly, in export industries. SEEs and UMEH directly
monopolize Burma’s main traditional exports: rice, wood, uncut gems, jade, rubber and
pearls. In FY 95/96, even after two years of relative decline, public sector exports --
which no longer include the growing share of gem and jade exports handled by UMEH since
1995 -- still accounted for nearly 40% of all GOB-recorded merchandise exports, and nearly
30% of UNCTAD-reported merchandise exports. In addition, the SEEs and UMEH own
joint-venture shares in many of the export-oriented businesses operated by foreign
investors, such as garment assembly plants, tourist hotels, and domestic air carriers that
accept payment only in foreign currency.
The GOB has also continued to regulate
imports through licenses and composition controls. Importers continue to be required to
import GOB-designated "priority" goods in amounts equivalent to one-fourth of
their total imports. In FY 94/95, the GOB began to give import licensing preferences to
firms that import at least 50% "priority" goods. In July 1996, the GOB, facing a
worsening public sector shortage of foreign exchange, began to ration private sector
imports by restricting import licenses and openings of letters of credit. This policy,
which constitutes a fundamental departure from the SLORC’s much-publicized ostensible
commitment to an open market economy, remains in effect, although it has never been
publicly announced or acknowledged by any GOB official.
However, the GOB has increasingly failed to
provide the public health and education essential for sustained economic development. This
trend, which dates from 1964, when the state nationalized all hospitals and multi-subject
schools, has accelerated during the 1990s, due to reductions in real per capita GOB
spending on health and education. (See the section on human infrastructure, below.)
The magnitude of the public sector share of
GDP is conventionally calculated as the wage expenditures of the central government (on
the assumption that the central government produces services) plus the non-financial
receipts in excess of expenditures of the SEEs (taken to represent net value added by the
SEEs). On this basis, in exchange-rate-unadjusted terms, the public sector share of
Burma’s recorded GDP in FY 95/96 would appear to have been 0.7%: a central government
wage bill (5.5 billion kyat) equivalent to 0.9% of GDP, minus an SEE operating deficit
equivalent to 0.2% of GDP (1.3 billion kyat). An exchange-rate-adjusted estimate is not
possible for want of a disaggregation of public sector imports into those consumed by the
SEEs and those consumed by the central government. However, public sector operating
expenditures may be in some respects a more useful indicator of the relative size of the
public sector, and comprehensively exchange-rate-adjusted public sector operating
expenditures, excluding those of local government authorities, appear to have been
equivalent to about 40% of ARGDP during the mid-1990s. (See the section on fiscal
developments, below.)
Fiscal developments
In exchange-rate-adjusted terms, the
GOB’s overall fiscal deficit under SLORC management appears to have ranged from at
least 10% to at least 27% of recorded GDP on an obligations basis, and from at least 8% to
at least 19% of recorded GDP on a cash basis. The apparent omission of defense-related
debt service obligations and payments from the GOB’s publicly available external
financing accounts implies that its fiscal deficits may have been even larger than these
figures indicate. These persistently large deficits reflect both a steady decline in
kyat-denominated public sector receipts relative to recorded GDP, and a steady growth (at
least through FY 95/96) in real defense expenditures. Largely cut off from concessional
cash-basis external financing, and unwilling to privatize its major state-owned
enterprises, the GOB has continued to monopolize traditional exports, has greatly reduced
expenditures on health, education, and personnel, and has resorted to inflationary
domestic deficit financing.
The GOB used a brief increase in public
sector export receipts in FY 94/95 to increase its defense and capital imports, and
briefly to improve its external debt service performance. Since FY 95/96, declining public
sector exports have induced the GOB to borrow on commercial terms from foreign investors
and import suppliers, effectively obligating prospective natural gas export receipts until
well into the coming decade, to increase its borrowing from the central bank in order to
buy foreign exchange, and to requisition substantial privately-owned foreign reserves by
rationing private sector imports.
