Economic Development of Myanmar 9789812305251

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Reproduced from Economic Development of Myanmar by Myat Thein (Singapore: Institute of Southeast Asian Studies, 2004). This version was obtained electronically direct from the publisher on condition that copyright is not infringed. No part of this publication may be reproduced without the prior permission of the Institute of Southeast Asian Studies. Individual articles are available at < http://bookshop.iseas.edu.sg >

1. Chronology of Developments in the Political Economy of Myanmar

© 2004 Institute of Southeast Asian Studies, Singapore

i

ii

U Tun Wai

The Institute of Southeast Asian Studies (ISEAS) 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 issues and challenges of stability and security, economic development, and political and social change. The Institute’s research programmes are Regional Economic Studies (RES, including ASEAN and APEC), Regional Strategic and Political Studies (RSPS), and Regional Social and Cultural Studies (RSCS). 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. An Executive Committee oversees its day-to-day operations; it is chaired by the Director, the Institute’s chief academic and administrative officer.

© 2004 Institute of Southeast Asian Studies, Singapore

iii

1. Chronology of Developments in the Political Economy of Myanmar

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© 2004 Institute of Southeast Asian Studies, Singapore

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U Tun Wai

First published in Singapore in 2004 by Institute of Southeast Asian Studies 30 Heng Mui Keng Terrace Pasir Panjang Singapore 119614 E-mail: [email protected] http://bookshop.iseas.edu.sg All rights reserved. No part of this publication may be reproduced, translated, 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. © 2004 Institute of Southeast Asian Studies, Singapore 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. ISEAS Library Cataloguing-in-Publication Data Myat Thein. Economic development of Myanmar. 1. Burma—Economic conditions—19482. Burma—Economic policy—1988I. Title. HC422 M992 2004

sls2003009201

ISBN 981-230-211-5 (soft cover)

Typeset by International Typesetters Pte. Ltd. Printed in Singapore by Seng Lee Press Pte. Ltd.

© 2004 Institute of Southeast Asian Studies, Singapore

v

Acknowledgements

This book is dedicated to my father

Contents

List of Tables List of Figures Preface Acknowledgements 1 Chronology of Developments in the Political Economy of Myanmar: An Overview

vii

viii xii xiv xvii 1

2 Parliamentary Democracy Period: 1948–62

14

3 Socialist Period under Military Rule, 1962–88: Macroeconomic and External Sector Performance

51

4 Socialist Period under Military Rule, 1962–88: Sectoral and Social Developments

85

5 Market-Oriented Period under Military Rule since 1988: Macroeconomic and External Sector Performance

121

6 Market-Oriented Period under Military Rule, 1988–2000: Sectoral and Social Developments

175

7 Epilogue

235

Appendix Bibliography Index of Names Index of Topics About the author

245 266 278 280 289

viii

1.1

2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 2.10 2.11 2.12 2.13 2.14 2.15 2.16 2.17 2.18

List of Tables

Chronology of Developments in the Political Economy of Myanmar GDP, Per Capita GDP, and Per Capita Consumption, 1938–62 GDP by Sector, 1938–61 Annual Average Performance of the Eight-Year Plan and the First Four-Year Plan Allocation of Investment in the Public Sector in the Eight-Year Plan and First Four-Year Plan Money, Quasi-Money, Credit, and Prices, 1938–62 Central Government Budget, 1938–62 External Trade, 1938–62 Composition of Exports, 1938–62 GDP by Sector, 1952–62 Sown Acreage of Some Major Crops, 1936–61 Agricultural Production, 1936–61 Paddy Output, Domestic Consumption, and Export, 1937–59 Production of Teak and Hardwood, 1936–61 Production and Oil Import in 1954 Rate of Growth of the Industrial Sector, 1946–62 Real GDP and Per Capita GDP, 1938–67 Government Outlay on Education by Selected Countries, 1951–59 Number of Schools and Students, 1945–61

7

17 19 22 23 26 29 30 31 31 34 35 36 38 39 42 46 47 48

List of Tables

3.1 3.2 3.3 3.4 4.1a 4.1b 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 4.10 4.11 4.12 4.13 4.14 4.15 4.16 4.17 4.18 5.1

Annual Average Growth of GDP, Investment, and Savings, 1962–88 Public Investment, by Sector, 1962–89 Money, Quasi-Money, Credit, and Prices, 1962–88 Exports, Imports, and the Balance of Trade, 1961–89 Industry’s Share of GDP Declines: Structural Change of GDP in Myanmar, 1962–90 Sectoral Share of GDP in Selected Countries of Asia, 1970–90 Prices of Paddy/Rice, 1962–88 Contribution of the Increase in Area and Yield to the Growth of Paddy Production, 1960–90 Agricultural Production, 1962–88 Sown Acreage of Some Major Crops, 1962–88 Total Sown Acreage and Irrigated Area, 1940–88 Utilization of Inputs in Agriculture, 1961–88 Marketable Surplus Situation of Rice, 1961–88 Breeding of Livestock, 1961–88 Production of Selected Minerals, 1962–88 Growth of the Manufacturing Sector, 1962–88 Relative Value of Production of Commodity Groups in the Manufacturing Sector, 1961–92 Capacity Utilization Rates of State-Owned Industries, by Industrial Branch, 1985–89 Basic Infrastructure Indicators, 1980–90 Social Sector Indicators in Myanmar and Other Countries, 1960–80 Trends in Key Human Development Indicators, 1961–86 Military Expenditure as a Percentage of Combined Education and Health Expenditure, 1960–90 Health Facilities and Personnel, 1959–88 GDP, Per Capita GDP, and Per Capita Consumption, 1985–2000

ix

55 61 69 75

87 87 92 94 95 96 96 97 97 99 103 106 107 108 111 113 114 118 119

127

x

5.2 5.3 5.4 5.5 5.6

5.7 5.8a 5.8b 5.9 5.10 5.11 6.1 6.2

6.3 6.4 6.5 6.6 6.7 6.8 6.9 6.10 6.11

List of Tables

Growth of GDP, Savings, and Investment, 1989–2000 Public Investment by Sector, 1990–2000 Myanmar Private Banks, Deposits and Loans, 1993–99 Money Supply in Million Kyat and as a Percentage of GDP, 1987–97 Revenues and Expenditures Fall, Deficits Persist: Changes in Government Revenue and Expenditure, 1987–2000 Budget Deficit, Money Supply, CPI, and Market Rate of US$, 1987–2000 Civil Service Pay Scale, 1986, 1998, 2000 Remuneration of Private Bank Employees, 2000 Exports, Imports, and the Balance of Trade, 1987–2000 Foreign Direct Investment, by Sector, 1996–2000 Foreign Investment, by Country, 1996–2000 Industry’s Share of GDP Declines: Structural Change of GDP, 1980–2000 Contribution of the Increase in Area and Yield to the Growth of Paddy Production in Myanmar, 1975–2000 Agricultural Production, 1985–2000 Sown Acreage of Some Major Crops, 1985–2000 Construction of Dams and Reservoirs and Effective Irrigated Areas, 1999–2000 Distribution of Farm Machinery, 1994–99 Breeding of Livestock, 1988–2000 Production of Selected Minerals, 1988–2000 Growth of the Manufacturing Sector, 1988–2000 Changes in the Structure of Ownership in the Manufacturing Sector, 1986–2001 Relative Importance of Commodity Groups in the Manufacturing Sector, 1981–99

131 134 138 140

145 149 152 152 156 164 165

179

182 183 184 187 188 192 198 202 202 204

List of Tables

6.12 6.13 6.14 6.15 6.16 6.17 6.18

Contribution of the Manufacturing Sector to GDP and Employment, 1989–99 Electric Power Installation, Generation, and Consumption, 1989–99 Human Development Index in ASEAN Selected Social Indicators Changes in Average Per Capita Nutrition Levels, 1988–96 Changes in Public Expenditure on Education and Health, 1995–99 Health Facilities and Personnel, 1988–99

xi

206 209 212 213 214 217 223

xii

2.1 2.2 2.3 2.4

3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 4.1 4.2 4.3 4.4

5.1 5.2 5.3

List of Figures

Real GDP Per Capita, 1947–62 Investment and Savings Remain Stunted, 1938–62 Cost of Living Index for a Burmese Family of Three in Rangoon, 1949–60 Industry’s Share of GDP Grows: Structural Change of GDP, 1952–62 Investment and Savings, 1961–98 Contrasting Experience of Myanmar and the HPAEs Trends in Economic Performance, 1962–88 Revenues and Expenditures Decline: Revenue, Expenditure, and Budget Surplus/Deficit, 1961–88 Exports, Imports, and Balance of Trade, 1961–88 Trade Performance as a Percentage of GDP, 1961–88 Structure of Exports, 1960–91 Structure of Imports, 1960–90

18 24 27 32 57 59 69 72 76 77 78 78

Number of Households, by Farm Size, 1971–88 Growth Rate of Real GDP and Agriculture, 1965–88 Production of Fish and Prawns, by Nature of Catch, 1971/72 and 1987/88 Extraction of Forest Products, 1961/62 and 1987/88

89 94

101

Savings and Investment Remain Low and Stunted: Growth of GDP, Savings, and Investment, 1988–99 Growth of Real GDP and Agriculture, 1989–2000 Inflation in Myanmar and East Asia, 1988–99

132 132 150

99

List of Figures

5.4 5.5

5.6 5.7 5.8 5.9 5.10 5.11 6.1 6.2 6.3 6.4 6.5

CPI, Food, and Salary, 1989–2000 Downhill Trend in External Trade Continues: Export and Import as a Percentage of GDP, 1988–2000 Structure of Myanmar’s Export, by Type of Commodity, 1985–2000 Structure of Myanmar’s Import, by Type of Commodity, 1985–2000 Exports of Myanmar, by Country, 1990–2000 Imports from ASEAN Continue to Increase: Imports of Myanmar, by Country, 1990–2000 Economies in Transition Macroeconomic Performance Area Classified by Type of Land and Area Sown, by Type of Planting Classification, 1994–2000 Production of Fish and Prawns, by Nature of Catch, 1999/2000 and 1988/89 Extraction of Forest Products, 1988/89 and 1999/2000 Deficits of the SEEs and State Administrative Organizations, 1989–99 Education and Health Expenditures Fall: Expenditure Allocations to Social Sectors, 1987–99

xiii

153

157 159 160 161 161 168 170

184 193 194 206 224

xiv

Preface

Myanmar (formerly known as Burma) has been isolated from the world since 1962 when the military took over civil power for the second time. Soon after the military coup, an inward-looking selfreliant policy of isolation in the form of “The Burmese Way to Socialism” was declared as the official policy and guideline for the future development of the nation. Under the Burmese Way to Socialism, all the enterprises in foreign trade, domestic wholesale and even retail trade, banks, industries, forestry, fishery, mining, as well as hospitals and schools were nationalized. Moreover, the medium of instruction in schools and universities was changed, almost overnight, from English to Burmese in 1964. University staff members were asked to write textbooks in Burmese. As a result, some compulsory textbooks in Burmese were published during the 1970s. Most of them were translated from old textbooks in English. This meant that most of them were out of date, especially in the field of social science. Besides, there were never enough books due both to lack of competent staff as well as incentives. Then in 1981, English was again introduced as the medium of instruction at the tertiary education level. By then the economy was facing a severe shortage of foreign exchange. Consequently, university libraries were unable to buy sufficient number of textbooks, references, and journals in the English language. At the same time, a large number of competent and foreign-trained university staff skilled in the English language had left the country as they could no longer make a decent living as a university teacher. Simultaneously, promising university teachers were not permitted to go abroad for their doctorate degrees. This meant that there was

Preface

xv

neither enough foreign exchange to buy books nor enough competent staff to write or translate them into the English language. In my personal opinion, the lack of books on the post-war economy of Myanmar in the English language is particularly acute. To date, there is not a single textbook on the economic development of Myanmar whose content encompasses the entire post-war period from 1948 to 2000. There is thus a great need for such a publication. Nevertheless, it is with some trepidation that I undertook this project. First of all, while it is true that there is as yet not a single study on the economic development of Myanmar covering the entire post-war period, there are a number of excellent studies by eminent Myanmar economists as well as Burma scholars from abroad that cover different periods and/or various aspects of development. Thus, even if the only contribution that I can hope to make is to, as it were, bring them together under one roof there is still the question of whether justice can be done in recasting bits and pieces of their works according to my own understanding. In this regard, it needs to be emphasized that my main contribution is one of assemblage and structuring around a central theme — the economic development of Myanmar — and that most of the material in this study has been presented in more or less appreciative and/or critical tone in one form or another. Thus, the development process in Myanmar recounted in this book is neither of my making nor to my liking, but what I am offering is the reality as it appears to me. Secondly, although I try to be as objective as possible, there is always a nagging thought (doubt) as to whether the Myanmar intelligentsia and especially people in the administrative hierarchy will believe the sincerity of my purpose and see things in the correct light. In this connection, I would like to plead to everyone to see history the way Susanto Zuhdi, the director of history at the Ministry of National Education of Indonesia, saw it. Referring to the previous regime, when history books were written mainly to serve the interests of rulers, he said, “This is dangerous. A state should not restrain the writing of history. We want to encourage people to write their version of history.” He added further that “History is no longer

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Preface

about a justification of facts. It should generate dialogue to allow different interpretations. We want to educate the public that different versions of history are normal” (Nation [Bangkok], 27 October 2001). Thirdly, in trying to present the past I do not know if I can persuade people from all walks of life to overcome at least some of their prejudices and biases so that they may come to see the reality in Myanmar as objectively as possible. It is not the intention of this book to give an exhaustive historical account and an analysis of post-war economic development in Myanmar since 1948. The intention, rather, is to consider the broad range of factors that have affected major developments and the economic growth of the country at different periods in its history, and the policies and measures adopted by various governments to tackle them. I have also tried to present the major developments in Myanmar between 1948 and 2000 simply and clearly. Last but not least, a few words need to be said about the limitations and constraints of this study. I strongly feel that a fullfledged holistic approach is required for a well-rounded account of developments over the past fifty years or more. However, because I lack expertise in subjects other than economics, a holistic approach could only be taken in a very limited manner. This is the first limitation. The second limitation concerns the paucity, reliability, and accessibility of data on Myanmar’s economy, a limitation componded by the fact that a major part of this study was undertaken during my brief sojourn in Bangkok. This explains why, for the comparative analysis of development trends, in some instances an approximate year or period is used instead of specific ones. In spite of all the limitations mentioned above, it is hoped that students, academics, businessmen, and especially policy-makers will find the present book useful.

Myat Thein 1 October 2001

Acknowledgements

xvii

First and foremost, I would like to thank my friends Dr Mya Than and Dr Lau Sim Yee for entrusting me with the present task of writing a book on the economic development of Myanmar. In fact, it was their idea that one of the projects that could most benefit Myanmar was a project on “the compilation of economics textbooks on Myanmar”. It was their efforts to secure the needed funding and support from the Sasakawa Peace Foundation that has made the present endeavour possible. I would like to thank the the Sasakawa Peace Foundation for the needed funding and support. Thanks are also due to Dr Pranee Thiparat and the staff of the Institute of Security and International Studies (ISIS), Faculty of Political Science, Chulalongkorn University for their warm hospitality and the use of their facilities. Friends and relatives have read various parts and versions of the draft manuscript, and I gratefully acknowledge comments from U Maung Maung Sein, U Thet Tun, U Tin Kyaw Hlaing, and Seiichi Masuyama. The active support from my friends and former colleagues, too numerous to mention by name, in the preparation of this manuscript is gratefully acknowledged. Last but not least, I wish to express my gratitude and appreciation to my wife, Daw Nyunt Nyunt Yin, for her full support, encouragement, and restraining influence. Myat Thein

Reproduced from Economic Development of Myanmar by Myat Thein (Singapore: Institute of Southeast Asian Studies, 2004). This version was obtained electronically direct from the publisher on condition that copyright is not infringed. No part of this publication may be reproduced without the prior permission of the Institute of Southeast Asian Studies. Individual articles are available at < http://bookshop.iseas.edu.sg >

Chronology of Developments in the Political Economy of Myanmar

1

“It is only by understanding the past that we can plan better for the future economic development of Burma”. U Tun Wai, Economic Development of Burma: From 1800 to 1940

A. Background

Myanmar is the largest country in mainland Southeast Asia, stretching over 2,000 km from north to south. It has a total land area of 676,577 sq. km (261,228 sq. miles). It shares a total of 5,858 km of international borders with five nations — China, Laos, Thailand, India, and Bangladesh — and has over 2,800 km of coastline. It is twice the size of Vietnam and more than a quarter larger than Thailand. There are three forest-covered mountain ranges running from north to south — the Rakhine Yoma, the Bago Yoma, and the Shan Plateau. These mountain chains divide the country into three major river systems — the Ayeyarwady, the Sittang, and the Thanlwin. Fertile cultivable lands exist mainly along the valleys between the mountain chains and the delta of the Ayeyarwady, an area of 240 km by 210 km. Although Myanmar is situated in the monsoon region of Asia, its climate is greatly modified by its geographical position and

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topography. Droughts or floods are rare and incidences of natural hazards such as cyclones and earthquakes are few and far between. The coastal regions receive about 5,000 mm of rain annually, while the delta region receives nearly 2,500 mm of rain annually. In the Dry Zone, the average rainfall is less than 1,000 mm and in some places as low as 500 mm, resulting in significant soil moisture deficiency throughout those areas. The mean temperature ranges from 32oC in the coastal and the delta areas to 21oC in the northern lowlands. Myanmar is basically an agricultural country. And for an agricultural country like Myanmar, which relies rather heavily on the monsoon rains, climatic changes and the economic environment affecting agriculture can impact the economy significantly. The agriculture sector accounts for over 40 per cent of gross domestic product (GDP) and provides employment to about 65 per cent of the labour force. Moreover, as much as two-thirds of the processing and manufacturing sector is agro-based and exports are dominated by agricultural products. The total population of Myanmar was estimated at 50.13 million in 2000. This population comprises many races — some 130 ethnic groups spreading over fourteen states and divisions. The majority of Myanmar’s people are Bamars (from which the British coined the name Burma), but the Shan, Kachin, Kayin, Mon, Rakhine, and others also constitute a significant proportion of the total population. Prior to World War II in the late 1930s and early 1940s, Myanmar was a leading regional economy and a leading exporter of paddy/ rice in the world. However, in the plural economy of Myanmar under British colonial rule, indigenous Burmese benefited very little from the profits of the development of Burma’s rice industry. Except in the smaller sectors like labour and government services, where the Burman was playing an increasing role in the economic life of his country, in the larger economic sectors the Burman still took a back seat. Myanmar’s economy was greatly devastated during World War II. Much of the country’s infrastructure was destroyed by the scorched-earth policies of the British (when the Japanese invaded

© 2004 Institute of Southeast Asian Studies, Singapore

Chronology of Developments in the Political Economy of Myanmar

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the country in 1942) and the Japanese (when the Allied forces reoccupied the country in 1944/45). It is estimated that approximately half of Myanmar’s national capital was destroyed during the war. Furthermore, almost half of the cultivable land became uncultivable as the disruption of export routes during the war forced farmers to abandon cultivating them, and this led to a drastic decline in production. By 4 January 1948 Myanmar gained independence. B. Chronology

It has become common to describe Myanmar’s post-war history of economic development in three chronological segments of its political economy: • • •

Parliamentary democracy period: 1948–62; Socialist period under military rule: 1962–88; Market-oriented period under military rule: 1988 to the present.

On gaining independence, a country-wide insurrection broke out in the form of multiple political and ethnic rebellions. Thus, the civilian government under the leadership of Prime Minister U Nu had to contend with this insurgency problem before turning to the task of rebuilding the nation along democratic lines as outlined in the constitution of 1947. Given the bitter experiences under colonial rule, where the Burman was relegated to the lowest rung of the economic ladder, what emerged in the years that followed was a strange mixture of nationalism, socialism, and the market system. First, coupled with the nationalization of agricultural land and redistribution to the cultivators, the government took over the rice trade, which was previously monopolized by foreign firms. Secondly, this was followed by the nationalization of the timber industry, which was also previously under the monopoly of foreign firms. Then the nationalization of the Irrawaddy (Ayerwaddy) Flotilla Company owned by foreigners, and finally, the reorganization of the Burma Corporation and the Burma Oil Company into joint ventures were carried out. At the same time, the government also earmarked certain basic industries to be developed on a stateowned basis. On the other hand, the government allowed some

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room for private sector participation and the operation of the market mechanism in many spheres of economic activities, including foreign trade. Just as the economy may have picked up momentum for further development, the ruling Anti-Fascist Peoples’ Freedom League (AFPFL) party split into factions in 1958. This led to political instability and the demands for more autonomy and power-sharing by some of the ethnic groups in return for surrendering their rights to secede from the Union as provided by the 1947 Constitution.1 Having tasted political power during the “caretaker period” (1958–60), and having gained some experience in the administration of the country during that time, the Myanmar army confidently took over political power through a military coup in 1962. The reasons given for the military takeover were that the Union was in danger of disintegrating and also because the political regime of the civilian government was thought to have strayed away from the socialist path laid down by the nation’s founder, General Aung San. Soon after the military coup, the “Revolutionary Council” headed by General Ne Win was formed, and cabinet posts were distributed amongst hand-picked high-ranking military officers. An inward-looking self-reliant policy of isolation in the form of “The Burmese Way to Socialism” was declared as the official policy and guideline for future development of the nation. This could be due to xenophobia on the part of the military leadership as some have alleged, but it could also be due to the fact that General Ne Win felt that he could more easily dominate the more socialistic (but less smart and less independent-minded) faction of high-ranking military officers who were in the majority.2 At any rate, under the Burmese Way to Socialism, all the enterprises in foreign trade, domestic wholesale and even retail trade, banks, industries, forestry, fishery, mining, as well as hospitals and schools were nationalized. Where nationalization was not required, as in agriculture, cultivators were subjected to a battery of physical and price controls. They not only had to cultivate planned crops in the areas designated by the government, but also had to sell them

© 2004 Institute of Southeast Asian Studies, Singapore

Chronology of Developments in the Political Economy of Myanmar

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to the state at prices fixed by the government, which were below market rates. In addition, foreign loans and grants were viewed with great suspicion and mostly rejected. Above all, what remained of the capable Civil Service nurtured by the British during colonial rule was effectively destroyed when they were replaced by military personnel trusted by General Ne Win. What emerged was an extremely socialistic and control-oriented command economy under military rule. To be sure, worsening economic situation led to some softening in this policy stance in the mid-1970s after the introduction of the 1974 bicameral constitution. For example, loans from international donors and agencies, including official development assistance (ODA) loans, were welcomed back after being shunned for more than a decade, and the state-owned economic enterprises (SEEs) were made to operate along commercial guidelines so as to improve their efficiency. More importantly, efforts to boost agricultural production by raising productivity through a “Green Revolution” using high-yielding variety (HYV) seeds and chemical fertilizers began to pay off. As a result, the performance of the economy improved for a time, but could not be sustained, as there was no real change in the basic policy stance of favouring state-led industrial development over that of agriculture or in the way the economy was managed or mismanaged. Consequently, the dismal failure of state-led (import-dependent) import-substituting industrialization continued to drag the whole economy down with its insatiable need for foreign exchange to import raw materials and spare parts, while too much intervention in the agriculture sector stunted agricultural growth, and prevented exports from rising significantly. Moreover, as will be explained in detail in later sections, a lack of fiscal prudence and sound macroeconomic environment continue to plague the economy. In the mid-1980s, the government tried to contain the deteriorating situation by cutting down imports and public investment while at the same time printing money to finance the budget deficit. The first two measures slowed growth whereas the third caused inflation to escalate. This in turn led the government

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to the demonetization of the kyat in 1985 and 1987 and the eventual collapse of the socialist regime in 1988. In September 1988 a new military group — the State Law and Order Restoration Council (SLORC) — took over civil power as a self-declared caretaker government. In November the Foreign Investment Law was introduced along with the removal of restrictions on private sector participation in domestic and foreign trade. However, the market-oriented economic policy was officially adopted only in March 1989 when the 1965 “Law of Establishment of the Socialist Economic System” was revoked. Many of the economic reform measures introduced during the first half of the 1990s immediately bore fruit. Participation of the private sector in the economy (in terms of the value-added contribution to GDP) increased from 68.6 per cent in 1991/92 to 76.4 per cent in 1997/98. This development, along with the impressive growth of the agriculture sector, had led to a real GDP growth of over 7 per cent per annum during the period 1992/93 to 1996/97. However, as in the past the brief spurt in growth from 1992 did not appear to be sustainable. For one thing, the Asian Currency Crisis of mid-1997 had some negative impact on Myanmar’s economy although not as much as it did to other economies in the region. But more importantly, Myanmar seems to have veered off course in recent years from the road to a market-oriented economy.3 Some may even see Myanmar as close to taking a “U” turn back to the command economy. For instance, since the SLORC changed its name to the State Peace and Development Council (SPDC) in November 1997, government intervention in the market has increased. This has taken on many forms. In foreign trade it has taken the form of export taxes and controls on the type of goods to be imported. In the application for permits to conduct business, some companies, such as Myanmar Economic Corporation (MEC) and Myanmar Economic Holdings Ltd. (MEHL), are treated more favourably than others.4 The government’s commitment towards the establishment of a level playing field that is so necessary for the proper evolution of a market-oriented economy has thus become

© 2004 Institute of Southeast Asian Studies, Singapore

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Table 1.1 Chronology of Developments in the Political Economy of Myanmar Period 1. 1948–62

Political System Parliamentary democracy (AFPFL)

(1958–60)

Military caretaker government

2. March 1962 to 1988 (1962–74)

Socialist, military

(1974–88)

3. September 1988 to the present

Revolutionary Council of the military Burmese way to socialism under military rule; oneparty system (BSPP) Military rule (SLORC/SPDC)

Economic System A mix of nationalism, socialism, and market system Same as above

Nationalization and Burmanization Command economy, Self-reliance isolation Same as above except for re-acceptance of ODA loans and partial reforms Transition towards a market-oriented economy in the first half of the 1990s

Source: Based on Mya Than and Tan (1990).

highly questionable.5 Also, not only has the privatization process been slowed down or stopped, but the Ministry of Industry No. 1 is in fact implementing over seventy new industrial projects all over the country. But only a handful of people, if any, will know why they can expect state-led industrialization under military rule to succeed this time around after it had failed miserably in the past. This is incomprehensible. A brief chronology of developments in the political economy of Myanmar is summarized in Table 1.1. C. Prologue

While there are differences in the political economy of different periods, there are also important similarities to be noted. For instance, during the period of parliamentary democracy the Parliament would meet for only two months out of the entire year, leaving the Prime Minister to exercise his authority during

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the rest of the year. Thus, the Prime Minister of the civilian government could in practice be as authoritarian as the Head of the “Revolutionary Council” military government. Then again, if the economic policy of the civilian government is seen as a reaction against the colonial pattern of development, what followed under the military government can be regarded as a more severe form of reaction against that same pattern or a total rejection of it. It is tempting to liken the present SLORC/SPDC government with the civilian government under U Nu in so far as both the governments have explicitly permitted some degree of private sector participation in economic activities. The search for similarities should not be carried too far, however. For instance, the present military regime’s economic vision is much more akin to that of its predecessor in the sense that both are very much control-oriented command economies. Differences in political economies are important. But one needs to be cautious when interpreting how such differences can impact on the performance of an economy. For instance, at a superficial level, South Korea, after President Park Chung Hee took power through a military coup in 1961, was apparently a military dictatorship like any other in the world. Yet, it was able to achieve the “take-off” into sustained economic growth while other military dictatorships were stagnating. Likewise, Indonesia under President Soeharto was able to achieve remarkable economic progress. Then again, many have regarded the democratically elected Prime Minister Lee Kuan Yew of Singapore as dictatorial or authoritarian. But Singapore is well known to be a success story. At the same time, we should note that semi-democratic regimes such as Singapore and Malaysia were more successful economically than the relatively more democratic regimes such as post-Soeharto Indonesia, the Philippines, and Thailand. On the other hand, all these fragile democracies were clearly more successful than the non-democratic or authoritarian regimes such as Myanmar, Laos, and Vietnam. Was it the quality of leadership or was it something else that made a difference to the economic performance of nations with seemingly similar or dissimilar political structures?

