C. Economic Policy: Stabilization and Structural Change
25. So far, only token “economic reforms” have taken place. That is, the “open-door policy has really been a “swing-door policy” and “one step forward – two steps backward policy” for trade and investment sectors. It can also be said that there has been militarization of the economy.
Major reforms are also still needed; fiscal reforms such as tax reform, balancing of national budget, privatization of large-scaled state-owned enterprises, etc. It is also necessary to have monetary reform to reduce inflation by increasing informal exchange rate and money supply. (by adjusting informal exchange rate to realistic levels and decreasing money supply)
Burmese economists and political leaders support free trade and an open economy. The NLD is not advocating removing sanctions. Free trade and sanctions are not mutually exclusive. Sanctions have already been focused into financial sanctions. However, in Burma, the lack of viable business environment has the same effect as sanctions.
The main economic problems (in the agricultural sector, which is predominant) are:
Monopoly of rice export by the government, non-ownership of land by farmers and annual permit required to farm, quotas demanded by government and local authorities at prices lower than market rates, lack of inputs such as fertilizers, water management, modernization of farm machinery, cropping intensity, fuel and lack of a modern agricultural credit system.
The "open-door economy", the SLORC declared in 1988 was an improvement over BSPP policies 1962-1988, but politics still conditions economics.
26. Economic goals: Burma should promote a healthy rural sector, a healthy macro-economic environment and promote manufactured exports. However rich in natural resources, the only sustainable source of exports and growth are in manufacturing. Sustainable economy would be more appropriate goal.
Stabilization and structural change need to take place for true economic reforms.
Burma has a very distorted economy, with a control mentality, and many elements of the Burma Socialist Program Party policies, such as state-owned enterprises, fixed prices, planned crops, compulsory delivery quotas (until 2003), a fixed exchange rate and multiple exchange rates are still in place. State ownership in the form of military holding companies (Union of Myanmar Economic Holdings Limited – (UMEHL) and Myanmar Economic Corporation - (MEC) have been increasing, also due to arbitrary land confiscation. According to the rules of UMEHL, 40% of the capital shares are to be subscribed by the Ministry of Defence, and 60% by members of the armed forces. This is related to asymmetrical power relations.
27. Stabilization
The severest distortions need to be corrected and then almost simultaneously, structural reforms need to take place.
• It is inadvisable to merely adopt International Monetary Fund/World Bank recommendations of "freeing prices" (price liberalization) without system change.
• In August 2007 fuel prices were raised. These resulted in protests and the monks marching. The clampdown on Sept 26, 2007, led to this current round of the severest repression yet suffered. Clearly micro-economic "reforms" such as these applied in an ad hoc way without structural reforms do not work. There needs to be reforms, but the reforms should be of a systemic nature (macro-economic) and not piece-meal token reforms (micro-economic or cosmetic).
• Multiple exchange rates must be unified. They cause corruption and constrain foreign investment. Moreover, multiple exchange rates, along with increasing money supply, will also cause higher inflation,
• A floating (market) rate rather than a pegged one.
• Since 2002, income from mainly natural gas exports has changed chronic deficits in the current account of the balance of payments to consistent surpluses and comprises nearly 40% of Burma's exports by value in 2006/2007. Gas earnings are nearly invisible in public accounts.
28. Money and Banking
Money supply is too large, resulting in continuous hyperinflation. An interim government or new power-sharing government needs to attend to reducing money supply (mainly the volume of paper currency, as credit is a negligible amount). New currency notes will probably be needed. A floating exchange rate will take care of needed devaluation and help Burma's foreign trade.
SPDC does not seem to be aware of its role in causing inflation through its increase in money supply (printing banknotes and high budget expenditures) There are moneys it spends on the repressive mechanism, for "prestige projects" and for buying support to keep itself in power. Curiously, the SPDC "constitution" has a provision that the "union shall not demonetize the currency legally in circulation."
Liberalize (and unify) the exchange rate. Let market forces (demand and supply) set the rate. Then the multiple exchange rates will be automatically "unified" as at any given moment there will only be one prevailing market (floating) rate. All currency exchanges need to be legalized. It should be legal for anyone to hold foreign exchange.
Structural Change in the Agricultural Sector
29. In the agricultural sector planned crops and other forms of interference have returned. Farm indebtedness is high. There are few formal credit institutions, and severe ecological problems in the Dry Zone and the Irrawaddy Delta (even before Cyclone Nargis). Poor roads and other infrastructure with low capital in agro-processing hamper growth. Since the 1970s there has been depletion of mangrove forests in the Delta. There is a high percentage of broken rice grains due to outdated milling machinery. This has affected the quality of the polished rice and the export price. Arbitrary taxes are imposed at the local level. This takes too much from the farmer's meager resources. They cannot invest in improving the land or buy farm machinery. Forced (corvee) labor is oppressive. Agricultural processing industry also is much needed.
30. Macro-policies need to be changed. Even higher levels of natural gas production would accomplish little without structural reforms. In 2008 the Burmese real growth rate was zero per cent. Income from natural gas exports seemed to mitigate this.
The Burmese economy is run as a centralized military administration with a high degree of central control. The issue of narcotics alone should make Burma a nation of concern. Methamphetamines have joined opium, and the Wa region in eastern Burma has become the Wa Autonomous Region.
31. Land reform
Rural land is formally owned by the state. Individuals have 30-year inheritable use rights (usufructs) determined by village level and regional land committees.
• Farmers must have rights to own their land.
• Farmers must sell their farms if they need to and use it as collateral.
• Introduce long-term leases.