-- Non-financial expenditures
In exchange-rate-unadjusted terms and
on a disbursements basis, the share of recorded GDP to which recorded public sector
operating expenditures were equivalent ranged, between FY 89/90 and FY 96/97, from 37.0%
in FY 90/91 to 25.8% in FY 93/94, with a strong downward trend (Table G.1.b). Central
government operating expenditures declined from about 13% of URGDP between FY 89/90 and FY
91/92 to less than 10% of URGDP between FY 93/94 and FY 96/97. The decline in central
government operating expenditure was concentrated in health and education, for which
current expenditure disbursements fell steadily from 3.0% of URGDP in FY 89/90 to 1.4% of
URGDP in FY 95/96 (Table G.4). The share of URGDP to which the expenditures of the state
economic enterprises (SEEs) were equivalent declined from 23.7% in FY 90/91 to an
estimated 15.9% in FY 96/97.
Between FY 89/90 and FY 96/97, the share of
URGDP to which public sector capital expenditures (excluding defense ministry capital
expenditures) were equivalent ranged from 2.6% in FY 93/94 to an estimated 6.4% in FY
96/97, with no clear trend. Virtually all the decline in public sector expenditure
relative to recorded GDP was in current expenditure.
The share of URGDP to which the central
government’s current expenditures (including all defense operating expenditures) were
equivalent declined steadily from 11.5% in FY 90/91 to an estimated 5.3% in FY 96/97.
Almost half of this decline is due to a drop in the central government personnel
expenditures from 3.7% of URGDP (5.6 billion kyat) in FY 90/91 to 1.2% of URGDP (7.2
billion kyat) in FY 95/96; meanwhile, the number of central government employees rose from
about 550,000 to an estimated 587,000. In current kyat terms, the average annual wage of
central government employees rose only from 8,930 kyat (4.9 billion kyat for 550,00
employees; equivalent at the market exchange rate to US $143) in FY 90/91 to an estimated
9,407 kyat (an estimated 5.5 billion kyat for an estimated 587,000 employees; equivalent
at the market exchange rate to US $78) in FY 95/96 (IMF/RED/97, p. 85). In constant
kyat terms (deflated by the GOB’s Rangoon consumer price index), the average wage of
central government employees fell by 67%, at average annual rate of 20%, during this
five-year period.
The share of URGDP to which the current
expenditures of the SEEs were equivalent fell from 21.2% in FY 90/91 to an estimated 14.1%
in FY 96/97. The share of URGDP to which the SEEs’ personnel expenditures were
equivalent fell from 2.1% (3.2 billion kyat) in FY 90/91 to an estimated 1.2% (7.3 billion
kyat) in FY 95/96. In current kyat terms, the average wage of SEE employees rose from
8,987 kyat (2.9 billion kyat for 323,000 employees; equivalent at the market exchange rate
to US $144) in FY 90/91 to 22,128 kyat (an estimated 6.7 billion kyat for 305,000
employees; equivalent at the market rate to US $184), in FY 95/96 (IMF/RED/97, p.
85). In constant kyat terms (deflated by the GOB’s Rangoon consumer price index), the
average wage of SEE employees fell by 22%, at an average annual rate of almost 5% a year.
The average wage of central government
employees may have been lower than that of SEE employees by an increasing margin largely
because an increasing proportion of central government employees were military personnel,
whose wages are said to have fallen increasingly below those of central government
civilian employees. The pay scales of SEE employees and of the civilian employees of the
central government are said to be comparable. Consequently, the decline of real civil
service wages may approximate that of real SEE wages.
Even the average wage of SEE employees is
well below subsistence even for a small household in a Burmese city. However, the
above-cited on-budget wages of public sector employees are supplemented by food and (for
some employees) gasoline and housing subsidies. They are also supplemented by the earnings
of quasi-private "employees’ welfare associations" that operate with strong
government preferences; for example, they often buy imports from the public sector at the
official prices reflecting the official exchange rate and sell them to the private sector
at market prices reflecting the market exchange rate. Nevertheless, the central government
retains its labor force only by tolerating systematic rent-seeking, and by forbidding many
employees to quit their jobs. (Even before the SLORC was constituted, civil servants were
not free to quit their jobs without individual permission; however, they rarely asked for
permission to quit, due to the paucity of private sector alternatives.) In Burma’s
public sector, as in its private sector, there are no labor unions.