© 2004 Institute of Southeast Asian Studies, Singapore

Chronology of Developments in the Political Economy of Myanmar

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One plausible explanation as to why some authoritarian regimes have succeeded while others have not is that the latter have been unable to achieve the social cohesion and genuine political stability necessary for sustained economic growth. When such a regime is unable to quell internal dissidence and is politically insecure, it becomes even more repressive and is perpetually forced to take half measures or partial policy reform with a short-term horizon for its immediate survival rather than with a view for longterm development. Economic hardships and the uncertainty of its economic future would destabilize the domestic political situation, thereby further alienating the rulers from the ruled. This alienation would prevent a regime from achieving sustained growth, which would be necessary for attaining some measure of legitimacy, national consensus, and social harmony. Such a state of affairs is clearly a vicious cycle, and, as some scholars have observed, “the outcome can be a cycle of policy deterioration, economic crisis, temporary or partial policy reform, recovery, and relapse” (Haggard and Webb 1993). In contrast, economically successful authoritarian regimes have been able to break out of this vicious cycle simply because they are able to sustain high growth for at least one or two decades and also because that success is more or less equally shared by all its citizens. In other words, such regimes are able to achieve a measure of political legitimacy based upon an implicit social contract by which they have obtained the support of the general public in exchange for a steadily growing prosperity. Unlike the earlier situation, this is a virtuous cycle. For example, it is said that in Korea the basis for general consensus has been economic development and it is this that has been the common thread binding its people and interest groups. When President Park Chung Hee took power by way of a military coup in 1961, he was said to have enshrined economic growth near the top of the regime’s value hierarchy. But that still begs the question of how they came to enjoy such tremendous economic performance. From a purely economic point of view, choice of the “right” strategy would seem to be important. In this connection, Professor Hla Myint, a Burmese economist at the London School of

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Chapter 1

Economics, was one of the very first persons to draw attention to the emerging trends in Asia in the mid-1960s between highgrowth economies and low-growth ones (Hla Myint 1965). In particular, he made a comparison between the high-performing, outward-looking Southeast Asian countries such as Thailand and Malaysia and low-performing, inward-looking countries such as Myanmar and Indonesia. As is now well known, all the economically successful Asian countries, including their predecessors, the newly industrializing economies (NIEs), share the important common feature of having outward-looking strategies of development. That in turn implies reliance on free market and liberal economic policies. But is that all? No strategy, however “right”, can be right for all times. For instance, the international political and economic environment at that time had also worked to the benefit of the NIEs of Asia. As observed by John Wong, “The NIEs happened to be on the right side of the cold war. Hong Kong and Singapore developed under the U.S. security umbrella with little or no diversion of resources to military spending. South Korea and Taiwan were actually recipients of generous American economic aid, which was used to fill their resource gaps in their early phase of industrialization” (John Wong 1994). Even the timing for the industrial take-off of the NIEs was quite perfect. They mounted their export drives in the late 1960s and early 1970s, when the international economic environment was most conducive to the export-led type of economic growth in terms of the free flow of capital and technology, and easy access to markets of the developed countries. Apart from the above, experiences of economically successful Asian countries in the last forty years or so have also brought to the fore certain other common factors or “development fundamentals” (Ng and Sudo 1991) that are necessary for sustained economic growth: •

Political commitment to development (that is, primacy of economics over politics);

© 2004 Institute of Southeast Asian Studies, Singapore

Chronology of Developments in the Political Economy of Myanmar

•

•

•

• •

11

Good governance, good public administration practising fiscal prudence and establishing conditions (such as legal framework that protects property, enforces contracts) needed to stimulate private initiatives; Continuous investments in both physical and social infrastructures, such as telecommunications, transportation, research and development, education, technical and management training and retraining, and so forth; Consistency of policies, such as freedom from sudden or arbitrary changes in tax system and other forms of intervention that make profit uncertain or precarious; A relatively independent central bank to check excesses and ensure rational monetary policies; Competent leadership with good character.

The implication of the above is clear. Sound economic development cannot depend solely on markets or solely on government. Both effective market incentives and social programmes supporting health, education, infrastructure, and so on are usually required. It may surprise some that in the post “Asian Miracle” period there has emerged a call for enhancing governance in these highperforming Asian economies (HPAEs) noted for their “good governance”.6 Does this mean that a reform in the system of governance is needed in the HPAEs in this heightened era of globalization which is transforming states, markets, and social values? Whatever may be the case, the point being made here is that the process of economic change is indeed very complex. And given the complexity of the process of economic change, a handful of economic factors can, by themselves, never adequately explain it. Undeniably, some factors such as capital formation and technological progress may be more important in the development process than others. Nevertheless, one needs a holistic approach whereby the extent of the presence or absence of the above-mentioned “development fundamentals” may need to be considered in assessing the performance of a country.

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Chapter 1

Furthermore, the fact that economic development by creating its own dynamics and tensions in the social and political spheres could transform an authoritarian regime into a democracy, as in the case of Korea, needs no emphasis. Hence, there is also a need to look into the interactions and feedback not only between economic factors, but also between economic and non-economic factors, and between exogenous and endogenous factors in order to get a clear image of the past. Admittedly, one cannot always be very precise given the qualitative (or subjective) nature of some of these factors. But it is better to take them into consideration than to ignore them entirely or treat them lightly just because one cannot be very precise about them. Finally, it is most important to bear in mind that each country is different. Each has its own unique experiences and these must be taken into account. For example, it has been pointed out that Myanmar had to contend with a protracted insurgency problem as well as an ethnicity problem. These should be viewed as factors inhibiting developmental efforts, but they should not be treated as excuses for a lack of development. For one can easily find parallel experiences; for example, Malaysia overcame such problems to become one of the HPAEs. Then again, it has also been pointed out that Myanmar’s Theravada Buddhism may have been a restraining factor in the development efforts. Again, Thailand with a similar type of Theravada Buddhism immediately comes to mind. Yet, Thailand, just like Malaysia, became one of the HPAEs. Thus, while unique country experiences should be taken into considerations, it is important not to overemphasize them. NOTES 1. According to the 1948 Constitution, “the right of secession shall not be exercised within ten years from the date on which this Constitution comes into operation” (The Constitution of the Union of Burma [1948], chapter X, paragraph 202, p. 56). 2. They are headed by General San Yu and Brigadier Tin Pe. Contrary to what General Ne Win had in mind, the other more liberal and independent-minded group headed by Brigadier Aung Gyi, Colonel Kyi Maung, and others naively

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thought that the military would soon return civil power to the civilian government. After being ousted from power, both Brigadier Aung Gyi and Colonel Kyi Maung were jailed and then released. 3. According to Martin Smith and a number of Burma scholars, “by the late 1990s it was also clear that the government was running, like the BSPP before it, into another brick-wall of inertia, floundering on the same failures to underpin economic change with the kind of political reforms that would allow broader visions of transition to take root” (Smith 2001, p. 23). 4. The Union of Myanmar Economic Holdings was set up in 1990 with a paper capital of 10,000 million kyat (or US$1,600 million at the official rate). Efforts by the army to become a major player (a monopolist, in fact) in the so-called market-oriented economy has been described by Colonel Thein Swe as “Productive Establishment” ready for times of “peace or war” in the post– Cold War era (Colonel Thein Swe 1997, p. 158). 5. Many see Myanmar’s evolution towards a market-oriented economy since the mid-1990 as giving rise to rent-seeking activities and corruption. In that sense it is beginning to look more and more like that of its neighbouring countries. For, as Yoshihara had observed, “South-East Asian capitalism … is dominated by rent-seekers. In fact, there are strange breeds of capitalists such as crony capitalists and bureaucratic capitalists. In addition, there are political leaders, their sons and relatives, and royal families involved in business. What they seek is not only protection from foreign competition, but also concessions, licenses, monopoly rights, and government subsidies …” (Kunio 1988). 6. Governance, defined as “the manner in which power is exercised in the management of a country’s social and economic resources for development” is being increasingly recognized as an essential component of sustainable and equitable development. The paper Governance: Promoting Sound Development Management identifies four basic elements of good governance: (a) Accountability, the need for public officials to be held responsible for delivering outputs; (b) Transparency; (c) Predictability, the need for a stable, open, and widely understood set of “rules of the game”; (d) Participation, to ensure ownership and beneficiary support for development initiatives (ADB 1997).

© 2004 Institute of Southeast Asian Studies, Singapore

Reproduced from Economic Development of Myanmar by Myat Thein (Singapore: Institute of Southeast Asian Studies, 2004). This version was obtained electronically direct from the publisher on condition that copyright is not infringed. No part of this publication may be reproduced without the prior permission of the Institute of Southeast Asian Studies. Individual articles are available at < http://bookshop.iseas.edu.sg >

14

Chapter 2

“The aims and ideals of a country are, as a rule, the cumulative products of its history and culture”. His Excellency U Kyin, Ambassador of the Union of Burma to the Court of St. James, U.K., 1956

A. Introduction

As noted by many scholars, there were two outstanding historical experiences during the colonial period (1826–1947) which had left a deep impression and a bitter taste on the leaders and people of post-war Myanmar. One of them was the loss of land by native cultivators and landowners to non-native and non-resident Indian landlords during the colonial period. The fact that the governing body then was deaf and dumb to this situation of increasing misery for increasing numbers of landless native cultivators made the bitter pill of experience even harder to swallow. Nearly half of the total cultivated area eventually came to be owned by non-native absentee landlords. Moreover, the emergence of the plural society in administration, commerce, and industry with Europeans at the top, Indians and Chinese in the middle, and Myanmar people at the bottom rung also left a very unsavoury impression of the colonial period. The other has to do with the experience of opening up the country to foreign trade. Free trade, as practised in England, was

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the order of the day and with the exception of some monopolies, market forces were given full play. As noted by Mali, “Laissezfaire and competitive enterprise, two adjuncts of Anglo-Saxon liberalism, were the basic principles of commercial policy of British rule in Burma” (Mali 1962, p. 13). Thus, by the end of the colonial period Myanmar became a lopsided export economy much dependent on the production and export of just one commodity, namely paddy. While this development greatly benefited the foreigners and their companies, it relegated the Myanmar peasants to the position of landless agrarian labourers almost totally excluded from any role in the process of modernization. Hill and Jayasuriya quoted Sundrum and Hlaing at length to the effect that after a long period of intensive “development” of the country’s resources under the most highly recommended free trade patterns, Burma has emerged as a typical “underdeveloped” country.1 The nationalist ideology and its concomitant political economy, which emerged in the post-independence era, can only be understood against this background of the colonial past. Reaction against the pre-war pattern of development took the form of nationalization, Burmanization, and import-substituting industrialization, with a socialistic emphasis on public ownership. In external trade, a moderately high tariff wall was erected to replace the free trade of the colonial era. Consequently, one of the very first measures taken by the AFPFL government upon gaining independence was to enact the Land Nationalization Act of 1948 to nationalize all agricultural land and redistribute them to the landless cultivators, with the ceiling of 10 acres each. The government also took over the rice trade, which had previously been monopolized by foreign firms. This was followed by the nationalization of the timber industry, which was also under the monopoly of foreign firms; the nationalization of the Irrawaddy (Ayerwaddy) Flotilla Company, which was owned by foreigners; and the reorganization of the Burma Corporation and the Burma Oil Company into joint ventures. At the same time, the government also earmarked certain basic industries to be developed

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Chapter 2

on a state-owned basis. The government placed emphasis on industrialization and the role of the state for long-term development. Most are in agreement that the emphasis on the role of the state in the economic development of Myanmar may be mainly attributed to the socialist convictions of its young leaders. In this respect Myanmar was not alone. India, Sri Lanka (then Ceylon), and Indonesia all had their own brands of socialism. As observed by Myrdal, “In the absence of a sizeable group of indigenous private entrepreneurs, socialism, meaning nationalism, was the obvious policy choice” (Myrdal 1968, p. 833).2 In this connection, a prophetic comment made earlier with some foreboding by Furnivall is especially worthy of note. According to Furnivall: Under a national government, these firms (meaning foreign-owned monopolies) could not possibly be allowed so much power. Socialist theory indicated that they should be taken over by the State. … They could not safely be left in foreign hands, yet they could not be taken over without courting disaster. (1957, pp. ao–ap)

In the same vein Dr Tun Wai later said: After independence, the government wished to Burmanize the economy by cutting down the activities of foreigners. Since the Burmans had neither the finance nor the business experience, it was obvious that the government should follow a socialistic policy. … The above reasoning had one false assumption namely that the Burman’s lack of experience in commerce and industry could be replaced and/or supplemented by experience in governing the country. It was of course quite disastrous to apply governmental methods to the Boards and Corporations which were created. (Tun Wai 1965, pp. 15–16)

The socialist ideologies of the leaders at that time was also given expression in the form of the Two-Year Plan, followed by the Eight-Year Plan in 1952 based on the report of the American consultants belonging to Knappen Tippetts Abbett Engineering Co., or KTA in short. Hence, the Eight-Year Plan also came to be known as the KTA Plan and the Pyidawtha Plan after the Pyidawtha Conference (4–17 August 1952). The Plan was abandoned after 1955/56 and later substituted by two less unrealistic Four-Year Plans.

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Parliamentary Democracy Period, 1948–62

B. Growth of Gross Domestic Product and Development Plans

As a result of the devastation suffered during World War II, Myanmar’s GDP and per capita income in 1947/48 were only 72 per cent and 66 per cent respectively of its pre-war level (Table 2.1). Thus, changes in real GDP during the parliamentary democracy period may be seen from two reference points in time, namely, 1938/39 and 1947/48. Table 2.1 shows GDP, per capita GDP, and per capita consumption in 1947/48 prices; and Figure 2.1 shows changes in real per capita GDP between the fiscal years 1947/48 and 1961/62. Between 1947/48 and 1961/62, the overall economic performance of the economy as measured by the average annual growth rate of GDP of 5.3 per cent can be regarded as quite satisfactory. Average annual growth of per capita income of 3.0 per cent as shown in Figure 2.1 was also good. Both these figures compare favourably with the achievements of other countries in the region. For example, Korea’s average annual rate of growth of GDP between 1953 and 1961 was only 4.0 per cent. As a matter of fact, up till the early 1960s there was not a great deal of difference in the economic Table 2.1 GDP, Per Capita GDP, and Per Capita Consumption, 1938–62 (In 1947/48 prices) GDP Year 1938/39 1947/48 1950/51 1956/57 1959/60 1961/62

Per Capita Income

Per Capita Consumption

Kyat (Million)

Index

Kyat

Index

Kyat

Index

4,945 3,557 3,431 4,934 5,600 5,544

100 72 69 100 113 112

302 200 186 247 269 260

100 66 62 82 89 86

195 163 133 169 174 168

100 84 68 87 89 86

Note: The fiscal year then begins from 1 October except for 1938/39 which is year beginning 1 April. Source: Economic Survey of Burma (various issues).

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Chapter 2 Figure 2.1 Real GDP Per Capita, 1947–62 (In constant kyat) 300 280

Constant kyat

260 240 220

y = 69.6072exp(0.031714t)

200 180 160 140 120 100 1947/48 1949/50 1951/52 1953/54 1955/56 1957/58 1959/60 1961/62 PCI

ESTPCI

performance of most countries in the region which were more or less in the same stage of development or underdevelopment.3 Relative to 1938/39, however, the overall economic performance was not all that satisfactory. The pre-war level of GDP was reached only in 1956/57 and the level of GDP in 1961/62 was only twelve percentage points above that of 1938/39. As for per capita GDP, its level in 1961/62 was still fourteen percentage points below that of 1938/39. B.1. The Two-Year Plan

The Two-Year Plan, announced in April 1948, was the country’s first attempt at planning. Actually, it was not a full-fledged plan but merely a list of targets in physical terms considered achievable within the following two years. It was notable in that it listed a number of desirable industrial projects, which eventually came to be realized over a period of twelve years. Apart from that, the plan was never implemented as countrywide insurrections broke out in the second half of the year and the government came to be preoccupied with restoring law and order.

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Parliamentary Democracy Period, 1948–62 Table 2.2 GDP by Sector, 1938–61 (Million kyat; in 1947/48 prices) Industries

1938/39

1947/48 1953/54

1958/59

1960/61

Agriculture and fisheries Forestry Mining and quarrying Rice processing State marketing State transport State banking Other public utilities General government Rental value of housing Other industries and services

1,907 360 273 182 633 117 — 31 153 165 1,124

1,451 273 29 125 286 63 1 14 229 151 935

1,521 289 49 125 278 68 2 22 412 177 1,103

1,797 347 115 147 429 82 13 31 570 215 1,274

1,883 385 112 151 512 85 20 59 605 225 1,503

GDP

4,945

3,557

4,046

5,020

5,540

—

—

% increase of GDP

3.8

6.9

1.4

Source: Economic Survey of Burma (various issues).

B.2. The Eight-Year Plan

The Eight-Year Plan, formulated by a group of American engineers and economists, had the object of roughly doubling the gross domestic product in real terms between 1950/51 and 1959/60. This meant that the level of GDP in real terms would have to increase by 31 per cent above the 1938/39 level but per capita income by only 4 per cent because of the increase in population. To achieve the planned targets the planners estimated that an investment of around 7,500 million kyat would be needed over the planned period of which 4,020 million kyat was to be in the public sector and approximately 3,470 million kyat in the private sector. The average rate of investment planned for the period was 21.2 per cent of GDP. Dr Tun Wai did not think that the Plan’s objective of doubling output between 1950/51 and 1959/60 was ambitious because there was unused agricultural land and the overall level of production was still very much below the pre-war level. But he did think that the average rate of investment was rather ambitious and further that it was unrealistic to assume that it could be financed by the high

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level of rice prices prevailing during the Korean war boom. As it turned out, events proved him to be correct. The actual investment in the three years in which the Plan was in operation was about 25 per cent below the planned level, and it constituted only 18.5 per cent of GDP.4 Also, actual capital-output ratio was about 2.6 as compared with the planned rate of less than 2.5.5 The lower level of actual investment plus the fact that some of it was misdirected meant a much slower rate of growth of real GDP than planned. Instead of doubling between 1950/51 and 1959/60, the real GDP in the latter year was only 60 per cent higher than in the former. The Eight-Year Plan was abandoned mainly because foreign exchange earnings from the export of rice fell short of expectations due to the decline in the world price of rice. The then Prime Minister U Nu, however, gave the following reasons for the failure to achieve the plan targets: • •

•

• • •

The failure to restore law and order fully; Because of the lapse of time usually occurring between the making of orders and actual fulfilment, the implementation of the projects gained momentum only in 1954/55. Unfortunately, a financial crisis also happened in the same year; Lack of intensive preparation, organization, supervision, and management in the establishment and running of state enterprises; Lack of trained personnel to administer the projects; Administrative centralization and the consequent bad effect on the morale of the executives; Prevalence of low productivity and inefficiency as a result of lack of skill, low morale, and improper administration.

Then again, on another occasion, Prime Minister U Nu was reported to have said that the standard of efficiency in most of the state enterprises has been low and that some of them have been incurring losses. The causes attributed are pilferage, excessive expenditure, idleness on the part of the employees, and mismanagement.

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According to the KTA, the failure of the Eight-Year Plan was mainly due to three factors: (a) internal insecurity, (b) shortage of skills — technical, managerial, and administrative, and (c) the organization and personnel policy of the government. Indeed, as the numbers cited by Dr Mali reveals, the Eight-Year Plan was over-ambitious with regard to the requirements for trained manpower: The KTA planners expected manpower and expenditures to reach a peak in 1956–58, when Burma would require a maximum trained labor force of 65,000 men, among whom 13,000 were to be highly skilled and trained scientists, engineers, architects, managers, administrators, and supervisory foremen. Such a number and composition of the manpower could not be trained or even contracted from foreign countries and brought down with their families, within the time period of the plan. … Both the ex-ICS (Indian Civil Service) and the senior Burma Civil Service (BCS) personnel are inadequate in numbers. There are too few of them, with too many tasks and with insufficient and inefficient assistants for proper delegation of tasks. (Mali 1962, pp. 82–83)

In addition, Dr Mali considered the most serious defect in the total planning to be its heavy emphasis on industrialization to the relative neglect of agriculture and other primary industries. As he noted, it was all the more deplorable as the actual expenditures on these sectors formed only about 35 per cent of the original allocations. “On the other hand, for industries and social services, the actual disbursements exceeded the allocated amounts” (Mali 1962, p. 85). Following conventional wisdom, one must agree wholeheartedly with Dr Mali. For as he pointed out further, development of primary industries in Burma would raise more quickly domestic output and foreign exchange earnings than would the manufacturing industries. Moreover, rising income for the rural population would in turn create demands and thus internal markets for the planned new industries. Thus, while the overwhelming desire for a more balanced growth in the immediate post-war years is understandable, the lack of appreciation of the need for a dynamic agricultural sector prior to industrialization is regrettable.

