Myanmar's External Trade: An Overview in the Southeast Asian Context 9789814377997

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MYANMAR'S EXTERNAL TRADE

The Institute of Southeast Asian Studies (!SEAS) was established as an autonomous organization in 1968. It is a regional research centre for scholars and other specialists concerned with modern Southeast Asia, particularly the many-faceted problems of stability and security, economic development, and political and social change. The Institute is governed by a twenty-two-member Board of Trustees comprising nominees from the Singapore Government, the National University of Singapore, the various Chambers of Commerce, and professional and civic organizations. A ten-man Executive Committee oversees day-to-day operations; it is chaired by the Director, the Institute's chief academic and administrative officer. The ASEAN Economic Research Unit (AERU) is an integral part of the Institute, coming under the overall supervision of the Director, who is also the Chairman of its Management Committee. The Unit was formed in 1979 in response to the need to deepen understanding of economic change and political developments in ASEAN. The day-to-day operations of the Unit are the responsibility of the Co-ordinator. A Regional Advisory Committee, consisting of a senior economist from each of the ASEAN countries, guides the work of the Unit.

/SEAS Current Economic Affairs Series

MYANMAR'S

EXTERNAL TRADE An Overview in the Southeast Asian Context Mya Than

I5EI5

ASEAN Economic Research Unit INSTITUTE OF SOUTHEAST ASIAN STUDIES

Published by Institute of Southeast Asian Studies Heng Mui Keng Terrace Pasir Panjang Road Singapore 0511 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the Institute of Southeast Asian Studies. © 1992 Institute of Southeast Asian Studies

The responsibility for facts and opinions in this publication rests exclusively with the author and his interpretations do not necessarily reflect the views or the policy of the Institute or its supporters. Cataloguing in Publication Data

Mya Than. Myanmar's external trade: an overview in the Southeast Asian context. (!SEAS current economic affairs series) 1. Burma--Commerce. 2. Burma--Commercial policy. 3. Burma--Commerce--Asia, Southeastern. 4. Asia, Southeastern--Commerce--Burma. I. Title. II. Series. HF3770.7 M99 1992 sls91-195106 ISBN 981-3016-13-2 ISSN 0218-2114 Typeset by International Typesetters Printed in Singapore by Prime Packaging Industries Pte. Ltd.

Contents

List of Tables

vii

~~~~

~

1. Introduction 1.1. Statistical Evidence: A Prefatory Note

1 3

2. Historical Perspective of Myanmar's External Trade 2.1. Foreign Trade under the Burmese Kings 2.2. Foreign Trade after the British Annexation of Lower Burma 2.3. Trade under the British Colonial Rule

6 6 7 8

3. Myanmar's External Trade 3.1. Export Performance 3.1.1. Structure of Exports 3.1.2. Principal Export Commodities and Their Prospects 3.1.3. Export of Services 3.2. Myanmar's Imports 3.2.1. Structure of Imports 3.3. Trade Balance, Terms-of-Trade, and Their Consequences 3.4. Direction of Foreign Trade 3.5. Countertrade 3.6. Plan Performance in Myanmar's Foreign Trade 3.7. Policy and Institutional Changes in Foreign Trade 3.8. Myanmar's Informal Trade 3.9. Conclusion

11 15 21 25 32 33 34 37 38 48 50 52 56 59

4. Myanmar-Southeast Asia Trade Relations 4.1. Salient Features of Myanmar and Other Southeast Asian Countries 4.2. Trade Patterns in Southeast Asian Countries 4.3. Myanmar-Southeast Asia Trade

65 65 68 73

Contents

vi

4.4. Export and Import Intensity Indices 4.5. Balance of Trade 4.6. Trade Flows and Trade Preferences of Southeast Asian Countries 4. 7. Bilateral Trade Relations 4.7.1. Myanmar-Indonesia Trade 4.7.2. Myanmar-Malaysia Trade 4.7.3. Myanmar-Philippines Trade 4.7.4. Myanmar-Singapore Trade 4.7.5. Myanmar-Thailand Trade 4. 7 .6. Myanmar-Vietnam Trade 5. Conclusion: Problems and Prospects

Appendices Notes Select Bibliography Note about the author

77

80 80

82 82 88 89 90

92 94 95 101 113 114 117

List of Tables

l.l

Myanmar: Exports to the World, by Source, 1985-88

2.1

Lower Burma: Distribution of Total Foreign Sea-Borne Trade, by Country, 1878/79 to 1884/85 Myanmar: Distribution of Rice Exports to Countries in Southeast Asia, 1874!75 to 1939/40

2.2 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 3.10 3.11 3.12 3.13 3.14 3.15 3.16

Myanmar: Share of Exports in GDP, 1974!75 to 1990/91 Myanmar: Estimated Relationship between Export Growth and Economic Growth, 1974/75 to 1985/86 Myanmar: Balance of Trade, 1940/41 to 1990/91 Myanmar: Export Structure, 1981/82 to 1988/89 Myanmar: Procurement of Paddy and Its Share of Export in GDP, 1964/65 to 1988/89 Myanmar: Shares of Rice and Forest Products in Export, 1940/41 to 1988/89 Myanmar: Structure of Exports, by Commodity, 1940/41 to 1989/90 Myanmar: Exports of Commodities, 1985-88 Averages Myanmar: Exports of Principal Commodities, 1974/75 to 1990/91 Myanmar: Receipts from Services Abroad, 1974/75 to 1988/89 Myanmar: Structure of Imports, by Commodity, 1940/41 to 1989/90 Myanmar: Terms of Trade, 1940/41 to 1988/89 Myanmar: Current Account Balance and Foreign Exchange Reserves, 1974/75 to 1988/89 Myanmar: Direction of Exports, 1940/41 to 1988/89 Myanmar: Direction of Imports, 1940/41 to 1988/89 Myanmar: Planned and Actual Exports and Imports, 1974/75 to 1988/89

5 7 10 12 14 16 19 21 22 23 26 27 32 35 38 39 44 46 51

viii

List of Tables

3.17 3.18 3.19

Myanmar: Estimates of Imports in Informal Trade, 1982/83 Myanmar: Goods Smuggled into Thailand, 1982/83 Thailand's Cross-Border Trade with Myanmar, 1983-86

57 58 61

4.1 4.2 4.3 4.4 4.5(a) 4.5(b) 4.6

Southeast Asia: Selected Basic Indicators, 1989 Southeast Asia: Exports and Imports, 1980-90 Southeast Asia: Exports and Imports, 1990 Southeast Asia: Trade Pattern, 1990 Myanmar: Exports to Southeast Asia, 1980-90 Myanmar: Imports from Southeast Asia. 1980-90 Myanmar: Contribution in Southeast Asia's Foreign Trade, 1980-90 Trade Intensity Indices of Myanmar's Trade with ASEAN, 1979-89 Myanmar: Balance of Trade with Southeast Asia, 1980-90 Trade Flows of Southeast Asian Countries and Their Major Trading Partners, 1974-76 Averages Trade Flows of Southeast Asian Countries and Their Major Trading Partners, 1987-89 Averages Relative Acceptance Index of Trade Flows of Southeast Asian Countries and Their Major Trading Partners, 1974-76 Averages Relative Acceptance Index of Trade Flows of Southeast Asian Countries and Their Major Trading Partners, 1987-89 Myanmar-Southeast Asia Trade Relations, by 1-Digit SITC Section

66 69 71 72 74 75

4.7 4.8 4.9 4.10 4.11 4.12 4.13

78 79 81 83 84 85 86 87

List of Figures

3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9

Myanmar: Share of Exports in GDP, 1974!75 to 1990/91 Myanmar: Balance of Trade, 1960/61 to 1990/91 Myanmar: Exports, 1981/82 and 1989/90 Myanmar: Structure of Exports, by Commodity, 1980/81 and 1989/90 Myanmar: Structure of Imports, by Commodity, 1980/81 to 1989/90 Myanmar: Export Composition, by Group of Countries, 1980/81 to 1988/89 Myanmar: Import Composition, by Group of Countries, 1980/81 to 1988/89 Myanmar: Composition of Informal Imports, by Country, 1982/83 Thailand's Exports at the Myanmar-Thailand Border, and Thailand's Total Exports to Myanmar

13 17 20 24 36 40 41 60 62

1J Introduction

The economy of Myanmar in the second half of the 1980s was in a very grim state. The growth rate of its gross domestic product (GDP) declined steadily from 5.5 per cent in the first half of the 1980s to -4.0 per cent in 1987/88. This is a result of the decline in the momentum of growth in the agricultural sector as well as the fall in production and productivity in State Economic Enterprises (SEEs). This slow GDP growth together with a shortage of foreign exchange forced Myanmar to apply to the United Nations for the least developed country (LLDC) status in December 1986, a status it was granted in December 1987. As an LLDC, Myanmar was entitled to concessional foreign aid and a rescheduling of its external debt payments. The growth rate declined further to -11.4 per cent in 1988/89 mostly due to political upheavals in the country. The factors contributing to the decline in all production sectors are shortages in foreign exchange, raw materials, spare parts for machinery, and fuel oil. Fuel shortages severely affected not only production but also transportation and the distribution of goods, which gave rise to shortages in commodity goods, and this in tum led to a considerable increase in commodity prices. The shortage of foreign exchange may be attributed to a steady decline in exports. According to U Aye Ko, Party General Secretary of the now abolished Burma Socialist Programme Party (BSPP), the only ruling party in Myanmar untill8 September 1988, when the present military regime took over power: Due to the decline in export earnings, the volume of imports had to be scaled down. As a result of such a scaling down, supply of raw materials and machinery parts needed for domestic production had to be cut down leading to a fall in domestic production. The fall in domestic production gave rise not only to insufficiency for domestic consumption but also to a decline in exports. Consequently, the economic growth rate fell. This led to a vicious cycle. (Working People's Daily, 24 August 1987)

This statement suggests the significance of foreign trade in Myanmar's economy and indicates that it is essential to promote exports to place the economy on a sound footing. The BSPP government's economic reforms seem

2

Chapter 1

to have recognized these factors. In the area of foreign trade the government announced on 3 February 1987 that it would allow private businesses and cooperatives to export rice, thereby relaxing its 25-year-old monopoly. This announcement is actually a follow-up of "liberalization" at the beginning of September 1987, when the government lifted a 21-year-old restriction on the free trade of paddy, maize, and seven varieties of beans and pulses. Then in July 1988 the government announced that large segments of the economy would be opened up to the private sector and joint ventures were to be encouraged not only between the government, co-operatives, and private enterprises but also between each of these entities and foreign governments or foreign private enterprises. All trade in agricultural crops, fish, hardwoods (except teak), medium and heavy industries (except the arms industry), power generation, construction (except communications), all other transportation (except air and rail transport), and the mass media (except radio and TV broadcasts) were to be opened to the participation of the private sector. However, the exploration and production of oil and gas, the exploration of gems, and the financial sector would continue to remain the domain of the state. Further developments in the process of "liberalization" took place after the military coup of September 1988. In 1988/89 Myanmar's GDP growth rate again fell to (-) 11.4 per cent, due mainly to political upheavals in the country. By that time, the country's level of foreign exchange reserves stood at only US$30 million. This forced the new government, the State Law and Order Restoration Council (SLORC), to announce its "open-door" policy and its intention to dissociate with old policies and to liberalize trade. As a measure to liberalize the economy, the military regime promulgated a new foreign investment law in 30 November 1988. This law is liberal but ambiguous and still slowly evolving. New timber and fishing concessions are granted and crossborder trade with neighbouring countries formalized. Steps have also been taken to decontrol the agricultural sector. The military leaders had stated boldly on 31 March 1989 that the government intended to move the economy from socialism to free-market capitalism. Since then, the word "socialist" was dropped from the titles of both the party and the state. As a result, Myanmar's economy revived in 1989/90, with its GDP growth rate reaching 3.6 per cent in that year and 5.6 per cent in 1990/91. Despite these achievements, the GDP was still below the level reached in 1985/86. These developments in Myanmar's external and internal trade have stirred up interest among Myanmar's private businessmen and their traditional counterparts in Southeast Asia. However, uncertainties in politics, frequent demonetizations, an unrealistic exchange rate, and restrictions on foreign exchange have discouraged private entrepreneurs inside and outside Myanmar. There are speculations that Myanmar is interested in close co-operation with the ASEAN nations and that it would probably join the ASEAN group as part of its "reform" programme. Moreover, the present military government has been

Introduction

3

working towards closer co-operation in diplomatic and trade relations with other Southeast Asian countries since Japan, the European Community (EC), and the United States (the largest donor countries as well as the largest trading partners) have suspended all new economic assistance to Myanmar as a result of the military coup following widespread demonstrations in the latter half of 1988. While their respective governments have sanctioned embargoes on new aid, private Western and Japanese firms form the largest investors in Myanmar. All these developments call for the need to explore and analyse Myanmar's foreign trade and its trade relations with other Southeast Asian nations, many of which are members of ASEAN. As not many studies have been done on this area, the purpose of this study is to provide some insight into the matter.