In comprehensive exchange-rate-adjusted
terms and on a disbursements basis, the share of recorded GDP to which public sector
operating expenditures were equivalent appears to have declined from more than 60% in FY
90/91 to just under 40% of recorded GDP from FY 93/94 to FY 96/97 (Table G.5). Total
public sector expenditures, including financial as well as operating expenditures (but
still excluding local government expenditures), may have been larger by about two to five
percent of recorded GDP. Recorded external debt service payments disbursed, net of
give-backs from the Government of Japan, ranged from 0.9% in FY 92/93 to an estimated 2.7%
in FY 95/96 (Table D.4); however, these recorded debt service figures appear to exclude
payments related to defense imports, which may be roughly comparable in magnitude to the
recorded debt service payments.
Foreign-currency-denominated public sector
operating expenditures, including both GOB-recorded public sector imports of goods and
non-factor services and defense imports as estimated by the Embassy, rose from about US
$479 million (42.2 billion kyat) in FY 91/92 to $883 million (106.3 billion kyat) in FY
95/96 (Tables D.2.a[4], D.3 and G.5). The share of comprehensively exchange-rate-adjusted
public sector operating expenditures for which they accounted rose from 40.5% in FY 91/92
to 46.4% in FY 95/96. Public sector merchandise imports, both of defense and non-defense
goods, increased substantially in FY 95/96, despite a decline in recorded public sector
exports.
Since the available data do not
disaggregate public sector imports into imports for the SEEs and imports for the central
government, they are insufficient to permit disaggregation of exchange-rate-adjusted
public sector expenditures into central government and SEE expenditures.
The foregoing figures for public sector
expenditures are arguably incomplete in several respects:
-- (a) These figures omit spending by
several firms wholly owned by UMEH, a quasi-public military holding company, and by
numerous joint venture firms partly owned by SEEs or by UMEH.
-- (b) These figures omit uncompensated
"people's contributions," chiefly of labor, to public works (described below, in
the section on infrastructure), as well as uncompensated forced military porterage by
civilians. This omission appears quite significant. The unusually low levels of
non-defense public sector capital expenditures in FY 92/93 through FY 94/95 (Table G.1.b)
coincides both with a large increase in the volume of public works, and with an even
larger increase in the GOB’s use of uncompensated labor for public works. Conversely,
the increase in such expenditures in FY 96/97 appears to coincide with a decline in its
use of uncompensated labor for public works -- at least in central Burma, although
reportedly not in some border areas -- apparently in response to pressure from the
international community.
-- (c) These figures omit much of the true
value of the large quantities of paddy (unmilled rice) that farmers are required to sell
to the state rice procurement agency (MAPT) at prices far below the market price. The
difference between the procurement price and the market price for paddy collected by MAPT
now appears greatly to exceed the value of fertilizer and fuel subsidies to farmers, which
the GOB has greatly reduced in recent years. (See the section on agriculture, above.)
-- (d) These figures value government labor
at below-market prices, and omit systematic side-payments to officials that may exceed the
central government wage expenditures that they supplement.
-- Non-financial receipts
In exchange-rate-unadjusted terms, the
share of recorded GDP to which public sector non-financial receipts were equivalent
declined from 29.4% in FY 89/90 and FY 90/91 to an estimated 19.7% in FY 96/97 (Table
G.1.b). From FY 90/91 to FY 95/96, the share of URGDP to which the central
government’s total non-financial receipts were equivalent declined steadily from 8.8%
to 6.3% of URGDP, while the share to which its tax revenues were equivalent declined
steadily from 6.0% to 3.8% of URGDP. Tax revenue declined as a share of central government
receipts, from about 68% in FY 90/91 to 60% in FY 95/96, increasing only in FY 94/95,
partly in consequence of new taxes on exports and on foreign-currency-denominated income.
