Burma Report;Finding Dollars, Sense, and Legitimacy in Burma

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FINDING DOLLARS,

SENSE, AND

LEGITIMACY IN BURMA

EditEd by

Susan L. Levenstein


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FINDING DOLLARS,

SENSE, AND

LEGITIMACY IN BURMA

Essays by

Bradley O. Babson

Mary Callahan

Jrgen Haacke

Ken MacLean

Morten B. Pedersen

David I. Steinberg

Sean Turnell

Min Zin

EditEd by

Susan L. Levenstein

2010 Woodrow Wilson International Center or Scholars, Washington, D.C.

www.wilsoncenter.org


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Public members: James H. Billington, Librarian o Congress;Hillary R. Clinton, Secretary, U.S. Department o State; G. Wayne

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contents

Introduction and Acknowledgments 6

Susan L. Levenstein

PARt I: BURMAs econoMY

Finding Dollars and Sense:

Burmas Economy in 2010 20Sean Turnell

The Rise o Private Indirect

Government in Burma 40

Ken MacLean

PARt II: BURMAs PoLItIcs

The Endurance o Military Rule in Burma:

Not Why, But Why Not? 54

Mary Callahan

Opposition Movements in Burma:

The Question o Relevancy 77

Min Zin


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PARt III: InteRnAtIonAL stRAteGIestoWARD BURMA

Myanmars 2010 Elections and International

Legitimacy: A Perspective on ASEANs Stance

vis--vis Naypyidaw 96

Jrgen Haacke

Burma, the International Community, and

Human Rights (with Particular Attention to the

Role o Foreign Aid) 114Morten B. Pedersen

Anticipations and Anticipated Responses:

The United States and the 2010

Burmese Elections 129

David I. Steinberg

Considerations or Future EconomicEngagement with Myanmar 149

Bradley O. Babson

Recent Asia Program Publications 161


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GLossARY

ADB Asian Development Bank

ADMM ASEAN Deense Ministers Meeting

ASEAN Association o Southeast Asian Nations

BBC British Broadcasting Corporation

BSPP Burma Socialist Program Party

CARE Cooperative or Assistance and

Relie Everywhere, Inc.

CBM Central Bank o Myanmar

CBO community-based organization

CLMV Cambodia, Laos, Myanmar, and Vietnam

DVB Democratic Voice o Burma

ERI EarthRights International

ESCAP United Nations Economic and Social Councilor Asia and the Pacic

EU European Union

FAO Food and Agriculture Organization o the

United Nations

GDP gross domestic product

Hluttaw a legislative body or parliament in Burma


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Glary

IDPs internally displaced persons

IFIs international nancial institutions

IISS International Institute or Strategic Studies (UK)

ILO International Labor Organization

IMF International Monetary Fund

KESAN Karen Environmental and Social Action Network

KIO Kachin Independence Organization

Kyat unit o currency in Burma

MCSO Myanmar Central Statistical Ofce

MOGE Myanmar Oil and Gas Enterprise

MSF Mdecins Sans Frontires (Doctors Without Borders)

Naypyidaw Current capital o Burma, since November 2005

NGO nongovernmental organization

NLD National League or Democracy

NWFZ Nuclear-Weapon-Free Zone

OECD Organization or Economic Cooperation

and Development

PSI Population Services International

PTTE PTT Exploration and Production (Thailand)

RFA Radio Free Asia

SEANWFZ Southeast Asia Nuclear-Weapon-Free-Zone Treaty

SLORC State Law and Order Restoration Council

SOEs state-owned enterprises


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SPDC State Peace and Development Council

Tatmadaw Burmas armed orces

TCG Tripartite Core Group

UG underground activists in Burma

UN United Nations

UNAIDS Joint United Nations Program on HIV and AIDS

UNCT United Nations Country Team

UNDP United Nations Development Program

UNHCR Ofce o the United Nations High Commissioner

or Reugees

UNODC United Nations Ofce on Drugs and Crime

UNSC United Nations Security Council

USDA Union Solidarity and Development Association

USDP Union Solidarity and Development Party

VOA Voice o America

Glary


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IntRoDUctIon

Susan L. Levenstein

T

he military junta in Burma1 is in ull control these days. For two

decades, the countrys principal opposition group, the National

League or Democracy (NLD), has struggled without success to

topple the regime, and has now ractured into competing groups. Norhas the international community ared any better in its eorts to promote

political change in Burma. Yet in todays evolving and increasingly glo-

balized world, Burmas governing State Peace and Development Council

(SPDC) has acknowledged that only by opening up to the outside world

can it reap the benets rom its treasure trove o natural resources and, in

turn, shed its image as a pariah state.

To achieve this, Naypyidaw2 is working hard to attract oreign in-

vestment, specically in the protable sector o energy. Indeed, revenuesrom the sales o natural resources have enriched the military regime and

deprived the general population. Burmas economy has beneted mainly

rom the global competition or energy resources between its two neigh-

boring superpowers, China and India.3 Unortunately, none o the newly

generated wealth or Burma is transerred to the people. As discussed

later in this volume, Burma suers rom a resources curse in which the

people have no access to the revenues generated rom the export o the

countrys natural resources, as ultimately these revenues all get unneledto the military junta. The wide gap between the rich and the poor was

especially conspicuous in the atermath o Cyclone Nargis, which not only

caused a high number o casualties and vast inrastructure destruction,

but also nearly decimated the countrys vital agricultural sector. Yet, the

SPDC ocused nearly all its eorts on re-establishing security and political

SUSAN L. LEVENSTEIN is program assistant o the Asia Program at the

Woodrow Wilson Center.


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stability, largely neglecting the rising humanitarian crisis. Its initial reusal

o international aid underscored a persistent worry o a oreign invasion

or a rare opportunity or oreign powers to exercise inuence.The SPDC is the ultimate survivor, having weathered years o in-

ternal and external strie. Its violent crackdown on the protests o the

2007 Saron Revolution demonstrated its endurance and resistance to

international pressure.4 Furthermore, rom Naypyidaws standpoint, the

timing o Cyclone Nargis could not have been more ortuitous. Shortly

ater the cyclone, the junta pushed through a reerendum vote on a

drat o the 2008 constitution that was ratied, according to govern-

ment ofcials, by a 92 percent majority. The vote was a means by whichthe regime attempted to deect attention rom the devastating eects

o the cycloneand thus, rom its incapacity to properly x a declin-

ing economy.5 By call ing or a national election in 2010, Naypyidaw is

trying to demonstrate its capability o running a ree and air elec-

tion, though its credibility is undercut by the passage o election laws

that prohibit political leaders who have previously served jai l time to

run or ofcea move mainly targeted at Aung San Suu Kyi and other

NLD members.

6

Burmas upcoming election, now scheduled or November 6, 2010,

raises a series o questions that this publication will address. Is there a way

out o Burmas stasis? How can the average Burmese cope with a biurcated

economy that avors the wealthy ew? Can society stand up to the state

without retaliation? At this point, do notions o reedom and democracy

as understood in the West even matter? Why should the United States

get involved in Burma? Will economic and political conditions in Burma

improve ater the 2010 election? The ollowing eight essaysarising romtwo 2010 conerences hosted by the Woodrow Wilson International Center

or Scholars and organized by the Centers Asia Programseek to address

these questions and oster an inormed discussion on how Burma may

improve and eventually resolve its economic and political dilemmas.

In an overview o Burmas economy, Sean Turnell, associate proessor

o economics at Australias Macquarie University, asserts that prospects or

the remainder o 2010 are grim. The juntas claims o double-digit growth

are unounded. Even though Burmas gross domestic product has grownsteadily yet modestly (at 2 to 3 percent per annum) through the sale o

exported natural gas, Burma is stil l one o the poorest countries in the


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world and the poorest state in Southeast Asia. This points to the military

juntas neglect and mismanagement o the countrys revenues, with most

o the incoming wealth channeled toward Burmas elite class. Turnellcharacterizes Burmese macroeconomic policymaking as arbitrary, erratic,

and without expert input, pouring money into extravagant projects with

little impact on improving the livelihoods o people. The SPDCs exces-

sive spending and borrowing rom the Central Bank o Myanmar have

plunged the country into entrenched ination and monetary chaos.