1.1. Statistical Evidence: A Prefatory Note Statistics on foreign trade are not problem-free for planners, academics, and other users of statistics. Myanmar's trade statistics are no better than those of most developing nations. Generally, data on the economic and social aspects of Myanmar are limited. In many cases, even the limited official data tend to be highly aggregated, and their accuracy and reliability are questionable. In particular, foreign trade data before 1988 were very much underestimated since almost 80 per cent of all imports of consumption goods, and the exports which were bartered for these goods, passed through informal channels unrecorded. There are several sources for statistics on Myanmar, but the present study uses only official data from the Report to the Pyithu Hluttaw (hereafter cited as the Report) and the Review of the Financial, Economic and Social Conditions (hereafter cited as the Review) published by the Ministry of Finance and Planning and the Selected Monthly Economic Indicators published by the Central Statistical Organization (CSO). The Report and the Review give the values of trade in local currency by commodity (which, however, do not conform with the Standard International Trade Classification [SITC] codes) and by group of countries for each fiscal year. The balance of trade along with the terms-of-trade are usually reported. The CSO publishes monthly reports on values in local currency and quantities of imports by commodity classified broadly as capital goods, intermediate goods, and consumer goods, and exports in both value as well as volume by principal commodity. But these figures are given as provisional data and have never been updated. There is also the Bulletin of Import Trade Statistical Paper and the Bulletin of Export Trade Statistical Paper, published by the CSO. Although these bulletins contain detailed information about exports and imports by commodity and by country, they are outdated: the 1980/81 bulletin is the latest available bulletin published. Hence, only the first two sources are used for this study. However, as the accuracy and reliability of official statistics from Myanmar are questionable, caution is advised. One shortcoming of such statistics is the lack of coverage of trans-

4

Chapter 1

actions in the informal market, although data on foreign trade can be considered to be relatively more reliable. Among foreign sources, the Direction of Trade Statistics (DOTS) published by the International Monetary Fund (IMF) provides data on the distributions of exports and imports in U.S. dollars by partner countries and by area of countries. It also provides the International Financial Statistics (IFS) export and import figures which, however, are not consistent with the DOTS figures. The International Trade Statistical Yearbook (ITSYB) provides total exportimport figures in local currency and exchange rates. It also classifies the commodity composition of exports and imports according to SITC (division 1) in U.S. dollars for the calendar year. In addition to the above, the Foreign Trade Statistics of Asia and the Pacific, published by the Economic and Social Commission for Asia and the Pacific (ESCAP), provides regional commodity trade presented in matrix form at the commodity section and group levels of the SITC division for regional member countries and territories of the ESCAP. Unfortunately, Myanmar and Malaysia are not mentioned in their columns. The World Development Report published by the World Bank and the Key Indicators of Developing Member Countries of the Asian Development Bank published by the Asian Development Bank (ADB) also carry some figures on exports and imports but these are not as complete as the former ones. Moreover, the foreign trade statistics published by the ASEAN member countries are classified differently, such as those of Biro Pusat Statistik (Jakarta) for Indonesia, Department of Statistics (Kuala Lumpur) for Malaysia, National Economic and Development Authority (Manila) for the Philippines, Trade Development Board (Singapore) for the Republic of Singapore; and the Department of Customs (Bangkok) for Thailand. Thus country A's import from country B presented in country A's report is not equal to the amount of country B 's exports to country A in country B 's report. The Report and the Review are used for the third part of this study, which deals with Myanmar's foreign trade situation. For a breakdown of exports from Myanmar, the CSO's Selected Monthly Economic Indicators (SMEI) is used. The fourth part of this study is devoted to Myanmar-Southeast Asia trade. For this, the main reference used is the DOTS, which usually does not include trade with Taiwan, while country statistics from primary sources are used whenever the breakdown of commodities for exports and imports are necessary. Discrepancies are significant among different indigenous sources, external and international sources, and indigenous and external sources (Table 1.1 ). The discrepancies and compatibility of figures between the DOTS and the IFS are explained in the DOTS (p. 2). The difference in data between these two sources and that of the SMEI arises from the difference in primary sources and the method of reporting. SMEI figures are mostly provisional data (revised figures have never been reported), whereas the DOTS and the IFS make their estimates based sometimes on the report of trading partners whenever the Myanmar side

5

Introduction

TABLE 1.1 Myanmar: Exports to the World, by Source, 1985-88 (In million US$) -·--·

Source IFS (IMF) DOTS (IMF) SMEI (CSO)* KI (ADB) SYBAP (ESCAP)

1985

1986

1987

1988

302.75 512.82 330.80 512.80 330.00

287.70 505.43 307.52 505.40 299.00

218.59 532.31 269.48 532.30 219.00

147.44 587.65 165.30 586.90 138.00

IFS =International Financial Statistics. IMF = International Monetary Fund. DOTS= Direction of Trade Statistics. SMEI =Selected Monthly Economic Indicators. CSO = Central Statistical Organization. KI =Key Indicators of Developing Member Countries of the Asian Development Bank. ADB =Asian Development Bank. SYBAP =Statistical Year Book for Asia and the Pacific. ESCAP = Economic and Social Commission for Asia and the Pacific. *Converted into U.S. dollars at the exchange rate (at average of period) given in the International Financial Statistics (1989).

fails to report revised data. Statistics from sources such as the Statistical Year Book for Asia and Pacific (SYBAP) published by the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), and the Key Indicators of Developing Member Countries of the Asian Development Bank published by the ADB also in some cases differ from each other. So, one has to exercise caution in using these data.

:2 Historical Perspective of Myanmar's External Trade

In this chapter, the history of Myanmar's external trade is divided into three periods, namely, trade under the Burmese 1 kings, trade after the annexation of Lower Burma by the British, and trade during its colonial period.

2.1. Foreign Trade under the Burmese Kings Trade relations between Myanmar and its neighbours have existed since the earliest days of Myanmar's history. The earliest accounts oftrade relations with other Southeast Asian countries, for example, were noted by Barbosa (1866, p. 183, cited in Cheng Siok-Hwa 1968, p. 231 ). At the beginning of the sixteenth century, rice was shipped from Pegu in Lower Burma to Melaka and Sumatra. U Tun Wai mentioned that Myanmar had trade relations with the European countries as far back as AD 1520 when the Portuguese were allowed to establish factories at Martaban and Syriam (1961, p. 20). However, in the mid-1750s, when Pegu was annexed by the Burmese kingdom in Upper Burma, the Burmese king forbade the export of many products including rice, teak, rubies, and precious metals, the outflow of which was thought to reduce the wealth and importance of the country (Harvey 1925, p. 350). Towards the end of the eighteenth century, the Dutch came to Myanmar for trade and had a factory at Negrais and Bhamo. The English East India Company had a factory in Syriam from 1647 to 1657, but closed it when it was unprofitable, although private traders maintained a connection with Myanmar. In the eighteenth century, both the English and the French were interested in Myanmar's teak for shipbuilding (U Tun Wai 1961, pp. 20-21). According to the same source, between 1587 and 1743 Britain had more sea-borne trade with Myanmar than did either France or Holland. But trade during those periods did not flourish because of war and the anti-mercantilistic outlook of the kings of Burma. The history of trade relations between Myanmar and its two giant neighbours, India and China, goes back even further. For centuries Myanmar traded with China (Yunnan), its exports being raw cotton, salt, ornamental feathers, esculent swallows' nests, and ivory, among other items. China exported

Historical Perspective of Myanmar's External Trade

7

silk, velvet, gold bullion, preserves, paper, and hardware utensils. Myanmar's raw cotton and China's silk constituted one-half of the value of Myanmar's total trade with China, estimated at 400,000 to 700,000 Sterling pounds in about AD 1800 (U Tun Wai 1961, p. 22). In those days, Myanmar imported spices from India and exported rice to India. According to Spearman, as quoted in U Tun Wai (1961, p. 21), the value of imports into Rangoon from the British Settlements in India in 1802 was estimated at 452,133 rupees or about 50,865 Sterling pounds while the value of Myanmar's exports to the British Settlements in India was 489,759 rupees or 55,100 Sterling pounds. This was the situation of foreign trade under the Burmese kings before the British annexation of Lower Burma in 1852. 2.2. Foreign Trade after the British Annexation of Lower Burma From 1852 to 1885 Myanmar was divided into two parts: Upper Burma under Burmese rule and Lower Burma under British rule. Lower Burma was then exposed to free trade while Upper Burma was under the reign of the Burmese kings, who still controlled the foreign trade, especially of teak and cotton and prohibited the trade of most of other products. Naturally, from 1852 Lower Burma's foreign trade grew tremendously, although its sea-borne trade grew from only 52.5 million rupees in 1862 to 167.7 million rupees in 1878. The principal exports were rice, timber, cutch, cotton, and petroleum (re-entrepot); and principal imports were cotton piece goods, gunny bags, silk, machinery, and mill-work (U Tun Wai 1961, p. 41 ). Table 2.1 depicts trade in Lower Burma during the British annexation. As Myanmar was a British colony, most of its trade was with either the metropolitan state or India, of which Myanmar was TABLE 2.1 Lower Burma: Distribution of Total Foreign Sea-Borne Trade, by Country, 1878/79 to 1884/85 (In million rupees) Year

U.K.