(For a description of the GOB’s tax system, see Appendix I of IMF/RED/97.)
From FY 89/90 to FY 96/97, the non-financial receipts of the SEEs declined from 20.8% to
an estimated 13.3% of URGDP.
In exchange-rate-adjusted terms (Table
G.2), the share of recorded GDP to which recorded public sector non-financial receipts
were equivalent declined from at least 40.3% in FY 90/91 to at least 26.7% in FY 95/96,
increasing only in FY 94/95, to at least 35.3%, due to the quadrupling of
state-monopolized rice exports. Known foreign-currency-denominated non-financial receipts
(GOB-recorded public sector merchandise exports, central government service exports other
than "signature bonuses" paid by foreign investors, foreign grants, and taxes on
foreign remittances) as a share of total public sector receipts stayed in the range of 35%
to 40% from FY 89/90 through FY 94/95, but fell to less than 30% in FY 95/96, due largely
to the collapse of state-monopolized rice exports.
However, the above-cited figures understate
exchange-rate-adjusted public sector non-financial receipts, because they are based on
incomplete figures for foreign-currency-denominated public sector receipts. For want of
disaggregated data, they are based on evaluating at the official exchange rate both: (a)
the SEEs’ non-factor service export receipts (which must be substantial, since
several domestic and international air carriers, as well as some hotels and restaurants,
are owned by SEEs); and (b) the "signature bonuses" that foreign firms paid to
the central government upon receiving GOB approval to investing under the preferences of
the 1998 Foreign Investment Law, which make up most of the large "other non-factor
services export receipts" in the GOB’s BOP accounts (Table D.3). They are also
based on evaluating at the official rate an unknown amount of foreign currency receipts
from diverse taxes and fees, including:
-- a 10% tax on
foreign-currency-denominated income, imposed in FY 94/95 and collected not only from
domestic residents earning salaries denominated in foreign currencies, but also from
expatriate Burmese by GOB embassies as a condition of extending passport validity;
-- and a 5% tax on merchandise exports,
imposed on all exports in FY 94/95, but from which leading private exports, including
agricultural products, wood products and garments, were exempted in May 1996;
-- a 10% tax or fee on withdrawals from
foreign-currency-denominated bank deposits, in place until June 1996; and
-- a "money whitening" tax on
foreign currency that cannot be proved to have been earned legally, levied since 1989,
usually at the rate of 40%, but at only 25% during "amnesties" from February to
December 1990 and from November 1994 to March 1995. (Receipts for this tax are known only
for the amnesty periods.)
In light of these omissions, it seems
likely that foreign-currency-denominated receipts may have accounted for up to half of
public sector non-financial receipts from FY 89/90 through FY 94/95. Although that
proportion has diminished since FY 95/96, this has been partly offset by increased
foreign-currency-denominated domestic financing in the form of GOB restrictions on private
sector imports, which is tantamount to a tax on the external sector. (See the discussion
of domestic financing later in this section.)
The apparent decline of public sector
receipts relative to recorded GDP, even in exchange-rate-adjusted terms, suggests that the
GOB, under SLORC management, has proven increasingly unable to collect receipts
effectively. This seems to reflect both a steady decline in the official compensation of
central government employees in real terms, and the SLORC’s lack of popular support;
both these conditions have facilitated increasing tax evasion through corruption of
officials in diverse sectors. As described in the section on agriculture, above, farmers
evaded GOB directives to increase rice production during the mid-1990s by bribing Ministry
of Agriculture field officials to overreport rice cultivation, with such success that the
GOB in early 1997 publicly abandoned its policy of making rice exports the state’s
main source of foreign exchange receipts. Customs duties receipts fell from 3.2% (US
$29.55) of merchandise imports (UNCTAD, C.I.F.) in FY 91/92 to an estimated 1.4% ($37.4
million) in FY 95/96.
Under the SLORC's rule, a small but rapidly
growing share of the public sector’s foreign-currency-denominated receipts appears to
have been derived from direct or indirect ownership of minority equity interests in
private export-oriented firms, often through joint ventures with foreign investors by SEEs
or by UMEH (described in the section on defense, above). However, there appears to be no
data on public sector receipts from such sources.