More specically, the varying ofcial and unofcial exchange rates o the

Burmese kyatinhibit the conduct o honest business practices and encour-

age corruption. The health and education sectors have suered the most,receiving less than one percent o GDP. The wide ssure between the rich

and the poor produces a dualistic economyormal and inormalin

which most people rely on the inormal economy (consisting mainly o

subsistence agriculture) with no access to the international economy. The

ormal economythe sectors o energy, raw materials, precious metals,

and stonesis monopolized by the junta and its cronies. The reusal o the

junta to accept international assistance in the atermath o Cyclone Nargis

has aggravated Burmas rural credit crisis. Even worse, growing interestin Burmas natural resources rom abroad will only entrench Burma in its

resources curse. Turnell is doubtul that the 2010 election will help turn

the economy around. I the junta is serious about redressing the countrys

economic ills, Turnell proposes it implement more transparency in the

privatization o industries, uniy the divergent exchange rates, liberalize

rice trade and agriculture, and recapitalize rural nance to restore the

rural credit system.

Ken MacLean, a proessor o international development and socialchange at Clark University, writes about Burmas inormal economy in the

border regions, analyzing how the entrepreneurial turn (or entrepreneur-

ship) there uels private, indirect governance by the junta. In MacLeans

eld studies, he nds that the various armed insurgencies, not the SPDC,

are in control o these discontinuous border areas where the inormal

economy has thrived. Thereore, the SPDC is obliged to co-opt these

armed insurgents in order to indirectly govern these areas and undercut

hostilities along the border.7

The SPDC has also ocused on implementing economic development

in these areas, giving rise to what MacLean deems the entrepreneurial


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turnthe conversion o previously contested spaces into commodi-

ed ones where large-scale resource extraction o gems, precious metals,

minerals, and tropical hardwood takes place. These ad hoc ventures areundertaken by a mix o the tatmadaw(Burmese armed orces) partnered

with members o the insurgencies, or state-owned enterprises or local

entrepreneurs with access to transnational networks. At times, tatmadaw

battalion commanders may nd themselves competing against each other

or orming convenient alliances or the extraction o resources that are

dwindling in quantity. In turn, although the SPDC may have much to

gain rom this orm o indirect control, it has actually ceded centralized

powers over these resources.Paradoxically, although Naypyidaw indirectly gains control o these

areas, the competition or resources extracted rom them has ueled regu-

lated, non-lethal violence, including the orced relocation o migrant work-

ers rom one location to another and the reinorcement o ethno-racial

hierarchies within which ethnic Burmese are considered superior. These

conicts have also destroyed the very ecosystems that inhabitants depend

on or economic and cultural survival.

In assessing the volatile nature o Burmese politics, Mary Callahano the University o Washington explains how and why military rule has

endured in Burma. She challenges the set o assumptions and inerences

made in the global discourse about the dominant narrative that under-

estimates the capacity o the tatmadawto withstand domestic and exter-

nal pressures. The political situation in Burma, according to Callahan,

has been promoted by exile politicians and pro-democracy advocates as

being on the verge o a collapse, discussed in terms o penultimacy or

on-the-brinkness, with the anticipated outcome o absolute regimechange or capitulation. Callahan expresses skepticism on the reliability

o this perspective.

For instance, claims o Burmas economic crisis, in her view, are exag-

gerated. She acknowledges Burmas economic duress aecting the vast

majority o the population in terms o health, education, and welare and

its bleak outlook, but comparing this situation to the 1987 demonetiza-

tion o the kyat(that brought down the Burma Socialist Program Party in

1988 and created widespread desperation), the current economic plunge ismore manageable because it unolded at a gradual pace. People also have

the means to migrate abroad with the increase in transportation options.


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Callahan also downplays the general perception o universal revul-

sion against the tatmadawby the Burmese public, stressing that anger

and revulsion are not sufcient conditions to bring about regime change.In act, the public has widespread access to inormation through various

orms o media (print and radio) and the Internet despite government

censorship. Callahan also nds little evidence that the tatmadawis acing a

succession crisis. Those members o the military who avor western-style

civil, legal, and political rights or the positions promoted by Aung San

Suu Kyi have already been purged at this point. Callahan also disputes

the claim that this military regime is anachronistic. She does, however,

believe that there is some xenophobia within the military ranks againstthe West. In act, the tatmadawdenounces Aung San Suu Kyi or embrac-

ing neo-colonial overtures and the adulation o the Nobel committee and

the western world. The tatmadaws ears are justied, Callahan asserts,

by a string o oreign eorts to nance anti-state groups in Burma since

the countrys 1948 independence rom the British. Callahan also doubts

that advocacy rom international organizations and pressure groups wil l

have any inuence on the tatmadawin the long term. Finally, Callahan

concludes that inside activists (who identiy themselves as democratsbut operate separately rom the NLD) should be equally recognized as a

viable opposition orce as much as the NLD. Yet, those activists who are

insiders within the military constantly nd themselves in a bind,

observes Callahan, trapped between the military junta and promoting

their own causes.

The repressive nature o state-society relations and continued strategic

openings in Burma will continue to make opposition movements relevant,

according to Min Zin, a Ph.D. candidate at the University o Caliornia,Berkeley, and a ormer student leader, who ocuses on the shortcomings

o the NLD as an opposition movement. Facing perpetual coercion and

repression rom the regime, any opposition must resort to alternative

courses o action like public mobilization and international advocacy to

remain active. Min Zin believes that the upcoming election will introduce

changes in governance that should oer some breathing room to the op-

position. Since the new government will operate rom the two centers o

power, namely, the military and the civilian government, this arrangementcan produce an internal split that will oer an opportunity or political

realignment, empowering the opposition groups.


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The NLD, in Min Zins view, possesses resilience but has been unable to

exercise ull leverage because o its reluctance to diversiy its repertoire.

Despite applying methods o concentration (protests, demonstrations,marches) and methods o disruptive nonviolent intervention to mobilize

public support, the NLD has never managed to undermine state authority.

Considering the two examples o the Four Eight Movement8 and the 2007

Saron Revolution, Min Zin notes that the students and monks who led

those movements lacked leverage and appeal to workers and peasants, two

large groups that could have strengthened the movements mass support

bases. In addition, Min Zin suggests that the NLD could have involved

neutral third parties (even China) to play a mediating role. In sum, op-position groups should apply a more diverse mix o tactics and methods to

diuse the states repressive operation. The NLD, as the main opposi-

tion orce, can achieve so much more by using a network-oriented or

grassroots approach instead o a hierarchical one to gain supporters.

Shiting the ocus to Burmas oreign aairs, Jrgen Haacke, senior lec-

turer in international relations at the London School o Economics, delves

into the complexities o Burmas varied interactions with the Association

o Southeast Asian Nations (ASEAN). The responses o ASEAN memberstates to the SPDCs adoption o new election laws last March ran the

gamut rom strong disapproval to sheer indierence. But to demonstrate

ASEANs unity, Vietnam, the chair o the 16 th ASEAN summit, issued a

statement in April 2010 that was less critical o Naypyidaw than the more

antagonistic stances expressed by Indonesia, the Philippines, Singapore, and

Thailand. Haacke interprets Vietnams statement as representing ASEANs

implicit consensus that Burmas upcoming election is considered broadly

legitimate, regardless o the NLDs non-participation.Haacke recalls that prior to 2009, Burmas relationship with ASEAN

was airly contentious, especially during the time when ASEAN pres-

sured Burma to accept Cyclone Nargis-related international aid. Yet by

October 2009, ASEAN had sotened its stance toward Burma, toning

down its criticism o the SPDC, notably omitting the terms transpar-

ency, release o political prisoners, or any mention o Aung San Suu

Kyi. Instead, ASEAN today stresses national reconciliation as Burmas top

priority. Washingtons new diplomatic approach toward Burma, Haackejudges, is one o the main reasons why ASEAN has sotened its posi-

tion. Vietnam, the current ASEAN chair and a non-democratic Southeast


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Asian state, has contributed to shaping a riendlier environment or the

SPDC in ASEAN, putting an emphasis on not interering in the internal

aairs o neighboring states. ASEAN also gives credit to Burmas team-player behavior in the association or endorsing the Bali Concord II, the

ASEAN Charter, and the ASEAN Security Community. Not surprisingly,

however, Burma and ellow non-democratic Southeast Asian states like

Vietnam, Cambodia, and Laos have resisted the ormation o the ASEAN

International Commission on Human Rights.