India

Straits Settlements

Germany

France

Total

1878/79 1879/80 1880/81 1881/82 1882/83 1883/84 1884/85

61.5 58.8 66.5 56.0 62.4 53.7 50.5

52.8 49.3 50.7 45.7 48.7 56.5 52.0

15.4 15.1 18.5 22.6 23.3 20.4 19.1

0.87 1.20 0.76 1.30 0.99 0.88 0.68

0.11 0.25 0.31 0.03 0.15 0.10 0.24

135.61 136.12 154.27 144.42 156.27 160.40 141.87

Average

58.5

50.8

19.2

0.95

0.17

146.99

SouRcE: U Tun Wai (1961, p. 42).

8

Chapter 2

then a part. It is interesting to note that at that time the share of Myanmar's trade with the Straits Settlements (that is, most of what is today Malaysia and Singapore) was small compared with the United Kingdom and India. Apart from sea-borne trade, Myanmar had overland trade with China, Assam, Bengal, and Thailand. Except for China, there was no proper record on trade with Myanmar's other neighbours. The value of the total trade between Myanmar and China in 1853 was 422,500 Sterling pounds or 3,380,000 rupees, but this fell to 1,621,837 rupees in 1890/91, largely because of the Panthay rebellion in 1853 and the acquisition of a monopoly in the cotton trade by the Burmese king (U Tun Wai 1961, p. 42). According to U Tun Wai, in 1855 the sea-borne trade was about four times as important as the overland trade. The internal trade between Upper Burma and Lower Burma at that time was in fact foreign trade, as the two Burmas were under different rules. After the annexation of Lower Burma by the British, customs duties were levied on the two parts of Burma and there was in effect an internal tariff barrier. Upper Burma imported rice, spices, silk, cotton and wool, cotton twist and yam, salt, and ngapi (salted and pounded fish or prawns). Lower Burma's imports from Upper Burma consisted of cattle, lacquer-ware, pulses, wheat, petroleum, timber, cutch, and textile goods. Total trade increased from 11.2 million rupees in 1863/ 64 to 36.8 million rupees in 1878/79. The growth in trade was due to two trade treaties of 1862 and 1867 between the British and the Burmese king, which not only reduced trade barriers but also the amount of duties levied by the Burmese side. Another reason was the better transportation services supplied by the Irrawaddy Flotilla Company (U Tun Wai 1961, p. 44).

2.3. Trade under the British Colonial Rule The British annexed Upper Burma in 1886. With this annexation, feudalism was once and for all wiped out and Myanmar came under colonial rule. Foreign trade increased as economic forces were given free play and there was specialization and division of labour. Myanmar began to export rice, oil, and timber, and import textiles and other manufactured consumer goods. The total sea-bome trade grew from 141.9 million rupees in 1884/85 to 1,051 million rupees in 1928/29. After the Great Depression, the total sea-bome trade fell drastically, never reaching the 1928/29 level again: in 1940/41 it was 485.7 million rupees. It is interesting to note that Britain's share in Myanmar's seaborne trade declined from 35.6 per cent in 1884/85 to 14 per cent in 1928/29, and to 13 per cent in 1940/41, just before the Japanese occupation, due largely to increasing competition from Germany and Japan. At the same time the convenience of the tariff system enabled India's share in Myanmar's sea-borne trade to increase from 35 per cent in 1884/85 to 47 per cent in 1928/29, and to about 60 per cent in 1940/41. Overland trade with China also increased, growing from 1.62 million rupees

Historical Perspective of Myanmar's External Trade

9

in 1890/91 to 8.97 million rupees in 1901/2, and to 26.14 million rupees in 1924/25. The combined overland trade with China and Thailand in 1924/25 recorded was 34.14 million rupees. But between 1927 and 1937 trade with China decreased because of an adverse exchange rate and the prohibition of the export of coin or bullion from China by the Nanking Government (U Tun Wai 1961, p. 123). As for the composition of Myanmar's exports during the pre-war days, rice and rice products, mineral oil and its products, metals and ores, and timber accounted for 90 per cent of Myanmar's exports. Rice and rice products alone accounted for 40 per cent of total exports between 1935/36 and 1939/40. During the same period textiles made up 25 per cent of total imports, the rest being various manufactured goods. Next is a look into trade relations between Myanmar and its Southeast Asian neighbours during this period. Early records show that from the beginning of the sixteenth century there were trade relations between Myanmar and Melaka and Sumatra. According to Cheng (1968, p. 201), the first official recorded data of Myanmar's export of rice to Malaya (the Straits Settlements and the Federated Malay States), Java and Sumatra, and the Philippines were for the year 1871/72. The export of rice was generally attributed to increasing demand by a rapidly growing population and increasing indentured labour in the mines and plantations of these countries. Apart from rice, dried and salted fish were also important export items in those days (ibid., p. 4). Although there is no record on imports into Myanmar during pre-colonial times, a large amount of spices was said to have been imported from these countries. During the latter part of the colonial period, that is, towards the end of the nineteenth century, Myanmar's exports to Southeast Asian states included not only rice but also beans and pulses, chillies, groundnut cakes, sesame cakes, oil seeds, and other oil residues, and raw rubber. Myanmar's imports consisted of edible oils, gunny bags, coconuts, and fibres other than cotton and jute (Agricultural Statistics, various years). Before World War II, Myanmar traded with other Southeast Asian countries, especially Malaya (including Singapore), the Philippines, and Indonesia (Sumatra and Java). See Table 2.2. The major factors contributing to trade within the region are geographical proximity, "political, cultural and administrative ties, monetary uniformity, accordance with local tastes and preferential tariffs" (Cheng 1968, p. 213). Myanmar and other Southeast Asian nations, especially the ASEAN countries, share a long history of foreign domination which has shaped their production pattern along with the trading framework. Before independence, colonialism was probably one of the major factors underlying the nature of trade relations between Myanmar and the countries that now form ASEAN. While trade ties among Southeast Asian countries under the prevailing international division of labour in colonial times were oriented towards the colonial powers (that is, Britain, France, the United States, and the Netherlands),

Chapter 2

10 TABLE 2.2 Myanmar: Distribution of Rice Exports to Countries in Southeast Asia. 1874/75 to 1939/40 (In thousand tons) Period 1874/75 to 1880/81 1881/82 to 1890/91 1891/92 to 1900/1 1901/2 to 1910/11 1911/12 to 1920/21 1921/22 to 1930/31 1931/32 to 1939/40

Malaya"

Java and Sumatra

Philippines

Total

67 160 216 274 265 198 210

n.a. n.a. 3 75 105 175 88

n.a. n.a. n.a. 7 5 n.a. 2

70 164 222 367 379 390 310

n.a. =Not available. " Straits Settlements and Federated Malay States. SouRcE: Cheng (1968. p. 214).

there was also trade between countries colonized by the same colonial power. Thus, Myanmar exported rice to other British colonies, and such bilateral trade relations have continued even after independence because of previous business links as well as post-colonial political ties. However, in the post-war period the common characteristics of trade patterns of Myanmar and other Southeast Asian countries have been the export of primary products and the import of machinery and other industrial products from industrialized countries. As the economies of Myanmar and these countries have been highly dependent on the primary sector, they seem to be more competitive than complementary. But Chapter 4 will show that these factors are conducive to the promotion of trade not only between Myanmar and the ASEAN countries but also among the ASEAN members themselves.

23 Myanmar's External Trade

Myanmar's economy continues to remain essentially agricultural although the process of industrialization had begun in the early I 950s. Agriculture contributes 35 to 45 per cent of GDP (in value added) and provides employment for 60 to 70 per cent of the labour force. Agricultural products still dominate in Myanmar's exports, accounting for about 44 per cent of total imports in 1985/ 86. The figure was the same for the year 1939/40, that is, the structure of exports remained the same as about half a century ago. With the government's efforts at diversification, in the last few years some new items such as animal and marine products have become increasingly more visible, but not manufactured goods. Rice and rice products and forest products are expected to continue to dominate in Myanmar's exports even in the foreseeable future. In 1990/91 export earnings constituted only 2.6 per cent of GDP and financed about 85.5 per cent of total imports. During the post-war years of the early 1950s, exports accounted for 50 per cent of GDP, and in the early 1960s about 20 per cent (Hill 1986, p. 30). This is a drastic fall in exports for the Myanmar economy. Table 3.1 sets out data on Myanmar's exports and GDP during the last three FYPs. The share of exports in GDP grew very slowly, from 4.8 per cent in 1974/ 75 to 8.4 per cent in 1980/81 (see Table 3.1 and Figure 3.1). After the peak in 1980/81, exports slowly declined to 2.6 per cent in 1990/91, although the average annual growth rates of both GDP and exports were 3.6 per cent and 26.0 per cent, respectively. In short, the share of exports in GDP decreased from 50 per cent in the early 1950s to about 3 per cent within forty years. Although this decline in the level of exports in the Myanmar economy has become more pronounced in the last few decades, it does not thus imply that exports are not important to the economy. To determine the role of exports to the economy, a more detailed analysis is called for. Although there are many studies in which economic growth, in terms of GDP or GNP, is found to be significantly correlated with the growth rate of exports (for details, see Lal and Rajapartirana 1987), studies on some lowincome countries suggest that this need not always be the case. However, it is

Chapter 3

12 TABLE 3.1 Myanmar: Share of Exports in GDP, 1974/75 to 1990/91 (In percentages)

Share ofGDP

Annual Growth Rate Year

GDP

Exports

Labour

Exports

1974/75 1975/76 1976/77 1977/78 1978/79 1979/80 1980/81 1981/82 1982/83 1983/84 1984/85 1985/86 1986/87 1987/88 1988/89 1989/90 1990/91 *

2.7 4.1 6.1 6.0 6.5 5.2 7.9 6.4 5.6 4.4 5.6 3.2 -1.1 -4.4 -11.4 3.6 5.6

-4.0 42.0 30.0 2.4 5.5 45.5 19.6 7.1 -13.0 12.6 -7.0 -17.0 -5.0 -50.0 30.6 26.0 27.6

2.8 1.6 3.8 2.6 3.1 2.1 2.6 2.8 3.0 2.3 2.2 2.4 -1.7 2.0 1.4 -5.4 n.a.