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B.3. The First Four-Year Plan

After the Eight-Year Plan was abandoned in 1955, the government revised downwards a number of its targets and these revisions for the last four years of the Eight-Year Plan came to be known as the First Four-Year Plan. This more modest plan, however, covered only the public sector (Table 2.3). There was also a slight shift in the distribution of public investment in favour of agriculture and irrigation, although still inadequate at 10.9 per cent of the total (Table 2.4). On the other hand, physical infrastructure in the form of power, transport, and communications continued to receive the lion’s share of public investment. This had led Dr Tun Wai, Dr Mali, and other contemporaries at the time to question the wisdom of the heavy investment on infrastructure. Another aspect of planning and governance in Myanmar was that any changes introduced were not given sufficient time for their knock-on effects to work their way through the system, and were often aborted prematurely. As noted by U Thet Tun, the planning and executing machinery underwent frequent changes. First, there was a National Planning Board in 1946, then the Economic Planning Table 2.3 Annual Average Performance of the Eight-Year Plan and the First Four-Year Plan (Million kyat) Eight-Year Plan Three Operative Years, 1953/54 to 1955/56

Gross fixed capital formation Government Private Total As % of GDP Net fixed capital formation Total As % of GDP

First Four-Year Plan, 1956/57 to 1959/60

Plan

Actual

Plan

Actual

668 512 1,180 21.1

505 392 897 18.5

507 — — —

484 549 1,033 18.4

812 14.5

617 12.7

— —

709 12.8

Sources: Second Four-Year Plan for the Union of Burma, 1961/62 to 1964/65 (1961); Economic Survey of Burma (1962); U Tun Wai (1965, p. 10).

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Parliamentary Democracy Period, 1948–62 Table 2.4 Allocation of Investment in the Public Sector in the Eight-Year Plan and First Four-Year Plan (Million kyat) Eight-Year Plan 1952/53–1955/56 Agriculture and irrigation

First Four-Year Plan 1955/56–1959/60

154.6 (7.7%)

211.8 (10.9%)

Forestry

30.6 (1.5%)

24.7 (1.3%)

Mining

15.7 (0.8%)

8.6 (0.4%)

Industry

186.6 (9.3%)

187.9 (9.7%)

Power

202.6 (10.1%)

303.1 (15.6%)

Transport and communications

414.8 (20.6%)

496.5 (25.7%)

Social services (including construction)

438.9 (21.%)

195.6 (10.1%)

Law and order

370.1 (18.3%)

387.5 (20.0%)

Others

199.2 (9.9%)

122.6 (6.3%)

2,013.1 (100%)

1,938.3 (100%)

Total

Source: Second Four-Year Plan for the Union of Burma, 1961/62 to 1964/65 (1961).

Board in 1947, then the Economic Council in 1949/50, then an Economic and Social Board in 1951/52, and so on. Moreover, while the direct assumption by the Prime Minister of the responsibility for plan implementation may have centralized authority, it has also caused planning to slow down as he also has other important matters to attend to (U Thet Tun 1960). To sum up at this point, the outbreak of insurrections in 1948, which continued in a serious way up until 1951, did slow down the growth of GDP. Insurgency not only led to the destruction of property, but because of it more money than otherwise had to be spent on defence. However, there were other factors at work that were probably more important in effecting the growth of GDP then.

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Chapter 2 Figure 2.2 Investment and Savings Remain Stunted, 1938–62 (As a percentage of GDP)

30% 25% 20% 15% 10% 5%

Investment

1961/62

1960/61

1959/60

1958/59

1957/58

1956/57

1955/56

1954/55

1953/54

1952/53

1947/48

1938/39

0%

Savings

These were the government’s indecision and lack of clarity as to the role of state and that of the private sector, the lack of highly trained and skilled people in the administration and management of the economy, and the weakness in sector-wise economic policy, which emphasized industrial development to the neglect of the agricultural sector. The government’s fuzziness as between the role of state and the private sector could also have been responsible for the failure of savings and investment rates to increase over the period (Figure 2.2). C. Monetary and Fiscal Developments

In the context of developing countries, the development of new financial institutions and the strengthening of existing ones constitute an important aspect of monetary policy. The development of the banking system in independent Myanmar began with the creation of the Union Bank of Burma

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(UBB) as the central bank of Burma in 1948. Under the Union Bank of Burma Act of 1947, the UBB took over the central banking functions of the Rangoon Branch of the Reserve Bank of India, which has served as the central bank in Myanmar since 1935. However, the currency system of Myanmar was still managed by the Burma Currency Board in London.6 Thus, it was only in 1952 that the UBB was bestowed the full prerogative of a central bank with the new Union Bank of Burma Act 1952. Under this Act, the UBB took over the sole right of note issue and other traditional central banking functions from the Burma Currency Board. A flexible currency system was established with the legal obligation by the UBB to hold reserves in foreign exchange of up to 25 per cent of the currency in circulation and demand deposits. Following the advice of central bank authorities, the Act also gave the UBB wide powers of inspection and licensing over commercial banks, thereby making it responsible for fostering the development of the banking sector. In order to cater to the specific needs of the agricultural and industrial sectors, the State Agricultural Bank and the Industrial Development Bank were established in 1953 and 1961 respectively. Four new commercial banks, namely, the Burmese Economic Bank, the Union of Burma Co-operative Bank, the State Commercial Bank, and the Rangoon Bank also came into being. Thus, the banking sector, consisting in 1948 of twenty commercial banks, of which eighteen were foreign-owned, came to have by the year 1963 twenty-five commercial banks, of which fourteen were foreign-owned. The commercial banks were mainly engaged in short-term financing of domestic and foreign trade. Following the launching of the Eight-Year Plan in 1952/53, the UBB began granting long-term loans for economic development by purchasing debentures issued by state enterprises and guaranteed by the government. The UBB also purchased three-month Treasury Bills and two-year and five-year Treasury Bonds from the government. Between 1952/53 and 1955/56 the money supply more than doubled. However, until the end of 1955 when there was still

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Chapter 2 Table 2.5 Money, Quasi-Money, Credit, and Prices, 1938–62 (Average annual percentage change)

Year

Money

1938/39 1947/48 1948/49 1949/50 1950/51 1951/52 1952/53 1953/54 1954/55 1955/56 1956/57 1957/58 1958/59 1959/60 1960/61 1961/62

— — 0.4 19.1 –7.9 9.8 –1.2 25.7 11.8 32.5 20.3 –17.7 18.5 20.5 –5.3

Money Plus Quasi-Money — — 0.9 18.8 –6.5 10.3 –1.5 24.8 14.8 34.8 16.9 –16.6 18.5 19.4 –8.2 2.4

Domestic Credit

GDP Deflator

Consumer Price Index (1953 = 100)

— — — –6.8 46.8 14.95 4.62 3.32 103.21 52.24 9.77 5.91 8.20 15.10 –25.90 —

— 1.9 1.1 2.0 4.3 4.4 5.5 –4.3 –1.2 3.4 –4.6 1.9 –3.9 –1.1 5.4 4.4

26 104 96 130 111 109 104 100 95 97 112 121 118 98 110 113

Note: Data for 1960/61 and 1961/62 are taken from IMF, International Financial Statistics (1966) and may not be consistent with those of the preceding years taken from the Economic Survey of Burma. Source: IMF, International Financial Statistics (1960, 1961); Economic Survey of Burma (1959/60 and earlier).

ample supply of foreign exchange reserves, that was not a problem as the effects of an increase in money supply could be offset by the liberalization of private imports and sale of foreign exchange to the private sector, which had the effect of reducing the money supply and excess demand. In fact, this largely accounted for the relative price stability during the period before 1955/56. The problem with the above approach was that it drained the economy of the foreign exchange reserves required for meeting foreign costs of capital formation. Indeed, the foreign assets of the banking system declined sharply during the period,7 and imports had to be curbed through import licensing in order to stem foreign exchange leakage as well as to avoid balance of payments difficulties. Import licensing led to the emergence of a rent-seeking business

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class of privileged importers, mostly Burmese, at the expense of consumers. Import restriction, on the other hand, allowed inflation to raise its head (Figure 2.3). As a matter of fact, Dr Mali suspected that the inflation of 1955/56 was more likely to be a result of restricted imports than of an increase in money supply since price inflation has been most noticeable in the prices of imports (Mali 1962, p. 46). It will be seen from Figure 2.3 that inflation in the 1950s was minimal by present-day standards. Apart from the above, another reason was that the authorities were able to practise fairly prudent fiscal policy. In August 1957, the central bank authorities began to use conventional monetary policy instruments to regulate the course of prices and balance of payments. The reserve requirements of commercial banks were raised from 8 to 16 per cent for demand deposits, and from 3 to 6 per cent for time deposits. At the same time, the minimum reserve requirement was broadened to include government securities as well as the cash deposits of the UBB. While this may have counter-balanced the effect of an increase in Figure 2.3 Cost of Living Index for a Burmese Family of Three in Rangoon, 1949–60 30 25 20 15 10 5 0

1948 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960

-5 -10 Consumer Price Index: December 1953 = 100

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reserve requirements to some extent, it also prevented private banks from increasing their liquidity through the liquidation of government securities. At any rate, apart from the fact that there was still no stock exchange in Myanmar, even though one existed in Yangon before the war, the financial sector was developing sufficiently well to cater to the needs of a market economy. Had the above trends continued it might have made the UBB to become more sophisticated in the use of monetary instruments in a more developed financial sector. But this was not to be so. During the fiscal years 1947/48 to 1952/53, the government maintained overall budget surpluses. This was made possible by two factors. On the revenue side, the government was able to reap a third to half of its revenue from rice exports because of the differential between the world price of rice and the much lower fixed domestic price which the State Agricultural Marketing Board (SAMB) paid to farmers. On the expenditure side, in spite of the high military expenditures because of insurgent activities, a relatively low level of developmental expenditures kept overall expenditures fairly low. However, after the launch of the Eight-Year Plan in 1952/53, government expenditures began to increase sharply. Nevertheless, because of fiscal prudence, the government was able to maintain budgetary surpluses, except for a couple of years (Table 2.6). As indicated by Figure 2.3, the scaling down of capital expenditures was also a factor in balancing the budget. This is not to say that public sector deficits have no impact whatsoever on inflation. As may be seen from Table 2.6 and Figure 2.3, public sector deficits in 1953/54, 1954/55, and 1956/57 were followed by increases in the CPI in 1955, 1956, and 1957. D. External Sector

As noted at the very outset of this chapter, one of the unpleasant legacies of the past was the fact that in spite of more than one and a half centuries of free trade, Myanmar had failed to develop. Therefore, perhaps it is understandable that reaction against the

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Parliamentary Democracy Period, 1948–62 Table 2.6 Central Government Budget, 1938–62 (Million kyat) Year

Revenue

Expenditure

Deficit

1938/39 1947/48 1948/49 1949/50 1950/51 1951/52 1952/53 1953/54 1954/55 1955/56 1956/57 1957/58 1958/59 1959/60 1960/61 1961/62

164.3 562.5 466.2 620.7 644.8 783.5 987.0 1,052.0 1,208.0 1,033.0 1,203.0 1,338.0 1,383.0 1,421.0 1,405.0 1,395.0

157.9 509.0 412.5 436.6 558.2 779.8 987.0 1,347.0 1,310.0 1,067.0 1,203.0 1,338.0 1,383.0 1,421.0 1,450.0 1,396.0

6.4 53.5 53.7 184.1 86.6 3.7 0.0 –295.0 –102.0 –34.0 0.0 0.0 0.0 0.0 –45.0 –1.0

Sources: Economic Survey of Burma (1959/60 and earlier); Walinsky (1962) for data on 1938/39.

pre-war pattern of development should take the form of emphasis on import-substituting industrialization. On the other hand, it should also be obvious that industrialization cannot succeed without an adequate supply of trained men and capital equipment. Myanmar in the early 1950s had neither. Hence, there was the need to promote exports. The planners seemed to have realized this. Where they erred was in failing to see the link between export promotion and the development of primary sectors. This could be because in the early 1950s Myanmar was having trade surpluses without much effort (Table 2.7). As can be seen from Table 2.7, Myanmar had a fairly comfortable trade surplus up to 1956. Between 1948/49 and 1956/ 57, Myanmar enjoyed an annual average trade surplus of over US$50 million. Since then, however, the trade surplus had disappeared or become minimal chiefly due to the considerable decline in the unit value of exports. In the composition of exports, the dominance of rice and rice

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Chapter 2 Table 2.7 External Trade, 1938–62 Trade Indices

Year* 1938/39 1947/48 1948/49 1949/50 1950/51 1951/52 1952/53 1953/54 1954/55 1955/56 1956/57 1957/58 1958/59 1959/60 1960/61 1961/62

Export Volume

95 137 150 172 168 139 169 173 162 179

Million US$

Unit Value Export

Export

40 31 25 24 23 24 22 21 23 24

181 144 229 222 139 212 264 238 251 227 250 229 194 224 224 222

Import

Balance of Trade

Trade Deficit/Surplus as % Import

79 142 176 113 91 137 192 178 204 181 198 297 204 223 259 215

102 2 53 109 48 75 72 60 47 46 52 –68 –10 1 –35 7

129.1 1.4 30.1 96.5 52.7 54.7 37.5 33.7 23.0 25.4 26.3 –22.8 –4.9 0 –13.5 3.2

* Base year = 1980. Sources: IMF, International Financial Statistics (1952, 1956, 1960, 1966); World Bank, World Data Series (1995).

products became even more prominent in the post-war years than in the pre-war period (Table 2.8). Consequently, when the world price of rice declined from 60 pounds sterling per ton in 1953 to 42 pounds sterling in 1955, and still further to 35, export earnings became stagnant at the level of US$224 million (Table 2.7). E. Sectoral Developments

The preceding sections have focused on the performance of the Myanmar economy from the point of view of aggregate growth and some of its underlying determinants. The present section will consider the sectoral dimensions of growth. Table 2.9 shows GDP by sector between 1952/53 and 1961/62. Table 2.9 clearly shows that in terms of 1961/62 constant prices the structure of production has changed as far as the agricultural

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Parliamentary Democracy Period, 1948–62 Table 2.8 Composition of Exports, 1938–62 1938/39

1961/62

Million Kyat

%

Million Kyat

%

Rice and rice products Other agricultural products Oil Timber Metals and ore Others

223 32 109 33 57 24

46.7 6.7 22.8 6.9 11.9 5.0

852 218 — 133 42 22

67.3 17.2 — 10.5 3.3 1.7

Total

478

100.0

1,267

100.0

Source: Central Statistical and Economics Department, Rangoon. Table 2.9 GDP by Sector, 1952–62 (In 1961/62 prices) Sector Agriculture Industry Construction Transport Administrative services Trade Other primary sectors

1952/53

1961/62

29.1 7.6 3.4 3.7 18.8 26.4 11.2

22.9 15.2 3.0 3.7 19.9 26.1 9.2

Source: Ministry of Planning and Finance.

and industrial sectors are concerned. The share of the agricultural sector in GDP (including other primary sectors) fell from 40.3 to 32.1 per cent between 1952/53 and 1961/62, while that of industry (including construction) increased from 11.0 to 18.2 per cent during the same period. Because of some increase in administrative services, the share of services increased marginally from 48.9 to 49.7 per cent over the same period (Figure 2.4). E.1. Agriculture

Agriculture, including livestock and fisheries, was and still is the most important sector in Myanmar’s economy. It was the main source of livelihood for nearly 75 per cent of its population, who

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Chapter 2 Figure 2.4 Industry’s Share of GDP Grows: Structural Change of GDP, 1952–62

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1952/53 Agriculture

1961/62 Industry

Services

lived in the rural areas. In 1952/53 the sector accounted for approximately 40 per cent of GDP, provided employment to about 66 per cent of the country’s labour force, and made 51.3 per cent of export earnings. Crop production is the major agricultural activity in Myanmar. To this day it is almost completely dependent on monsoon rains. Paddy/rice is the major crop, followed by other cereal grains, pulses, and oil seeds. As a result of the damage suffered during the war, the cultivable area in 1945/46 was only 11.7 million acres or 63 per cent of its pre-war level. Furthermore, production was disrupted for at least two years after independence due to civil war. Nevertheless, the main reasons for the slow growth of the agricultural sector were simply neglect by the state, which did not quite appreciate its importance in economic development and the marketing policy of the SAMB. The main concerns of the government in the agricultural sector at that time were to redress the problems of landlessness and

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indebtedness, on the one hand, and to promote equity on the other. This is not to say that the government did nothing to promote agricultural development. In the years between 1952/53 and 1959/ 60 the government invested, on the average, about 9 per cent of total expenditure in the agricultural sector. But this was very low as compared with other Southeast Asian countries where it was about 20 to 30 per cent. The government also drew up a FiveYear Plan for agricultural development in 1952, and to provide agricultural credits to farmers, and create the Agriculture Development Bank in 1953. However, the positive impacts of these efforts pale in comparison with the negative impacts of the marketing policy of the SAMB. The SAMB was created in 1946. It was mandated to handle the following: assume all rice export marketing functions which had previously been performed by foreigners; provide revenue for development plans by profiting from the difference between the purchase price given to farmers and the export price received for rice; provide a guaranteed price and the stability necessary to encourage cultivators to expand their paddy acreage; and maintain price stability in the entire economy, and especially in urban wages, by holding down rice prices (Ambler 1983, p. 19). The state procurement system operated within an open market framework, where farmers could make their own decisions as to what to produce, how to produce, and who to sell to. The SAMB bought paddy and rice from millers, middlemen, cooperatives, and farmers. The produce was chiefly intended for export, leaving the distribution of rice for domestic consumption to free market agents. Between 1948/49 and 1960/61 the official procurement price of paddy was kept constant and well below the export price. This system not only kept inflation rates at low levels but also contributed greatly to capital formation (Mya Than and Nishizawa 1990, pp. 92–93). The agricultural sector has always been exploited as the milk-cow of development. A negative outcome of the above policy was to retard the development of the agriculture sector, especially paddy production.8 The pre-war level of total sown acreage of nearly 19 million acres was reached only in 1961/62.

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However, the sown acreage under paddy at 11.8 million acres was still below the 1936–40 average by about a million acres or 15 per cent while that under other crops such as groundnut, sessamum, pulses, and sugar-cane have surpassed the 1936–40 average (Table 2.10). This changing structure of cropping areas was a clear reflection of the changing structure of incentives as well as the responsiveness of Myanmar farmers to changes in relative price incentives. The official procurement price of paddy at 285 kyat per 100 baskets in 1959/60 was only three times the pre-war level whereas the prices of other crops such as groundnut, pulses, and sugar-cane had increased by more than six times as compared with their pre-war levels. The production of some major crops reveals much the same pattern as the changing structure of cropping areas (Table 2.11). An equally serious negative consequence of the government’s agricultural policy was the lack of technological change in the production of crops. The method of cultivation remained essentially traditional and primitive. According to the experts, the fertilizer utilization of 6,122 tons in 1958/59 was about 1/50 of the required Table 2.10 Sown Acreage of Some Major Crops, 1936–61 (Average acreage in thousands) 1936–40

1959–61

Average No. of Acres

%

Average No. of Acres

Paddy Groundnut Sessamum Pulses Sugar-cane Cotton Rubber Others

12,831 808 1,388 1,329 64 453 109 2,184

67.0 4.2 7.2 6.9 0.3 2.4 0.6 11.4

11,883 1,209 1,510 1,541 79 405 142 1,059

Total

19,166

Crop

100

17,828

Source: Economic Survey of Burma (various issues).

© 2004 Institute of Southeast Asian Studies, Singapore

% 61.0 6.8 8.5 8.6 0.4 2.3 0.8 11.6 100

% Change in Acreage, 1936–40 85 150 109 116 122 90 130 48 93

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Parliamentary Democracy Period, 1948–62 Table 2.11 Agricultural Production, 1936–61 (In thousand tons)

Crop Paddy Pulses Groundnuts Sesamum Cotton Tobacco Wheat

1936–40 Annual Average

1953/54

7,426 250 181 45 21 44 78

5,527 201 191 44 22 48 78

1958/59

1960/61 (Estimate)

1960/61 as a % of 1936–40

6,486 211 284 52 12 38 69

6,682 342 351 64 12 40 70

89.9 136.8 193.9 142.2 57.1 90.9 89.7

Source: Economic Survey of Burma (various issues).

amount. The 1.5 million acres of irrigated acreage in 1961/62 was about the same as the average acreage between 1936 and 1941. There were only forty-five tractors in 1953. The number of draught cattle in 1956 of 6,467,000 was less than the pre-war figure of 7,047,000. Although the number of tractors gradually increased to 243 by 1961, it was still inadequate for multiple cropping. Above all, the lack of price incentives and the inadequacy of agricultural credit meant that the farmers were not encouraged to take on the risks of investing in technological improvements. Because of this, the paddy yield per acre, after having fluctuated throughout most of the period, increased only slightly from an average of 28.17 baskets per acre between 1936 and 1941 to 30 baskets per acre between 1958/59 and 1960/61. Paddy/rice is not only the dominant crop but also the major earner of foreign exchange. It accounts for more than 50 per cent of export earnings. During the colonial period, exportable surplus of paddy after deduction for domestic consumption was more than 50 per cent of the total production. But the population then was about 14 million. Although the population had grown to about 20 million in the post-war years, the level of paddy production had remained more or less unchanged. Hence, even if the per capita consumption is assumed to be constant, the eventual decline in exportable surplus, both in absolute and relative terms, was

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Chapter 2 Table 2.12 Paddy Output, Domestic Consumption, and Export, 1937–59 (In thousand tons) 1937/38 to 1940/41

1950/51 to 1953/54

1954/55 to 1957/58

1958/59 to 1960/61

Output Domestic consumption

4,902

3,630

3,799

4,421

1,653

2,359

2,014

2,648

Export

3,249

1,271

1,785

1,773

Source: Richter (1969).

only to be expected. In the absence of any other viable alternative export in the short run, this simple fact should have alerted the authorities to pay greater attention to increasing both acreage and productivity in the production of rice. However, the simple arithmetic of the impending decline in exportable surplus was masked by the fact that Myanmar then could produce ample supply of rice at the time, both for domestic consumption and for exports. As there was not a great deal of difference between the official procurement price and the free market price of rice, the government had little difficulty in procuring as much as is needed. In fact, following the increased export demand for rice created by the Korean War, government procurement increased from over one million tons to more than two million tons during the 1948–54 period. This fact seems to have lulled the government and SAMB into a state of complacency. Of course, the SAMB authorities could have been completely unaware of their own bias towards getting the revenue for developmental purposes rather than providing adequate incentives for farmers to produce more and more exportable surplus. The government could also have been more concerned about rising prices and urban unrest than rural problems. Whatever the reasons, the official procurement price of rice was kept unchanged until 1960/61, with the government little realizing that it would usher in a fast-dwindling exportable surplus and an economic crisis.

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E.2. Livestock and Fishery

The livestock sub-sector is an important source of domestic food supply, cash income, and draft power. However, commercial production of cattle for beef was almost non-existent as it was thought to be unreligious, and most of the milk, mutton, chicken, and pork were produced on a household basis. Be that as it may, the immediate concern of the government in the post-war years was to encourage the production of draft animals for agricultural production. As a result, a considerable amount of foreign exchange had to be spent on importing dairy products, particularly condensed milk. The fisheries sub-sector is of considerable importance in Myanmar’s economy, as fish is a major source of animal protein in the diet. It is also an important source of income for people in lower Myanmar. The potential for increasing all types of fisheries, including aquaculture, remains large. Nevertheless, here too some foreign exchange had to be spent on imports of fishery products. According to one estimate, about 12 per cent of yearly domestic consumption had to be supplemented with imports (Myanmar Economic Survey, p. 112). One notable effort made in this subsector with the encouragement of the government was the private joint-venture company (the Martaban Company) of a Myanmar and a Japanese firm. But the company ran into financial difficulties as a result of which the government nationalized it in 1958. E.3. Forestry

Forest resources in Myanmar play a dominant role in the socioeconomic development of the nation. The forest cover in Myanmar around 1940 had been estimated at 145,300 sq. miles, or 56 per cent of the country’s land area. “In addition, the typical Burmese village is invisible from a short distance because of the heavy growth of surrounding bamboos, trees, and vines, while small groups of trees are to be found among rice fields and farms throughout the country” (Andrus 1947, p. 96). Out of the total forest area, 24 to 25 per cent consist of reserved forest, while the remaining belongs to other forest areas (ibid.,

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Chapter 2 Table 2.13 Production of Teak and Hardwood, 1936–61 (Average annual cubic tons*) 1936/37 to 1939/40

1958/59 to 1960/61

Output

Percentage

Output

Percentage

Teak Hardwoods

543,481 501,866

47 53

259,981 614,647

30 70

Total

955,347

100

847,562

100

*1 cubic ton is equivalent to 50 cubic feet. Source: Economic Survey of Burma (various issues).

p. 98). Myanmar forests were estimated to contain about 75 per cent of the world’s most valued high-quality teak. In addition to teak and other hardwoods, Myanmar forests also have abundant non-timber forest products such as bamboo and rattan. The forestry sector was not important in terms of its contribution to GDP (approximately 2 per cent), but it was the third most important export earner in the pre-war days, accounting for 25 per cent of export earnings. Much of the infrastructure in the forestry sector was also destroyed during the war. For example, the capacity of timber mills in the post-war period was only 50 per cent of the pre-war level. Nevertheless, the government nationalized the timber industry in 1948, presumably because it was completely dominated by five foreign firms in the pre-war days.9 Forest products, particularly teak, came to be the second most important exports in the post-war period. However, the 120,692 cubic tons of teak exported in 1961/62 constituted only 64 per cent of the average annual exports between 1936 and 1940. E.4. Mining

Myanmar is well known for its rich endowment of a wide variety of mineral resources such as oil, coal, tin, lead, zinc, tungsten, silver, gold, iron, copper, and antimony. The country also produces high-quality gems and precious stone like jade, ruby, and emerald. Apart from them, industrial minerals such a barytes, gypsum, limestone, dolomite, and bentonite, and fireclay can also be found.