In contemplating international strategies applied to Burma, Morten

B. Pedersen, a research ellow at Australian National Universitys Center

or International Governance and Justice, looks or solutions to improveBurmas human rights situation. He evaluates the three dierent approaches

o ostracism, economic cooperation, and principled engagement that have

been adopted by the international community toward Burma, none o

which has succeeded, in part because o the large scale o the task at hand,

and also because those approaches have worked against each other. Petersen

urges the outside world to look not or what works, but or what works

best. Each approach must be assessed on its own terms, he argues.

Ostracism, mainly practiced by the West, has not worked as the juntaremains rmly entrenched in power ater 20 years. The SPDCs control

over the economy renders it less vulnerable to internal and external pres-

sures. Ostracism also brings a high cost to Western powers. The junta

invokes a nationalistic backlash against the West or imposing sanc-

tions that have weakened Burmas economy. The collateral damage to

Burma includes inhibited growth in the export sectors like agriculture,

sheries, garments, and tourism, a valuable source o income and jobs or

low-income households.Economic cooperation exercised by Burmas Southeast Asian neighbors

has achieved no more than ostracism and has incurred even higher costs.

This approach is based upon the premise that economic cooperation can help

modernize the country, setting the oundations or democracy, the rule o

law, and socioeconomic well-being. Unortunately, the SPDCs monopoly

on international capital and mismanaged monetary policies has produced

widespread corruption rather than economic and political progress.

Pedersen recommends principled engagement, the middle way be-tween ostracism and economic cooperation, as the best approach. His

middle way involves direct engagement with human rights practitioners


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and broader groups in society and uses non-conrontational means to

redress social grievances. This approach also osters positive synergies

between the dierent approaches. Unortunately, this approach is weakenedby a lack o support rom the West and Burmas neighboring countries,

leaving the burden to implement it on international organizations with

limited leverage and resources. In Pedersens view, principled engagement

is more theoretically attractive than ostracism or economic cooperation.

First, it can immediately alleviate the suering o the Burmese people.

Second, it is well-suited to the complex structural challenges o promot-

ing human rights. Third, it oers opportunities to enhance the benets

and lessen the costs o sanctions and economic cooperation, osteringpositive synergy among the approaches. In turn, Pedersen proposes keep-

ing expectations low and working toward achieving small, incremental

changes which will pose no threat to the regime, yet may transorm the

conguration o power and interests to bring about a bigger change.

David I. Steinberg, distinguished proessor and director o Asian

Studies at Georgetown University, examines the political circumstances

that have inuenced the United States policymaking process toward

Burma. The Obama administrations diplomatic strategy combines eco-nomic sanctions and practical engagementopening a channel o dialogue

with the Burmese junta, an approach ully endorsed by Burmas democratic

opposition. In Steinbergs opinion, all U.S. presidential administrations

since 1988 have invariably regarded Burma as an outpost o tyranny. This

is not surprising, given the instrumental role that human rights associations

and the Burmese expatriate community have played in making the human

rights issue the ocal point or U.S. policymakers. Nonetheless, in recent

years, Washingtons human rights-centric ocus on Burma has shited toa humanitarian one ollowing Cyclone Nargis.

In spite o general skepticism about the ree and air nature o the

upcoming Burmese election, Steinberg points to the western media over-

looking a modest element o potential airnessvote counting will occur

locally, rather than centrally, in the presence o members o registered

participating parties. Moreover, the new constitution has also created local

parliaments (hluttaws) at the state and regional levelsa move that is un-

precedented in the history o Burmese politics. Steinberg is, however,pessimistic o any political gain that the opposition parties, including the

NLD, can potentially make. He believes that the new election laws intend


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to disenranchise the NLD, but he also emphasizes that the NLD should

not participate in these elections because it must not renege on its long-held

position that the constitution and election laws are illegal.Although Washington understands that it has little leverage over Burma,

and that the sanctions policy is a ailure, the administration still considers

Burma, as Steinberg phrases it, a boutique issue in oreign policyone

that appeals to a relatively small clientele . . . or which only a modest

amount o political ammunition is to be expended. Nevertheless, Obamas

political opponents still use any politically expedient opportunity to criti-

cize his administration or the ailure to eect change in Burma. This

prompted the administration to renew economic sanctions against Burmaon May 14, 2010, to alleviate the political pressure back in Washington.

Finally, Bradley O. Babson, a consultant to the United Nations and

the World Bank on Burma, addresses ways in which the United States can

successully engage Burmas economy during the countrys transition

period o the next two years. In contrast to the other authors, Babson paints

a more optimistic picture o Burmas new era o governance. He suggests

that Washington and the international community should oster a robust

domestic policy debate on the economy at all levels o Burmas newlyelected government and oer technical assistance and capacity-building

training to civil servants. He believes that the new constitution (ratied

in May 2008) will hold elected ofcials more accountable about economic

governance. The constitutions regulations or running the market econ-

omy will inhibit crony capitalism through the prohibition o monopolies

and unair pricing practices. It also more clearly denes the scal respon-

sibilities o each governmental branch and their inter-governmental scal

relations. A new high-level economics coordinating commission willaddress nancial management at the national and intergovernmental levels,

and acilitate policy dialogue with the international community.

Babson also calls attention to Burmas next generation whom, he be-

lieves, U.S. policymakers should target. The United States should take the

initiative to acilitate educational exchanges with Burma, a privilege that

is, so ar, accessible only to the elite. To make reorm happen, the United

States should invest in Burmas uture leadership by building economic

capacity and by supporting education and training or economic and demo-cratic institution-building that will trigger reorm in subsequent years.

Organizations working on international development should develop and


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support Burmas educational system. Babson also points out that improving

the statistical base would encourage international nancial institutions to

be more involved in macroeconomic management, nancial system reorm,and carrying out larger-scale economic development projects.

Many people view the upcoming election as a possible turning point

in Burmas history. Understandably, as it is the rst general election to be

held since 1990, it carries a great deal o historical weight. But as all the

authors here agree, economic and political transition in Burmai it were

to occurwill be gradual. Some o the authors in this publication agree

that Aung San Suu Kyi continues to dominate U.S. and international

policy on Burma. Steinberg notes that the personal star appeal o Aung SanSuu Kyi has emerged as the most important determinant o U.S. oreign

policy toward Burma, leading many to view the Burma issue through

the lens o the NLD. Callahan posits that the international community o

Burmese pro-democracy supportersexiles, celebrities, academics, advo-

cates, and politiciansplay a vital role in naming, blaming, and shaming

the junta. As ormidable as these eorts are, they still cannot (and have

not) toppled the military regime. Haacke adds that many Southeast Asian

nations have mixed eelings about Aung San Suu Kyi, viewing her asinsufciently pragmatic, earing that she will disrupt the political stabil-

ity o the region.

Indeed, Aung San Suu Kyi is an icon among the Burmese diaspora

and the West more generally. Her stature closely mirrors that o the Dalai

Lama. They both command a steady ollowing in their respective exile

communities; champion the grievances o their people; strive or progress

in human rights, reedom, and democracy; and pose a threat to their gov-

erning regimes political stability. Yet, unlike the Dalai Lama or even someprevious emale Asian scions o political royaltyBenazir Bhutto, Indira

Gandhi, and Corazon AquinoAung San Suu Kyi is a woman physically

incarcerated in her own home country. Part o her appeal derives rom

being the eternal prisoner, victimized by her stature as the sole descendant

o Burmas ounding hero, Aung San.

Aung San Suu Kyis supporters worry that her appeal is ading among

Burmas young generation. According to a July 11, 2009, article in The New

York Times, the younger generation o the country harbors a general senseo indierence toward Aung San Suu Kyi.9 This is not surprising, as they

have lived through a time in which Aung San Suu Kyi was either abroad


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or under house arrest. Their only acquaintance with her may be through

history books or the media, with no close, personal contact resembling

the close ties shared between her and the 88 Generation Students group.Paradoxically, the West, along with the Burmese diaspora, has propelled

and maintained Aung San Suu Kyis solid, iconic status.

So this leaves us with the question o whether Aung San Suu Kyi will

stil l be relevant to Burmese politics in the coming decade. Perhaps, like

the Dalai Lama, she will merely serve as a spiritual leader or a lost people

or whom she has grown larger than lie, perhaps more so than she can

manage. So, in ormulating policy, it is important to ocus on the act that

Burmas problems entail more than just issues revolving around Aung SanSuu Kyis ate and welare.