4.8 5.6 6.3 5.9 5.8 7.6 8.4 8.1 6.5 6.9 6.0 4.7 4.3 2.4 2.9 2.3 2.6

Investments 7.0 7.0 8.0 14.0 16.0 15.0 16.0 15.0 16.0 14.0 12.0 15.0 15.0 14.0 11.0 13.0 14.0

n.a. ==Not available. * Provisional. SouRcE: Report to the Pyithu Hluttaw (various issues); Review of Financial, Economic and Social Conditions (various issues).

interesting to note that many of the countries most famous for the miraculous growth rates that appeared to arise from export promotion policies (for example, South Korea, Taiwan, and Brazil) provide no statistical support for the export promotion hypothesis. (Ibid, p. 10)

Regression analysis is used to test the hypothesis that the export sector is significant for economic growth in Myanmar. The results are given in Table 3.2. One can infer from the table that output growth is weakly but not significantly correlated with the annual growth rate of exports (see Equations 1, 2, and 3 in Table 3.2). However, this correlation is significant and positive when the investment share of GDP and the annual growth rate of labour force are taken into account (Equation 4), this giving rise to a high coefficient of determination of 0.80. These findings suggest that although export is not the determining factor, it plays a very important role in Myanmar's economic growth. In other words, we can say that the export sector is the "handmaiden

Percentage N

~

N

w

w

~

~

~

~

~

1974/75

~

~

m

m ~

~

1977/78

I r--......._

1979/80

3:::

'
< "0

§.

0

"'-· eiO

1\ v

::; tT'l

a,_, t:J;....

"tt \0 -...J

~ Ul 0

I !

I

......

\0 \0

~

/v

\

-

'Tl ,__,

-

Chapter 3

14 TABLE 3.2 Myanmar: Estimated Relationship between Export Growth and Economic Growth, 1974/75 to 1985/86 Constant Independent Variable Dependent Variable

dY/Y dY/Y dY/Y dY/Y

c

dX/Xl

1/Y

4.7532

0.0385 (8.7984)

(1.1824)

0.0485 (0.3628)

32.5410 ( 1.7616)

(2.3986)

0.0298 (3.3935)

0.9451 ( 1.2226)

(3.1376)

0.0394 (--0.6850)

28.6944 (2.2679)

0.8660 (3.3615)

0.6429 2.6515 --0.0769

dL/L

R2

Eqn. No.

0.11

(1)

0.44

(2)

0.55

(3)

0.80 (4.0708)

(4)

NoTE: Numbers given within parentheses are t values.

- = Not applicable. dY!Y =Annual growth rate of GDP. dX/Xl =Annual growth rate of exports. 1/Y =Investment share of GOP. dL/L = Annual growth rate of labour force. R 2 = Coefficient of determination. SouRCE: Calculations based on Table 3.1.

of growth" if not the "engine of growth". Another question to look into is that although in the international community Myanmar is considered an "inward-looking" economy, is it in fact so? Foreign trade was until recently wholly controlled by the government, despite its announcement in September 1987 that private enterprises are permitted to be involved in the export of rice and rice products. According to the Report (1988), the share of the private sector in the total net output of the trade sector for 1985/86 (at 1968/69 constant prices) was 45.8 per cent, that is, less than half. There was no free movement of capital, workers, enter-prises, and students vis-a-vis international markets. Apart from a government joint venture with a West German firm, there were no joint ventures with foreign firms or multinational enterprises in Myanmar. The degree of openness, expressed in terms of the ratio of total merchandise trade to GDP, was very small - about 10 per cent in 1988. The communications system was a relatively closed one. On the other hand, Myanmar emphasized "self-reliance" in its own-style development policies, and furthermore its import-substitution policy is reflected in its import structure. All these indicate that Myanmar until 1988 was more of an "inward-looking" economy than an "outward-looking" one. However, since 1988, when the military took over power, Myanmar has

Myanmar's External Trade

15

been becoming more "outward-looking" in orientation. By promulgating the Foreign Investment Law, the government welcomes foreign direct investment along with technology transfer and the building up of management skills. A limited number of workers and entrepreneurs are permitted to work abroad. The share of the private sector in the value of net output of the trade sector increased from 46 per cent in 1985/86 to 67 per cent in 1990/91. Another landmark in this process is the formalization of cross-border trade with the neighbouring countries of China, Thailand, Bangladesh, and India. Although its degree of openness remains constant at 11 per cent, it is obvious that Myanmar is on its way to becoming an outward-oriented country. As in the case of GDP, export earnings do have a positive, though insignificant, correlation with per capita income. Similarly, the share of exports in GDP and basic needs indicators, such as infant mortality rate, literacy rate, and so forth, express weak and insignificant relations, which implies that foreign trade may have a slight influence on national income and development. (Since no data on income distribution is available, the impact of external trade on income distribution in Myanmar cannot be measured.) The significance of exports in the Myanmar economy can be grasped by looking at Myanmar's imports. For example, Myanmar's exports fell from K3,225 million in 1980/81 to K1,679 million in 1987/88, but increased to K2,690 million in 1990/91 after the formalization of cross-border trade. The decline in exports meant that during the period imports had to be scaled down from K4,635 million in 1980/81 to K4,065 million in 1987/88, and to K3,147 million in 1990/91. As a result, the supply of raw materials and machinery spare parts for production had to be curtailed from K I ,863 million in 1980/81 to K1 ,208 million in 1987/88 and to K I ,025 million in 1989/90 (Report, various issues) and this again led to a decline in GDP from 7.9 per cent in 1980/81 to -4.0 per cent in 1987/88, and to -11.4 per cent in 1988/89. Thus there is sufficient evidence that external trade does play an important role in the economic growth and development of Myanmar.

3.1. Export Performance This section discusses the export performance of the Myanmar economy. Time series data on export earnings are given in Table 3.3. Export earnings in prewar 1940/41 were more than in 1969/70, even if the purchasing power of the kyat was not taken into account. After 1961/62 exports gradually decreased (mainly due to the nationalization of export-import trade), slowing down the economy. The growth rate of exports between 1973 and 1984 was only 3.2 per cent, and that during 1980-88 was -7 per cent, the worst rate recorded in the region during that period. Export performance improved after the economic reform (introduced at the beginning of the second FYP in 1973/74): the rate of export growth chalked up between 1974/75 and 1986/87 was II per cent.

Chapter 3

16 TABLE3.3 Myanmar: Balance of Trade, 1940/41 to 1990/91 (In million kyats) Year

Export

Import

Surplus/Deficit

1940/41 1947/48 1950/51 1960/61 1961/62 1962/63 1963/64 1964/65 1965/66 1966/67 1967/68 1968/69 1969/70 1970/71 1971/72 1972/73 1973/74 1974/75 1975/76 1976/77 1977/78 1978/79 1979/80 1980/81 1981/82 1982/83 1983/84 1984/85 1985/86 1986/87 1987/88 1988/89 1989/90 1990/91

555 757 899 1,015 1,272 1,271 1,142 1,089 929 672 521 557 539 591 686 690 967 926 1,323 1,716 1,757 1,853 2,696 3,225 3,453 3,036 3,420 3,195 2,654 2,514 1,679 2,193 2,762 2,690

308 596 534 1,081 1,044 1,096 1,086 1,413 804 817 757 753 897 852 921 704 574 1,016 1,443 1,628 2,087 3,224 4,310 4,635 5,611 6,314 5,197 5,207 4,802 3,936 4,066 3,443 3,395 3,147

+275 +162 +365 -66 +228 +175 +56 -324 +125 -145 -236 -196 -358 -261 -235 -14 +393 -90 -120 +88 -330 -1,371 -1,614 -1,410 -2,158 -3,278 -1,777 -2,112 -2,148 -1,422 -2,387 -1,250 -6,33 -457

SouRcE: Report to the Pyithu H luttaw ( 1987); Review of Financial, Economic and Social Conditions (1990). Although the ratio of exports to GDP seems to suggest that exports are not significant for the economy, the performance of the economy seems to depend on the growth of its export sector. As can be seen in Table 3.3 and Figure 3.2,

Billion kyats 0

1\.l

..,.

w

Ul

(Jl

"-J

OJ

1960/61 1961/62 1962/63 1963/64 1964/65 1965/66 1966/67 1967/68 1968/69 1969/70

~

'-
.