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Parliamentary Democracy Period, 1948–62

Although mineral products are of little significance in terms of their contribution to GDP, they were the second most important export earners in the pre-war period. Amongst them, oil was the most important, constituting 62 per cent of total export earnings from minerals in 1939. At that time, out of the total production of 276 million gallons of oil, as much as 205 million gallons were exported, leaving a mere 71 million gallons for domestic consumption. Given its importance as an export earner, the Myanmar government upon independence wanted to take over the industry. However, it was only in 1954 that the Myanmar government succeeded in forming a joint-venture company (B.O.C 1954 Ltd.) with the British-owned oil companies. By that time Myanmar had become an importer of oil as shown in Table 2.14. Production of crude petroleum did increase quickly from 30 million gallons in 1951 to 187 million gallons in 1959/60, reaching more than two-thirds of the pre-war level. Production of gasoline, kerosene, and fuel oils also quadrupled from less than 25 million gallons in 1952/53 to 101 million gallons in 1959/60 (Walinsky 1962, p. 341). Nevertheless, because of a considerable increase in domestic demand and partly because the British were no longer interested in doing any exploration for oil, Myanmar became a net importer of oil in the post-war period. E.5. Manufacturing

As a result of the laissez-faire policy of the British colonialists, the beginnings of modern industrialization in Myanmar in the colonial Table 2.14 Production and Oil Import in 1954 (In thousand gallons)

Kerosene Petroleum Fuel oil

Domestic Production

Import

Total Utilization

Percentage of Domestic Production

14,606 10,576 8,334

6,865 21,856 6,972

21,471 32,432 15,306

68 33 54

Source: Economic Survey of Burma (1954).

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period began (in accordance with the country’s resource endowment and the theory of comparative advantage) with export-propelled industries such as rice mills, saw mills, and oil refinery plants. As a matter of fact, the unrestrained application of free trade policy wiped out indigenous industries that had existed previously, transforming Myanmar into a lop-sided economy. Hence, as early as 1947 it was felt that if Myanmar was to have a relatively sound and stable economy, it must, besides rehabilitating and reorganizing the land system, carry out a moderate industrial development programme. The Two-Year Plan of Economic Development of Burma drawn up under the auspices of General Aung San clearly indicated the industries to be established in the country. The new industries recommended for immediate establishment and development were: (a) tile factory, (b) paper and chemical industry, (c) spinning and weaving factory, (d) sugar factory, (e) saw mill, (f ) Kalewa coal mine, (g) steel factory, (h) soap factory, (i) pilot diary firm, ( j) rice mill, (k) rubber factory, and (l) pottery works. Industries to be investigated further for development in the Two-Year Plan were: (a) basic chemical industries, (b) paints and varnishes industries, (c) extraction of vegetable oils, (d) industrial alcohol, (e) leather tanning, (f ) synthetic methanol, (g) acetic insecticides, (h) drugs and pharmaceutical, (i) rayon and plastics, and (j) glass (Two-Year Plan of Economic Development of Burma, 1948). The Plan stipulated all the basic industries to be established and developed on a state-owned basis. There was also a strong emphasis on encouraging the development of cottage industries in order to provide income and employment to farmers during the off-farm season. The actual implementation of the Plan had to be postponed due to countrywide insurrection mentioned earlier. But, as Maung Maung Lwin and others have pointed out, even if there had been no problem of insurgency it is doubtful whether all the projects could have been completed within the stipulated period of two years (Maung Maung Lwin 1996). The government at the time simply did not have enough skilled people. At any rate, all the industries recommended in the Two-Year Plan were again included

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in the Eight-Year Plan (1952–60). And as it turned out, the establishment of all these industries, with the exception of the paper factory, took more than twelve years. The growth of the manufacturing sector in both absolute and relative terms is furnished in Table 2.15. As will be seen from Table 2.15, the rate of growth of the industrial sector during the period 1946/47 to 1961/62 was fairly high. In relative terms too, it is quite encouraging to see the share of industrial production in GNP increasing from 5.5 per cent in 1946/47 to 14.7 per cent in 1961/62. The average annual rate of growth was estimated to be about 11.2 per cent. The highest rate of growth was attained between 1954/55 and 1957/58. This was as much due to the “unintended result” of the government’s commercial policy as to the financial support given to private industrialists. According to a number of studies, the commercial policy of the government which levied very low tariffs on imports of industrial raw materials and machinery led many entrepreneurs to set up small-scale factories in order to circumvent relatively higher tariffs on finished goods. In fact, metal and plastic fabricators, both cotton and synthetic textile manufacturers, food, beverage and drink manufacturers, cigarette manufacturers emerged in strong numbers. New small-scale industries were mushrooming in the whole Rangoon-Insein complex by 1955. (Khin Maung Kyi et al. 2000, p. 9)

This meant, however, that many of these small-scale industries were very much import-dependent import-substituting industries. Many of them were no more than “packaging industries”. As for financial support, the Industrial Development Corporation (IDC) established in 1952 extended some twenty-eight loans totalling 5 million kyat to private industrialists in 1953/54 and 1954/55, and a further 195 loans totalling 13.4 million kyat in 1955/56 (Walinsky 1962, pp. 316–17). As indicated clearly by the list of industries to be established, the industrial structure that came to exist by the end of the 1950s consisted mostly of import-substituting industries. Paradoxically, however, some of them were no more than “packaging industries”

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Chapter 2 Table 2.15 Rate of Growth of the Industrial Sector, 1946–62 (In 1961/62 prices)

Year 1946/47 1947/48 1948/49 1949/50 1950/51 1951/52 1952/53 1953/54 1954/55 1955/56 1956/57 1957/68 1958/59 1959/60 1960/61 1961/62

GNP (Million kyat)

Industrial Value Added (Million kyat)

% of GNP

Annual Growth Rate of Industrial Sector

Four-Year Compound Growth Rate

3,716 4,250 3,882 3,981 4,393 4,833 5,055 5,203 5,577 5,651 6,353 6,120 6,915 7,348 7,385 7,706

207 235 265 265 288 303 322 384 453 543 671 746 827 938 1,021 1,134

5.5 5.5 6.8 6.6 6.5 6.2 6.3 7.3 8.1 9.5 10.5 12.1 11.9 12.9 15.1 14.7

— 13.5 12.7 — 8.6 5.2 6.2 19.2 18.2 17.8 23.5 11.2 10.8 13.4 8.8 11.1

— — — 6.4 — — — 7.4 — — — 13.3 — — — 8.1

Source: Kyaw Myint (1963).

accelerating the foreign exchange requirement rather than reducing it (Maung Maung Lwin 1996, p. 88). The most notable amongst them was the state-owned pharmaceutical enterprise, which was essentially bottling and packaging imported inputs with little value added. Then again, some of the others, such as steel plants, made little sense given Myanmar is at a low stage of development. According to Kyi et al., the heavy outlays on such public sector industrial outlays were largely a waste. “Returns would have been more substantial if these resources had been made available to the burgeoning private manufacturing sector instead” (Khin Maung Kyi et al. 2000, p. 8). Apart from the socialist aspirations of the leaders, the problem, at least as some of the contemporaries see it, was that private sector industrial enterprises were largely in the hands of Indians and Chinese rather than Burmese. Nevertheless, as the Pyidawtha Plan was floundering by the mid-1950s, it dawned upon the leaders of the civilian government

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that nationalized industries were being badly managed and that therefore some form of private sector participation in developmental efforts was needed. At first, the remedy was sought in the form of joint ventures with foreign private enterprises. Then joint ventures such as JVC 1, JVC 2, and so on were made with domestic business firms.10 At the same time, Prime Minister U Nu declared that “as soon as we have rehabilitated these enterprises and acquired all necessary knowledge and ability to manage and operate them, we shall nationalize these enterprises” (Tinker 1967, p. 116). Partly because of the above announcement, but partly for other reasons as well, the joint ventures did not prove to be very successful. Hence, in 1957 U Nu was led to welcome the active participation of private enterprises in the national economy by guaranteeing them for ten years against nationalization. Finally, in 1959 the Burma Investment Act was approved by the Economic and Social Board and finally enacted as law in 1962.11 Clearly, what Myrdal referred to as a shift from radical socialism towards conservatism was being done either out of impatience to get results quickly or on pragmatic grounds after much soul searching. See Box 2.1. Whatever may be the case, as Furnivall had foreseen it, and as Dr Tun Wai came to find out, the civilian government was in a quandary: having embraced the socialist way it also dawned on them that to travel further along that way meant disaster. Unfortunately, however, all these trials and tribulations of the civilian government were lost on the military government which took over civil power in 1962. As will be explained in detail later on, one of the main reasons why all this experience was lost was that none of the high- and middle-level technocrats and bureaucrats of the civilian era were consulted by the military government when they took over power. E.6. Infrastructure

Generally speaking, investment in productive sectors needs to be complemented by measures aimed at maintaining and expanding

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Chapter 2

Box 2.1 From Socialism to Pragmatism: Trials and Tribulations of the Government In a partial retreat, “joint-ventures” were set up in tin mining and oil extraction, so as to secure foreign capital as well as experienced management. These joint ventures were in the beginning assumed to be temporary. Partly for this reason but more generally because of inefficient, muddled, and corrupt government and administration, even the joint ventures did not prove very successful in restoring production to pre-war levels. Spasmodic attempts were made to start new industries in the public sector — a jute mill, a cement factory, and a sugar factory were the most notable accomplishments — but by and large these did little to industrialize the country. Hardly any new large-scale industry, either public or private, was initiated. Because of these experiences, the radically socialist direction of government policy tended to weaken during the latter part of the 1950s. An investment policy statement issued in 1955 reserved only munitions manufacture and major public utilities for the public sector. In 1957, Prime Minister U Nu announced a policy broadly supporting new private enterprises, guaranteeing them for ten years against nationalization, and generally recognizing the need to harness the “profit motive” for industrial development. This gradual movement toward conservatism continued until the second military regime was established in the spring of 1962. Source: Myrdal (1968, p. 835).

physical infrastructure. Infrastructure services, which are narrowly defined to include power, transport, and telecommunications, affect the growth and efficiency of all sectors of the economy.12 In particular, inadequate supply of these services could constrain the sustained growth and development of directly productive activities. On the other hand, excessive investment in infrastructural facilities could be done at the expense of directly productive activities such as agriculture. One notable development in the infrastructure sector during the period under consideration was the nationalization in 1951 of private companies supplying electricity. Prior to that, the Myanmar electric supply system had been operated by several private companies licensed under the 1910 Act. However, in 1948 a new Electricity Supply Act was introduced in order for the state to

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eventually nationalize private companies supplying electricity. In the transport sector, coastal shipping and as mentioned earlier, the Irrawaddy Flottila Company in inland waterways came to be stateowned. Apart from that, water and road transport were largely private, while rail and the fledgeling air transport (Union of Burma Airways, or UBA) were state monopolies. Similarly, post and telecommunications, as in the pre-war period, was also a state monopoly. Allocation of investment in the public sector provided by Table 2.4 clearly shows the government’s emphasis on developing the physical infrastructure of the country. State investment in power, transport, and communication constituted more than 30 per cent of total investment between 1952/53 and 1955/56 and over 40 per cent during the First Four-Year Plan (1955/56 to 1959/60). While it is by no means easy in practice to assess the proper balance between investments in infrastructure and in directly productive activities, both Dr Mali and Dr Tun Wai felt that the government had been investing rather heavily in the former relative to the latter. To back up his view, Dr Tun Wai pointed out that the installed capacity of electric power in 1959/60 of 200,000 kW was over five-and-a-half times the pre-war capacity of 34,000 kW.13 F. Social Development

Myanmar has a long tradition of taking population censuses. A population census was said to have been taken during the reign of King Bodaw Paya (1782–1819). During the colonial period the first census was taken in 1872, the second in 1881, and from then on every ten years, up until 1941. According to that last census the population of Myanmar in 1941 was found to be approximately 16.8 million. After independence, 252 towns had their population censuses taken in 1953. This was followed by a census of 2,143 rural areas in 1954. Based on these two censuses a population of 20.3 million and 22.7 million were estimated for 1955 and 1961 respectively. The yearly growth in population was estimated at a moderate rate of 2.0 per cent.

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Table 2.16 provides an alternative measure of real GDP and per capita GDP on the basis of 1970/71 constant prices. Both Table 2.16 and Table 2.1 reveal a similar pattern of change in real per capita income. Real GDP per capita in 1961/62 was found to be still below the pre-war level of 1938/39, but significantly above the level in 1947/48. The average annual rate of increase between 1947/48 and 1961/62 had been estimated at around 3.0 per cent. This figure compares quite favourably with most other Asian countries at the time. However, according to Dr Mali, the increase in the standard of living had not been shared by all because of the inequitable distribution of increased wealth. According to him, the situation was further aggravated by inflation, and for certain sections of the population such as the agriculturists (for whom the price of paddy is fixed) and other fixed income groups, the standard of living deteriorated. The conclusion is debatable and may have been slightly overstated. This is because the monthly real wages provided by Hill and Jayasuriya based on estimates of the International Labour Organization (ILO) in fact indicated a rising trend for agriculture in the late 1950s (Hill and Jayasuriya 1986, p. 63). These two scholars did ponder over the reliability of the ILO data that they had used, and came to the conclusion that earnings differential between workers in the “organized” and “unorganized” sectors had probably narrowed. Table 2.16 Real GDP and Per Capita GDP, 1938–67 (In constant 1970/71 prices) Year 1938/39 1947/48 1948/49 1951/52 1956/57 1961/62 1966/67

Real GDP (Million kyat)

Real GDP Per Capita (Kyat)

6,483 4,663 3,983 4,767 6,424 7,758 8,355

395.3 262.1 218.1 254.4 304.0 335.4 330.1

Source: Steinberg (1981, p. 32).

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Parliamentary Democracy Period, 1948–62

The impact of Pyidawtha Discretionary Grants on the wellbeing of the people should also be taken into consideration. Under this system, the government set up a Pyidawtha Discretionary Fund for constructing and rehabilitating communal facilities (wells, schools, roads, bridges, and so forth) on the basis of 50,000 kyat per township on condition that public contributions of money, labour, and materials were made available for these community projects. Then again, people in Myanmar have traditionally accorded top priority to education. Monastic education has always played a major role in fostering basic literacy, but the leaders as well as the people have a yearning for modern education. Perhaps because of this, a large proportion of Myanmar’s expenditure goes into education (Table 2.17). A study by economists at the Yangon Institute of Economics also concluded that the socio-economic conditions in rural areas during the period being considered had improved slightly. In particular, significant improvements were made in the fields of education and health services. In education, thousands of primary, middle, and high schools were opened across the country between 1952 and 1960. During this period, the number of primary schools increased from 3,335 to 11,557, while enrolment in state-sponsored primary, secondary and high schools nearly tripled, from 666,000 Table 2.17 Government Outlay on Education by Selected Countries, 1951–59 Years of Observation

Pakistan India Burma Philippines Thailand Ceylon

Government Outlay on Education as a % of National Income

Around

End

Around

End

1951 1948 1950 1949 1951 1951

1959–60 1958–59 1958–59 1959 1959 1959

0.5 0.5 1.1 3.1 0.6 1.8

1.2 1.7 3.6 3.2 2.7 4.6

Myrdal (1968, p. 1665).

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Chapter 2 Table 2.18 Number of Schools and Students, 1945–61 (Thousands) Number of Schools

Number of Students

Year

Primary

Middle

High

Primary

Middle

High

1945 1954 1961

2,060 5,888 11,935

42 290 737

— 181 681

— 737.4 1,394.1

— 80.4 234.9

— 23.2 305.3

Source: Burma’s Agrarian History (1970).

to 1,764,000, and college enrolments more than doubled from less than 6,000 to over 12,000. The overall achievement in the expansion of public education was reflected in the increased percentage of eligible children in primary schools from 31 to 51 per cent, in the middle schools from 5 to 9 per cent, and in the high schools from 1 to 3 per cent (Walinsky 1962, pp. 365–66). See also Table 2.18. In matters of health, the rural people had to depend mainly on indigenous doctors and indigenous medicine during the colonial period. But in the post-independence period the rural people began to receive modern medical services. The number of Rural Health Centres (RHCs), which were introduced in 1953, increased from 112 in 1954 to 491 in 1961/62. Moreover, public health projects such as Anti-Malaria Campaign, Anti-Leprosy Campaign, and AntiTuberculosis Campaigns were carried out by the government. NOTES 1. As quoted at length by Hill and Jayasuriya, Sundrum and Hlaing summed up the historical experience of the colonial period as follows: “At the conclusion of one and a half centuries of fairly close contact with the modern world, Burma has emerged as a typical ‘underdeveloped’ country, by all the usual indices of incomes, investment and economic structure. But it is not so widely recognised that this occurred at the end of a long period of intensive ‘development’ of the country’s resources. Further, this development occurred primarily under the most highly recommended free trade patterns” (Sundrum and Hlaing 1961, p. 8). Stephen S. Resnick provides a detailed analysis on the destruction of rural industry under export expansion in Burma. The real lesson to be drawn from the experience is not that export orientation is bad,

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but that as pointed out by Ronald Findlay in explaining the success of outwardlooking countries, export orientation per se is not necessarily “growth inducing”. It has to be supported by such real determinants of growth as capital formation and technological progress so vital for the dynamic internal transformation of the economy (Findlay 1985). 2. The British Empire, the forerunner of today’s globalization and economic specialization, had created nations which were “economic specialists”: Myanmar for rice, Malaysia for rubber, and so forth. With the end of the Empire these nations lost their automatic markets — but some in the 1960s found their way back (the Commonwealth helped too). Myanmar’s refusal to join the Commonwealth even during the parliamentary period may be seen as an indicator of how far the trend towards isolationism, autarky, and xenophobia had advanced even then. 3. In the early 1950s Myanmar was regarded by many as a country with the greatest potential for development among Southeast Asian countries. 4. The present section is based largely on a brief but very lucid account of the Eight-Year Plan by U Tun Wai (Tun Wai 1965). 5. As is commonly known, there are many methods of computing ICOR, each with its own problems of compilation and interpretation. But it should be noted that even quite small errors in the calculation of ICOR could translate into a considerable difference in the rate of growth. For example, if a coefficient of 3.1 is used when in fact it should be 3.2, the additional output would have been overestimated by 3 per cent. 6. According to that system, the issuing of notes in Myanmar required the full backing in sterling and/or sterling securities, except for 100 million rupees, for which the Currency Board could hold reserves in Burmese currency or securities issued by the government of Myanmar. Until the enactment of the Union Bank of Burma Act in 1952, the currency unit in Myanmar was called the “rupee”. 7. According to Dr Mali, at the beginning of the period from 1952/53 to 1955/ 56, the foreign assets of the banking system substantially exceeded its monetary liabilities, and the current annual rate of imports. At the end of 1955/56, the foreign assets of the banking system amounted to less than half of the monetary liabilities (Mali 1962, p. 44). For more details on the financial and monetary trends in the 1950s, see K.S. Mali (1962) and U Tun Wai (1965). 8. For a detailed analysis of Burmese rice price policies, see Tin Soe and Fisher (1990). 9. The five foreign firms were Bombay Burma, Steel Brothers, Macgregor, Fuquor, and T.D. Findlay.

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10. In 1956/57 the government formed seven joint-venture corporations (numbered JVC 1 to 7) with private Burmese businesses to handle the import and internal distribution of various commodities with a view to bringing prices down (Tun Wai 1965, p. 17). 11. That was regarded as fairly liberal. The Act offered (a) an allocation of foreign exchange for importing the necessary raw materials and equipment to be exempted from customs duty for three years, (b) income-tax exemption for three years, (c) the right to accelerated depreciation on original investment, subject to negotiation, (d) a guarantee against nationalization for ten years, (e) compensation in the event of ultimate nationalization and the right to remit capital abroad, (f ) dividends and profits after taxation may be remitted at the official rate of exchange. Then in September 1961, the Investment Act was amended to permit guarantees against nationalization for any period the government fixes (in most cases twenty years or more). However, according to the report of the U.S. Trade Mission which visited Burma in early 1962, “On a comparative basis, the Investment Act does not offer as liberal an incentive as may be available to American investors in other countries” (U.S. Department of Commerce, Foreign Commerce Weekly, 9 April 1962, p. 587). 12. A broader definition of infrastructure, also referred to as “social overhead capital”, would include besides power, transport and telecommunications, irrigation, water supply, sanitation, and safe disposal of wastes. 13. While the logic of Dr Tun Wai is indisputable, over-investment in the power sector could be due to the lumpiness and indivisibility of investment in such projects as the Lawpita Baluchaung hydroelectricity project which began supplying electricity from April 1960 onwards.