The GOB’s receipts are also
supplemented by quasi-private "employee welfare associations" affiliated with
virtually every GOB agency. These associations engage in a variety of businesses, often
enjoying valuable government preferences, and use their profits to supplement the official
wages of the agency’s employees. Some effectively buy imports from the state at the
official exchange rate and sell them to the private sector at the market exchange rate.
One way of doing this is to buy SEE products with imported inputs that the SEEs sell at
below-market "cost plus" prices based on evaluating imported inputs at the
official rate. Firms owned by relatives and other close associates of command-grade
military officers also reportedly make extensive use of this practice.
During FY 96/97, the GOB, reeling
financially from a second consecutive year of low public sector exports, licensed its
employee welfare associations to publish tabloids without waiting for prior extensive
scrutiny and approval by its censorship boards. This quickly spawned a plethora of weekly
tabloids; previously, no private periodical could successfully be published more often
than monthly, due to the time required for censorship board approval. Since these tabloids
appear to be immensely popular, this modest relaxation of the GOB’s control of
Burma’s print media seems likely to have been a great financial success.
The GOB’s foreign currency receipts
may eventually be increased by exports of natural gas from two offshore fields, the Yadana
field and the apparently much smaller Yetagun field. However, any such receipts will
initially be limited, and are already largely obligated until at least FY 2001/02, and
apparently well past then. The first natural gas exports to be realized will be those from
the offshore Yadana field (described in the discussion of U.S. investments in the section
on the nature of the bilateral relationship, below). These exports are scheduled to begin
in mid-1998. However, they will not yield any discretionary receipts for the GOB until FY
2001/02. As a U.S. firm involved in the development of that field states in a publicly
distributed booklet: "The Myanmar government’s and MOGE’s [the
GOB’s hydrocarbons parastatal’s] net share of the revenue stream after expense
and capital recovery [is] estimated at roughly US $150 million annually... Fully one-third
of this revenue stream will be paid ‘in kind,’ that is, with an amount of
natural gas equal in value to the taxes and royalties due. This gas will be used by the
Myanmar government for domestic energy development projects like the ‘Three in
One’ project. The income from the Yadana project will finance the Myanmar
government’s share of the development and construction costs of the proposed power
and fertilizer plants and related pipeline envisioned in ‘Three in One.’"
In addition, much of the GOB’s share of the first few years’ receipts from
Yadana gas exports is said to be obligated to finance MOGE’s 15% equity interest in
the Yadana project. Still more has reportedly been obligated to pay for public sector
imports since 1996.
Even when no longer obligated, the
GOB’s prospective US $150 million in receipts from Yadana field gas exports will be
equivalent to only about one-third of the GOB’s known foreign-currency-denominated
receipts for FY 95/96 ($52 billion kyat, equivalent to $431 million at the market exchange
rate), or to less than one-fourth of the GOB’s known foreign-currency-denominated
receipts for FY 94/95 (74 billion kyat, equivalent to $65 million). US $150 million is
much less than the GOB’s apparent overall obligations-basis fiscal deficits for FY
94/95 (82.5 billion kyat, equivalent to $730 million at the market exchange rate; Table
G.3) or FY 95/96 (65.3 billion kyat, equivalent to $540 million), and far less than its
estimated recorded overall obligations-basis fiscal deficit for FY 96/97 (98.1 billion
kyat, equivalent to $620 million; Table G.2). Indeed, $150 million appears to be less even
than the GOB’s recorded debt service obligations in excess of its recorded external
debt service payments for FY 96/97 and all other recent years except FY 94/95 and FY 95/96
-- even counting payments given back by the Government of Japan as payments, and
apparently not counting defense-related debt service obligations to the Government of
China (Table D.4). Other prospective gas exports flows, e.g., from the offshore
Yetagun field, appear likely to be substantially smaller than those from the Yadana field.
In sum, prospective natural gas export receipts may ease the GOB’s fiscal problems,
but appear far from sufficient to solve them for the foreseeable future.