The editor o this volume expresses her gratitude to this collections eight

authors, who took the time rom their busy schedules to drat the essays that

made this publication possible. This collection o essays would not have beenpossible without the help o Asia Program associate Michael Kugelman, who

provided his knowledge and editorial acumen in times o need.


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notes

1. In analyzing the process o renaming Burma as Myanmar, Lowell Dittmer

noted that it illustrates mainly a division between the nominalists (those who

consider names a matter o arbitrary convenience) and realists (those who think

names mean something). According to Dittmer, Myanmar derives rom the

literary orm o the Burmese language while Burma comes rom its spoken orm

(Bamar is the language o the dominant ethnic group). Burma was the name used

by the independence movement prior to 1948. Political naming came in the wake

o the 1988 coup and the military regime decided in 1989 (in the Adaptation o

Expressions Law) to reer to Burma as Myanmar and Rangoon as Yangon. The

UN, ASEAN, China, India, and Japan are nominalists, while the United States,

Australia, Canada, and the United Kingdom still remain among the realists.The realists still use Burma as an ofcial name mainly to deny the legitimacy

o the junta. In this text, writers have employed Burma and Myanmar

interchangeably, and their choice o denomination reects their own individual

positions, not those o the Wilson Center. See Lowell Dittmer, Burma vs.

Myanmar: Whats in a Name?Asian Survey 48 (6) (November/December 2008):

885888.

2. Naypyidaw has been the current administrative capital o Burma since

November 2005.

3. Wai Moe, Look East Meets Look West as India Hosts Than Shwe,Irrawaddy News, July 27, 2010. Access at http://www.irrawaddy.org/print_article.

php?art_id=19067.

4. Andrew Selth, Burmas saron revolution and the limits o international

inuence,Australian Journal o International Aairs 62 (3) (September 2008):

281297.

5. Michael F. Martin, Burmas 2010 Elections: Implications o the New

Constitution and Election Laws, CRS Report R41218 (Washington, DC:

Government Printing Ofce, 2010).

6. Some renegade members o the NLD have moved on to orm the National

Democratic Force party just so they may participate in the upcoming election. This

move has met with disapproval rom Aung San Suu Kyi and her loyal supporters.

Currently, Aung San Suu Kyi is sti ll serving a sentence o house arrest, which was

prolonged by an unanticipated visit rom American John Yettaw. The timing

could not have been more ideal or the SPDC, providing it with a new excuse to

marginalize Suu Kyi. However, this incident also prompted the United States to

revise its course on its Burma policy and initiate diplomatic engagement combined

with economic sanctions. See Donald M. Seekins, Myanmar in 2009: A New

Political Era?Asian Survey 50 (1) ( January/February 2010): 195202.

7. Media coverage o the domestic struggle between the junta and the NLD hasconstantly overshadowed the dilemma o Burmas ethnic minorities and armed

insurgencies in the countrys border areas. With more than 100 minorities, Burma


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sua L. Li

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is dominated by its ethnic majority, the Burmans who comprise around two-thirds

o the total population. Today, the minority groups still operate autonomously,

some in co-optation with the government, some not. The larger armed ethnic

groups have sizable military orces. For instance, the Wa has at least 20,00030,000soldiers while the Kokang has a orce o 4,000 strong. Some o the major ethnic

groups have received nancial support rom abroad. The Kokang, Kachin, and Wa

have ties with the Chinese while the Karen receives support rom western Christian

groups. They use this as leverage to bargain with the junta in maintaining their

autonomy. For more inormation, see Chizom Ekeh and Martin Smith, Minorities in

Burma (London: Minority Groups International, 2007).

8. The Four Eight Movement, or the 8888 Popular Uprising, comprised

a series o protests and riots that started in Rangoon on August 8, 1988, then

eventual ly spread to other parts o the country. This movement signicantlysolidied Aung San Suu Kyis status as the leader o Burmas opposition.

9. The New York Times, A Burmese Icon Tends a Flickering Flame, July 11,

2009, http://www.nytimes.com/2009/07/12/world/asia/12myanmar.html.


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Part i

Burmas Economy


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FInDInG DoLLARs AnD sense:BURMAs econoMY In 2010

Sean Turnell

I

n recent times, questions concerning the state o Burmas economy

have been unusual ly prominent. The December 2009 visit to Burma

o Nobel Prize-winning economist Joseph Stiglitz, the release a ew

weeks later o the latest ofcial report on post-Cyclone Nargis reconstruc-

tion, and a series o privatization announcements or an array o hitherto

state-owned enterprises have all drawn attention to economic conditions

in one o the worlds poorest countries.

So what is the state o Burmas economy in 2010?

In a word, it is grim. Among those old enough to remember, there is

something o a general consensus among Burmese armers, workers, civil

servantseven ormer soldiers and avored entrepreneursthat Burmas

economy is at its lowest point since the end o the Second World War.

Frustration, despair, and a eeling that something has to give in a coun-

try in which its natural endowment promises prosperity, all the while its

political economy serves up destitution, are near enough to universally

expressed sentiments.

The purpose o this paper is to examine Burmas economy at the cusp

o 2010, and to briey look at some o the basic reorms that will be nec-

essary to restore economic security to the Burmese people. The paper is

divided into two partspart I taking up the question o Burmas current

economic state o play, and part II addressing some o the reorms necessary

or medium and long-term growth.

Sean Turnell is a aculty member in the economics department at Macquarie

University in Sydney, Australia. He is co-ounder and editor o Burma

Economic Watch, and the author o numerous articles and academic paperson Burma. His most recent book is Fiery Dragons: Banks, Moneylenders and

Micronance in Burma (Nordic Institute o Asian Studies, 2009).


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Fidig Dllar ad s: Burma emy i 2010

| 21 |

BURMAs econoMY 2010

Economic Growth and GDPFor the last decade, Burmas ruling military regime (known as the State

Peace and Development Council or SPDC) has routinely claimed eco-

nomic growth rates in double digits. This account o Burmas economic

perormance, i true, would suggest that the worlds xation with the

achievements o China in recent times is misplacedand that Burma, the

real global economic star, has gone without recognition.

Unortunately or Burmas generals, even more or the people they rule

over, claims o double-digit growth rates or Burmas economy now orat any time in the countrys recent past are without oundation. Greatly

at odds with other proxy measures o national output (such as plausible

import trends, credit aggregates, electricity generation, ertilizer use, and

so on), Burmas true economic perormance is a world away rom what

the ofcial data suggests. Formal measures such as gross domestic product

(GDP) have, in truth, probably been growing modestly (at around 2 to 3

percent per annum), the principal driver o which has been Burmas rapidly

increasing exports o natural gas. Remove gas exports rom the equation,Burmas economy is dismal and depressing. With true per capita GDP at

less than one U.S. dollar a day, Burma is one o the poorest countries in

the world, and by some margin, the poorest in Southeast Asia. The daily

lie o the average person in Burma is one o grinding poverty and a re-

morseless eort or survival.

The dismal state o Burmas economy is the product o nearly 50 years

o willully inept economic management under a military regime that took

power in a coup in 1962 and soon ater, instigated a program known as theBurmese road to socialism. In the ace o maniest ailure, this road was

abandoned in increments in subsequent years but the undamental nature

o the regimes prerogative over all important aspects o the economy has

remained constant and unbending. Burmas military apparatus throughout

its rule has claimed the largest portion o the countrys output even as it

simultaneously undermines basic market institutions. There are no eec-

tive property rights in Burma. The rule o law is scarcely honored even in

pretense. Macroeconomic policymaking is arbitrary, erratic, and withoutexpert input. The SPDC spends vastly in excess o its (declared) revenue

and resorts to borrowing rom the Central Bank o Myanmar (CBM)


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printing money, in short, to nance its spending, leading to entrenched

ination and monetary chaos. Burmas currency, the kyat, is widely dis-

trusted and trades via wildly varying ofcial and unofcial (market) ex-change rates (currently at approximately $1 to 6 kyat($0.92)and $1:1,000

kyat($152.42) respectively). Apart rom painting an image rightly associated

with the most chaotic o economies, this twin exchange rate apparatus is

a substantial barrier to oreign investment, creating an obvious incentive

or corruption (or those able to buy dollars at the exponentially higher

ofcial rate in order to sell at the market rate).