© 2004 Institute of Southeast Asian Studies, Singapore

Reproduced from Economic Development of Myanmar by Myat Thein (Singapore: Institute of Southeast Asian Studies, 2004). This version was obtained electronically direct from the publisher on condition that copyright is not infringed. No part of this publication may be reproduced without the prior permission of the Institute of Southeast Asian Studies. Individual articles are available at < http://bookshop.iseas.edu.sg >

Socialist Period, 1962–88: Macroeconomic and External Sector

51

“When we plan our economy, do not let us confuse issues by bringing in politics. I appreciate that economics and politics are intimately connected, but let us keep politics out for the moment. Let us not indulge in attacks on imperialism, let us not look for excuses.” Aung San, 1947, in Aung San’s Family (Aung Than 1970)

When President Park Chung Hee took power through a military coup in 1961, he was said to have enshrined economic growth near the top of the regimes value hierarchy; economics took priority over politics. A. Introduction

During the eighteen months of its rule from May 1958 to January 1960, the caretaker government of the military gained some experience in the administration of the country. It established law and order, cleaned up the cities by removing squatters and relocating them in new towns, abandoned unnecessary state projects, and encouraged the creation of joint ventures between

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the government and foreign firms. Prior to that, it had created the Defence Services Institute, and gradually expanded its activities into all economic fields of the state, from international shipping to internal trade and production. In fact, it fashioned a sort of self-reliant enclave economy of its own within the larger economy of the country. All of this may have given them confidence that they could have greater success than the squabbling politicians could in dealing with the longer-term problems of development. As events were to prove most sadly, they could not be more wrong. Two reasons were given for the second military takeover. They were, one, that the Union of Myanmar was in danger of disintegrating; and two, that the political regime of the civilian government of U Nu has strayed away from the socialist path laid down by the nation’s founder, General Aung San. Immediately following the coup in 1962, three major documents were produced: The Burmese Way to Socialism, 30 April 1962; The Constitution of the Burma Socialist Programme Party, 4 July 1962; and The System of Correlation of Man and His Environment, 17 January 1963. The main thrusts of these documents and of the government’s policies were “Burmanization”, centrally planned socialist system, and an inward-looking strategy of self-reliance. Faithfully adhering to that policy mix, the government proceeded with great haste to lay the foundations for transition to a selfreliant socialist economy of Myanmar. Beginning with foreignowned companies including joint ventures, banks, businesses, industries, and all enterprises in foreign trade, domestic wholesale and even retail trade, forestry, fishery, mining, as well as hospitals and schools were nationalized. Where nationalization was not required, as in agriculture, cultivators were subjected to a battery of physical and price controls. They not only had to cultivate planned crops in the areas designated by the government, but also had to sell them to the state at below-market prices fixed by the government. Through nationalization as well as other means, the government also succeeded in ending the dominance of Chinese and Indian

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entrepreneurs and businessmen in Myanmar. By the early 1970s, all major economic activities except agriculture, small businesses, some retail trade, and road and river transport had been nationalized. What emerges was an extremely socialistic and control-oriented command economy. According to Steinberg, Dr Ba Maw, the doyen of pre-war Burmese politicians, was said to have remarked upon the publication of The Burmese Way to Socialism that “because it was socialist it was good, but because it was Burmese it was better” (Steinberg 1981, p. 30). According to U Thet Tun, an eminent person and an ambassador to the Republic of France and a high official of the United Nations Educational, Scientific, and Cultural Organization (UNESCO) in Paris, that was the fourth time Myanmar failed to take advantage of the opportunity for development. To quote: The Army, looking for a justification for a fait accompli coup d’état on its hands, turned left instead of right, thereby missing the opportunity of fast economic development under an authoritarian regime that neighbouring countries in East Asia enjoyed. (U Thet Tun 1999, p. 1)

According to Khin Maung Kyi et al.: The extent of “socialism” shocked even the Soviet and East European diplomats and visiting officials and academics. They realized that such draconian measures in the name of socialism could only give that ideology a bad name. (Khin Maung Kyi et al. 2000, pp. 10–11)

According to Dr Tun Wai, formerly Deputy Director at the IMF Institute, and consultant to the International Monetary Fund (IMF), United Nations Conference on Trade and Development (UNCTAD), United Nations Development Program (UNDP), and various governments, the main problem was the way socialism was managed. To quote, “Had the authorities been more careful on how socialism was managed, and if more appropriate economic policies had been used, perhaps Myanmar would have had an opposite experience” (U Tun Wai 1990, p. 21). Among the contemporaries and near contemporaries the only civilian whose opinion and views mattered, at least in the early

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years of military rule, was U Ba Nyein. A Burma Civil Servant, U Ba Nyein, was the civilian proponent of Brigadier Tin Pe, the reputed architect of the doctrinaire socialist policy among the military. B. Macroeconomic Performance

The economy of Myanmar, when the military took over in 1962 may not have been in the best of shape. Three factors clearly indicate that it was not in the best of shape. One was the fact that the level of real GDP had remained stagnant since 1959/60 when it was even very slightly higher than that of 1961/62 (see Table 2.1, in the preceding chapter). The second factor was the declining trend in the rates of savings and investment since 1957/58 although it did recover somewhat in 1961/62 (see Figure 2.3). The third factor was the declining trend in the trade balance since 1957, although again it did pick up somewhat in 1961/62 (see Table 2.7). Neither was the economy in dire straits. In terms of income per head, there was no difference between Myanmar and Indonesia, with the Philippines and Thailand slightly ahead. They were more or less at the same stage of development or underdevelopment. Myanmar’s savings and investment were somewhat higher than all these countries. Myanmar was also enjoying a fairly favourable balance of trade. Except for a year or two, inflation was not a serious problem. Moreover, during the past decade the government had also made heavy investments in physical infrastructure such as power, railway, and water transport. Thus, by most economic and development indicators Myanmar was in a favourable position as compared with these countries. If these countries were to be considered then as at the starting bloc of the race for development and growth, Myanmar could possibly be considered as the front runner. Furthermore, possibly because of the momentum of the past decade, the overall economic situation up to 1965 was not too bad. Average annual percentage changes in GDP and consumer prices

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Socialist Period, 1962–88: Macroeconomic and External Sector Table 3.1 Annual Average Growth of GDP, Investment, and Savings, 1962–88 (As a percentage of GDP) Years 1962–65 1966–69 1970–73 1974–77 1978–81 1982–85 1986–88

GDP Growth

Investment

National Savings

Resource Gap

4.9 2.2 1.3 4.7 6.5 4.7 –1.7

13.5 10.9 11.2 10.9 20.9 17.7 12.5

15.4 8.7 10.5 10.0 16.5 12.5 9.7

–1.9 2.2 0.7 0.9 4.4 5.2 2.8

Sources: Report to the Pyithu Hluttaw on the Financial, Economic and Social Conditions for 1988/89; and Review of the Financial, Economic and Social Conditions for 1989/90; IMF, International Financial Statistics (various issues); U Tun Wai (1990, p. 24).

between 1962 and 1965 of 4.9 per cent and 3.2 per cent respectively were acceptable (Table 3.1). The balance of trade on the average was also still slightly positive (Myat Thein and Mya Than 1995, p. 213). However, the overall deterioration in the economic situation from the cumulative adverse effect of nationalization, mismanagement, and inappropriate economic policies soon began to show, especially in the form of downward trend in rice exports, overall export earnings, savings, and investment. Rice exports dwindled from 1.6 million tons in 1962/63 to 0.64 million tons in 1966/67. This directly led to the drastic decline in export earnings from 1,262.7 million kyat to 500.8 million kyat during the same period. The fall in export earnings in turn led to the decline in imports, savings, investment, and growth in GDP. By 1967 the economic situation in the country had deteriorated so badly that it gave rise to three economies, that is, the nominal official economy, and two hmaung-kho (literally: “taking refuge in the dark”) or black-market economies. The public distribution system in the nominal official economy was so inefficient that most essential goods came to be resold (that is, redistributed)

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through the black market to the real or actual consumers. In other words, the inefficient distribution system was as important as the actual shortages of goods in bringing about the burgeoning growth of this black market for goods of domestic origin or those imported legally. The other black market for goods smuggled across the border arose from the drastic cuts in official imports of consumer goods, which will be elaborated later. There were shortages of rice and other essential foodstuffs which were either not available or were illegally sold in these black markets, often at exorbitant prices. Luckily for the military government, the anti-Chinese riots (stemming from the spillover of the Cultural Revolution into Yangon) and the rise of these black-market economies (compensating to some extent the inefficiency of the official economy) diverted the attention of the population from the economic malaise.1 Unfortunately, it also diverted the attention of the authorities from the seriousness of the economic problem. In this connection, over-sensitiveness on the part of the government to any criticism was a major contributory factor in making the government blind to reality. As early as 1963, News Agency Burma (NAB) was created to replace the work of independent foreign news agencies. The NAB thus effectively shut out any news from abroad that may reflect the Revolutionary Council in a bad light. This was followed by the publication of the government newspaper, the “Working People’s Daily”, first in Burmese, then also in the English language. Finally, still not satisfied with having its own organ, the English daily “Nation”, as well as three Burmese dailies, was closed down. The government thereby effectively stifled any criticism and voices of opposition, sending them all underground. It also blinded itself to any genuine concerns of the people. Thus began the isolation of the government not only from the world but also from its own people. B.1. Growth of GDP, Investment, and Savings

Official data show the growth rate of GDP to have declined to 2.2 per cent in 1966–69 along with the decline in investment and savings (Table 3.1). Investment and savings declined from 13.5 per cent

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Socialist Period, 1962–88: Macroeconomic and External Sector Figure 3.1 Investment and Savings, 1961–98 40% 35% 30% 25% 20% 15% 10% 5%

Investment

Savings

1987/88

1985/86

1983/84

1981/82

1979/80

1977/78

1975/76

1973/74

1971/72

1969/70

1967/68

1964/65

1963/64

1961/62

0%

Investment (Thailand)

and 15.4 per cent of GDP respectively in 1962–65 to 10.9 per cent and 8.7 per cent respectively in 1966–69. The average annual GDP growth for the revolutionary council period as a whole (between 1962 and 1973) of 1.7 per cent was below the annual population growth rate of 2.1 per cent. This meant an absolute decline of 0.4 per cent per year in per capita terms. Figure 3.1 illustrates trends in investment and savings for the socialist period under military rule as a whole. The fact that both remained stunted in Myanmar during the study period is contrasted with that of Thailand by way of example. Actually, following the newly industrializing countries (NICs), Indonesia, Malaysia, and the Philippines were also experiencing the same rising trend in both investment and savings during the same period. See Appendix Table A3.2. The dismal performance in Myanmar could have been avoided had the government been more alert to what was happening in the region or had the warnings by Myanmar’s own economists been heeded. For about that time, the fact that a handful of countries

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in Asia began to emphasize exports and generated rapid exportled growth had come to be noticed. For instance, a homegrown economist of international renown, Dr Hla Myint, pointed out the disadvantages of inward-looking policies, which Myanmar and Indonesia had been following (Hla Myint 1967). Then again, in the report of the Fifteenth Annual Consultative Meeting of the Colombo Plan, held in Yangon in 1967, the close connection between lack-lustre export performance and low GNP growth rates was brought to the attention of all the delegates. The report was chiefly the work of Myanmar economists as Myanmar was the host country. It was specifically noted: “Exports declined in India, Burma and Ceylon and these were the countries where there were low growth rates of GNP” (The Colombo Plan 1967, p. 4). In contrast, expanding exports and foreign investments in tandem were pulling the countries of South Korea, Taiwan, Hong Kong, and Singapore out of the state of underdevelopment and turning them into newly industrializing countries.2 In the process, the authoritarian regimes amongst the successful economies would also gain some sort of political legitimacy based upon an implicit social contract by which they obtained the support of the general public in exchange for a steadily growing prosperity.3 Eventually these countries became models for high-performing Asian economies (HPAEs) such as Indonesia, Malaysia, the Philippines, and Thailand. Contrasting experiences of inward-looking countries such as Myanmar and the HPAEs could best be explained with the aid of the following schema (Figure 3.2). Figure 3.2 is admittedly one of the most simplified but also appropriate variants amongst such diagrams for depicting contrasting experiences of Myanmar and the HPAEs. It focuses purely on the economic policy aspects of development of developing countries since the 1960s. Hence, it is important to note that at best it provides a partial explanation of the development or underdevelopment of developing countries. As in Myanmar, many developing countries after World War II started out with an import-substituting industrialization (ISI) strategy. After a decade or so, however, they found themselves (like

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Socialist Period, 1962–88: Macroeconomic and External Sector

Myanmar) getting mired in a vicious cycle of stagnant or falling exports, leading to balance-of-payments (BOP) and budgetary constraints, and further to low investment, slow industrialization and low growth, and finally back to low exports and increased raw material imports, as depicted on the left side of Figure 3.2. This led the NICs and later HPAEs to switch to an export-oriented industrialization strategy and the promotion of foreign direct investment (FDI). As a result, they soon came to enjoy a virtuous cycle of exports and FDI increase, a lessening of BOP and budgetary constraints, higher investment, faster industrialization, and high growth as depicted on the right side of Figure 3.2. Why did Myanmar fail to heed the warnings by its own economists and/or follow the example of others? Given the tendency of inward-looking regimes to be oblivious of developments in the world and surrounding countries, this question may seem irrelevant. However, there are explanations specific to Myanmar. One of them was the fact that the economists from the Institute of Economics, Yangon, who were largely responsible for the Colombo Plan report mentioned earlier, were way out on the periphery of the ruling hierarchy. On the other hand, the influence of Brigadier Tin Pe and Figure 3.2 Contrasting Experience of Myanmar and the HPAEs From a vicious cycle to a virtuous cycle Myanmar HPAEs Import substitution

Export and FDI promotion

▲

▲ Low exports and increased raw material imports

▲

High investment, faster industrialization, and high growth

▲ BOP and ▲ budgetary constraints

▲

▲

Low investment, slow industrialization, and low growth

▲

Relaxation of BOP and budgetary constraints

Source: Courtesy of Seiichi Masuyama (personal communication).

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U Ba Nyein had not yet waned although both of them were removed from power by the early 1970s. Hence, the official perception regarding the relative decline in exports was that the country was becoming more self-reliant. As stated in the 1968/69 Report to the People, “Burma is no longer an export-oriented economy as it was in the past” (Report to the People on the Revolutionary Government’s Budget Estimates for 1968/69, p. 26). Little did the policy-makers realize that the economy was in fact getting mired in a destructive development cycle of falling exports, leading to BOP and budgetary constraints, and further to low investment, slow industrialization and low growth, and finally back to low exports and increased raw material imports. More importantly perhaps, a great opportunity was missed when nothing came out of the dialogue, which took place around that time, between General Ne Win and thirty-three leading figures from the opposition groups including Prime Minister U Nu and Deputy Prime Ministers U Ba Swe and U Kyaw Nyein. The majority report of that dialogue did call for the abandonment of the direction the Revolutionary Council had been taking for the past seven years and the restoration of the pre-coup political system. But none of these demands were acceptable to General Ne Win and the Revolutionary Council and so it ended. It was only in September 1972 when a new policy document entitled “Long-Term and Short-Term Economic Policies of the Burma Socialist Programme Party (BSPP)” was approved by the central committee of the BSPP that official recognition of the link between the country’s economic isolation and its poor economic performance was made. Even then, the government was still reluctant to allow FDI, preference being given to raising the level of foreign aid. Related to the above policy failure was the continued neglect of the agricultural sector (Table 3.2). State investments in the agricultural sector declined from 13 per cent of total investment in 1962/63 to 10.6 per cent in 1974–77, while that of the processing and manufacturing sector increased from 4.9 to 25.8 per cent over the same period.

© 2004 Institute of Southeast Asian Studies, Singapore

17.7 — — 0.9 100.0

36.4 4.9 30.5 1.0 100.0

Services Trade Social and administration Finance

© 2004 Institute of Southeast Asian Studies, Singapore

100.0

10.3 — — —

23.6 5.3 12.4

72.0 9.2 6.5 3.6 13.3 36.4 3.0

1978–81

100.0

17.8 — — —

17.1 8.3 8.8

65.1 11.0 2.5 2.7 8.5 36.0 4.4

1982–85

100.0

21.5 2.5 18.8 0.2

26.5 8.8 17.7

52.0 9.2 2.8 2.9 3.8 24.1 9.2

1986/87

100.0

16.1 2.0 13.8 0.3

30.4 12.6 17.8

53.5 12.8 1.9 3.0 6.4 20.1 9.3

1987/88

100.0

20.7 2.0 18.1 0.6

26.2 11.1 15.1

53.1 9.0 2.6 4.1 12.5 15.2 9.7

1988/89

Sources: Report to the Pyithu Hluttaw on the Financial, Economic and Social Conditions for 1988/89; Review of the Financial, Economic and Social Conditions (various issues).

17.7 6.2 17.4

27.7 4.2 23.5

Infrastructure Power Transport and communications

58.7 10.6 3.2 4.9 11.1 25.8 3.1

35.9 13.0 — 0.2 2.0 4.9 15.8

1974–77

Productive sector Agriculture Livestock and fishery Forestry Mining Processing and manufacturing Construction

1962/63

Table 3.2 Public Investment, by Sector, 1962–89 (As a percentage of total)

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Moreover, the government’s egalitarian policy of maintaining low and stable consumer prices by keeping prices of agricultural output low and unchanged despite increases in other prices affected agriculture production adversely. This meant falling real farm income and lowered incentives for production and investment, as a result of which agricultural production stagnated. Its rate of growth of 1.76 per cent per annum was also below the population growth rate. Consequently, both exports as well as revenue for the central government declined. Falling exports and revenue in turn meant reduction in imports, investment, and overall supply, leading to inflation, thus further exacerbating the fall in real income. (Myat Thein and Mya Than 1995, pp. 212–13)

Another reason for the low rates of growth in the first decade of the socialist regime was the reluctance on the part of the authorities to accept foreign aid. Of course, according to the prevailing view at the time, socialism and foreign investment would make strange bedfellows. But as pointed out by Dr Tun Wai, foreign assistance could have been accepted on a large scale from the beginning. Thus, the policy of “going it alone” under the mistaken notion of self-reliance greatly limited the size of total investment and the rate of economic growth (Tun Wai 1990, p. 23). Here one is inclined to side a little with U Thet Tun in so far as the choice of socialism shuts out the foreign investment option. On the other hand, even if the military had turned right instead of left, how much they can make of it is still debatable. In other words, the management ability of the military, given its distrust of technocrats and anyone holding an opposite view, is highly questionable. Indeed, besides policy failure, poor management was also responsible for the deteriorating state of the economy. It is understandable that military personnel trusted by General Ne Win would fill all the cabinet posts. This is a sharp break from past practices of his predecessors, but to replace experienced civilian members at the upper levels of administration with military officers with no experience whatsoever was clearly inviting disaster. For, given the lack of experience these officers would either rashly make

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wrong decisions or push them to the next higher level. On the other hand, as soon as these people gained some experience they were more often than not replaced with new and inexperienced military officers. The replacements were not done out of the desire to have more effective administration. In most cases they were done to ensure loyalty among junior officers by letting them know that their turn would come sooner or later. Little did General Ne Win realize that he was setting a bad precedence which would forever hamper the future development of the country.4 As regards civilian appointments, the perceived need to breed “loyal” rather than “able” men was equally disastrous. This policy of what in Burmese is called Lukawn Lutaw — good man first and smart man second — was likened by Mya Maung to Mao’s dichotomy discernible in his writings on “red” versus “expert” cadres (Mya Maung 1998, p. 228). The problem with this approach was that when these few trusted civilians were entrusted with key positions in the administration, they stopped thinking and came to behave much like their military counterparts. Furthermore, in order to have checks and balances, most decisions were taken in committees which did not even have real powers to decide on matters which would be regarded as unimportant or not all that important in other countries. The job of the committees was really to submit proposals to the cabinet. As a result, decisionmaking became amateurish, highly centralized, and too cumbersome to be effective. As Dr Tun Wai went on to elaborate, amongst other things, “the military felt that they did not need to accept the advice of technocrats and quite often took decisions based on socialist principles rather than on pragmatism. There are interesting anecdotes of the way imported goods were distributed equally to all regions without considering variations in income levels, taste, climate, and the size of local production. The country-wide sale of goods at a uniform retail price, irrespective of differing transport costs, is another example of socialist principles taking precedence over pragmatic considerations” (Tun Wai 1990, p. 22). In contrast, in Indonesia President Soeharto managed to steer economic policies with the

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help of competent economic advisers, commonly referred to as the “Berkeley Mafia”. The limping national economy was eventually manifested in the form of growing unemployment among the young people, rising food costs, shrinking purchasing power, and shortages in essential commodities, especially rice and cooking oil. These were some of the economic issues that provoked the students’ strike and demonstration of June 1974, and the labour strikes and riots from May to June 1974. The impact of the international inflationary spiral that began in 1973, the year of the Arab oil embargo, may also have had a hand in aggravating the economic situation largely through the black market. The official version of these events was that the communists instigated them. To the extent that it was true, it just goes to show the interaction between social, political, and economic factors. More to the point, these strikes and riots may have further alienated the military rulers from the ruled. They may have also entrenched the military in what has come to be referred to as the “bunker mentality” or “siege mentality”. Mutual mistrust between the rulers and the ruled in turn makes the attainment of social cohesion and economic progress nearly impossible. The poor state of the economy forced the government to take a number of reform measures. Government procurement prices for paddy and other “controlled” crops were raised in 1973/74.5 This was followed in 1975/76 by the “Whole Township Special Paddy Production Programme” to raise productivity through a “Green Revolution” by using improved high-yielding variety (HYV) seeds and fertilizers. At the same time, management reforms of the stateowned economic enterprises (SEEs) were undertaken by making them operate along commercial lines; and private investment, ownership, and operations in some 236 industries were encouraged. The government also softened its self-reliance policy by accepting development assistance and foreign loans. According to one study, ODA loans were roughly twice the volume of grants between 1974 and 1986 (Khin Maung Nyunt 1990). This led some scholars such as Kazushi Hashimoto to argue that economic growth only started

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after Myanmar began to accept ODA (Hashimoto 1989).6 These reforms also coincided with the launching of the Second Four-Year Plan (FYP), which was actually the first of a series of Four-Year Plans, which together comprised the Twenty-Year Plan (TYP).7 The TYP (1974/75 to 1993/94) had the objective of doubling per capita GDP by the end of the plan period. Another major objective was to change the structure of the economy from an agricultural economy to an agro-based industrial economy within twenty years. Apart from the fact that it was obvious by 1985/86 (or by the end of the fourth FYP) that neither of these objectives were likely to be fulfilled, the TYP came to be abandoned after the collapse of the socialist regime in 1988. It would seem from past experience therefore, that any economic plan of more than five years duration in Myanmar is doomed to be aborted. Perhaps there is a lesson here. More importantly, some softening in the self-reliant policy stance and significant inflow of ODA, rather than the TYP, were responsible for the fairly high rates of growth recorded during the mid-1970s and early 1980s (Table 3.1). But such growth rates could not be sustained as fundamentally there had been no significant change either in the overall policy stance or the way the economy was managed or mismanaged. As noted by Myat Thein and Mya Than: … government procurement prices for rice and other important crops soon began to lag behind free-market prices. Foreign trade was still the monopoly of the state. And although export promotion came to be emphasized, the overvalued official exchange rate remained intact. Then again, despite the fact that agriculture had been given priority over industry, industrial SEEs continued to have the lion’s share of state capital expenditures. In short, government intervention in the economy was still very pervasive, and there was no systemic change and no marked improvements in the management of the economy. (Myat Thein and Mya Than 1995, p. 214)8

Therefore, when the Green Revolution effect faded and the government was forced to reduce the inflow of foreign capital due to mounting debts, the economy reverted back to its usual cycle of agrarian boom and bust, depending on the vagaries of weather and world price changes. Hence, the decline from the early 1980s

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Years 1982–85 1986–88 1986/87 1987/88

GDP Growth*

Money Supply*

Inflation*

4.7 –1.7 –1.1 –4.0

10.3 –2.4 14.5 54.0

5.7 17.4 9.2 23.9

Export Ratio Import Ratio 5.9† 3.2† 4.1 2.4

10.5† 6.3† 6.7 5.9

* Average annual percentage change. † Annual average as a percentage of GDP.

onwards was neither unexpected nor unusual: By 1987 the foreign exchange reserves had fallen to an all-time low of 346.6 million kyat or about one month’s worth of imports. The debt-service ratio had climbed to 58.24 per cent of export earnings and the consumer price index had risen by 23.9 per cent. (Myat Thein and Mya Than 1995, p. 215)

The tabular matter above provides a snapshot view of the deteriorating state of the economy in the 1980s. In the mid-1980s, the government tried to contain the deteriorating situation by cutting down imports and public investment while at the same time printing money to finance the budget deficit. The first two measures slowed growth whereas the third caused the black market to grow and inflation to escalate. These in turn led the government to the demonetization of the kyat in 1985 and 1987 and to eventual collapse of the socialist regime in 1988. B.2. Monetary and Fiscal Developments

As mentioned earlier, all the banks in Myanmar were nationalized in February 1963. Then in May 1964 newly designed notes and coins were issued after the demonetization of 100-kyat and 50-kyat notes. Not long after, the pay scales of bank personnel were revised downwards in order to bring them in line with other government employees.9 The system of accounting and interest rates on loans and deposits were also changed to conform with the one used by the State Commercial Bank. Then from 1965 the government set out to transform the financial sector along socialist lines into a mono-bank system. This was accomplished in November 1969 under the People’s Bank of the Union of Burma Act, 1967.10

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As the only bank in Myanmar, the People’s Bank of Burma (a carbon copy of Gosbank in the Soviet Union) functioned not only as a central bank but also engaged in commercial, industrial, savings, insurance, and financing operations through specialized divisions. Its existence was short-lived, however. Soon after the launching of the Twenty-Year Long-Term Plan it was reorganized under the 1975 Bank Law. The new banking set-up, organized on a functional basis, consisted of the Union of Burma Bank (UB*B) as the central bank, and three specialized banks under its supervision. The three specialized banks are the Myanmar Economic Bank (MEB), the Myanmar Agriculture Bank (MAB), and the Myanmar Foreign Trade Bank (MFTB). The insurance function was transferred to the newly created Myanmar Insurance Corporation (MIC) outside the banking system. The UB*B, as the central bank, in consultation with the Ministry of Planning and Finance and sometimes with the International Monetary Fund (under stand-by arrangements), is entrusted to draw a credit plan and prescribe a credit ceiling. It should also prepare a cash plan and project the “permissible” level of money supply that may be injected into the economy in the coming year. Above all, in its advisory role, the UB*B may advise the government on monetary matters as and when needed. In practice, however, the credit plans and cash plans merely accommodate the requirements of the public sector, and are derived from investment, production, procurement, and trading targets of the annual plans. As will be seen, it is the fiscal policy which plays the dominant role in determining the pace and direction of economic development. As for its advisory role, it is well known that in Myanmar all major decisions on monetary matters, such as the issue of currencies, credit expansion, interest rates, foreign borrowing, exchange rate, demonetization, and so on are made not by the UB*B or even the Minister of Planning and Finance, but by the ruling oligarchy. The MEB, as the State Commercial Bank, mainly finances the activities of the SEEs and the co-operative sector, and to a much

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lesser extent, registered private enterprises. The MAB, which lends through a system of village banks, provides seasonal finance for crops as well as medium- and long-term loans for agricultural development. The MFTB, acting on behalf of the UB*B, conduct all foreign exchange transactions arising out of external trade as well as non-trade activities of the state. Exchange control is, however, administered by the Exchange Control Board through MFTB in accordance with instructions from the Ministry of Planning and Finance. Table 3.3 shows data on money, credit, and prices for Myanmar for the period 1962–88. It can be seen from the table that doubledigit rates of increase in the money supply (1966–69 and 1986– 88 excepted) were quite high relative to modest rates of growth of GDP (Table 3.1). In spite of that, inflation rates were not high except for 1974–77 and 1986–88. Thus, there did not seem to be any correlation between increases in money supply and inflationary rates. One obvious reason could be that the prices shown in the table are official prices, which tend to hide “suppressed inflation”. Another reason could be that some of the increases in money supply were offset by considerable increases in personal savings (Myat Thein 1990). This must be particularly so for the period between 1978 and 1985 following the increase in the rate of interest from 6 to 8 per cent in 1977. Personal savings had been increasing at very high rates of 28.33 per cent annually (between 1976/77 and 1987/88) in spite of negative real interest rates since the mid-1980s (Myat Thein 1990, p. 60). Nominal interest rates for the twelve-year savings certificates and savings bank accounts of 10.9 per cent and 8.0 per cent respectively were below the average inflation rate of 17.4 per cent between 1986 and 1988 (Table 3.3). The overall deteriorating situation of the economy may be seen from Figure 3.3, which shows some of the key economic indicators. On the whole, there did not seem to be any systematic analysis of the effect of monetary and credit aggregates on prices and balance of payments. Instead, as noted by Dr Tun Wai, whenever

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Socialist Period, 1962–88: Macroeconomic and External Sector Table 3.3 Money, Quasi-Money, Credit, and Prices, 1962–88 (Average annual percentage changes) Money 1962–65 1966–69 1970–73 1974–77 1978–81 1982–85 1986–88b

Money Plus Quasi-Money

11.0 3.8 17.6 16.0 12.9 10.3a –2.4c

Domestic Credit

GDP Deflator

Consumer Prices

12.4 10.1 16.3 14.6 19.8 17.2 15.3e

–2.8 5.3 8.3 14.2 3.0 1.9 10.3

3.2 6.1 7.8 19.5 0.1 5.7 17.4

1.2 3.2 12.3 14.1 17.3 11.2 2.1d

a

Three-year average. Average of two years, 1986 and nine months ending September 1987 for money, quasi money, and credit. c Average of 41.4 per cent increase in 1986 and –46.2 per cent in 1987. d Average of 31.3 per cent increase in 1986 and –27.1 per cent in 1987. e Average of 33.2 per cent increase in 1986 and –2.7 per cent in 1987. b

Sources: IMF, International Financial Statistics (various issues), and Yearbook, 1988; U Tun Wai (1990), p. 34.