.:.::

0.9 0.8

c

g

0.7

(0

0.6 0.5 0.4 0.3 0.2 0.1 0 Rice

Other agricultural products

Fish

Metals Export

Teak

Other hardwoods

Others

Myanmar's External Trade

21

except for forestry products and metals and ores, had decreased drastically in volume. This decline in the 1980s was obviously caused by a decline in production and productivity in the agricultural sector. However, in 1989-91, with the exception of agricultural products, all items had increased, probably because of the formalization of cross-border trade. There is another explanation for this decline in exports. Since the government, until 1988, was the sole exporter as well as the sole purchaser of rice/ paddy, it is obvious that the government's procurement of paddy from local producers played an important part in determining the level of exports. The data in Table 3.5 seem to suggest that the share of exports in GDP is related to procurement as a percentage of paddy production, which in tum is related to the annual growth rate of production in the agricultural sector. That is, the higher the growth rate in the agricultural sector, the more the procurement of paddy, which is likely to result in more exports. However, the factors influencing the procurement of paddy are in fact numerous, including political, institutional, as well as economic ones. As for economic factors, apart from production, the government procurement price of paddy is a significant variable. The present writer found in one of his earlier studies that the procurement of paddy was higher when the difference between government and market prices of paddy was smaller, and vice versa (Mya Than 1975). 3.1.1. Structure of Exports A country's level of economic development can be read from its various economic indicators, one of which is export structure. As Myanmar's economy TABLE 3.5 Myanmar: Procurement of Paddy and Its Share of Export in GDP, 1964/65 to 1988/89 Year 1964/65 1980/81 1981/82 1982/83 1983/84 1984/85 1985/86 1986/87 1987/88 1988/89 1989/90

Annual Growth Rate in Agricultural Sector

Procurement as % of Paddy Production

Share of Export in GDP

11.9 10.9 7.8 6.8 4.9 3.0 2.6 0.4 -6.2 -11.7 4.5

48 32 30 28 29 26 29 15 3.7 0.9 1.2

13.7 8.4 8.1 6.5 6.9 6.0 4.7 4.3 2.4 2.9 2.3

SouRcE: Report to the Pyithu Hluttaw (various issues).

Chapter 3

22

is based on rice, forest products, and minerals, primary commodities are the exportable items given the state of Myanmar's economy. This structure of exports indicates that Myanmar is in its first stage of economic development in terms of international trade. The share of rice and rice products in its export structure has not changed at all from the early 1940s up to 1980/81. After 1986/ 87 rice was replaced by forest products, largely owing to a decline in the price of rice in the world market and also because of the fall in the quantity of rice exported. Just before World War II, the share of rice in total exports was 50 per cent while that of forest products was only 6 per cent. In 1986/87 the share of rice declined to 22 per cent while that of forest products increased to 43 per cent, thereby replacing rice as the leading item in Myanmar's exports. Furthermore, the share of rice in total exports was 65 per cent in 1960/61, 4 7 per cent in 1970/71, 43 per cent in 1980/81, and 22 per cent in 1986/87. Throughout the period, the share of forest products registered a gradual increase. See Table 3.6. At the same time the share of rice declined to 3 per cent in 1988/ 89 but increased again to 28 per cent in 1990/91. Although Myanmar's leading export alternated between rice and forest products, its exports remain based on primary commodities, as can be seen from the structure of its exports from 1940/41 to 1990/91 (Table 3.7). According to the table, the significance of agricultural products in relation to total exports sharply declined from the 1970s. The share of agricultural products in Myanmar's total exports fell drastically within a period of three decades, from 82.4 per cent in 1960/61 to 15.1 per cent in 1989/90 and to 28.2 per cent in 1990/91, but not because of a change in the basic structure of the economy. This decline in agricultural products was made up for by forest products, minerals and gems, and animal and marine products. The share of forest products in total exports was only 10 per cent in 1960/61, increasing to about 37 per cent in 1990/91. (In the late 1970s and the early 1980s, as advance sales of forest products were contracted one year ahead at current prices, the export earnings of teak and other hardwoods do not reflect their unit value during that TABLE 3.6 Myanmar: Shares of Rice and Forest Products in Export, 1940/41 to 1988/89 (In percentages) 1940/41 1960/61 1970/71 1980/81 1986/87 I 988/89 I 989/90 1990/9 I* Rice Forest products

50

65

47

43

22

6

9

24

25

43

2.5

32

IO

28

36

37

* Provisional. SouRcE: Central Statistical Organization, Yangon, Selected Monthly Economic Indicators (various issues).

23

Myanmar's External Trade

TABLE 3.7 Myanmar: Structure of Exports, by Commodity, 1940/41 to 1989/90 (In percentages) ---·-·----

Commodity Agricultural products Animal and marine products Forest products Minerals and gems Others Re-exports Total

1990/91 a

1940/41

1960/61

1970/71

1980/81

53.9

82.4

62.5

54.6

28.2

0.5 11.3 11.2 21.7 1.4

0.3 9.8 4.3 2.0 1.3

0.1 23.7 8.9 0.3

4.1 36.7 1.3 29.7h

1.1

3.0 24.7 14.5 1.7 1.5

100.0

100.0

100.0

100.0

100.0

= Not significant. Revised provisional. h Including cross-border trade.

-

a

SouRcE: Ministry of Finance and Planning, Yangon, Report to the People (various issues); Report to the Pyithu Hluttaw (various issues); Review ofFinancial, Economic and Social Conditions (1991!92).

period.) The importance of animal and marine products can be seen in the share of this category in total exports, increasing from 0.3 per cent in 1960/61 to 3 per cent in 1988/89. The share of minerals and gems was only 4.3 per cent in 1960/61. It then increased to 14.5 per cent in 1980/81, and fell to 1.3 per cent in 1990/91, mainly because of depressed world commodity prices (Figure 3.4). Although there is a significant change between rice and forest products in the export structure, no improvement is recorded of manufactured goods in the export trade. The share of manufactured goods in relation to total exports is minimal, less than 5 per cent in 1989, consisting mainly of textile products, leather, cement, some pharmaceutical products (such as glycerine, alcohol), several petro-chemical products, and animal feed (Ltitkenhorst 1990). This is an indication of the low level of industrialization in the Myanmar economy: total production in the manufacturing sector constituted 10.7 per cent of GDP in 1990/91, mainly relating to the processing of agricultural products and petroleum refineries, which is mostly absorbed by domestic demand. This forced the government to recognize the need to diversify its exports. The former Deputy Prime Minister, Thura U Tun Tin, in his speech to the Pyithu Hluttaw in the March 1986 session, said To expand export trade in order to earn more foreign exchange, we are giving priority to producing new export items such as chemical fertilisers, cement, sugar, copper, vegetables and fruits as well as to expand the cultivation and

FIGURE 3.4 Myanmar: Structure of Exports, by Commodity, 1980/81 and 1989/90 1980/81

1989/90

0.5%

Others Forest

Re-exports

Minerals

Agricultural products

Myanmar's External Trade

25

production of crops such as coffee, tapioca, jute and pulses which have promising prospects for export. ... Goods which have less demand in the external market are transacted by means of countertrade. (Guardian Daily, 15 March 1986)

But except for fertilizers, cement, and sugar, all the diversified items are primary products; that is, no real diversification has taken place in Myanmar's exports. This is also confirmed by Table 3.7, which shows the structure of exports by commodity from 1940/41 to 1990/91 (see also Figure 3.4). In fact the data for 1990/91 are quite different from those of other years because of the inclusion of cross-border trade in official statistics, this cross-border trade (classified as "others" in the table) consisting mainly of agricultural products. The sum of the shares of "others" and "agricultural products" is the share of agricultural products in total exports for 1990/91. Thus, the narrowness of Myanmar's export base can be seen in the high share in value of rice, teak, and pulses in total exports.

3.1.2. Principal Export Commodities and Their Prospects Primary commodities constituted more than 80 per cent of the country's total exports (Table 3.8). Myanmar's principal exports were rice, maize, natural rubber, jute, cotton, beans and pulses, oil cakes, cotton, timber (teak and other hardwoods), hides and skin, fish and fishery products, copper, tin, zinc, tungsten, and silver. Table 3.8 provides some details on Myanmar's commodity exports. Although the share of rice in total exports averaged 25.5 per cent in 1985-88, its relative share in world commodity exports was only 6 per cent. Similarly, the share of timber in Myanmar's exports was 50.3 per cent while its share in world timber exports was merely 0. 7 per cent. Overall, although the share of all commodities in Myanmar's total exports constituted 97.3 per cent, it represented a relative share in total world commodity exports of only 0.1 per cent. This implies that the problem of expanding Myanmar's commodity exports lies not in demand but in supply. There is sufficient demand for Myanmar's commodities, but Myanmar should produce more commodities that are of better quality and use better marketing facilities and strategies to improve its ecoqomy. Some details regarding Myanmar's principal export commodities listed in Table 3.9 follow: RICE: Rice is very important not only in the country's economy, but also in the daily life of the people. Rice cultivation is a way of life for about 70 per cent of the population, and as a staple food, rice is the main source of protein and calories for the people. Rice contributes 40 to 50 per cent of export earnings, accounts for 40 per cent of value added in agriculture, and provides employment to about 65 per cent of the labour force. Moreover, rice takes up nearly half the total cultivated area of 25 million acres.

Chapter 3

26 TABLE 3.8 Myanmar: Exports of Commodities, 1985-88 Averages Value (million US$)

Commodity Share of Total Country Exports

Country Share in World Commodity Exports

Rice Maize Cotton" Jute" Rubber Timber Hide and skin Copper" Tin" Zinc"

84.7 2.1 3.6 3.2 6.4 166.8 0.4 0.1 16.5 1.9

(25.5) (0.6) (0.9) (0.8) (2.2) (50.3) * * (4.0) (0.5)

(6.0) n.a. (0.1) (2.1) (0.1) (0.7) * * (0.6) (0.1)

All commodities

322.7

(97.3)

(0.1)

8.9

(2.7)

*

331.6

(100.0)

*

Others Total exports

NoTE: Numbers given within parentheses are in percentages. n.a. =Not available. "Average for 1981-83. *Less than 0.1 per cent. SouRcE: United Nations Conference on Trade and Development (1986); International Monetary Fund, Primary Commodities (1989).