-- Fiscal balances
The GOB’s persistently large
fiscal deficits, generated in large part by growing public sector imports notably
including defense imports, are the main obstacle to macroeconomic stability in Burma.
In exchange-rate-unadjusted terms, and
based on recorded financing alone (Table G.1.b), the share of recorded GDP to which the
public sector cash-basis operating deficit was equivalent remained in the neighborhood of
6%, with no evident trend, from FY 89/90 to FY 96/97. The share of URGDP to which the
GOB's overall obligations-basis fiscal deficit was equivalent, was greater by an amount
that decreased, due to the increasing undervaluation of the GOB's external debt service
obligations at the official exchange rate, from 1.2% to 0.3% of URGDP.
On an exchange-rate-adjusted basis but
still based on recorded financing alone (Table G.2), the share of recorded GDP (based on
GOB trade data) to which the public sector cash-basis operating deficit was equivalent,
decreased from 10.4% in FY 90/91 to an estimated 6.8% in FY 95/96, but rose to perhaps
7.6% in FY 96/97. The share of ARGDP to which the recorded cash-basis overall fiscal
deficit was equivalent, declined from 12.2% in FY 90/91 to 8.1% in FY 93/94, but rose back
to 11.8% in FY 94/95, an estimated 9.6% in FY 95/96, and perhaps 10.1% in FY 96/97. The
share of ARGDP to which the GOB's recorded obligations-basis overall deficit was
equivalent, declined from 20.7% in FY 90/91 to an estimated 11.3% in FY 95/96, but rose to
perhaps 14.2% in FY 96/97.
The decline in the GOB’s overall
obligations-basis deficit relative to its overall cash-basis deficit from FY 90/91 to FY
95/96 was due almost as much to increasing debt relief from the Government of Japan, the
GOB’s largest recorded external creditor, as to increasing debt service payments by
the GOB. Conversely, the increase in the overall obligations-basis deficit relative to the
overall cash-basis deficit in FY 96/97 reflects not only an apparent deterioration of the
GOB’s external debt service performance but also a large reduction in debt relief
from the Government of Japan. (See the discussion of external financing later in this
section.)
Table G.3 presents the public sector budget
in exchange-rate-adjusted terms, based on apparent as well as recorded financing, from FY
90/91 to FY 95/96. This includes two sources of apparent internal financing, over and
above net domestic credit to the central government, that are apparent from changes in
exchange-rate-adjusted monetary aggregates (Table E.2): an increase in the domestic
reserves of the public sector (kyat in circulation in excess of credit to the public
sector), and a decrease in the public sector’s foreign reserves. (See the discussion
of domestic financing later in this section.)
On this apparently more complete basis, the
share of ARGDP (based on UNCTAD trade data), to which the GOB's public-sector cash-basis
operating deficit appears equivalent, declined from 17.9% in FY 90/91 to an estimated 5.4%
in FY 93/94, but rose to 11.4% in FY 94/95 before falling back to 7.1% in FY 95/96. The
share of ARGDP, to which the GOB’s overall cash-basis deficit appears equivalent,
declined from 19.6% in FY 90/91 to 6.8% in FY 93/94, but rose back to 13.5% in FY 94/95
and 9.8% in FY 95/96. The share of ARGDP, to which the GOB's overall obligations-basis
deficit appears equivalent, declined from 27.9% in FY 90/91 to an estimated 11.5% in FY
95/96. Comparable data for FY 96/97 are not yet available, because monetary data for FY
96/97 are not yet available; however, they are virtually certain to show a large increase
in fiscal deficits relative to recorded GDP.
Thus, for the period from FY 90/91 through
FY 95/96, analyzing the GOB's deficit financing in exchange-rate-adjusted terms, including
all unrecorded domestic financing apparent from exchange-rate-adjusting the monetary
accounts, shows the GOB’s overall obligations-basis fiscal deficit to have been
between about twice to three times as great, relative to recorded GDP, as it appears to
have been in exchange-rate-unadjusted terms including only declared financing. On the
other hand, it also shows that deficit to have been declining rather than constant
relative to recorded GDP -- at least until FY 96/97, when this trend appears to have been
reversed.