Figure 3.3 Trends in Economic Performance, 1962–88 60% 50% 40% 30% 20% 10% 0%

GDP growth

Money supply

© 2004 Institute of Southeast Asian Studies, Singapore

Consumer prices

1987/88

1986/87

1986–88

1982–85

1978–81

1974–77

1970–73

1966–69

1962–65

–10%

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the authorities sensed that things were getting out of hand, they would use the technique of demonetization of the larger currency notes to try to bring about a more sensible balance between money, output, and prices: hence, as mentioned earlier, the demonetization of 1964, 1985, and 1987 — all following the double-digit increases in money supply (Table 3.3). The first two rounds of demonetization did not hurt the masses because holders of small amounts of notes were given the new currency on a one-to-one basis. But on the third round, not only were there no compensation, but small and medium-sized notes of 25 and 35 kyat were demonetized with disastrous effect on the poor people. As a result, the third round of demonetization was very unpopular. The resentment bottled up at that time would eventually have a chance to surface during the popular democratic demonstrations of 1988. Apart from the above, the government did not appear to have much appreciation of the importance of the banking sector in the mobilization of financial resources either. Furthermore, given its “inward-looking” nature, it did not bother to look around as to what was happening in the region. Had it looked around it would have seen that the rates of savings and investment in the NIEs and HPAEs were increasing significantly year by year while they remained low and stunted at home. In the 1970s and the 1980s the NIEs were saving and investing around 30 per cent of their GDP on the average, which was more than twice that of Myanmar. This was not only because their macroeconomic environment was conducive to private sector savings, such as positive real interest rate, low inflation, and stable financial structure, but also because their governments had taken deliberate measures to encourage savings. For example, in Singapore a mandatory pension scheme called the Central Provident Fund has been used to bring about forced savings. As mentioned earlier, other HPAEs soon followed in the footsteps of the NIEs. The financial sector in Myanmar, as it stood near the end of the 1980s, was in some respects even less developed than it was before the 1963 nationalizations.

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Taking the currency ratio, defined as the ratio of currency to the narrow definition of money (M1), as a proxy of financial development, it is noteworthy that it was 70.3 per cent in 1987 whereas it was even less, at 63.05 per cent in 1962. In other words, in terms of the complexity of financial structure and the diversity of financial instruments available, the financial sector in Myanmar in 1987 was even less developed than it was in 1962. (Myat Thein 1990, p. 63)11

An alternative view of the development or underdevelopment of the financial sector and its implications on economic growth in Myanmar is provided by Collignon. According to him, economic development requires, on the one hand, the accumulation of private debt titles and, on the other, the willingness of wealth owners to hold their wealth as financial claims or what is called the “monetization of capital”. In this way debtors (private companies) are obliged to create income to service their debt and this is what drives the economy. In Myanmar, however, Collignon found domestic monetized capital to be negative around 1989 owing to foreign capital inflows. Thus, he concluded: “It is paradoxical that this was the result of Ne Win’s policy of self-reliance” (Collignon 2001, p. 94). Low rates of savings and investment in Myanmar noted earlier could also be explained by the lack of development of its financial sector. In other words, the importance of developing the financial sector also lies in the fact that it could promote savings, investment and hence economic growth. According to a study on domestic savings and financial development in Asian countries: “Countries with higher levels and faster growth in M2/GDP tended also to have higher saving, investment, and real rates of economic growth” (James et al. 1987, p. 79). The government’s budget mainly consists of the budget of state administrative organizations (SAOs) and that of the SEEs. The current receipts of SEEs, which are not included in the government revenue, do not as a rule cover their current expenditure. Figure 3.4 shows trends in fiscal developments. Like its predecessor, the Revolutionary Council initially tried to be fiscally prudent. Except for a couple of years when the deficits were

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minimal the government had surplus budgets up to 1967/68. Budgetary deficits became serious only in the early 1970s to mid1970s. Then a surplus of revenue over expenditure was recorded between 1977/78 and 1984/85 when Myanmar came to depend on foreign borrowing and official development assistance (ODA). This brief respite masked the fall in government revenue as a percentage of GDP and the shrinking trend in the revenue base. Inevitably, the fall in revenue was accompanied by a fall in expenditure as a percentage of GDP. In other words, budgetary surpluses over the years from 1977/78 onwards were achieved only at the expense of cuts in government expenditure. When expenditure cuts became quite unrealistic the situation deteriorated rapidly. That was from the mid-1980s onwards. On the positive side, two of the major developments that may have contributed to economic growth since the mid-1970s were the introduction of the Commodities and Services Tax (CST) in 1975/ Figure 3.4 Revenues and Expenditures Decline: Revenue, Expenditure, and Budget Surplus/Deficit, 1961–88 (As a percentage of GDP) 35% 30% 25% 20% 15% 10% 5%

1987/88

1985/86

1983/84

1981/82

1979/80

1977/78

1975/76

1973/74

1971/72

1969/70

1967/68

1965/66

1963/64

–5%

1961/62

0%

–10% Revenue

Expenditure

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Surplus/deficit

Socialist Period, 1962–88: Macroeconomic and External Sector

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76, and the establishment of the Export Price Equalization Fund (EPEF) in August 1976. The CST simplified the existing tax structure and broadened the base of indirect domestic taxation. The EPEF, an alternative measure to exchange rate adjustment, was designed to promote exports by transferring a portion of export earning surpluses to those exporters whose products had become unprofitable. The remaining portion, if any, had to be transferred to the budget as government revenue. The EPEF was seen by the authorities as a temporary measure and not as a desirable instrument of economic management in the longer term. The CST, together with the EPEF, was said to have “raised the share of Union Government revenue in GDP from less than 10 per cent in previous years to almost 14 per cent in 1977/78” (Maung Maung Hla 1985, p. 10). “As exports did not increase appreciably during the period being considered, apparently EPEF succeeded more in raising revenue than in promoting exports” (Myat Thein 1990, p. 59). C. External Sector Performance

As mentioned earlier, foreign trade came to be the monopoly of the state after the Revolutionary Council took over power in 1962. Hence, all official trade was conducted through trading corporations or handled directly by state producers (See Mya Than 1992, Appendix II, pp. 106–11 for details). As far as exports were concerned, the change in the trading regime might not have been all that significant so long as rice continued to be the major export earner, since the trade in rice was also the monopoly of the state through the SAMB in the previous government. Moreover, as in the past the government continued to tax exports by maintaining official procurement prices well below their international prices. With regard to imports, however, they were no longer market-determined as in the past, but were instead administered by the state in accordance with plan priorities and availability of foreign exchange. Quantitative controls rather than tariffs came to be the order of the day. This represents a major break from the past. In particular, the fact that

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only a limited amount of consumer goods could be imported, and then rationed, due to a shortage of foreign exchange gave rise to the emergence of a black market. As in the preceding chapter, exports, imports, and balance of trade are shown in U.S. dollars so as to be comparable (Table 3.4). As will be seen presently, a somewhat different picture emerges, especially with regard to the balance of trade, when they are presented in terms of kyat. As may be expected, the performance of the external sector corresponds closely to that of the overall performance of the economy or vice versa. The value of exports declined dramatically from US$222 million in 1961/62 to US$111 million in 1968/69, largely due to the decline in export volume (trade indices: 179 to 73), especially from the mid-1960s onwards. As noted earlier, these were the years when the GDP remained stagnant. Then from 1969/70 onwards exports recovered, increasing from US$132 million to US$188 million in 1974/75. This time around it was almost entirely due to favourable terms of trade as the export volume was still very much below the 1962 level. At any rate it pulled the economy up and provided some breathing space to the authorities. Unfortunately, this did not last. From 1983/84 onwards it began to nosedive again in a free fall. Both the fall in export volume and unit value of exports was responsible for the decline.12 In terms of kyat, the fall in exports from 1,272 million kyat in 1961/62 to 591 million kyat in 1970/71 was just as dramatic (Figure 3.5). However, as indicated earlier, the big difference between the two sets of data was in the balance of trade. Unlike Table 3.4, Figure 3.5 shows perennial balance of trade deficits from 1977/78 to 1987/88. This could be partly due to the fact that exports are recorded on an f.o.b. basis while imports are on c.i.f. basis as well as to valuation of personal imports (such as motor cars) with overvalued exchange rates for levying of customs duties. By the early 1980s, the total outstanding debt was estimated at US$3 billion. As pointed out by some scholars, the absolute level of this debt was small by international standards; but it

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Socialist Period, 1962–88: Macroeconomic and External Sector Table 3.4 Exports, Imports, and the Balance of Trade, 1961–89

Trade Indices Value (US$ millions) Year Trade (Base Export Unit Export Balance Deficit/Surplus year = 1985) Volume Value Export Import of Trade as a % of Imports 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

179 158 122 54 77 80 53 73 67 98 114 118 113 53 51 73 75 67 97 98 99 114 124 118 100 113 82 53

24 25 27 35 23 25 93 99 114 136 126 130 112 92 98 99 113 114 114 136 151 126 123 130 133 112 94 92

222 265 270 233 225 194 124 111 132 108 124 120 130 188 173 206 214 242 383 472 462 391 278 301 303 288 219 147

215 219 234 271 247 158 124 114 165 155 168 133 106 176 197 177 241 307 319 353 373 409 268 239 283 304 268 244

7 46 36 –38 –22 36 0 –3 –33 –47 –44 –13 –18 12 –24 29 –27 –65 64 119 89 –18 10 62 20 –16 –49 –97

3.2 21.0 15.4 –14.0 8.9 22.8 — 2.6 20.0 –30.3 –26.2 –9.8 –16.9 6.8 –12.2 16.4 –11.3 –21.2 20.1 33.7 23.9 4.4 3.7 25.9 7.1 5.3 18.3 39.7

Sources: IMF, International Financial Statistics (September 1969); and Yearbook, 1993.

should also be noted that Myanmar’s exports were also relatively small (Hill and Jayasuriya 1986, p. 37). At any rate, the worsening situation had at last drawn the attention of the authorities, who then began to emphasize the need to increase exports. In a turn around from the 1968/69 position when it was declared that “Burma is no longer an export-oriented economy as it was in the past” (quoted earlier), the Report to the Pyithu Hluttaw in 1983 stressed

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Chapter 3 Figure 3.5 Exports, Imports, and Balance of Trade, 1961–88 (Million kyat)

7,000 6,000 5,000 4,000 3,000 2,000

Export

1987/88

1985/86

1983/84

1982/83

1980/81

1978/79

1976/77

1974/75

1972/73

1970/71

1967/68

1965/66

1963/64

0

1961/62

1,000

Import

that “Export promotion is indeed a crucial factor in the successful implementation of the socio-economic plan” (quoted in Hill and Jayasuriya 1986, p. 37). Sadly, however, this awareness of the need to promote exports was not followed by any new policy initiatives or programmes. The performance of the external sector in relation to that of changes in GDP provides an alternative view of the deteriorating state of the external sector (Figure 3.6). As may be seen from this Figure, except for a brief spurt between 1976 and 1983, both exports and imports as percentages of GDP have been falling throughout the period. Overall, both fell from about 20 per cent of GDP in 1962/63 to around 3 or 4 per cent in 1987/88. As indicated earlier, this trend is in sharp contrast to the experiences of the HPAEs. In general, the value of imports was mainly determined by export revenues, as the government was neither eager to take ODA nor to borrow substantially from abroad.13 Thus, unless Myanmar had become really self-reliant and exports no longer important as some of the authorities liked to claim (which events were to prove to be very wrong), the downward trend clearly suggests that Myanmar was in serious trouble.

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Socialist Period, 1962–88: Macroeconomic and External Sector Figure 3.6 Trade Performance as a Percentage of GDP, 1961–88 20% 18% 16% 14% 12% 10% 8% 6% 4%

Export ratio

1987/88

1985/86

1983/84

1981/82

1979/80

1977/78

1975/76

1973/74

1971/72

1969/70

1967/68

1965/66

1963/64

0%

1961/62

2%

Import ratio

Figure 3.6, though illuminating, does not provide a complete picture of the external sector and its importance to Myanmar. This is because of the ever-increasing volume of illegal trade which came into being. According to a number of estimates the volume of illegal trade was roughly 50 per cent of official trade. But some estimates indicate that it may in fact be two or three times the official trade.14 What is clear, however, is that the economy was becoming more and more dependent on the black market and smuggling. The decline in export earnings could be attributed to not only the fall in traditional exports, particularly rice, but also to the failure to develop any new export industries (Figure 3.7). It may be seen from Figure 3.7 that the share of agricultural products in the total exports declined from 82.4 per cent in 1960/61 to 28.2 per cent in 1990/91. As indicated earlier, this in turn was largely due to the fall in rice exports from about 1.6 million tons in 1960/61 to 0.5 million

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100% 90%

Figure 3.7 Structure of Exports, 1960–91

1.3 2 4.3 9.8

80%

1.1 0.3 8.9 0.3

Chapter 3

1.5 1.7

0

14.5

29.7

23.7 24.7

70%

1.3

0.1

60%

3 36.7

50% 40%

82.4 62.5

30%

4.1

54.6

20% 28.2

10% 0% 1960/61

1970/71

1980/81

1990/91

Agricultural products

Animal and marine products

Forest products

Minerals and gems

Others

Re-exports

Figure 3.8 Structure of Imports, 1960–90 100%

0.2

0.1

0.2

5.2

15

90%

31.5 80% 40.2 70%

67.1

60%

6.7

44.1

50%

30.2

40% 30%

53.9

16.7 40.8

20%

31.6 10%

16

0% 1960/61 Capital goods

1970/71 Intermediate goods

1980/81 Consumer goods

© 2004 Institute of Southeast Asian Studies, Singapore

1989/90 Others

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tons in 1990/91. As one scholar noted, the fall in rice exports in turn can be accounted for by the fall in government procurement resulting, among other things, from the widening of the gap between procurement and market prices of paddy (Mya Than 1992, p. 21). Forest products, minerals and gems, and animal and marine products made up for the decline in the share of agricultural products. The item “others”, which includes border trade, is also largely made up of primary products. In other words, as primary products still amounted to over 80 per cent of total exports, Myanmar’s export structure had remained basically unchanged. And this constitutes yet another form of stagnation. The structure of imports, however, changed significantly after the Revolutionary Council took over power in 1962. Imports of consumer goods were drastically curtailed, probably because the authorities thought that they could not contribute to growth. Their share was reduced from 67.1 per cent in 1960/61 to a mere 5.2 per cent of total imports in 1980/81. This led to shortages of consumer goods and hence to the emergence of a black market alluded to earlier. Imports of intermediate goods and capital goods alternately came to have the first and second priority. Their shares increased from 16.7 per cent and 16.0 per cent respectively in 1960/61 to 44.1 per cent and 40.8 per cent respectively in 1970/71. Then, after the influx of foreign grants and loans from the mid-1970s onwards, the share of capital goods in the total imports increased further to 53.9 per cent while that of intermediate goods declined slightly to 40.2 per cent in 1980/81. The direction of Myanmar’s external trade, at least up to the early 1980s, shows little change from the past. Asia continued to be Myanmar’s main trading partner, with Singapore, Indonesia, and the Philippines absorbing a considerable portion of exports. After the early 1980s, however, as Indonesia and the Philippines became almost self-sufficient in rice, Myanmar had to look for new markets in Africa. As for the sources of official imports, Myanmar’s main trading partners were industrialized countries, particularly Japan. To summarize, the value of exports in absolute terms at US$147

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million by 1988/89 was even less than it was in 1962. On the other hand, drastic cuts in official imports (while unofficially allowing the expansion of the black market) could not reduce it to below the level of US$244 million. This being the case, the government’s foreign exchange position was in a parlous state. Meanwhile, the country’s foreign debt had risen to over US$4 billion in 1988. The external public debt/GDP rose from 20 to 40 per cent in 1986 when debt-service obligations equalled 58.24 per cent of export earnings. The country was almost bankrupt. This situation forced the government to seek “least developed country” status from the U.N. lending agencies in 1987 in order to reduce interest rates, and to receive new grants, and IMF support for the economy.15 It is ironical that after a quarter century of a selfimposed isolationist self-reliant policy, Myanmar should end up in this way. Equally ironical was the phenomenal growth of the blackmarket economy (economies) to such a gigantic proportion as to become as important as the nominal official economy. In fact, it became the economic lifeline for the military élite and simple folk alike. As may be expected, its resilience lies in the fact that the military rulers (including high-ranking government and party officials), along with the black-market kingpins stand to benefit from it. The former enjoyed special access to redistribution (from special shops) of black-market goods seized by the customs department, while the latter thrived from taking up the lion’s share of the trade. Mya Maung further maintains that the coexistence of this giant black-market economy with a nominal official economy in fact caused Myanmar to degenerate into one of the least developed countries in the world by 1987 (Mya Maung 1992, p. 217). As mentioned earlier, the rise of the black markets is directly linked to the inefficiency of the nominal official economy. And while the black markets did compensate to some extent gross misallocation of goods and resources, it did so at a price. No reliable estimate exists of the size of black market for goods of domestic origin or official imports. Estimates of the illegal trade in the mid-1980s, however, vary from 50 to 85 per cent of total official trade. For details, see Khin Maung Nyunt (1988) and Takamuri and Mouri (1984). Aung Kin’s account of it best evokes the scene and flavour of the times. See Box 3.1.

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Existing side by side with the socialist economy is the black-market system which still remains a major provider of much needed consumer goods. Since the government imports mostly capital goods, the people’s demand for consumer goods has largely been met by individual traders who have been cashing in on the scarcity of all kinds of necessities. The government also seems to have adopted a two-tier policy in dealing with the black-market economy. On the one hand, the government has always maintained that smuggling is a serious threat to its efforts at establishing a socialist society and causes damaging dislocation in its planned economy. Hence it issued orders on 1 June 1981 offering a reward for the seizure, or information leading to the seizure, of dangerous drugs, state-controlled commodities such as gems, jade, metals, forest and agricultural products as well as contraband smuggled into the country. The aim of the order was to attract public attention to the problem of smuggling and to enlist the co-operation of the people in suppressing black-marketing enterprises. A generous 50 per cent of the value of the seized items — narcotic drugs, controlled goods or contraband — would be given away as reward while the other 50 per cent would remain state property. The idea seems to have the people policing each other. On the other hand, the contraband goods that reach Rangoon’s open black-market, popularly known as St John’s shopping centre, have been implicitly recognized by the authorities as the belongings of bona fide traders and shopkeepers who, as long as they do not have any accidents or mishaps on their way to Rangoon, are usually home and dry as soon as their goods end up in St John’s market. It is a place where anyone can buy, at a price, almost anything from contraceptives and Coca-Cola to modern colour television sets and stereo tape-recorders. In fact, public demand for television sets has mostly been satisfied by St John’s market. Some smugglers and contrabandists carry precious stones, metals, rubber, teak and other raw materials out of the country via sea routes and bring back textiles, electronic equipment, foreign-made foodstuffs and numerous items, circumventing customs outposts both ways. Another group of traders, mostly young women, bring contraband to Rangoon by trains from coastal towns and villages and the border areas. A third group distributes the goods through outlets in Rangoon and Mandalay. In the background, keeping a low profile and seemingly uninvolved in the operations are big-time financiers, who take the lion’s share from the transactions. The Burmese Customs Department made a total of 174 seizures all over the country during the first six months of 1982, with a street value of 6.5 million kyats (WPD, 31 July 1982). During 1980/81 the Customs Department took action against more than 1,300 black-marketing cases in the states and divisions and the sum realized by the government trade corporations from the sale of contraband seized was 115 million kyats. For all the discoveries of new oil fields, crude oil production dropped from a peak of 11.7 million barrels in 1979/80 to 9.7 million in 1982 while the country needs 12 million barrels a year for domestic consumption. Thus, the supply of petrol and kerosene has fallen short of public expectations. On this shortage black-marketeers and hoarders have thrived. But clandestine trading in fuel oils on a large scale always jeopardize public safety, and in 1981 there was a major outbreak of fire in Mandalay brought about by illicit petrol hoarding. Some 6,000 houses went up in flames with an estimated loss of property worth 50 million kyats and five lives. On 11 February 1982, some coaches on the passenger train from Myanaung to Henzada were engulfed in flames when fuel oil carried by illicit dealers caught fire. Two passengers died and 71 suffered severe injuries (Kyemon, 12 February 1982). Source: Aung Kin (1983).