Vital sectors o Burmas economy are deprived o resources especially

or those related to social well-being and the ormation o human capital.Burma spends little more than 1 percent o GDP on health and education as

the only member o the Association o Southeast Asian Nations (ASEAN)

with a deense budget greater than that o health and education put together.

This has had (and will continue to have) grave consequences, with Burma

becoming something o a hub or communicable diseases in recent years.

Meanwhile, Burmas education system has degraded to such an extent

that little more than hal o all Burmese children complete primary school.

The country is one o the ew places in the world where the present genera-tion o children will be worse educated than their grandparents. Burmas

schools, lacking the most basic resources, survive by levying all kinds o ees

that only exacerbates low school completion rates. Teachers are so underpaid

that most take on other work to survive (including teaching much o the

set curriculum only to those who pay or it privately ater ormal classes).

Moreover, the selling o exams is routine. The overtly political curriculum

o Burmas government schools inexibly set by the regime is taught, more

or less, exclusively by rote. Higher up the education hierarchy, Burmasuniversities have become a travesty o what was once a beacon o quality.

Deeply corrupt (the buying and selling not just o exams, but whole degrees

is de rigueur) and under-resourced, Burmas universities are centers o sur-

veillance and control routinely closed down by the regime at the rst hint

o unrest. Burmas ruling and business elite mostly opt out o sending their

children to local universities, sending them abroad instead.

The SPDCs economic mismanagement means that even rom non-

sanctioning countries, Burma attracts little oreign investment. What doesenter is strongly concentrated in the gas and oil sectors and other extrac-

tive industries. Employment generated rom investments in these sectors


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is scarce especially in technology or skill transer. The average citizen o

Burma spends over 70 percent o their income on ooda signicant

indicator o their slim margin o survivalby ar, the highest proportionso devoted among Southeast Asian nations.

The primitive state o Burmas economy is conspicuous in its structural

makeup. Dominated by primary industries, the share o manuacturing

and services in GDP (critical sectors o countries that have truly achieved

transormational growth) remains extraordinarily small. Table 1 below

contains the relevant structural indicators or Burma, and those o its peers

and neighbors:

Table 1: Sectoral Structure o Burmas EconomyContribution

to GDP (percent)

Sector Burma China Thailand Vietnam Cambodia Bangladesh

Agriculture,

Livestock, Fishing

and Forestry

47 13 10 21 33 19

Manuacturing

and Processing13 42 35 21 22 16

Services: Trade,

Communications,Finance

27 40 46 38 38 55

Source: Asian Development Bank (2007).

Burmas economy is decidedly dualistic, a partition maniested in sepa-

rate spheres o what economists label ormal and inormal activity.

Most Burmese live in the inormal economy. Engaged in little beyondsubsistence agriculturein petty production, trade, and rudimentary

servicesthe vast majority o people in Burma struggles to make a living


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in an economy that is overwhelmingly, i not exclusively, local. The am-

ily is the principal economic entity. The methods and organization o

production are largely traditional. The vast majority o Burmese have noexposure whatsoever to the international economy or to industries and

activities dependent on it.

Burmas ormal economy including the countrys state sector and much

o the trade in energy, raw materials, precious metals and stones is, by

contrast, dominated by the countrys ruling military regime, and entities

and individuals connected to it. Burmas military rulers have been extraor-

dinarily inept in managing the countrys macroeconomy but expert in

ensuring that the economys commanding heights, the trades that generateoreign exchange, and any new and protable opportunities that occasion-

ally emerge remain concentrated in their hands.1 As we shall see later, this

is true, above all, with respect to Burmas burgeoning exports o natural

gas, the nancial bounty o which is hidden and squandered by Burmas

military leadership that could have been used to achieve much.

Famously, there is also a signicant underground economy in Burma

much o which comprises (objectively and internationally) as il legal

activity which includes Burmas role as a substantial narcotics producerand distributor, and the source o smuggled gems, timber, and people.

Some o this illicit activity is undertaken by Burmas military directly,

and also in implicit collaboration with various ethnic ceasere groups. As

the U.S. Department o States 2009 International Narcotics Control Strategy

Reportnotes:

There are credible indications that mid-and-lower level mili-

tary leaders and government ofcials, particularly those posted inborder and drug producing areas, are closely involved in acilitating

the drug trade. The Burmese regime closely monitors travel, com-

munications and activities o its citizens to maintain its pervasive

control o the population, so it strains credibility to believe that

government ofcials are not aware o the cultivation, production and

trafcking o illegal narcotics in areas they tightly control.

Burma has ailed to indict any military ofcial above the

rank o colonel or drug-related corruption. Given the extent odrug manuacture and trafcking in Burma, it is likely that other

individuals with high-level positions in the Burmese regime, and


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their relatives, are involved in narcotics trafcking or misuse o their

positions to protect narcotics trafckers.2

Burmas economic perormance is likewise undermined by all pervasive

corruption. Burma is routinely ranked among the most corrupt countries

in the world by Transparency Internationals annual Corruption Perceptions

Index (in 2009, it was ranked third rom the bottom, bettered only by

Aghanistan and Somalia).3 This corruption runs through all levels o so-

ciety rom the tea money demanded by petty ofcials to what amounts

to nothing less than large-scale larceny on the part o Burmas regime and

its business partners. As with teachers noted above, or the most part, civilservants in Burma are paid well below a livable wage, so the extraction o

bribes or tasks that are ostensibly part o their employment is routine.

Cyclone Nargis

In May 2008, Cyclone Nargis struck Burma. Engulng much o the coun-

trys most productive agricultural land in the Irrawaddy delta, the cyclone

kil led an estimated 140,000 people, made homeless another 800,000, and

caused severe hardship or a third o the regions roughly 7.5 million in-habitants.4 In its economic dimension, this hardship was maniested, above

all, in a sudden and devastating all in incomes, with surveys taken in the

rst ew months ater Nargis revealing that the poor (the vast majority) in

aected areas had suered an eective halving o their spending power.

Much has been made post-Nargis o a recovery in paddy and ood produc-

tion in Burma (largely via the expansion o production in non-aected

areas and good climatic conditions in 2009), but the loss o income is not

without relevance in an emerging consensus that Burma is presently ac-ing chronic ood insecurity simply because it matters little what happens

to a countrys aggregate ood production i the population has no money

to buy it.

The human and physical destruction o Nargis understandably and ap-

propriately captured the attention o much o the world. Less in ocus were

governmental and institutional ailures revealed in the cyclones atermath.

Prominent among these has been the near complete ailure o Burmas oth-

erwise impervious (and newly cashed-up) state apparatus to provide thenancial resources necessary or reconstruction, o physical inrastructure,

and o that required or the rehabilitation o livelihoods especially with


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respect to the provision o rural credit. Early accounts in the wake o the

cyclone revealed that most households in cyclone-aected regions had no

access to credit o any kind. Traditional inormal credit networks throughwhich armers paid advances to agricultural laborers in kind (mostly baskets

o rice) had collapsed due to the destruction o rice stock.5

In 2010, almost two years on rom Cyclone Nargis, the crisis in Burmas

rural credit system is worse than ever. Credit remains in short supply. What

is available via inormal moneylenders comes at hety interest charges that

range rom 5 to 20 percentper month or armers and shermen, and up

to 50 percent per month or casual laborers without collateral.6 Burmas

ormal nancial institutions, including the state-owned banks supposedlydedicated to the rural sector, supply negligible credit. What they do pro-

vide (at subsidized rates that range rom 1 to 3 percent per month) mostly

ends up in the hands o the politically well-connected (who oten then

on-lend at substantially higher rates to the less ortunately linked). In the

ace o all this, the ndings o the extensive surveys o the social impact o

Nargis (carried out under the auspices o the Tripartite Core Group [TCG])

revealing that many households are now in a debt trap, rom which the

prospects o escape are ew, are hardly surprising.

7

Two other ndings othese reportspawnshops encountering increasing numbers o customers

who no longer have anything to pawn and an acceleration in the rate

o land loss by villagers to moneylendersare ominous portents o what

amounts to a crisis o great depth and persistence.