As mentioned earlier, rice is one of Myanmar's two principal exports. Just before World War II, Myanmar was the largest rice exporter in the world, contributing about half of the world's total rice exports. The average volume of Myanmar's rice exports between 1936 and 1940 was about 3.1 million tons, falling to about 0.6 million tons between 1980/81 and 1988/89. The average annual growth rate of rice exports during the period 1974/75 to 1986/87 was only 1.03 per cent. (Exports of rice after 1987/88 were excluded since these years were considered "abnormal", owing to political upheavals in the country.) It is also important to note that the ratio of rice exports to rice production declined from 42 per cent in 1961/62 to 9 per cent in 1981/82, and to 5 per cent in 1986/87, averaging about 4 per cent from 1974/75 to 1987/88. Besides, while paddy production increased by about 206 per cent between 1961/62 and 1986/87, the population increased by about 173 per cent. These figures indicate that home consumption may not be the main explanation for the decrease in rice exports (for a detailed analysis, see Mya Than 1990, and Mya Than and Tan 1990). Instead, one possible main reason, as mentioned in Section 3.1, is

TABLE 3.9 Myanmar: Exports of Principal Commodities, 1974/75 to 1990/91 Year Rice" Value Quantity Maize Value Quantity Rubber Value Quantity Jute Value Quantity Timber" Value Quantity Fishery Value Quantity Hide and skin Value Quantity Base metals and ores Value Quantity Beans and pulses Value Quantity Oil cakes Value Quantity

1974/75 1975/76 1976177 1977/78 1978/79 1979/80 1980/81 1981/82 1982/83 1983/84 1984/85 1985/86 1986/87 1987/88 1988/89 1989/90 1990/91

336 355

625 444

739 666

868 660

288 207

1,214 783

1,355 703

1,509 712

1,144 722

1,397 920

1,024 644

763 603

538 624

254 326

4 5

3 4

5 6

8 10

8 10

18 20

11 10

21 23

31 34

19 18

29 30

15 22

9 9

21

16 5

20

40

42

5

9

7

62 10

74 10

89 10

81 13

60 11

62 9

58 9

57 11

47 10

31 6

49 53

22 13

6

4

22 10

57 26

41 22

99 66

28 20

5 4

0 0

0 0

0 0

0 0

230 115

285 110

383 84

397 95

905 223

550 137

793 197

772 202

804 192

909 230

1,062 213

1,026 208

1,089 258

0.2 0.1

17 1.0

30 1.9

49 2.8

67 4.9

82 6.6

107 8.7

141 10.4

0.3 0.1'

0.6 0.2'

2.9 0.8'

7.0 2.0

I 0.4

8.2 1.6

4.3 0.6

2.2 0.3

1.3

5.6

117 5.3

89 4.9

113 4.0

3.9 0.6

3.6 0.5

2.3 0.3

3.0 0.4

71

54 48

249.2 155.8

154.7 121.3

6 10

20

13 2

5

4

0 0

0 0

0 0

0 0

505 199

662 204

887 367

989 417

94 9

109 4

II

3.0

61 5.0

2.0 2.0

0.4 0.2

64

13

1

0.9 0.1

1.8 0.3

81 17

54 11

50 9

85 10

165 15

190 11

190 17

265 18

280 21

301 34

313 39

114 30

155 66

117 53

70 26

61 31

35 17

46 28

78 37

62 32

72 31

59 24

126 63

152 71

250 83

177 104

168 65

215 66

208 90

151 86

131 73

53 17

53 33

50 74

52 93

35 67

34 53

56 77

66 90

52 63

46 66

41 55

47 60

58 64

35 54

32 65

25 59

21 52

6 16

15 28

10 2

NoTE: Values are given in million kyats, Quantities in thousand metric tons. "Rice and rice products.

h

Teak and other hardwoods only.' Estimated by the author.

SouRcE: Central Statistical Organization, Yangon, Selected Monthly Economic Indicators (various issues).

28

Chapter 3

the decline in government procurement of paddy. According to a study conducted by the present writer (Mya Than 1975), the procurement of paddy is directly related to the size of the gap between government and market prices. The smaller the gap between these two prices, the more the procurement of paddy. This indicates that low domestic price is also one of the important factors contributing to the decline in rice exports. Since the share of rice in the country's total exports averaged 25.5 per cent in 1985-88 (Table 3.8), and its relative share in world commodity exports comprised only 6 per cent, it is clear that the problem in expanding rice exports lies not in world demand, but in domestic supply. There is thus much potential for increasing rice exports, if Myanmar could produce more rice that is of a better quality. This is not impossible since its land-man ratio is better than those of its rice-producing neighbours. It should be pointed out that Myanmar's rice is indeed of low quality and fetches prices much lower than those prevailing in the world market. Moreover, the country's traditional customers from the region have become self-sufficient in rice while those from Africa are facing financial problems. Although the private and co-operative sectors were authorized to export rice in February 1988, there is no evidence to suggest that they exported rice simply because domestic wholesale rice prices remained higher than export rice prices. It is imperative that Myanmar raises productivity in the agricultural sector, improves its marketing strategies, and revamps the pricing system to help farmers increase rice production and export. TIMBER: Myanmar's forests are one of its most valuable assets. Forests cover 57 per cent of its total land area, producing about 75 per cent of the world's teak resources. According to the Burma Trade Guide (p. 32), Myanmar produces about 90 per cent of the world's genuine teak (Tectona grandis). Although the contribution of the forestry sector in GDP is only 2 per cent (this statistic is very much underestimated since about 90 per cent of the population use wood and charcoal as fuel), its contribution to export earnings is about 40 per cent, replacing rice as the number one export item since 1985. Timber exports include mainly teak and other hardwoods. Although there is a plywood and veneer plant and a paper pulp factory which can increase the value added, the export of plywood/veneer at present is marginal, about 5 per cent of the total export of forest products. There are two wood-processing factories under construction with financial aid from the World Bank. There is also an industrial joint venture in the field of woodworking with a firm from Singapore. Myanmar's export of timber has been very popular since its feudal days; timber export also partly accounted for the war that Myanmar had with the British. The rate of growth in volume of timber exports during the period under study was 4.2 per cent compared with -15.3 per cent for rice exports. (Since the introduction of the Foreign Investment Law in late 1988, the government has sold logging concessions to sixteen Thai firms along the border,

Myanmar's External Trade

29

each with a minimum of US$50,000 down payment [Asiaweek, 17 February 1989].) They were granted permission to export 660,000 tons of timber from Myanmar, including 160,000 tons of teak wood (Straits Times, 31 July 1990). According to theNation (3 February 1991), more than an estimated 30 million cubic metres of commercially valuable wood had been taken from forests in Myanmar by Thai concessionaries in 1990. According to the Nation, there are about thirty Thai companies felling trees from forty concession areas in Myanmar (the same source also estimated that the total volume of timber cut from the rebel control area is much more than that). In terms of export earnings, timber exports increased by about 430 per cent during the period 1974/75 to 1990/91 whereas its quantity exported increased by about 363 per cent. This implies that the increase in export earnings from timber can be attributed to increase in price rather than increase in volume. Although timber exports constituted 50.39 per cent of Myanmar's total exports in 1985-88, its share in world total timber exports was only 0.7 per cent during the period. The level of timber exports obviously depends on domestic production, which in turn is dependent on extraction, transportation, and security. On the other hand, there is a tendency of over-extraction now that the demand for timber exports has increased; export earnings from rice has decreased drastically because teak extraction, according to some U.N. experts, has reached its long-run maximum sustainable rate. As part of its measures to increase teak exports without further extraction, the government encourages its population to substitute teak by other hardwoods for domestic use. Since teak is the only item with good prospects for export earnings at present, the government ought to increase forest development works, such as reforestation, conservation, expansion of reserved forest area, plantation, and afforestation to enhance the production of timber without depleting the forests. Natural rubber has a good export potential. During the period from 1974/75 to 1990/91, rubber exports decreased by about 80 per cent (falling from 5,000 to 1,000 tons), averaging 7,600 metric tons a year and production registered the same amount (15,000 tons). This decline in the level of exports can be explained by the fact that declining world market prices of rubber had made it less profitable to export, and production is also diverted to meet domestic consumption. Lack of incentives, especially very low government procurement price and poor marketing practice, lack of inputs, infrastructure, and inadequate security are the reasons for the stagnancy in rubber production. The share of rubber in Myanmar's total exports in the 1985-88 period was 2.2 per cent, and its share in total world rubber exports was only 0.1 per cent (Table 3.8). It is estimated that informal exports accounted for about 40 per cent of the official trade figures. Rubber was smuggled over land into Thailand, and by sea into Malaysia and Singapore. As in the case of jute, the world demand for Myanmar rubber exceeds its domestic production. RUBBER:

30

Chapter 3

MAIZE: Maize is the third major agricultural export. Its export volume increased from 5,000 tons in 1974/75 to 29,000 tons in 1984/85, and then fell drastically to 1,000 tons in 1988/89, while production increased from 64,000 to 303,000 tons, and then fell to 193,000 tons, in 1974/75, 1984/85, and 1988/89, respectively. However, its exports increased to 13,000 tons although production fell again to 186,000 tons in 1990/91. The export of maize peaked in the first half of the 1980s, in line with its production trend. It seems that the volume of maize exports depends on its production and procurement since maize is generally used as an animal feed, especially in Japan. Recently, maize is in high demand in the cross-border trade with China. Soon after the introduction of the Foreign Investment Law in 1988, an agribusiness project involving maize seeds was signed between a Thai firm and the Myanmar Government. According to the agreement, the Thai firm will send maize seeds to Myanmar on credit, and in return take part of the harvest. However, according to Table 3.8, the export of maize is insignificant, not only in total country exports but also in the world trade in maize. Since animal feed is in high demand, maize exports ought to have good prospects in the world market.