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NOTES 1. The Chinese students were given Mao badges and armbands. Myanmar’s Ministry of Education issued a regulation forbidding the wearing of any political insignia. The Chinese students defied the order and staged demonstrations. The Burmese held counter-demonstrations, which eventually led to a bloody clash between the Burmese and Chinese students. The Chinese also came to be accused of hoarding and thus raising prices in their shops during the rice crisis. 2. An increased flow of investments, both domestic and foreign, has long been recognized as one of the indirect or secondary benefits of a dynamic export sector. According to Emery, who empirically established the close link between export expansion and economic growth, “Where exports of a primary product are profitable and expanding, there is stimulus to domestic investment in both the existing industries and in the various processing industries associated with the product in its various stages of production. Expanding exports also encourage investment in ancillary industries set up to supply and service the operations of the main export industry. A rapid growth in exports also serves as an inducement to foreign investment in the country, particularly where the investment climate is propitious from the viewpoint of foreigners. In addition to stimulating domestic and foreign investment, a growing export sector also encourages an increased flow of technological and market innovations, as well as managerial skills” (Emery 1967, pp. 471–72). 3. The military at that time presumably did not realize that political legitimacy could be achieved through economic development or “development legitimacy”. Instead, it was seeking to hold on to power in the good oldfashion way, that is, through a new political party of its own making. As early as 1962, the military began to recruit and create a new political party, to which it planned to surrender power when the time was right. Initially, it was a cadre party and most of its recruits were drawn from the military. By 1971 its numbers had grown sufficiently so that it was transformed into a mass party and entrusted with the responsibility of writing the new constitution. 4. Both General Aung San and U Nu relied heavily on experienced administrators comprising of ICSs and BCSs. U Chan Tha recounted an occasion, on 16 July 1947, when General Aung San (Bogyoke) argued forcefully for setting up consumer co-operatives (Concos) nation-wide so as to combat inflation. ICS U Kyin argued just as forcefully and tenaciously against it. Some even thought U Kyin was using very strong words. Bogyoke not only listened patiently, but was said to have praised U Kyin for giving his views frankly (Chan Tha 1988, p. 524). Similarly, it was said that during the period of parliamentary democracy there were lively discussions at the monthly meetings of the Economic Council of the Government of the Union of Burma. U Thet Tun

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recalls several occasions at such meetings during the first half of 1951 where everyone including the Prime Minister would listen in rapt attention whenever the Financial Commissioner U Kyin spoke (Kyin 1990, p. 2). Looking for comparisons across countries, Indonesia readily came to mind. For, while Indonesia also had a military government at the time of the Revolutionary Council, its military rulers, in contrast, co-opted intellectuals, economists, and other professionals into the ruling group from the very beginning. As a matter of fact, the so-called “Berkeley Mafia”, a group of economists who were mostly Berkeley-trained, was said to have been largely responsible for turning Indonesia around from an inward-looking country into a high-growth, outward-looking country. 5. Besides paddy, “controlled crops” included wheat, maize, cotton, kenaf, jute, rubber, sugar-cane, Virginia tobacco, and some beans and pulses. The government set the procurement prices of these crops nationally regardless of geographical location, varying only according to the type or grade of each crop. 6. Perhaps because the government was unwilling to make a complete right turn, it changed the traffic rules in December 1973 from left-hand drive to right-hand drive by way of what in Burmese is known as yadaya che or purifying karma to ensure success of the reforms and perpetuation of the regime. 7. For a decade from 1962, Myanmar did not have an officially declared economic plan. But, according to Carol Goldstein, U Ba Nyein, then economic adviser to the government, was said to have mentioned the existence of an economic plan drawn up in 1967 (Goldstein 1969). The third major objective of the TYP was to change the ownership structure of the economy from being largely private to that of the state and co-operatives. For details, see BSPP, “The Twenty-Year Plan and the Second Four-Year Plan”, 1973. 8. A number of scholars such as Stefan Collignon have come to see a repetitive pattern in Myanmar’s economic development: “short periods of unsustainable economic growth are followed by stagnation and crisis, frequently ending in popular unrest. Over a longer period, there is no evidence of a fundamental break in the growth dynamics in Burma” (Collignon 2001, pp. 89–90). 9. Myanmar’s banking sector, as in other countries, is noted for its professionalism. The flight of trained personnel and skilled workers from this sector must have hurt the economy in no small measure. 10. For more details of the financial system during the socialist period under military rule, see A Collection of Papers Prepared by the Research and Training Department (1985), vols. 1 and 2. 11. For more details of indicators for measuring financial sector development in selected Asia-Pacific countries, see David Lynch (1996).

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12. According to the Far Eastern Economic Review (FEER), world market prices in dollars per ton declined as follows:

Broken rice Beans, pulses Maize Lead, refined Tungsten

1981/82

1986/87

192 396 122 720 7,155

75 300 79 431 2,760

Source: Steinberg (1989, p. 39).

13. An additional factor, as noted by some scholars, was the fact that reserves were valued as symbols of political independence and economic strength. The very same outdated conservative concept was responsible for maintaining a highly overvalued exchange rate of the kyat. 14. According to some accounts, the extensive smuggling by land along the Thai, Bangladesh, and Indian borders, and the increasing amount of smuggling by sea, by far exceeded the value of legal imports and exports. Estimates of the total, non-drug, two-way trade are as high as $3 billion, or about 40 per cent of its GNP. For a more comprehensive account of the informal or non-legal trade, see Mya Than (1992, pp. 56–59). 15. “Least developed country” status requires that the per capita income be below US$200, that industry be less than 10 per cent of GNP, and that literacy is also less than 20 per cent. Myanmar was said to have revised its estimate of literacy downwards in order to qualify for the least developed country status.

© 2004 Institute of Southeast Asian Studies, Singapore

Reproduced from Economic Development of Myanmar by Myat Thein (Singapore: Institute of Southeast Asian Studies, 2004). This version was obtained electronically direct from the publisher on condition that copyright is not infringed. No part of this publication may be reproduced without the prior permission of the Institute of Southeast Asian Studies. Individual articles are available at < http://bookshop.iseas.edu.sg >

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“… the real wealth of a nation is its people — both women and men. And the purpose of development is to create an enabling environment for people to enjoy long, healthy and creative lives”. UNDP, Human Development Report, 1995

A. Introduction

Development trends in the structure of production generally indicate the economic progress of an economy. In general, as the economy develops over time the share of industry in GDP grew and that of agriculture declined. In Myanmar, paradoxical as it may seem, a low priority accorded to the development of the agricultural sector and the unremarkable performance of it for most of the twenty-six years from 1962 to 1988 did not prevent it from maintaining or even slightly increasing its share in GDP. This is because neglect as well as mismanagement of the agricultural sector led to a vicious cycle of stagnant or falling exports, leading to balance of payments and budgetary constraints,

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and further to low investment, slow industrialization, and low growth. Of course, the fact that industrial development was led by the state (managed by military men with little or no experience in management) and that it was an import-dependent type of importsubstituting industrial development only made matters worse. On the bright side, significant gains were made, though not without blemish, in some of the social sectors. Adult literacy rate grew from 60 to 80 between the late 1960s and 1980s, and the number enrolled in primary schools as a percentage of the age group increased from forty-four to fifty-four during the same period. In the health sector, life expectancy rose from forty-four to fifty-four, infant mortality rate declined from 129 to 50, and the number of persons per physician, from 15,560 to 3,900 during the same period. But over-zealous and over-patriotic attempts to introduce the Burmese language as the medium of instruction in higher education in 1965, together with frequent disruptions of learning and discontinuity of the educational process due to the shutdown of schools and colleges, led to the decline in the quality of education. B. Sectoral Developments

Table 4.1a and 4.1b show changes in the distribution of GDP by sectors during the socialist period under military rule. Lack of development during that period is clearly reflected in the unchanging structure of the economy. The agricultural sector (including livestock and fishery and forestry) continues to represent a share of nearly 50 per cent of GDP in current market prices. The corresponding figure for industry (including mining, energy, manufacturing, electricity power, and construction) was around 13 per cent. This development, or rather the lack of it, is in sharp contrast to the normal course of development where the share of industry grew and that of agriculture declined over time as in the ASEAN economies (Table 4.1b). On the other hand, lack of change in the production structure of Myanmar is not only consistent with the overall lack of development of the economy, but is in fact yet another manifestation of it.

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Socialist Period, 1962–88: Sectoral and Social Developments Table 4.1a Industry’s Share of GDP Declines: Structural Change of GDP in Myanmar, 1962–90 (At current market prices; in percentages)

Agriculture Industry Manufacturing Services

1962

1975

1985

1990

32.1 21.9 15.2 46.0

36.5 14.0 10.4 49.5

48.2 13.1 9.9 38.7

48.5 13.1 9.0 38.4

Note: Industry includes manufacturing, energy (power), mining, and construction. Sources: ADB, Key Indicators of Developing Asian and Pacific Countries (1992); World Bank, World Development Report 1995, table 2.9 p. 30.

Table 4.1b Sectoral Share of GDP in Selected Countries of Asia, 1970–90 (In percentages) Agriculture

Industry

Services

Country

1970

1980

1990

1970

1980

1990

1970

1980

1990

Myanmar Thailand Indonesia Philippines Vietnam

49.5 30.2 35.0 28.2 50.0

47.9 20.2 24.4 23.5 37.5

49.0 12.2 17.6 22.7 26.0

12.0 25.7 28.0 33.7 23.1

12.3 30.1 41.3 40.5 22.7

12.9 40.9 42.1 34.4 32.7

38.5 44.1 37.0 38.1 26.9

39.8 49.7 34.3 36.0 39.9

38.2 46.9 40.9 40.3 41.3

Sources: ADB, Asian Development Outlook (1994); Key Indicators of Developing Asian and Pacific Countries (1999).

B.1. Agriculture

The performance of the agricultural sector as a whole has been touched upon in connection with the overall performance of the economy. It has been noted that except for the spurt of growth between the mid-1970s and early 1980s, the agricultural sector and indeed the economy as a whole has stagnated. Then again, the fact that this stagnation was partly due to the low priority accorded to this sector in the allocation of state investments has also been mentioned. Another reason given for the sluggish performance of the agricultural sector was the government’s policy of maintaining

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low and stable consumer prices by keeping prices of agricultural produce low and unchanged despite increases in other prices. All of them are important. But much more needs to be considered to get the complete story. It will be seen that the sluggish performance of the agricultural sector was as much due to sins of commission (meaning government intervention) as to sins of omission. Details are furnished below. The main thrust of Myanmar’s agricultural policy remains much the same after 1962 as in the decade preceding it. The agricultural development programme launched by the Revolutionary Council soon after taking over power aimed to abolish landlordism and improve the social and economic conditions of the peasantry while at the same time extracting the economic surplus from them for developmental purposes. More specifically, the objectives of the programme (Mya Than and Nishizawa 1990, p. 90) were: • • • • •

To increase agricultural production through raising productivity; To introduce scientific methods in agriculture; To improve the agrarian system (structure); To improve social conditions in rural areas; To organize the peasantry throughout the country.

However, what in fact transpired was not always in accordance with the above objectives. While some measures contributed to the realization of some of the above objectives, others turned out to be of little help or to be inhibiting them. The whole story is somewhat convoluted. To begin with, the Farmers’ Rights Protection Law of 1963 did indeed protect the farmers from confiscation of their means of production such as land, livestock, farm implements, and agricultural produce as payments for debts. Then again, the Tenancy Law of 1965 effectively abolished tenancy in many parts of Myanmar. According to Mya Than and Nishizawa, this law affected about five million acres or a quarter of the total cultivated area in Myanmar (Mya Than and Nishizawa 1990, p. 90). However, these laws, which essentially gives the farmers “the right to work”, with the state as the ultimate owner of land, while promoting equity, adversely

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affected productivity. This was because they prohibited the farmers (both good and bad) from selling or mortgaging the land on which they work. Inefficiency was thus “locked-in” and there was little incentive to improve the productivity of the land. Furthermore, the tendency of Agrarian Committees to give priority in the redistribution of land to the poorest farm households in the village with little or no capital, while promoting equity, also affected productivity adversely. In this connection, it is important to note that Myanmar agriculture is characterized by small-scale, subsistence, family farming (Figure 4.1). As may be seen from Figure 4.1, in 1971/72 and 1987/88 over 61 per cent of peasant families worked on farms that were less than 5 acres in size. And another 22 to 24 per cent of them operated farms that were between 5 acres and 10 acres in size. Thus, over 85 per cent of total agricultural land holdings in 1971/72 and 1987/88 were household-based holdings of less than 10 acres. A holding is defined as an economic unit of agricultural production. This characteristic of Myanmar agriculture has remained unchanged for many decades. To be sure, there are important regional differences in farm size; but in general, land holdings in Upper Myanmar are smaller than in Lower Myanmar. Then again, there Figure 4.1 Number of Households, by Farm Size, 1971–88 1987/88

1971/72 Below 5 63.80%

50 and below 100 0.10%

5 and below 10 22.90%

20 and below 50 2.60%

Below 5 61.50%

10 and below 20 10.60%

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5 and below 10 24.70%

20 and below 50 2.40%

10 and below 20 11.40%

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can also be marked differences in farm size between townships, villages, and individual farm families. Nonetheless, it is still true to say that Myanmar agriculture is characterized by small-scale, subsistence, family farms with little capital and localized know-how. The problem of subsistence farming was further compounded by the lack of agricultural credits. The Revolutionary Council government did increase the provision of government credit significantly from 48 million kyat in 1962/63 to 167 million kyat in 1973/74. On a per acre basis, the government raised agricultural credit from 12 kyat per acre in 1962/63 to 25 kyat per acre while at the same time lowering the interest rate from 12 to 9 per cent per annum. However, as the cost of cultivation had increased over time, this new lending rate still fell far short of requirements, covering only 11 per cent or so of the cost of cultivation in 1972/73 (Mya Than 1980). In other words, in relative terms the Revolutionary Council government, like its predecessors, failed to address adequately the credit needs of the farmers. The government’s pervasive intervention in the market also inhibited improvements in agricultural productivity. Prior to 1963, the state procurement system operated within an open market framework, where farmers could make their own decisions as to what to produce, how to produce, and who to sell to. The SAMB bought paddy and rice from millers, middlemen, co-operatives, and the farmers, chiefly for export, leaving the distribution of rice for domestic consumption to free market agents. Since 1963, however, the SAMB, renamed as the Union of Burma Agricultural and Marketing Board (UBAMB), completely took over the entire trading (buying, distributing, and exporting) of “controlled” crops as crops cultivated throughout the country came to be classified into “planned” or “controlled” crops and “non-planned” or “noncontrolled” crops. Moreover, as cultivated areas also came to be classified as “planned” and “non-planned” areas, farmers in the former areas could no longer decide freely on what, how, and when to produce and sell. This situation in the agricultural sector is not unlike that prevailing in the whole economy where desk-bound amateurs dictate professionals in the field what and how to do

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things.1 In 1964, the UBAMB was renamed as Trade Corporation No. 1. The objectives of the marketing policy during this period remain much the same as in the SAMB period. They were (a) to provide a guaranteed price and the stability necessary to encourage cultivators to expand their production; (b) to provide revenue for development plans and (c) to maintain price stability in the entire economy, and especially urban wages, by holding down rice prices. In practice, the overwhelming emphasis on achieving the latter two objectives acted as a disincentive to expand production. This is especially so in the case of paddy/rice production at least up to 1972/73. As is well known, government revenue is extracted by means of the compulsory delivery system. This system requires farmers to deliver a fixed amount of their produce or a compulsory delivery quota to the government at a fixed official procurement price, which is usually well below the open market price or export price. The quota is fixed at a progressive rate of increase on the basis of acreage cultivated and yields.2 The difference between the official procurement price and the export price (amounting to an implicit tax) as well as the progressive rate of increase in the quota discourages expansion in production and increase in yields. On the positive side, the government did supply agricultural inputs such as chemical fertilizer and better-quality seeds at subsidized prices, and agricultural credit at low interest rates. An attempt was also made by the government to introduce scientific methods of cultivation to raise productivity and production. However, these efforts had little impact on agricultural production. For example, there was little enthusiasm amongst farmers to use chemical fertilizer prior to the 1974 agricultural season, as the ratio of paddy price to fertilizer price was very unfavourable.3 Thus, as in the past, agricultural production in general and paddy production in particular continues to depend much on price incentives and the vagaries of the weather (Table 4.2). In an effort to extract as much revenue as possible from the agricultural sector coupled with an overriding concern to maintain

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low and stable consumer prices (in order perhaps to prevent urban unrest), the official procurement price of paddy was kept unchanged for a decade between 1962/63 and 1972/73. The result was not only a stagnation in production, but also a precipitous fall in procurement (1969/70 excepted) and drastic decline in exports. This paddy/rice price policy in effect could be likened to killing the goose that lays Table 4.2 Prices of Paddy/Rice, 1962–88 (In kyat per ton) Retail Year 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

Govt.

Free Market

222 222 229 229 251 265 265 311 311 311 427 640 710 804 870 894 935 935 935 894 894 894 894 894 894 894

378 395 357 499 1,400 1,300 900 568 628 1,038 1,109 1,344 1,368 1,283 1,123 1,368 1,674 1,176 1,647 1,289 1,500 1,834 2,022 2,126 2,139 5,747

Procurement Govt.

Free Market

Ratio of Export Price/Govt. Price

Export Price

149 149 149 149 163 172 172 172 172 172 204 431 431 431 431 431 446 446 472 472 472 472 472 472 472 472

166 159 155 147 165 209 528 244 281 538 582 729 744 679 579 732 1,132 1,211 1,253 1,833 1,986 2,291 2,444 2,521 2,597 2,879

2.973 3.000 3.167 3.248 3.196 3.360 4.087 3.877 2.703 2.436 2.509 1.916 3.733 4.074 2.684 3.185 3.226 3.349 3.190 4.978 5.317 3.750 3.341 2.790 3.010 1.737

443 447 472 484 521 578 703 667 465 419 512 826 1,609 1,756 1,157 1,373 1,439 1,494 1,506 2,350 2,510 1,770 1,577 1,317 1,421 820

Govt. = Government. Sources: Report to the Pyithu Hluttaw on the Financial, Economic and Social conditions for 1988/89; Review of the Financial, Economic and Social Conditions for 1989/90; Selected Monthly Economic Indicators (various issues).

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the golden eggs or as a Polish proverb has it, “cutting the branch on which one is sitting”. In 1973/74 the government, after a more careful and realistic calculation of the cost of cultivation, raised the procurement price of paddy to more than twice that of the 1972/73 level. Similar adjustments were also made to the prices of other crops. This was followed by efforts to boost agricultural production by raising productivity through a “Green Revolution” using high-yielding variety (HYV) seeds and chemical fertilizers. At first, a pilot production programme was launched in a township in Lower Myanmar, which was a sensible thing to do. Then, it was expanded into the “Whole Township Special Rice Production Programme” in the form of a mass campaign. By 1982/83, it expanded to eighty-two townships under which more than half of the paddy area came to be covered with HYVs. At the same time, utilization of fertilizer increased by about four times. Owing to this breakthrough in technology, the yield per acre of paddy increased from thirty-four baskets in 1974/75 to sixty-one baskets in 1982/ 83. This was made possible partly because the government had softened on its stance to stay self-reliant and not turn to external help by accepting development assistance and foreign loans and partly because of unusually good weather in some of the years. In a nutshell, the end result was that Myanmar recorded a spurt of growth in the agricultural sector during the mid-1970s and early 1980s (Figure 4.2 and Table 4.3). Figure 4.2 shows not only the growth of agricultural production, but also the close relationship between the growth of agricultural production and GDP. It may be seen that the spurt of growth in the agricultural sector in turn boosted the GDP growth. Table 4.3 focuses on the growth of paddy production. It shows the average annual compound rate of growth of paddy production between 1975 and 1980 was 6.35 per cent. Perhaps more precisely, Mya Than and Nishizawa calculated the average annual growth rate of the agricultural sector between 1974/75 and 1982/83 to be 6.7 per cent (Mya Than and Nishizawa 1990, p. 105). Table 4.3 further highlights the fact that growth during that period was due entirely

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Figure 4.2 Growth Rate of Real GDP and Agriculture, 1965–88 8% 6% 4% 2% 0%

1965/66

1970/71

1975/76

1980/81

1985/86

1986/87

1987/88

–2% –4% –6% –8% Growth of GDP

Growth of agriculture

Table 4.3 Contribution of the Increase in Area and Yield to the Growth of Paddy Production, 1960–90

Period 1960–65 1965–70 1970–75 1975–80 1980–85 1985–90

Growth of Production Attributed to

Annual Compound Growth Rate of Production

Area

Yield

2.81 –0.26 2.52 6.35 1.33 –0.51

3.01 –0.62 1.24 –0.77 –0.49 0.35

–0.20 0.36 1.27 7.18 1.83 –0.86

Note: Contribution of area and yield to growth of production was calculated as g = a + y + ay where g = growth rate of production, a = growth rate of area and y = growth rate of yield. For some reasons, the discrepancy between g and (a + y) in 1999/2000 was much larger than can be accounted for by ay.

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to increases in yields. These events clearly demonstrated once again, the responsiveness of Myanmar’s farmers to price incentives. Tables 4.4 and 4.5 illustrate changes in the situation of major crops over the study period in terms of output generated and acreage sown. Production of paddy and also pulses increased markedly from 1977/78 onwards. As indicated in the foregoing, this was because of significant increases in yields. Sown acreage of both paddy and pulses shows no change. In the case of wheat, however, significant gains in production seems to have resulted from the expansion of sown acreage. Apart from the price factor, other factors responsible for the improved performance of the agricultural sector were the increase in net sown area, mixed and multiple cropping area, irrigated area, and increased use of agricultural inputs (Tables 4.6 and 4.7). Needless to say, all these inputs are complementary. For example, an increase in multiple cropping would not have been possible without an Table 4.4 Agricultural Production, 1962–88 (In thousand tons) Crop Paddy Wheat Maize Millet Groundnut Sesamum Pulses Cotton Jute Rubber Sugar-cane Tea Chillies Onions Garlic Tobacco

1962/63

1967/68

1972/73

1977/78

7,550 32 64 — 425 84 199 55 10 14 1,272 16 23 95 24 45

7,647 50 67 — 365 106 164 48 22 12 1,423 36 16 73 14 49

7,241 26 55 40 378 119 183 44 89 15 2,000 42 27 115 20 50

9,319 92 74 59 457 110 244 41 55 15 1,763 47 31 133 22 54

1982/83

1987/88

14,146 128 235 86 541 195 349 97 63 17 3,660 62 33 138 26 52

13,420 154 220 136 511 167 428 73 41 15 3,510 49 28 157 40 46

Sources: Report to the Pyithu Hluttaw on the Financial, Economic and Social Conditions (various issues); Review of the Financial, Economic and Social Conditions (various issues).

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Chapter 4 Table 4.5 Sown Acreage of Some Major Crops, 1962–88 (In thousand acres)

Crop

1962/63

1967/68

1972/73

1977/78

1982/83

1987/88

Paddy Wheat Maize Millet Groundnut Sesamum Pulses Cotton Jute Rubber Sugar-cane Tea Chillies Onions Garlic Tobacco

11,953 162 350 442 1,536 1,576 1,100 551 24 184 117 120 134 53 29 118

12,193 235 427 — 1,254 2,051 1,069 526 87 219 146 118 119 46 15 145

12,014 137 516 447 1,564 2,256 1,297 532 288 214 157 125 154 60 18 147

12,690 235 527 459 1,481 2,696 1,125 416 176 204 136 127 165 58 19 145

12,064 274 422 475 1,412 3,403 1,226 537 169 197 158 132 150 50 20 108

11,531 315 395 475 1,327 2,933 1,313 424 103 193 146 146 145 45 26 82

Sources: Report to the Pyithu Hluttaw on the Financial, Economic and Social Conditions (various issues); Review of the Financial, Economic and Social Conditions (various issues). Table 4.6 Total Sown Acreage and Irrigated Area, 1940–88 (In thousand acres) Year 1940/41 1961/62 1987/88

Sown Area under Various Crops 18,814 19,013 24,843

Net Area Sown

Mixed and Multiple Cropping Area

Irrigated Area

17,560 17,698 19,947

1,254 1,315 4,896

1,562 1,324 2,598

Source: Report to the Pyithu Hluttaw on the Financial, Economic and Social Conditions for 1988/89.

increase in irrigation facilities. On the other hand, increased availability of agricultural inputs would have been of little use without appropriate price incentives. Thus, price incentives remain the overriding factor. However, from the early 1980s onwards the government again fell prey to its own bureaucratic inertia, maintaining the official procurement prices for paddy and other important crops unchanged for years on end. The procurement price of paddy remained unchanged

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at 472 kyat per ton between 1980 and 1987 (Table 4.2). Consequently, procurement prices of paddy and other important crops began to lag behind free market prices. Meanwhile, the impact of the “Green Revolution” was fading. Therefore, it is not surprising that the agricultural sector and the Myanmar economy in general should revert to the usual cycle of agrarian boom and bust. In spite of the marked increase in paddy production, the marketable surplus of rice declined over the period studied (Table 4.8). This even led some responsible officials to cast doubts on the reported increase in rice production. The increase in post-harvest wastage due to neglect in maintaining storage facilities and so on could also be an important factor. In the 1950s, and again in the 1960s, the policy of maintaining the official price of paddy unchanged for years on end had serious and undesirable consequences on production, export, and the overall Table 4.7 Utilization of Inputs in Agriculture, 1961–88 Year 1962/63 1965/66 1975/76 1977/78 1987/88

Chemical Fertilizer (tons)

Improved Seeds (Million kyat)

Pesticides (gallons)

Insecticides Powder (lb)

36,170 24,952 108,733 135,843 260,215

767 1,981 n.a. n.a. n.a.

20,320 14,432 135,146 81,449 25,200

725,839 296,569 1,421,983 1,130,017 1,600,400

Source: Report to the Pyithu Hluttaw on the Financial, Economic and Social Conditions for 1988/89; Statistical Yearbook (various issues).