Mass landlessness is taking place due to arbitrary "rules" which give the farmer cultivation rights only. They don't actually own the land, nor can they sell it nor use it as collateral for loans. They can lose the land at any time due to harassment by local authorities. These wrongs need to be righted. Burma is still a predominantly agricultural country, has not yet achieved an industrial revolution. There is sell-off of natural resources. The degree and scope of landlessness after Cyclone Nargis in Irrawaddy Delta in May 2008 matches that during the 1930s Depression when land was lost en masse to the Chettiars.
Agricultural sector reforms
• Allow farmers to grow what they wish. Remove planned crops, e.g. kyet su (jatropha). Build up infrastructure. Support with agricultural banking reforms.
32. Banking Reforms
(i) Revitalize Commercial Banks
The establishment of trust and the application of best-practice banking regulations is important. Burma signed the Basel Accords (the international ‘standard’), but in practice bank regulation is corrupt, ad-hoc and ineffectual. Implementation is key.
The Central Bank of Myanmar (CBM), which has lost credibility, must be reformed. The reformed central bank must be independent of government. There are restrictions on private banks that do nothing for prudence or efficiency, whilst inhibiting financial development. E.g. limits on branch numbers, bank products, bank deposits and loans. These restrictions should be removed. Unlike most of the countries which allow foreign banks, the government has not allowed the establishing of the foreign banks in Burma since the military rule since early 1960s.
Burma’s financial sector should be open to internationally respected foreign banks. Applications to establish new private commercial banks should be called for. To forestall inappropriate applications to form Ponzi-type schemes and to engage in money-laundering, there should be strict application of the Basel Principles. "Fit and proper" persons should be selected to become bank owners. Existing banks should be reviewed.
(ii) Revitalizing State-Owned Banks
The state will need to play a role in the country’s financial sector. The state can provide capital to financial institutions, which can distribute credit according to commercial criteria. Before any state-owned banks can perform such a role, any new government will need to assess existing institutions. Non-performing loans need to be identified and recalled. State-owned banks should be reviewed and unnecessary ones merged, sold or closed.
(iii) Revitalizing Rural Credit
Ninety per cent of Burma’s farmers are without formal credit, and are forced to borrow from village moneylenders etc. who charge high interest rates and are corrupt. Over half of all rural households are heavily in debt. MADB (Myanmar Agricultural Development Bank) needs to be restructured, recapitalized and rolled into a new umbrella institution incorporating microfinance.
Micro-finance is not sufficient. It does not provide enough capital for broad-based development.
33. Economic Reforms in the Natural Gas (Mining) Sectors
Income from natural gas exports has resulted in corruption, conspicuous consumption of individuals, as well as "collective consumption" at the public level and lumpiness in payment timing.
Windfall gains have been managed in other gas and oil producing countries and regions with Revenue Distribution Funds which go directly from the projects to the people, by-passing the state.
For Burma, assuming a genuinely reform-minded government, gas revenues should be channeled into a core private sector, rather than forming special funds. There should be caps on public spending, creation of an independent oversight committee, transparency and a free press.
In gem mining the government needs to give up its monopoly of mining and its abuse of mine workers and allow the traditional small-scale miners who protected the resource and respected it to return with their "Buddhist model." (Mogok gem mining).
There is no need to remove the JADE/Tom Lantos act of USA (sanctions against gem and jade imports to USA) as gem merchants in Burma say it has not much effect anyway – it may be used as a "prestige" or "feel-good" bargaining chip in negotiation for change.
34. Economic Recommendations
Stabilization and structural change policies should be instituted immediately.
The population should be free to move wherever they wish and work at whatever they choose. Labor needs to be paid a living wage or salaries and have labor unions and other protective mechanisms and legislation in place. Farmers need to own their land, be supported by infrastructure and bank loans, proper legislation and process regarding return of confiscated land.
Free trade. At the moment Burma has no option but export-led growth, in spite of the world economic recession. Agricultural commodities would remain major exports while another attempt is made at an industrial revolution. Rice acreage should be increased and self-sufficiency in edible oils encouraged. To promote competitiveness, import duties should be reduced.
Set up a stock exchange. Encourage domestic saving and foreign investment – not only foreign corporations investing in Burma, but also the small Burmese saver/investor should be allowed to invest overseas.
State (public) ownership should be minimized, especially small scale private enterprises should be encouraged and supported.
Legal reforms. These are needed especially property law, bankruptcy law, antimonopoly law, anti-trust law, and FDI law.
State-owned enterprises
The new style oligarchs: UMEHL (Union of Myanmar Economic Holdings Limited) mainly owned by the military generals and their families, and rich private citizens, need to be regulated by anti-monopoly or anti-trust laws. Ordinary citizens should be allowed to do more. These should be combined with anti-corruption and labor protection laws which are actually implemented. A free press will help.
The CRPP warns these oligarchs or "comrades", also called pariah capitalists, need to be carefully watched. Those given contracts or import/export permits have become very wealthy. Those with projects for 5000 acres or more will have permission to carry out the projects for 30 years, and will be allowed to export half their rice produce legally. CRPP warns that people will forge statistics. The "comrades" will also get other special privileges and loans. Authorities plan to allocate large tracts of land and have already assigned tens of thousands of acres in some townships.
Take legal action against the worst of predatory entrepreneurs or land grabbers. This is something a new interim government must do. Work out deals with some in exchange for political and economic freedoms and guarantees. The playing field should be level.
Set up Special Economic Zones
The global economy is in Recession (China included) and China is moving from export-led growth to domestic demand-led growth, what should Burma do? The answer is, Burma is not China and has no sizeable domestic market in terms of both purchasing power and population size. It also is not yet an industrialized nation. So it will still have to continue to rely on manufactured exports. Save what is left and rebuild natural resources, including forests, water resources and bio-diversity. Some of this exploitation and environmental degradation may be irreversible. It may take decades to revive the Irrawaddy Delta.
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