O course, Burmas rural nancial arrangements were deective well

beore Cyclone Nargis. A sector that provides over 70 percent o employ-

ment in Burma and around 50 percent o GDP, agriculture receives little

more than 1 percent o Burmas ormal credit. Burmas rural nance systemsuers rom willul ofcial neglect, a destabilizing policy environment,

inappropriate regulatory structures, a lack o individual institutional capaci-

ties, and a scarcity o nancial expertise and training. Political intererence

in the regulatory structure o Burmas rural nance system is particularly

damaging, among the most egregious o which is the (extraordinary) pro-

hibition o commercial banks rom lending or agricultural purposes. Other

unhelpul government interventions include government-imposed interest

rate ceilings on lenders and the perennial issue o the inability o armersto ully use their land as loan collateral (since the state is the owner o all

land in Burma).8


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Burmas Fiscal Position and Financial Sector

are Broadly Dysunctional

Rural nance in Burma is just one aspect o a nancial system that is morebroadly dysunctional especially and critically in terms o channeling unds

to genuinely productive private enterprises. With little access to inter-

national capital, in the absence o unctioning nancial markets, ormal

nance or private enterprise in Burma is limited to that made available by

the countrys commercial banks (state and privately-owned). Even here,

however, the circumstances are dire. Bank lending in Burma has recov-

ered somewhatsince a banking crisis tore through the sector in 2003, but it

remains pitiully meager. In 2007, total unds lent by the banks were lessthan a quarter o that provided by the central bank to the state. O course,

as seen rom Table 2, a substantial component o commercial bank lending

itsel (nearly 50 percent o the unds provided to the private sector) also went

to the government. Burmas banking sector, in short, scarcely perorms the

intermediation unction necessary or a countrys economic development.

Table 2: State/Private Share o Burmas Financial Resources,

Selected Indicators (kyatmillions)

Year

Central Bank

Lending to

Government

Commercial Bank

Lending to

Government

Commercial Bank

Lending to

Private Sector

1999 331,425 12,460 188,149

2000 447,581 36,159 266,466

2001 675,040 40,985 416,176

2002 892,581 43,248 608,4012003 1,262,588 35,546 341,547

2004 1,686,341 89,217 428,391

2005 2,165,154 100,358 570,924

2006 2,762,626 186,998 652,892

2007 3,534,687 389,398 795,227

2008* 3,880,765 620,875 907,177

*Data as o the end o December 2008.Source: International Monetary Fund (IMF), International Financial Statistics (Washington

D.C., June 2009).


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The irresistible nancial exaction o the government is the most sig-

nicant and damaging o the maladies aecting private sector nance in

Burma, but it is not the only one. Burmas nancial system is dysunctionalin other ways, vividly demonstrated in the countrys aorementioned 2003

banking crisis. An event that gained little notice internationallythe col-

lapse o Burmas leading banks in 2003brought about at least two years

o negative economic growth (notwithstanding ofcial GDP numbers) and

or a time, reduced Burma to a near barter-based economy.9

Both beore and ater the 2003 banking crisis, however, Burmas bank-

ing system has provided little o the nance desperately needed by truly

productiveprivate enterprises and loans to businesses unconnected to thebanks or to the government have been expensive and hard to come by.

Surveys conducted by the author o Burmese business owners reveal that

private banks are generally wary o lending to new enterprises that can oer

little in the way o collateral. Meanwhile, or those banks that can put up

collateral, the requirements are testing. A rule o thumb adopted by many

banks is a demand or xed-asset collateral o between 200300 percent

o the value o a loan.10 Such collateral can really only be oered by well-

connected borrowers within larger business groups and/or parties withlinks to government and military enterprises. These same surveys reveal

that unconnected borrowers are also typically asked to pay hety establish-

ment ees or loans (greatly increasing the true interest charged).

The high collateral requirements and other loan costs have created a cir-

cumstance in which private banks in Burma lend largely to enterprises that

generate strong and rapid prots. Such enterprises tend to be engaged in

highly speculative activities, in particular, hotel and real estate speculation,

gold trading, jade mining, shing, and logging concessions. In some cases,an extra return could be gained i the borrowers were so-called leaders o

national races, many o whom enjoy extra privileges through special access

to high-yielding natural resource sectors.11 O course, sometimes banks will

partner especially well-connected individuals on no terms at all, writing

o their losses as essentially the cost o a political insurance policy.

External Economic Relations

One potentially optimistic note to Burmas economy in recent years hasbeen the apparent turnaround in the countrys external trade. In place o the

chronic decits that hitherto have been a characteristic, there have instead


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emerged persistent surpluses and swelling oreign exchange reserves. By the

end o 2010, these reserves will increase to an excess o $6 billion.

The reason or this trade turnaround is Burmas emergence as a majorregional supplier o natural gas. Gas exports comprised around a quarter

o Burmas exports by value in 200809, and their strength comes rom a

mixture o rising gas prices as well as increases in export volumes. Table 3

below reveals the story, along with that o Burmas increasing international

reserves position as its corollary:

Table 3: Burmas Gas Exports, Indicative Prices, and

International Reserves

Year

Gas Export

Volumes

(million Btu)

Gas Price

($US/million Btu)12

Burmas

International Reserves

($US millions)

200405 344,919,700 7.43 873

200506 331,758,216 7.31 1,026

200607 472,970,464 8.45 2,503

200708 530,129,320 9.41 3,638

200809* 303,163,368 6.50 4,500

*Data as o December 2008.

Source: Myanmar Central Statistical Organization (MCSO) (2010), IMF (2009a, 888889).

Burmas gas export success story is attributed to its possession o large,exploitable elds o natural gas oshore in the Gul o Martaban and in

the Bay o Bengal. Cumulatively, these elds have conrmed recoverable

reserves o around 600 billion cubic meters, with the potential o between

400 to 1,500 billion more in areas yet to be ully explored.13 Two o

the elds already in production, the Yadana elds o Mouttama and the

Yetagun elds o the Tanintharyi coast, came on stream in 1988 and 2000

respectively, becoming the overwhelming source o Burmas current gas

deliveries. Together, they currently yield Burma around $2 bil lion annu-ally. Yadana was a joint venture between Burmas state-owned energy com-

pany, the Myanmar Oil and Gas Enterprise (MOGE), in partnership with


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Total Oil (o France, which manages the project), Unocal (now Chevron,

United States), and PTT Exploration and Production (PTTE, Thailand).

The Yetagun elds were developed by MOGE, Premier Oil (UK, sincereplaced by Petronas o Malaysia), and Nippon Oil ( Japan). The primary

customer o the output rom the Yadana and Yetagun elds is Thailand.

In a ew years (likely in mid-2013), the export o gas rom Yadana and

Yetagun will be joined by new elds o Burmas coast in the Bay o Bengal.

These elds, the most lucrative o which are collectively known as the

Shwe elds, were explored and developed by a consortium comprised o

MOGE, rms rom South Korea (Daewoo International and the Korean

Gas Corporation), and India (Gas Authority o India Limited, Indian Oiland Gas Corporation). The ultimate customer o the gas actually delivered

rom Burmas Shwe elds, however, will be China which in 2007, won

a ercely contested bidding war or the gas against India, South Korea,

Bangladesh, and Thailand. Chinas Yunnan Province will be the recipient

o the gas, courtesy o a 2,000-kilometer pipeline (constructed by a con-

sortium o Chinese rms, as well as the aorementioned partners) that will

run rom Kyauk Phyu in Arakan State, and more or less, diagonally across

Burma into Yunnan. Side by side with the gas pipeline, China will alsobuild an oil pipeline that will deliver much o Chinas oil imports trans-

ported rom the Middle East, eliminating the need or Chinas oil imports

to move through the strategically sensitive Malacca Straits. Construction

o this trans-Burma energy corridor commenced in September 2009 and

with little in the way o labor or environmental considerations to get

in the way, could be completed by mid-2013. Depending on prices, the

Shwe gas will deliver annual revenues to Burma o over $1 billion or

the next 30 years.

Burmas Gas Earnings Go Astray

O course, the story o Burmas gas earnings outlined above should be trans-

orming the country, making scal space or the spending on inrastructure,

health, and education that the country so desperately needs. This is not

occurring, however, and the oreign exchange revenues Burma is accumu-

lating are currently making a negligible contribution to the countrys scal

position. The reason is as simple as it is disturbing. Burmas U.S.-dollar gasearnings are being recorded on the governments published accounts at the

ofcial exchange rate o the kyat.14 This ofcial rate (at around 6 kyatto


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$1) over-values the currency by over 150 times its market value (as noted,

currently around 1,000 kyatto $1), and correspondingly under-values the

local currency worth o Burmas gas earnings by an equivalent amount. So,recorded at the ofcial rate, Burmas gas earnings translate into less than 1

percent o budget receipts. By contrast, i the same U.S. dollar gas earnings

are recorded at the market exchange rate, their contribution would more

than double total state receipts, largely eliminating Burmas scal decit.