The above-cited exchange-rate-adjusted
fiscal deficit statistics are derived entirely from "below the line" deficit
financing, external debt service and monetary accounts. They are independent of, and
unaffected by, errors and omissions in the "above-the-line" accounting for
non-financial receipts and operating expenditures in Tables G.2 and G.3.
However, the GOB’s overall fiscal
deficits are likely to have been substantially larger even than the above-cited figures
indicate, because the external financing data on which they are based appears incomplete:
they appear to omit substantial external loan disbursements, largely from the Government
of China, to finance much of the GOB’s defense-related imports (up-front payments for
which are estimated in Table G.5). Similarly, the difference between the GOB’s
cash-basis operating deficit and its overall cash-basis deficit is likely to have been
substantially larger even than the above-cited figures indicate, because the available
external debt service payment data appear to omit substantial GOB external debt service
payments, chiefly to China, related to prior defense imports.
The budget balance of the SEE sector cannot
be assessed on a "below the line" basis because the financial operations of the
SEEs are consolidated with those of the central government. It cannot readily be assessed
on an "above the line" basis, even in exchange-rate-unadjusted terms, because of
numerous cross-subsidies between the SEEs and the central government (although WB/PSER
offers the best available recent attempt at this). It cannot be assessed in
exchange-rate-adjusted terms on an "above the line" basis because recorded
public sector imports are not disaggregated into those transformed or distributed by the
SEEs and those consumed by the central government. The true economic profitability of the
SEEs is obscured still further by diverse relative price distortions. On a firm-specific
basis, the difficulty of assessing SEE profitability is a daunting obstacle to any
prospective privatization efforts.
-- External financing
The GOB lost access to many actual and
potential sources of external financing after crushing the pro-democracy movement in 1988
and abrogating the results of the national election of 1990. Nevertheless, GOB-recorded
cash-basis external financing, i.e., new external loan disbursements to the GOB
(apparently excluding loans to finance military imports), after falling to US $ 61 million
(5.4 billion kyat at the market exchange rate) in FY 91/92, gradually increased to $120
million (14.4 billion kyat) in FY 95/96 (Tables D.1.a and G.2). However, this increase may
have been entirely in short-term loans, since WB/WDT/96 shows long-term loan
disbursements as having stayed in the range of US $50 to $75 million from 1991 through
1994, and the GOB is said in financial circles to have floated an increasing volume of
short-term commercial debt.
Low public sector exports in FY 95/96 and
FY 96/97 increased the GOB’s demand for cash-basis external financing. From 1970 or
earlier through 1994, according to the World Debt Tables, the GOB never received
any private external loans that were not guaranteed by some foreign government or
parastatal agency. However, during 1996 and early 1997, several major foreign investors
and some foreign import suppliers complied with GOB requests to make substantial loans to
the GOB to ease its foreign exchange shortage. These loans are said to have been of
medium-term and at commercial interest rates, and to have been secured either explicitly
or implicitly by the GOB’s prospective receipts from Yadana field natural gas exports
to Thailand. A U.S. firm supplied most of $30 million worth of heavy construction and
earthmoving equipment imports on credit in mid-1996. UNOCAL, a partner in the Yadana field
consortium, announced publicly in late 1996 that it had recently extended the GOB a
medium-term loan of about US 7 million to finance imports of urea. According to press
reports and other sources, similar but larger loans were made by the other foreign
partners in the Yadana field consortium, Total of France and PTT of Thailand, both
parastatal firms. PTT announced publicly that it was enabling the GOB to import crude oil,
of which Burma experienced shortages in late 1996, after a Singapore-based subsidiary of
Japan’s Mitsui declined to renew a crude oil supply contract on which the GOB had
substantially defaulted. Malaysia’s central bank was reported in the international
press to have extended a loan of US $50 million to Burma’s central bank. In February
1997, the Government of Thailand’s export-import bank agreed to extend the GOB a loan
of $11.6 million to finance the upgrading of a road from Tachilek, on the Thai/Burmese
border, to Kengtung in eastern Shan state. In mid-1997, a major Korean conglomerate with
investments in Burma reportedly agreed to lend the GOB $120 million to finance imports of
crude oil and refined petroleum products. Other recent medium-term commercial-rate
foreign-currency loans from foreign firms have also been rumored in Rangoon’s
business community.