After agricultural and forest products, base metals and ores are the third largest export items of the country. They include mostly tin, tungsten, zinc, nickel, and copper. Although the production of base metals and ores increased by two or three times in the early 1980s compared with 1974/ 75, the increase in exports was about five to six times (Table 3.9). Although there was a sharp rise in mineral exports in 1986/87, official statistics indicate a decline in the production of most of these minerals. By 1990/91 the export of base metals and ores was equal to that in 1974/75, that is, about 17,000 tons. Moreover, as some of the mining areas lie in the "grey area", reports of the smuggling of these minerals are not uncommon. There is no data on the amount of these metals smuggled out of the country. However, according to Takamura and Mori (1984, p. 134), about 1,200 tons of tin and other metals, valued at about Kl5 million, were smuggled into Thailand. This implies that the production figures of base metals and ores are likely to be underestimated. Its production and extraction depend on infrastructure and security since most of the mining areas are situated in the peripheral regions. Hence, when there is peace and stability in the country and the infrastructure is improved, base metals and ores will figure more prominently in the country's exports. BASE METALS AND ORES:

FISH AND FISHERY PRODUCTS: Fish and fishery products have a high export potential in the near future. They consist of fresh-water and sea-water prawns, sea fish, jelly fish, shells, turtle eggs, and dried fish and prawns. Production prospects are also encouraging for these items since Myanmar's border runs along about one-third of the total length of the coast facing the Gulf of Martarban and the Bay of Bengal. The United Nations Development Programme

Myanmar's External Trade

31

(UNDP) and some friendly countries, for instance Singapore, are helping Myanmar modernize its extraction of fish and fishery products. Thus, fishery output increased from a quantum index of 118.2 in 1975/76 (quantum index in the base year 1969/70 = 100) to 153.4 in 1986/87. This enabled its exports to increase from a meagre 100 tons in 1975/76 to 10,400 tons in 1982/83, though it fell to 5,000 tons in 1988/89, as a result of smuggling and the lack of fuels and trawlers. Myanmar's fish and fishery products have prospective customers in Japan, Thailand, and Singapore. In 1988 the Myanmar Government sold fishing rights in Myanmar's offshore areas to some Thai, Malaysian, Korean, and Singaporean fishing firms as it urgently needed foreign currencies (Asiaweek, 17 February 1989). BEANS AND PULSEs: In terms of export earnings, beans and pulses (as for mineral products) form the third largest group after rice and timber. From 197 4/7 5 to 1986/87 its annual growth rate of production was 10.4 per cent, while the growth rate of quantity exported was 9.8 per cent. However, production fell by about five times, from 90,000 tons in 1985/86 to 17,000 tons in 1988/89, while export earnings decreased by about four times. This means that beans and pulses commanded good prices compared with other commodities during that period. However, its exports increased more than four times in 1990/91, its earnings fell from K53 million in 1988/89 to K50 million in 1990/91. This indicates that the per unit price of beans and pulses fell compared with 1988/89 prices. Although its quantum index increased from 56.1 to 86.9 (quantum index in the base year 1985/86 = 100) during the same period, it is obvious that the domestic supply could not catch up with the world demand. One explanation for this is the low level of procurement of beans and pulses due partly to higher domestic consumption and the low level of procurement price. Beans and pulses are not traditional export items. Only after the war have they become one of Myanmar's important export commodities. The largest demand for beans and pulses is from Japan, where it is used as an animal feed. Historically, the supply of beans and pulses fell after the nationalization of external and internal trade. Since trade has become open to the private sector, better prospects are expected for the export of these commodities.

This group includes sesame cakes, groundnut cakes, cotton cakes, and coconut cakes, all of which are traditional export commodities. The average tonnage of oil cake exports during 1936-41 was more than 53,000 tons compared with the average of 56,700 tons from 1974/75 to 1990/91. The supply of oil cakes was not able to meet the increasing domestic consumption and the ever-increasing world demand for animal feed. In fact, oil cake exports fell drastically from 93,000 tons in 1974/75 to 2,000 tons in 1990/91 because the government could not buy enough to meet the domestic demand and because of weakening prices in the world market. OIL CAKEs:

Chapter 3

32

There are no manufactured items for export comparable to these principal export commodities. Value-added items are lacking, except for some sawn wood. Myanmar thus has a long way to go to diversify its export structure.

3.1.3. Export of Services The services sector plays a very important role not only in the earning of foreign exchange but also in the national economy as a whole. The government, aware of the significance of this sector, announced in 1985 that it would promote the export of services by sending more sailors, workers, and professionals abroad. U Tun Tin, former Deputy Prime Minister and Minister for Planning and Finance, in a report submitted to the second meeting of the Fourth Pyithu Hluttaw, said: The Fifth Party Congress laid down a future task to keep on boosting exports and earn more foreign exchange not only from exports but also from the private services. So it will be possible to get increased foreign currency income by arranging to extend services abroad. (Working People's Daily, 11 March 1986)

There is evidence that foreign exchange earnings from tourism, insurance, and the remittance of earnings of workers abroad are increasing year after year (see Table 3.10). Foreign exchange earnings from services increased from K320.9 million in 1974/75 to K607.6 million in 1980/81, and to Kl,555.5 million in 1990/91, owing to increased income earnings from tourism and remitted incomes from workers and professionals working abroad. The ratio of services to merchandise TABLE 3.10 Myanmar: Receipts from Services Abroad, 1974/75 to 1988/89 (In million kyats) 1974/75

1980/81

1990/91 *

Transport and insurance Travel/tourism Embassies and international organizations Government services and transfers Private services and transfers Interest Miscellaneous

24.1 16.2 11.9 3.8 5.8 37.2 221.9

119.4 59.7 26.2 50.8 60.1 160.4 131.0

70.0 130.0 70.0 1.0 470.0 70.0 744.5

Total of services (I) Merchandise trade (II) Ratio of (I) to (II)

320.9 912.7 35.2

607.6 3,180.0 19.1

1,555.5 3,523.2 44.2

*Provisional actual (revised estimates). SouRcE: Report to the Pyithu Hluttaw (various issues); Review of Financial, Economic and Social Conditions (1991 ).

Myanmar's External Trade

33

trade in 1990/91 was also much higher than that in 1974/7 5: the average annual increase in services trade during the period under study was 10.4 per cent compared with 8.8 per cent for merchandise trade. Foreign currency earnings from tourism grew by about eight times from 1974/7 5 to 1990/91 (earnings in 1990/91 was about 44 per cent of total export earnings). However, the number of tourists fell by about 21 per cent from 42,000 in 1987 to 8,968 in 1990, affected by political chaos in the country. As for the export of private services, this has increased by about a hundred times in 1988/89 but fell by about 75 per cent in 1990/91 since the start of the second FYP in 1974/75 when the government began to promote the export of private services. Another area with possibilities for expansion is financial services. In 1990 a new banking law was introduced that allows foreign banks to set up branches in Myanmar. This will boost income from financial services. There is room for the further expansion of tourism: The government has extended the seven-day visa to a fourteen-day visa for tourists and a two-month visa for businessmen. At the same time it is expanding, together with foreign investors, infrastructure such as hotels and transportation. Although the balance sheet of receipts and payments from services abroad is not encouraging, the services export sector has much potential in contributing to foreign exchange earnings in the near future once the political situation improves. To sum up, despite efforts to diversify exports, Myanmar's export base has remained unchanged, with rice and timber products accounting for threequarters of total exports from 1985/86 to 1990/91.

3.2. Myanmar's Imports Myanmar's ability to import is dependent on the level of its exports and aid and loans: the more Myanmar exports, the more it is able to import from abroad (Table 3.3). Except for the pre-war period, Myanmar's balance of trade has always been in deficit because imports generally exceed exports. Furthermore, imports and economic performance seem to be mutually dependent: imports declined during the economically stagnant period of the late 1960s and the early 1970s, but expanded again after the early 1970s when Myanmar opened its doors to the outside world and joined the ADB and the World Bank. Again, after 1982/83 when the Myanmar economy was sluggish, exports declined and the government had to take measures to cut imports. Although imports had gradually decreased towards the end of 1985/86, the average annual growth rate of imports from 1977/78 to 1985/86 was a very impressive 15.4 per cent. Economists regard this as a period of recovery after more than a decade of stagnancy. However, the decline in imports took a tum and rose sharply soon after 1985. In fact, imports in value terms started to decline after reaching a peak of K6,314 million (about 15 per cent of GDP) in 1982/83. In 1988/89 growing financial imbalances resulting from political chaos and the West's

34

Chapter 3

embargo on new aid forced Myanmar to abruptly trim its imports by about 50 per cent (about 7 per cent of GDP). The impact of the curb on imports is seen everywhere in the daily life of the people in Myanmar today. The shortage of fuels, raw materials (for example, pharmaceuticals imported from abroad), and spare parts has forced some factories to shut down or to run below capacity. This, compounded with the much reduced import of consumer goods, has in tum created a shortage of consumer goods in the market, with the result that the general price level has increased sharply. (According to the official SMEI, the consumer price index [CPI] for 1990/91 has increased by about 133.73 per cent since 1986. Unofficially, it is estimated that the general price level has shot up by three to four times during the same period.) According to the Burma Trade Guide, over half of Myanmar's imports are financed by foreign aid, grants, and loans (p. 76). The ratio of exports to imports for 1990/91 was 85.5 per cent (Table 3.12). In the early 1980s the total value of foreign loans and grants exceeded US$500 million annually. While purchases financed by bilateral aid are usually tied, a large number of development projects are financed by multilateral institutions, notably the World Bank and the ADB. With regard to bilateral aid, Myanmar's dependence on Japan seems to be on the increase: about 50 per cent of Myanmar's total foreign aid comes from Japan, mostly financing imports. After 1988, because of the West's embargo on new aid and loans, about 83 per cent of Myanmar's imports were financed by exports. 3.2 .1. Structure of Imports There have been at least three major shifts in the composition of Myanmar's imports. Before World War II and during the post-war period up to 1962, consumer goods took up the lion's share in total imports. After 1962, when the Revolutionary Council took over power, imports of consumer goods were drastically reduced and preferences were given to imports of raw materials and intermediate goods (mainly fuel, tools, and spare parts). The import of capital goods was accorded second priority. Then soon after the launching of the TYP, top priority shifted from goods for inter-industry use such as spare parts and raw materials to capital goods. This can be seen in Table 3.11, which shows the structure of Myanmar's imports from 1940/41. The share of consumer goods (about 50 per cent of which consist of medicines and pharmaceuticals, the rest being durable goods, foodstuff, and textiles) was 68 per cent in 1940/41 and 67 per cent in 1960/61, but it declined to 15 per cent in 1970/71, 5.2 per cent in 1980/81, and 6.0 per cent in 1987/88. However, in 1988/89 this share rose to 35.5 per cent. The share of capital goods (mainly machinery and equipment, construction materials, and transport equipment) has increased by about five times from before the war. It grew gradually from 10.6 per cent in 1940/41 to 16 per cent in 1960/61, then increased sharply to 40.8 per cent in 1970/71, to about 54 per cent in 1980/81, and to 64 per cent in

Myanmar's External Trade

35

TABLE3.11 Myanmar: Structure oflmports, by Commodity, 1940/41 to 1989/90 (In percentages) -----

Commodity Type

1940/41 a

1960/61 a

1970/71

1980/81

1989/90

------

Capital goods Raw materials, spares for inter-industry use Consumer goods Others" Total

10.6

16.0

40.8

53.9

31.6

19.5 68.0 1.9

16.7 67.1 0.2

44.1 15.0 0.1

40.2 5.2 0.2

30.2 6.7 31.5'

100.0

100.0

100.0

100.0

100.0

" Classification is different from those of other periods. " 1988/89 data on "Others" include cross-border trade, which consists mainly of consumer goods. ' Including cross-border trade. SouRCE: Ministry of Finance and Planning, Yangon, Report to the People (various issues); Report to the PyithuHluttaw (various issues); Review of Financial, Economic and Social Conditions (1991).