Appropriately brought back to Burma, the countrys gas earnings could then

allow substantial internally generated capitalmore than that necessary,

or instance, to eliminate the cash and credit crisis that is scariying rural

Burma and easily meet the needs or post-Nargis reconstruction.

Other Trade Patterns

Away rom gas, Burmas international trade ollows a pattern that has been

in play or a number o years. Burmas largest trading partner is Thailand

(courtesy o the gas exports above), ahead o China, which is Burmas

largest source o imports and second largest export market. India has been

an increasingly important market or Burmese agricultural exports, while

both Japan and Singapore remain signicant trading partners. Burmastrade with western countries, including the United States (but also those

that have not levied sanctions) are negligible. Tables 4 and 5, which de-

tail Burmas trading partners according to its export markets and import

sources respectively, reveal something o this story:

Table 4: Burmas Exports by Source (kyatmillions)

China Hong Kong India Singapore Thailand USA

200304 1343.2 475.5 2166.5 786.0 4676.1 582.7

200405 1658.8 656.1 1956.3 807.3 7219.2 1.5

200506 2125.2 1488.1 2841.6 1532.7 7868.6 0.8

200607 3530.4 2316.6 4217.2 1047.9 13,533.8 19.9

200708 3832.5 3573.0 4006.6 2210.1 15,530.0 12.2

200809* 621.0 1139.6 645.2 371.8 1238.1 0.1

*Data as o May 2008.

Source: MCSO (2009).


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Table 5: Burmas Imports by Source (kyatmillions)

China Japan India Singapore Thailand USA

200304 2816.8 1579.3 652.4 4048.0 1143.3 141.7

200405 2819.0 920.4 480.1 3471.5 1054.2 165.7

200506 2716.0 610.7 465.2 3240.2 1376.2 478.4

200607 4185.8 896.3 916.5 5928.0 1749.4 248.1

200708 5472.5 1335.0 954.7 4489.8 2110.7 121.6

200809* 1174.8 109.1 109.2 762.9 318.6 15.4

*Data as o May 2008.

Source: MCSO (2009).

The heavy-handedness o the state in Burmas external trade is very ap-

parent, around 65 percent o which, in 200809, was undertaken via state-

owned enterprises (SOEs). Although Burma imposes relatively low ormal

taris, non-tari and non-ormal trade barriers are substantial. Export and

import licenses are required or the movement o most commodities in andout o Burma, the issuing o which usually come under the remittance o

the trade committee o the SPDC and its head (the second-in-command

o the junta), Vice-Senior General Maung Aye. Other barriers include

restrictions on the repatriation o prots, a great array o impositions on

oreigners working or international rms, and various limits upon access

to oreign exchange.

A Resources Curse Plagues BurmaBurma is now earning substantial revenues rom the sale o natural gas

rom its oshore deposits as noted. Such earnings, which could rise to

around $34 billion per annum in the years ahead, oer the opportunity

to change Burmas economic narrative. Alas, they are not doing so. So

ar, almost invisible in the countrys public accounts, they seem to be ear-

marked or the type o wasteul and grandiose spending projects that have

characterized Burmas military regimes or nearly ve decades. In short,

Burmas earnings rom its natural gas exports seem primed to visit uponthe country a resources curse.


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The notion o a resources curse reers to the seeming paradox o abun-

dant natural resources in a country and its simultaneous economic underper-

ormance. Initially, the idea was ounded on the observed harmul eects onthe manuacturing sector o real exchange rate increases via booming com-

modity exports (the so-called Dutch disease), but in recent times, attention

has turned to the ways in which resource windalls can undermine good

governance, democracy, the rule o law, and other attributes and institutions

conducive to economic growth. Resource revenues easy to distribute to well-

connected insiders and others can promote corruption, under-investment in

human capital, and allow governments the wherewithal to be unresponsive

to the needs o their citizenry. Simultaneously, such revenues also increasethe incentives to attain (and retain) political power rom which the extraction

o economic rents becomes the vehicle or wealth and prosperity or those

able to access them, at the expense o enterprises and other virtues which

otherwise might drive national wealth creation. Meanwhile, the creation

o an eective democratic state itsel is undermined, in avor o a political

apparatus avoring repression, the doling out o rewards or regime loyalty,

and the creation o sel-celebrating prestige projects that unortunately

litter much o the developing world. The latter are maniested in a numbero ways in present-day Burma, most spectacularly so in the construction o

Burmas new administrative capital (Naypyidaw, translated rom Burmese

as the abode o kings). Others include the recent ($570 million) purchase o

20 MIG-29 ghter planes rom Russia, some dramatic increases in military

salaries, a plan to create a vast biouel industry in Burma by planting jatropha

plants on almost every patch o available land, and perhaps most worryingly

o all, the purchase o a nuclear reactor rom Russia as well as materials o

unknown kind and use rom North Korea.

ReFoRM?

Burmas dire economic circumstances are the result o our decades o

mismanagement under military rule. Despite the lip-service paid since

1988 to the primacy o the market economy, military rule in Burma has

been characterized by an absence o meaningul economic reormonethat distinguishes Burma rom the experiences o otherwise comparable

countries such as China, Vietnam, Laos, and Cambodia. The prerogative


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o the state remains dominant in Burma, which together with a ew oligar-

chic enterprises, controls the economy in every important aspect. Equally

controlling, however, is a mindset o state planning maniested in thecommands, rules, regulations, permits, and procedures amiliar rom the

days when the Burmese way to socialism was the countrys de jureas

well as de acto ideology.

Meaningul economic change in Burma must commence with unda-

mental institutional reorm that will embrace the application o:

government policy-making that is rational, consistent, and

inormed by a reasonably honest and efcient civil service;eective property rights;

certain indispensable reedoms (including at least, an

approximation o the rule o law and a necessary degree o

government accountability);

basic unctioning inrastructure;

market-opening policies including the removal o remaining

restrictions on private enterprise;

genuine openness to oreign trade and investment.

With such institutional reorms in place, economic policies elsewhere and

in Burmas own past that have proved successul in stimulating transor-

mational growth can be implemented and pursued. These policies with

the speciccircumstances o Burma in mind should include:

Fiscal Consolidation

The claims o the state on Burmas physical and nancial resources consti-tute the countrys most important economic problem. Indeed, it has robbed

Burma o the place it should enjoy among the Asian tigers that were once

its peers. Reducing the role o Burmas state in the economy should be an

urgent priority o any genuinely reorming government. Come political

reorm, however, this task may be made somewhat easier by a resultant

reduction in the manpower o Burmas armed orces, the tatmadaw, whose

task would no longer include internal political repression.

Burmas state-owned enterprises, notoriously inefcient even whenused as patronage vehicles by the ruling regime, are a signicant drain on

government nances. Privatizing many o them in a transparent process


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that generates appropriate public revenues while introducing necessary

competition should orm a part o a program o scal consolidation in

Burma. O course, in early 2010, the SPDC itsel has embarked upon aprogram o privatization o ports, airports, uel lling stations, and vari-

ous other entities. This process which seems to be inspired by the desire

o the regime and parties connected to it to transer state resources into

their own hands beore the mooted elections later in the year, however,

has been conducted without transparency and seems to involve little more

than the conversion o state monopolies into private ones.

Genuine privatization will raise unds or a reorming government in

Burma, while creating space or a greater role or private sector actors whowill be indispensable to (bona de) transormational economic growth.