As of mid-1997, the GOB’s recent
external borrowing appears already to have effectively obligated much of the GOB’s
prospective receipts from natural gas exports well into the next decade. This borrowing
appears responsible for an increase in GOB-recorded external loan disbursements to a
provisionally estimated US 156 million (24.8 million kyat) in FY 96/97. This figure may
prove to warrant revision upward.
Even before FY 96/97, the GOB's recorded
cash-basis external financing was becoming less concessional, i.e., higher-rate and
shorter-term. The data in WB/WDT/96 suggest that a large and growing proportion of
known external loan disbursements may, since 1993, have been private, but publicly
guaranteed, loans of medium term maturity and relatively high interest rates, rather than
the long-term very-low-interest multilateral and bilateral loans that made up nearly all
of the GOB's external loan disbursements before 1993. From 1989 through 1991, the GOB's
known new external loan commitments were entirely official credit; on an annual-average
basis, terms of maturity ranged from 17 to 20 years, grace periods from 5 to 10 years,
interest rates from zero to 1.5%, and implicit grant elements from 50% to 75%. In 1992
through 1994, by contrast, all of the GOB's new external loan commitments came from
private but publicly guaranteed creditors; on an annual-average basis, terms of maturity
ranged from 6 to 8 years, grace periods from 1.0 to 1.5 years, interest rates from 1.5% to
2.3%, and implicit grant elements from 23% to 30%. Most of this new medium-term credit
appears to have been guaranteed by parastatal export financing institutions, notably from
Asian nations. No non-Asian country's export financing parastatal is known to provide
preferential export financing or guarantees in support of exports to Burma. Debt stock
figures (Table D.4) suggest that commercial credit from other Asian countries amounted to
nearly $170 million during FY 95/96 (IMF/RED/97, p. 34). The trend toward less
concessional external cash financing clearly accelerated in FY 96/97 and early FY 97/98.
Net of debt relief, the GOB's new external
arrears as recorded in its balance of payments increased from US $73 million (equivalent
to 3.9 billion kyat or 2.8% of ARGDP) in FY 89/90, to US $294 million (equivalent to 31.0
billion kyat or 10.3% of ARGDP) in FY 92/93, then declined to an estimated US $68 million
(equivalent to 8.2 billion kyat or 1.2% of estimated ARGDP) in FY 95/96. The decline in
the accumulation of new arrears from FY 92/93 to FY 95/96 was due almost as much to an
increase in debt relief from the Government of Japan (GOJ) from about US $33 million to
about $145 million in FY 95/96, as to an increase in unrelieved external service debt
payments from $25 to $148 million (Table D.4.) The GOB’s new external arrears appear
to have increased in FY 96/97, partly due to a decrease in GOJ debt relief to about $78
million, and partly due to a reported worsening of performance in servicing other official
bilateral debt; it is also unlikely that the GOB serviced much of its low-interest
official bilateral debt while starting to borrow on a large scale at commercial rates from
private foreign investors. Consequently, the Embassy estimates that new external arrears
(excluding arrears on debt related to defense imports) rose to at least US $187 in FY
96/97.
Recorded obligations-basis external
financing (recorded loan disbursements, BOP-basis arrears, and GOJ debt relief) increased
from $228 million (equivalent at the market rate to 12.3 billion kyat or 8.8% of ARGDP) in
FY 89/90, to $408 million (equivalent to 43.0 billion kyat or 14.3% of ARGDP) in FY 92/93,
fell to an estimated $333 million (equivalent to 40.1 billion kyat or 6.1% of ARGDP) in FY
95/96, and rose again to a provisionally estimated $4