1987/88. The share of raw materials and spare parts for inter-industry use increased gradually from 19.5 per cent in 1940/41 to 44 per cent in 1970/71, and then rose to a peak of 51.6 per cent in 1975/76. But its significance decreased gradually, from 40 per cent in 1980/81 to 23.6 per cent in 1988/89 (see Figure 3.5). However, compared with the pre-war period and post-independence period, its share in Myanmar's imports has doubled. As mentioned above, the worst-hit category was consumer goods, which fell by about eight times from 1960/61. This brought about physical as well as psychological shortages of consumer goods, and consumers resorted to the black market for goods illegally imported across the border from Thailand, Malaysia, Singapore, China, and India. One source estimated that up to four-fifths of consumption needs had to be met through purchases on the black market (Far Eastern Economic Review [FEER], 18 January 1988). This is why the crossborder trade was formalized. Since then, the market is flooded with consumer goods, which in turn has fuelled inflation. A more comprehensive picture, including the structure of smuggled imports is given in Section 3.8. Table 3.11 shows the structure of Myanmar's imports by commodity from 1940/41 to 1989/90 (see also Figure 3.5). It is obvious that the structure of imports has changed with the government's industrialization policy. The shift in the structure of imports in the 1980s is in line with the government's import policy, which the Burma Trade Guide states as follows: Burma has set import guidelines to implement its policy of import substitution and self-reliance. Products which are produced locally and meet domestic

FIGURE 3.5 Myanmar: Structure of Imports, by Commodity, 1980/81 to 1989/90 1980/81

1989/90

r0.2%

D

D

Capital goods Raw materials and spare parts

/

'

EJ /

Consumer goods Others

Myanmar's External Trade

37

requirements are generally not imported. Priority is given to raw materials and equipment for export-oriented industries, and then to industries producing for the domestic market and to the transport sector. Certain essential consumer goods such as edible oils and milk products are imported as required. (p. 76)

3.3. Trade Balance, Terms-of-Trade, and Their Consequences Table 3.3 shows the balance of foreign trade since 1940/41. Myanmar had a trade surplus with the rest of the world during the pre-war and post-war periods up to 1960. Soon after 1960/61, however, the trade balance was reversed and this continued for five years. During the seventeen-year period starting from the first year of the second FYP (that is, from the year 1974/75), the average percentage of exports in relation to imports was about 67.8 per cent. One of the reasons for this unfavourable balance of trade lies in the terms-of-trade (Table 3.12). Since 1974/75 the terms-of-trade have not been in favour of the country, except for 1980/81 and 1981/82, and export earnings were insufficient to finance import requirements. As the ratio of exports to imports averaged about 66 per cent during the period, about 34 per cent of the country's import requirements plus interests and other payments (about 60 per cent in later years) had to be financed by grants and loans. Myanmar's import price index increased faster than its export price index, and the former was generally greater than the latter. The trend is in the opposite direction for the quantity index. This might lead to a continuing deterioration in the country's terms-of-trade and a gradual decline in export earnings, the trade imbalance resulting in an all-time deficit in the balance of payments (Table 3.13). According to official reports, the balance of payments (current account balance) was in deficit of K4,348 million in 1974/ 75, but fell to a deficit of K2,884.2 million in 1990/91, mainly because of a sharper decline in imports. 2 Thura U Tun Tin, a former Deputy Prime Minister, said that arrangements were made to use the general commodity loan to support the deficit in the balance of payments account (Guardian Daily, 15 March 1986). The flow of aid and concessional loans helped to keep the overall balance of payments in surplus until 1980, but since then the government has had to draw substantially on external reserves (Hill 1987, p. 37). The total outstanding debt as of March 1990 was US$5.238 billion (Review 1991). This increased the debt service ratio from 16.1 per cent in 1974/75 to 27.8 per cent in 1989/90 (Review 1991), compared with the ADB's estimate of 50 per cent (Asian Development Outlook 1990), and the ratio of external debt to GDP (at constant price) rose to about 71 per cent in 1988/89 from 30 per cent in 1981/82. Furthermore, the deteriorating balance of payments situation resulted in a sharp drop in international reserves from about Kl,078.2 million in 1974/75 to K310.1 million at the end of March 1987 although it increased thereafter to K2,340.4 million in 1990/91 (Table 3.13). The ratio of foreign exchange reserves to imports fell from a record high of 106.1 per cent in 1974/75 to 7.8 per cent

Chapter 3

38 TABLE 3.12 Myanmar: Terms of Trade, 1940/41 to 1988/89 ( 1969/70 = 100) Export

Import

Year

Price Index

Quantity Index

Price Index

Quantity Index

1940/41 1947/48 1960/61 1970/71 1974/75 1975/76 1976/77 1977/78 1978/79 1979/80 1980/81 1981/82 1982/83 1983/84 1984/85 1985/86 1986/87 1987/88 1988/89 1989/90 1990/91

19.7 95.1 93.3 92.5 306.1 296.7 307.9 335.0 362.0 389.8 452.5 489.9 397.2 400.8 418.5 361.7 294.1 246.5 301.9 367.2 427.0

683.1 193.3 264.1 118.5 75.6 79.5 85.5 93.3 78.7 119.4 133.3 128.0 128.2 152.7 126.5 118.3 126.6 40.7 54.9 200.2 190.2

38.2 115.1 84.7 107.9 269.1 317.7 368.1 380.6 416.0 421.4 434.4 158.2 460.4 463.2 466.6 469.0 471.6 485.9 526.2 394.1 379.8

100.0 63.9 157.9 77.5 47.9 53.7 62.6 97.7 76.0 94.8 106.0 113.3 110.5 96.9 119.2 106.9 89.4 89.6 54.3 179.9 n.a.

Terms of Trade

Ratio of Exports to Imports

(%)

(%)

51.7 82.4 110.1 85.7 113.7 93.4 83.6 88.0 87.0 92.5 104.2 106.7 86.3 86.5 89.7 77.1 63.2 50.7 57.3 74.0 89.4

180.1 127.1 93.9 69.4 91.1 91.6 74.9 105.4 84.2 57.5 62.6 69.6 61.5 48.1 65.8 61.3 64.2 41.3 63.7 81.4 85.5

n.a. = Not available. SouRCE: Report to the Pyithu Hluttaw ( 1987); Review of Financial, Economic and Social Conditions (I 991 ).

in 1986/87, and then grew to 74.4 per cent in 1990/91. The foreign exchange reserves of US$33.1 million in 1986 is equal to about the value of one month's imports at current prices.

3.4. Direction of Foreign Trade Myanmar's main trading partners are other Asian countries and they are likely to remain so in the foreseeable future as they had been for many centuries. Before World War II, the volume of trade between Myanmar and its Asian partners accounted for 80 per cent of its total foreign trade, this being the result of trade ties existing under the international division of labour prevailing during the colonial days when Myanmar exported rice to other British colonies in Asia.

39

Myanmar's External Trade

TABLE 3.13 Myanmar: Current Account Balance and Foreign Exchange Reserves, 1974/75 to 1988/89 (In million kyats)

Year 1974/75 1975/76 1976/77 1977/78 1978/79 1979/80 1980/81 1981/82 1982/83 1983/84 1984/85 1985/86 1986/87 1987/88 1988/89 1989/90 1990/91

Current Account Balance

Foreign Exchange Reserves (FERs)*

Ratio of FERs to Imports

-4,348 -3,352 -4,130 -13,327 -23,316 -17,533 -15,353 -2,713 -4,247 -18 -1,917 -2,396 -1,809 -1,783 -1,077 -153 -2,884

1,078.2 893.3 759.0 869.6 860.1 1,676.5 1,894.7 1,586.5 622.6 874.1 489.0 430.3 346.6 490.6 780.2 2,993.5 2,340.4

106.1 61.9 46.6 41.7 26.7 38.9 40.9 28.3 9.9 16.8 9.4 9.0 8.8 12.1 22.7 88.2 74.4

* Year ending in March. SouRcE: Report to the Pyithu Hluttaw (various issues); Review of Financial, Economic and Social Conditions (1991).

Even after the war, the share of Myanmar's trade with its regional trading partners continues to vary between 60 and 70 per cent (Figures 3.6 and 3.7). Myanmar's main trading partner used to be India, whose trade with Myanmar accounted for more than half of Myanmar's foreign trade before World War II. In recent years, Japan has replaced India as Myanmar's major trading partner, accounting for about a quarter of Myanmar's foreign trade. Myanmar's exports to India declined drastically from 51.5 per cent in 1940/41 to 14.4 per cent in 1989/90, and Myanmar's imports from India also decreased, from 63.5 per cent in 1940/41 to 1.4 per cent in 1989/90 (Tables 3.14 and 3.15). This is because Myanmar no longer imports jute and textile products now that these are produced domestically. Myanmar's imports from Japan, however, increased gradually from 7 per cent before the war to 50.4 per cent in 1988/89 (but fell to 28.8 per cent in 1989/90 because of the West's embargo on new aid and loans after 1988), financed mainly by Japanese aid and loans, although its exports increased only marginally, from about 10 per cent to 10.6 per cent during the same period. Perhaps this explains why Myanmar officials told fifty-five

FIGURE 3.6 Myanmar: Export Composition, by Group of Countries, 1980/81 to 1988/89

70

60

~

1980/81

~

1988/89

50

Q)

40

Cl