But in terms o unds or the government at least, privatization will be

a minor matter compared to reorming the way in which Burmas gas

revenues are recorded and allocated in the public accounts. The sleight o

hand by which the existing regime eectively expropriates and hides these

revenues has been noted above. Exposing this accounting trick should be

a rst-order action o any government pursuing reorm in Burma, closely

ollowed by the creation o policies and institutions or better inoculatingthen protably using Burmas gas revenues. O course, on this, Burma has

quite an array o other country experiences to draw rom.15

Exchange Rate Unication

Uniying Burmas divergent exchange rates must be an immediate priority o

any reorming government. Apart rom painting an image rightly associated

with the most chaotic o economies, Burmas dual exchange rate apparatus

imposes costs. Creating an obvious incentive or corruption (or those able tobuy dollars at the ofcial rate and sell at the market rate) and an impediment

to oreign investment, the dual exchange rates incur great costs to existing

businesses within Burma seeking to export or import (that are orced to

inhabit a gray area o legal vulnerability) and to those generally needing

ofcial approval in some orm. Overall, the IMF estimates that economic

losses associated with the inefciencies o Burmas divergent exchange rates

amount to as much as 5 to 10 percent o the countrys GDP.16

Fortunately, this aspect o economic reorm can be quite quickly andeasily implemented since, in essence, uniying Burmas exchange rates

simply requires abandoning the unrealistic ofcial rate and allowing the


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kyatto legally trade at its market value. Formally, this means the adoption

o a oating exchange rate or Burma (o the sort prevalent in many

countries throughout the world, developing and developed alike).

Electrication

One o the most striking aspects o Burmas management o its gas re-

sources is the policy o (almost completely) selling this energy source to

neighboring countries at the expense o using it domestically as a direct

uel which can be used to generate electricity. With the exception o the

new capital o Naypyidaw, electricity shortages throughout the length and

breadth o Burma are legendary, constituting a signicant impediment toinvestment especially in manuacturing.17 The preerences o the regime or

the quick cash rom exporting Burmas gas in this context is in interesting

juxtaposition to the policy o neighboring Bangladesh (with which Burma

is engaged in a border dispute over certain new and potential gas elds

in the Bay o Bengal). Despite being no less in need o oreign exchange,

Bangladeshs hunger or energy is predicated on the understanding o its

government that cheap gas-produced electricity is key to its industrializa-

tion and the improved living standards o its people.

Liberalization o Rice Trade and o Agriculture

The principal obstacle holding back Burmas agriculture sector, especially

in the production o rice (in which Burma once ruled supremely as the

worlds largest exporter), is once again an overbearing state apparatus that

or decades has commanded what, how, and when armers produce, rather

than letting them make the decisions they are best qualied to make. This,

coupled with underinvestment and decades o state exploitation o Burmesearmers and the wholesale thet o their output at almost every level o

authority, has been the primary culprit or the regression o Burmese ag-

riculture into its present (globally) marginal and inefcient orm.

Once again, however, the situation here is amenable to solution by a

government genuinely dedicated to turning matters around. Such solu-

tion includes the restoration o a viable rural credit system (below), but

more broadly, the liberation o agricultural markets (in particular, allowing

Burmese rice cultivators to once again reely export) and granting Burmesearmers the reedom and incentives to do what they do and know best.

Improving inrastructure in rural areas, the accessibility o credit, ertilizers


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and other inputs, distribution, storage, processingall this is necessary too

and involves the commitment o some resources. But the critical ingre-

dients or the revival o Burmese agriculturethe allocation o reedomsand rights to propertycome more or less without nancial cost.

Recapitalizing Rural Finance

The shortage o credit provided to the Burmese cultivator, its high cost,

the absence o ormal institutions in its provision, and evidence o growing

land alienation are eatures o what is clearly a crisis in Burmas rural credit

system. Fixing this system, through what will amount to its recapitaliza-

tion, wil l be another useul avenue through which Burmas gas exportrevenues could be dedicated.

O course this capitalization can be achieved through the channeling

o unds through existing institutions, a reormed agricultural bank, the

micronance operations that currently unction, or also, the creation o

new nancial institutions drawing on the best methodologies employed

elsewhere (rom Indonesias amed Bank Rakyat Indonesia, or instance)

as well as Burmas own past. Regarding the latter, it is oten orgotten that

Burma was once the location or one o the most eective combinationso nance and agriculture the world has seena combination that, in the

late 19th century, created the amed rice bowl o Asia and underpinned

the countrys relative prosperity or hal a century.

concLUsIon

Burmas economic uture could and should be bright. As the potential ben-

eciary o a seminal shit in the global commodity price cycle and ideallysituated geographically to exploit it, Burma in 2010 once more stands at

a crossroad. In 1962, Burmas leaders stood at a similar junction but took

a direction that dealt the country out o a process that, elsewhere in Asia,

proved transormational. In 2010, Burma may get a chance to revisit the mis-

takes o the past, and create the institutions and policies that will deliver the

prosperity promised by its natural endowment. In order to do so, however,

broader changes to Burmas political economy must be enacted. That such

changes point in the direction o greater reedoms or the people o Burma isnot a coincidence, but a nexus o politics and economics that anywhere and

everywhere has been indispensible or growth and development.


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ReFeRences

Alamgir, Jala l. 2008. Myanmars oreign trade and its political consequences.

Asian Survey 48(6): 977996.

Asian Development Bank. 2007.Asian Development Outlook 2007. Manila: ADB.

British Petroleum. 2009. BP Statistical Review o World Energy, June 2007.

London: BP.

Economist Intelligence Unit (EIU). 2008. Myanmar (Burma) Country Prole 2008.

London: EIU.

Hudson-Rodd, Nancy and Sein Htay. 2008.Arbitrary Conscation o FarmersLand

by the State Peace and Development Council Military Regime in Burma. Rockville,MD: The Burma Fund.

International Monetary Fund. May 2009a. International Financial Statistics.

Washington, DC: IMF.

Lintner, Bertil and Michael Black. 2009. Merchants o Madness: The Methamphetamine

Explosion in the Golden Triangle(Chiang Mai, Thailand: Silkworm Books).

Tripartite Core Group (TCG).

2008. Post-Nargis Joint Assessment Taskorce(PONJA). Yangon: TCG.

2008. Post-Nargis Recovery and Preparedness Plan (PONREPP). Yangon: TCG.

2008. Post-Nargis Social Impacts Monitoring: June 2009.Yangon: TCG.

Turnell, Sean R. 2008. Burmas Insat iable State.Asian Survey 48(6): 958976.

2009. Fiery Dragons: Banks, Moneylenders and Micronance in Burma.

Copenhagen: Nordic Institute o Asian Studies Press.

Turnell, Sean R., W. D. Bradord, W.D. and A. M. Vicary. 2009. Burmas

Economy 2009: Disaster, Recovery and Reorm.Asian Politics and Policy

1(4): 631659.

notes

1. For more on this, see Alamgir 2008.

2. Available online at http://www.state.gov/p/inl/rls/nrcrpt/2009/vol1/116520.

htm, accessed March 1, 2010.

3. See http://www.transparency.org/policy_research/surveys_indices/cpi/2009/

cpi_2009_table, accessed March 4, 2010.

4. These numbers are drawn rom the Post-Nargis Joint Assessment taskorce

(PONJA), established under the Tripartite Core Group (TCG) that comprisesrepresentatives o Burmas government, ASEAN, the UN, and UN agencies.


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5. United Nations Ofce or the Coordination o Humanitarian Aairs,

Preliminary ndings o post-Nargis joint assessment conrm need or continued

relie assistance, press release, June 25, 2008, available at http://www.relieweb.

int/rw/RWB.NSF/db900SID/AMMF-7FYBZL?OpenDocument>, accessedJuly 31, 2009.

6. For more on interest rates in Burma, pre and post-Nargis, see TCG (2010,

2729) and Turnell 2009.

7. See Tripartite Core Group (2010, 25).

8. On the many issues surrounding landownership in Burma, see Hudson-Rodd

and Sein Htay (2008).

9. For a comprehensive analysis o Burmas 2003 nancial crisis, see Turnell

(2009, 297318).

10. The surveys rom which these accounts derive were conducted by theauthor across 20062007, and again in early 2009, in the United States, Singapore,

Thailand, and Burma itsel.

11. Many o these leaders were those who had made ceasere agreements

between the groups they represented and the SLORC/SPDC. For more, see

Lintner and Black (2009, 113132).

12. Prices are a composite o those applying to the delivery o natural gas to a

number o countries and regions. Gas export prices are typically quoted in British

thermal Units (Btus), a measure that accounts or both volume and energy intensity.

13. See British Petroleum (2009). According to the U.S. Geological Survey,

the av

Documents

Burma Report;Finding Dollars, Sense, and Legitimacy in Burma