Table 4.8 Marketable Surplus Situation of Rice, 1961–88 (Thousand tons)

Production Export Domestic consumption

1961/62

1974/75

1977/78

1987/88

3,871 1,676 2,254

4,857 165 4,643

5,408 562 4,791

13,721 431 13,289

Source: Report to the Pyithu Hluttaw on the Financial, Economic and Social Conditions for 1988/89.

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development of the economy. Why was it repeated in the 1980s? Was there never any analysis of what had gone on before? What made the BSPP and the government think they could succeed when others who had trodden the same path had failed? Was the failure simply due to bad governance? Why is it that the governments in Myanmar never seemed to learn from history? If there is a lesson here, it is that those who ignore history do so only at their own peril. B.2. Livestock and Fishery

The share of the livestock and fisheries sector in GDP has been increasing steadily over the period: from 6 per cent in the early 1960s to nearly 8 per cent by the end of the period. Between 1981/82 and 1990/91, it had been increasing at 2.7 per cent per year. But, considering the underdeveloped nature of this sector and its vast potential, the annual average growth rate could have been higher. The breeding of livestock is essential for the production of meat, eggs, and dairy products for the consumers, draught animals, for agriculture and forestry sectors, and hides, skins, and feathers for industrial use and exports. Draught animals are also valuable to farmers for local transport. The breeding of livestock in Myanmar during the period 1961/62 to 1987/88 is shown in Table 4.9. It may be seen from Table 4.9 that with the exception of cattle, and to a lesser extent buffalo, livestock breeding in Myanmar enjoyed rapid growth during the period under consideration. This was due partly to the positive response from the private sector to price incentives and partly to active state support. Fisheries in Myanmar can be classified according to the nature of the catch: fresh-water fisheries and marine fisheries. Fresh-water fisheries include fish culture, leasable fisheries, open fisheries and flood fisheries, all of which are made possible through the vast river systems and heavy rainfall. Marine fisheries consist of onshore fishing, in-shore fishing, and offshore fishing. With a coastline of more than 2,800 km, 8.2 million hectares of inland water bodies, and 0.5 million hectares of swamp areas

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along the coast, Myanmar is endowed with abundant fishery resources. The potential for increasing all types of fisheries, including aquaculture, remains large. Figure 4.3 shows changes in the production of fish by nature of catch. It may be seen from Figure 4.3 that offshore fisheries was the only sub-sector registering negative growth, falling from 45,082,000 viss in 1971/72 to 38,271,000 viss (1 viss = 3.6 lb = 1.54 kg) in Table 4.9 Breeding of Livestock, 1961–88 (In thousands) Particulars Cattle Buffalo Sheep and goat Pig Fowl Duck

1961/62

1987/88

% Change

5,307 1,020 514 643 7,756 2,416

9,922 2,188 1,459 3,061 33,807 6,041

87 115 184 376 336 150

Source: Central Statistical Organization. Figure 4.3 Production of Fish and Prawns, by Nature of Catch, 1971/72 and 1987/88 (In ’000 viss)

Nature of catch

Offshore fisheries Onshore fisheries Flood fisheries Leasable fisheries

1971/72

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400,000

350,000

300,000

250,000

200,000

150,000

100,000

50,000

0

Fresh-water fisheries

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1987/88. In this connection, it should be noted that marine fishing in general, and offshore fishing in particular, requires a considerable amount of capital and foreign exchange. It requires not only an adequate trawler and fish carrier fleet along with fish nets and cold storage facilities, but also diesel fuel for these vessels, ice and salt to preserve the catch, and so on. It is not surprising, therefore, for a cash-strapped economy bent on doing things by itself (under the mistaken notion of self-reliance) that offshore fishing should be the only sub-sector registering negative rates of growth. As for the other sub-sectors, in spite of the tremendous growth of fish culture, the growth rates of leasable fisheries and flood fisheries seemed to be less than satisfactory. This is because their growth rates of 1.7 per cent and 11 per cent respectively over a fifteen-year period, in annual terms, were less than the population growth rate of around 2 per cent. The same applies to fresh-water fisheries as a whole. However, the growth rates of the remaining sub-sectors, namely, open fisheries, onshore and in-shore fisheries, were quite satisfactory. B.3. Forestry

According to official estimates, the forest cover in Myanmar in 1962/63 was a little over 57 per cent of the country’s total land area, if only land under working plans were included; but the percentage was nearly 65 per cent if it also included land not under working plans (Statistical Yearbook, 1963, p. 181). The former estimate is almost the same as the one in 1940 (56 per cent), while the latter exceeds it by 9 per cent. In any case, these estimates clearly suggest that there was little or no deforestation during that period. As Myanmar was sparsely populated at that time, the lack of population pressure could be a major factor preventing deforestation at the national level. Forest produce is classified into two types — major and minor. Major forest produce comprises teak and hardwoods such as Pyinkadoe, Padauk, In-Kanyin, and Tamalan, and both are valuable export products. Minor forest produce comprises firewood, charcoal, bamboo, cane, honey, thanakha, orchids, and others. Although classified as minor forest produce, firewood and charcoal in particular are very important to households.

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As mentioned earlier, forest products, particularly teak, came to be the second most important exports in the post-war period although the export of 120,692 cubic tons of teak in 1961/62 contributed only 64 per cent of the average annual exports between 1936 and 1940. The importance of this sector as an export earner continued in the socialist period under military rule. It took over the top spot as an export earner by the mid-1980s, contributing as much as 46 per cent of total export earnings in 1987/88. The extraction of forest products is shown in Figure 4.4. Figure 4.4 shows two major products, teak and hardwood. It may be seen from the figure that while the production of teak had increased to some extent, that of hardwood had gone down. As for minor produce such as firewood and charcoal, the production of both had increased greatly — from 7.9 million and 184,000 cubic tons, respectively, in 1961/62 to 17.2 million and 848,000 cubic tons, respectively, in 1987/88. This may not entirely be a cause for joy, however, as it may be a reflection of Myanmar’s failure to achieve any progress in climbing up the “energy ladder”, as well as the prime cause of deforestation in some of the regions. Figure 4.4 Extraction of Forest Products, 1961/62 and 1987/88 700,000 600,000

Cubic tons

500,000 400,000 300,000 200,000 100,000 0 Teak 1961/62

Hardwood 1987/88

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As a matter of fact, to what extent increases in the production of firewood and charcoal has contributed to deforestation in some regions is not clear as there is no reliable data on the rate of deforestation at the regional level. At the national level, official estimates put the annual rate of deforestation at 2.1 per cent of total forested area, though others have estimated variously, at 6 to 8 per cent. As indicated earlier, these differences in the rate of deforestation could be due to differences in the estimates of forest cover in Myanmar in 1960. Whatever the estimate, it should be noted that the main causes of deforestation were shiftingcultivation and fuel wood production stemming basically from rural poverty.4 B.4. Mining

As indicated earlier, although mineral products are of little significance in terms of their contribution to GDP, they were the second most important foreign exchange earner in the pre-war period, contributed mainly by oil exports. Partly for this reason and partly because of its strategic importance, the production of crude oil (petroleum) and natural gas came to be nationalized and became state monopolies even before the advent of the socialist era in Myanmar. It was further mentioned that in spite of quadrupled increases in production in the post-war years following independence, Myanmar had become an importer of oil by 1954. Consequently, Myanmar came to rely on an increased production of metallic minerals and gemstones to supplement its export earnings. The growth of production of some of the important products of the mining sector is depicted in Table 4.10. Perhaps the self-imposed isolationist self-reliant policy of the BSPP did more harm to this sector than to any other. This was because this sector is highly capital-intensive, requiring much foreign exchange that Myanmar did not have. To be sure, geological surveys, explorations, and prospecting were done with whatever domestic resources available. Test wells were also tried in the Central Belt, Pyay Embayment, and Aphyauk. But, except for a brief period between the mid-1970s and early 1980s, when foreign loans and

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Socialist Period, 1962–88: Sectoral and Social Developments Table 4.10 Production of Selected Minerals, 1962–88 (In metric tons unless otherwise stated) 1962/63 Crude oil (’000, U.S. barrels) Natural gas (million cuft) Tin concentrates 909 Tungsten concentrates 212 Zinc concentrates 14,880 Refined lead 14,158† Copper matte 364* Barytes .. Dolomite .. Coal 15,410†

1971/72

1983/84

1987/88

% Change, 1971/72 and 1987/88

7,238

11,487

6,201

–14.3

3,610 550

29,592 1594

41,914 321

1,061.0 –41.6

683 7,491 7,520 203 20,249 900 17,234

825 9,000 7,500 170 11,000 4,300 34,000

46 5,089 4,350 77 20,293 2,500 38,713

–93.3 –32.1 –42.2 –62.1 0.2 177.7 124.6

* Includes copper ore. 1966.

†

Source: Statistical Yearbook (various issues).

grants became available, the annual public investment was less than 5 per cent in most of the years. See Table 3.2 in the preceding chapter. Consequently, with the exception of natural gas, the production of a number of other produce declined in 1987/88 after having increased markedly between 1971/72 and 1983/84. In this respect, of particular importance was the decline in the production of crude oil. The level of crude oil production in 1987/ 88 of 6,201,000 U.S. barrels was below the 1971/72 level of 7,238,000 U.S. barrels. Because of this drastic decline in production plus the increase in demand in the intervening sixteen years, imports of crude oil had to be increased along with the typical socialist method of rationing. The latter in turn gave rise to the emergence of a rent-seeking class of higher-level bureaucrats who received more than their fair share of rationed motor oil. The military in particular received the lion’s share of it, as a result of which rationed oil came to be popularly referred as tatsi (or military oil) in Burmese instead of datsi, which means petroleum.

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B.5. Manufacturing

In the decade preceding 1962/63 (that is, from 1946 to 1961/62), the rate of growth of the manufacturing sector was fairly high (Table 2.15). The average annual rate of growth was estimated to be 11.2 per cent. The highest rate of growth was attained between 1954/55 and 1957/58. In relative terms too, it is quite encouraging to see the share of manufacturing production in GNP increasing from 5.5 per cent in 1946/47 to 14.7 per cent in 1961/62. However, after more than a decade of import-substituting industrialization, the industrial structure that came to exist consisted mostly of what has been termed import-dependent importsubstituting industries. Some of the industries, as noted earlier, were no more than “packaging industries” accelerating the foreign exchange requirement rather than reducing it. Moreover, the civilian government then was finding it difficult to manage the nationalized industries properly. Notwithstanding this trend, the new military government rushed headlong to further import-substituting industrialization as well as to do that entirely on a state-owned basis. With respect to the former, new textile industries at Palake and Meiktila, and a bottling plant at Syriam were amongst the more notable ones that can be given as examples. With regard to the latter, the government declared categorically that it did not envisage any expansion of the privately owned industrial enterprises. And, in accordance with that declaration no new private industrial enterprises were allowed to take place, at least until the mid-1970s.5 All privately owned industrial enterprises of any significant size were nationalized. Those that were regarded as being too small to be worth nationalizing were put under the control and direction of supervisory committees. As it turned out, these committees in effect became de facto owners by the end of the 1960s as the real owner-managers simply gave up their rights when they could no longer put up with the excessive control, bureaucratic meddling, and harassment. Eventually, all privately owned industries came under the control of township administrative councils or “Peoples’ Township Councils”.

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Apart from the above, there were two other important departures from the past policy of setting up state enterprises. One of them was the emphasis given to agro-industries such as tractor assembly plants, water-pumping machines plant, and fertilizer plants. The other was with respect to the location of new industries. The military government, with little consideration for the economics of location, adopted the policy of dispersing industries geographically in remote areas. This was done either as part of a military strategy or in order to stimulate the development of backward regions, especially the west bank of the Ayeyarwaddy River. While this makes sense for some of the military-related heavy industries, it hurt more than it helped in most other cases. A glass factory at Pathein, which is neither near the market nor near to the source of raw materials, is a classic example.6 The growth of the manufacturing sector in both absolute and relative terms is shown in Table 4.11. As mentioned earlier, the manufacturing sector has always had the lion’s share of state sector investments (see Table 3.2). Despite this, its performance has been dismal. During the entire period, the highest four-year compound rate of growth recorded was a mere 4.08 per cent between 1962/63 and 1965/66. In some years the annual growth rates were either negative or barely above 1 or 2 per cent. Due to this dismal performance in real growth, the share of manufacturing in GDP declined from about 11 per cent to just over 9 per cent, which is an anomaly, to say the least.7 The lack of development in the manufacturing sector is to some extent also reflected in the lack of change in the internal structure of the sector (Table 4.12). As can be seen from the table, the internal structure of the manufacturing sector has remained virtually unchanged throughout the socialist era. Despite the efforts mentioned above, diversification into new areas is hardly noticeable. The dominance of food and beverages in the total output became even greater during the period under consideration, increasing from 60.06 per cent in 1961/62 to 79.39 per cent in 1991/92. The only other industrial branches contributing more than 3 per cent of total output were industrial raw materials (4.38

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Chapter 4 Table 4.11 Growth of the Manufacturing Sector, 1962–88 (In 1969/70 prices)

Year

GDP (Million kyat)

Industrial Value added (Million kyat)

% of GDP

Annual Growth Rate of Manufacturing Sector

Four-Year Compound Growth Rate

1962/63 1963/64

8,810 8,271

804 800

9.10 9.70

— –0.5

— —

1964/65

9,106

935

10.27

16.9

—

1965/66 1966/67 1967/68 1968/69 1969/70 1970/71 1971/72 1972/73 1974/75 1985/86* 1986/87* 1987/88*

8,785 8,355 9,199 9,502 9,975 10,388 10,640 10,597 11,072 55,989 55,397 53,047

935 949 996 1,016 1,071 1,106 1,107 1,081 1,109 5,561 5,123 4,810

10.74 11.73 10.83 10.70 10.74 10.66 10.41 10.20 10.02 9.93 9.30 9.10

0.03 1.4 5.0 2.1 5.2 3.3 0.04 –2.4 2.6 — –7.9 –6.1

4.08 — — — 3.09 — — — 0.10 — — —

* At 1985/86 constant producers’ prices. Source: Report to the People (1962/63, 1975/76); Review of the Financial, Economic and Social Conditions (1992/93).

per cent), mineral and petroleum products (4.04 per cent), construction materials (3.85 per cent), and clothing and apparel (3.13 per cent). A number of reasons may be given for the miserable failure of the state-led industrialization. The obvious place to start with is the low rates of capacity utilization of most state-owned economic enterprises (SEEs) (Table 4.13). The capacity utilization rates of state-owned industries have always been rather low. But it had become worse by the end of the socialist era. As can be seen from Table 4.13, in five out of eight manufacturing branches under the Ministry of No. 1 Industry, the utilization of installed capacity had fallen below 30 per cent. The average capacity utilization rates had also fallen from 57.4 per cent in 1985/86 to 34.4 per cent in 1988/89.

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Table 4.12 Relative Value of Production of Commodity Groups in the Manufacturing Sector, 1961–92 (Percentage share) Commodity Group Food and beverages Clothing and apparel Construction materials Personal goods Household goods Printing and publishing Industrial raw materials Mineral products Agricultural equipment Industrial equipment Transport vehicles Electrical goods Miscellaneous Total

1961/62

1971/72

1981/82

1991/92

60.06 14.76 7.70 3.60 0.20 0.70 3.40 5.86 0.00 0.08 0.53 0.25 2.87

61.10 10.29 7.01 2.90 0.37 0.87 4.73 7.48 0.26 0.15 1.97 0.60 2.27

65.41 8.22 4.14 3.03 0.61 0.88 6.31 5.00 0.62 0.03 2.02 0 .89 2.85

79.39 3.13 3.85 1.57 0.49 0.59 4.38 4.04 0.11 0.02 0.49 0.69 1.26

100.00

100.00

100.00

100.00

Source: Calculation based on data from the Review of the Financial, Economic and Social Conditions (1961/62 to 1992/93).

The utilization rates in turn were largely determined by the availability of foreign exchange needed for importing essential industrial raw materials and spare parts. As noted earlier, the import structure is dominated by intermediate and capital goods. According to Lutkenhorst, “the combined share of industrial raw materials and spare parts, construction materials, machinery and equipment, and transport equipment amounts to no less than 92 per cent of total imports” (Lutkenhorst 1990, pp. 170–71). This is almost unbelievable. Not surprisingly, the growth rates of manufacturing value added became negative near the end of the socialist era when the availability of foreign exchange became increasingly scarce. Undeniably, there were also other factors apart from the shortage of foreign exchange that were responsible for the underutilization of capacity. For instance, “in cotton textile mills and pulp and paper mills, the shortage of domestic raw materials prevented them from operating at full capacity” (Maung Maung Lwin 1996, p. 92). Then

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Chapter 4 Table 4.13 Capacity Utilization Rates of State-Owned Industries, by Industrial Branch, 1985–89

Industrial Branch

1985/86

1988/89

Industries under Ministry of Industry No. 1 Myanmar textile industries Myanmar foodstuff industries Myanmar pharmaceutical industries Myanmar metal industries Myanmar ceramic industries Myanmar general industries Myanmar paper and chemical industries Myanmar jute industries Industries under Ministry of Industry No. 2

57.1 51.4 65.6 63.0 70.2 65.4 57.0 26.5 60.7

29.1 48.8* 28.3 12.9 51.8 20.5 45.6 24.4 48.6*

Average

57.4

34.4

* 1987/88. Source: Lutkenhorst (1990), p. 176.

again, there were also cases where engineering problems led to work stoppages (as in fertilizer mills), which were responsible for the low-capacity utilization. In addition, the fact that the SEEs were under no pressure to perform well, and were completely protected from international competition through quantitative restrictions meant that they could operate at very low productivity. But by and large these problems paled in comparison with the problems caused by the shortage of foreign exchange. The shortage of foreign exchange in turn was brought about, at the micro level, by the neglect of maintenance and rehabilitation of existing industries in preference for the establishment of new industries; and at the macro level, by the neglect of the export sector in the overall development strategy. The use of outdated machinery as well as lack of maintenance of existing industries lowered not only their productivity and production capacity, but also the capacity utilization of the whole industrial sector as the limited foreign exchange had to be spread thinly over many enterprises. Had the industrial development been properly planned, taking foreign exchange requirements into account in the feasibility studies, this problem to

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a great extent might have been avoided. As for the neglect of the export sector, no further evidence need be provided. Suffice it to say that in a dynamic sense, a decline in exportable surplus leads to a decline in imports, industrial raw materials, and underutilization of production capacity in the industrial sector. To cap it all, the most fundamental factor underlying the unbroken chain of evidence presented above was the lack of proper appreciation or understanding on the part of the government as to what it takes to make a success of the state-led industrialization. In this regard it is worth quoting Maung Maung Lwin at length: … there appears to have been little understanding of the difficulties which were to arise in the attempt by the state to take the leading role in industrial development; and of how government policy was to be conducted if it failed in that attempt. For example, when relatively modern technology was imported for government projects, it was not fully realized that these fairly capital-intensive techniques required a certain level of operative efficiency, shift system and labor discipline. As the government was not fully prepared in these matters, the state was soon faced with an anomalous situation, that is, the problems of capital scarcity side by side with an underutilization of capital. And when it failed, the government could not provide any cohesive policy to control and guide the private sector. The official attitude of the government had been to regard the private sector as an unwelcome partner in development. Because of this negative attitude the private sector development was not allowed to become an integral part of an overall industrial development. (Maung Maung Lwin 1996, p. 94)

B.6. Infrastructure

During the parliamentary democracy period, some scholars felt that the government had invested rather heavily in physical infrastructure relative to investment in directly productive activities. During that period as a whole, the state’s investment in power, transport, and communication exceeded 30 per cent of the total. Given the above considerations, the socialist government could hardly be faulted for easing up on investment in infrastructure to around 20 per cent of total state investment (Table 3.2). To be sure, low investment and poor maintenance inhibit the development of transport, power, and communications infrastructure in Myanmar.

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But this is only to be expected given the shortage of capital, especially the foreign exchange component. Rather, the fault is inherent in the centralized socialist system of decision-making and controls with innumerable distortions, leading to inefficiency. For example, in the transport sector, the private sector was carrying about three-quarters of all medium- and long-haul freight movements, while the remaining portion was carried by the SEEs. Distortions arose mainly from controls over SEE tariffs and fares on the one hand, and favourable treatment of them on the other, as they were supplied with subsidized fuel leaving the private sector to resort to the black market. This resulted in not only very different sets of prices, but also the misallocation of resources. This was because the SEE fares failed to reflect costs or get enough revenues for making needed investments in fleet replacement or expansion and maintenance. In the private sector, the struggle to survive led them to overload their vehicles beyond the safety margin or charge exorbitant fares when other options were not available. General inefficiency and poor management prevailed in the power and communications sectors which, unlike transport, were wholly state monopolies. As a result of mismanagement and ineffectiveness of investment, the government did not have much to show for the amount spent on investment. For example, it could have been more economical to put resources into maintaining existing equipment to keep them in good working condition instead of investing in new facilities. This was most evident in the power sector where the unit loss of electricity distribution had eroded from around 20 per cent of total electricity generation in 1973 to 40 per cent in 1988. Whatever may be the case, it was evident that Myanmar’s infrastructure services had fallen well short of the average levels for the least developed countries as a whole (Table 4.14). First, it should be noted that the data in Table 4.14 shows the supply situation only. They do not reveal the “quality” and “reliability” of the infrastructure services. For example, Myanmar’s railroad density masks the poor and infrequent nature of railway

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Socialist Period, 1962–88: Sectoral and Social Developments Table 4.14 Basic Infrastructure Indicators, 1980–90

Road Network Density (km/1,000 sq. km) 1990

Railroad Density, (km/1,000 sq. km) 1990

Bangladesh Myanmar Zambia

90 34.3 49.6

All LDCs

n.a.

a

1979.

b

1988.

c

Installed Electricity Generation, per kw/thousand Inhabitants

No. of Telephones per Thousand Inhabitants

1980

1990

1980 1990

19.4 4.1 2.6

11 20 306

22 27 303

1.1 1.1a 10.7

2.1 2.0b 7.9c

n.a.

27

33

2.4

3.0

1991.

Source: U.N., The Least Developed Countries: 1993–94 Report.

services. Then again, electricity supply data can in no way indicate unit loss of electricity distribution or the frequency of “black-outs”. Nonetheless, for what they are worth, they show Myanmar to be lacking far behind most other least developed countries. C. Social Sector Development

Population is closely related to the issue of social and human resources development.8 The size, growth rate, and composition of the population have a major impact on the demand for and supply of human resources development-related services. Population variables also affect other dimensions of social development such as poverty alleviation. The last population census taken in Myanmar was in 1983. According to projections based on that census, the population in 1987 was estimated to be approximately 39 million or an increase of nearly 17 million over the 1962 figure of 22.2 million. The population growth rate, estimated at around 2 per cent per annum, is moderate compared with the average growth rate of 2.8 per cent for the least developed countries as a whole. Therefore, Myanmar is luckily spared from having to face the problem of overpopulation.

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This is just as well. For, as mentioned earlier, except for the spurt of fairly high growth in the mid-1970s, the economy stagnated during most of the twenty-six-year period. Estimates of real GDP per capita of Myanmar are so uncertain that one very knowledgeable observer considered it an undertaking that falls in the realm of social science fiction. Nevertheless, in so far as it can be of some guide to an assessment of human development, US$220 for 1987 seemed to be reasonable.9 Furthermore, given that to be valid, relative to its per capita income Myanmar has attained a fairly high level in education as measured by the adult literacy rate and enrolment ratio at the primary level; in health as measured by number of persons per physician and life expectancy; and in nutrition as measured by caloric intake (Table 4.15). The data given in Table 4.15 are approximate figures and needs to be corroborated by other sources. According to the table, adult literacy rate grew from 60 to 70 between 1960 and 1980, and the numbers enrolled in primary schools as a percentage of the age group increased from 56 to 84 during the same period. In the health sector, life expectancy rose from forty-four to fifty-four years, infant mortality rate declined from 129 to 101, and the number of persons per physician, from 15,560 to 5,260 during the same period (Report to the Pyithu Hluttaw on the Financial, Economic and Social Conditions). The figures provided by the UNDP in Yangon are in some respects even more flattering (Table 4.16): Adult literacy rates in Myanmar went up from 57 per cent in 1960 to 71 per cent in 1970 — higher than the rates reported by Malaysia (60 per cent) and comparable to those of Thailand (70 per cent). There has, however, been a slowdown in the progress towards eliminating illiteracy. During 1961–73, for instance, the adult literacy grew by 1.8 per cent per annum. The pace of progress was halved to 0.9 per cent per annum in 1973–86. (United Nations Working Group 1998, p. 6)

Therefore, Mya Than has quite rightly concluded that “generally speaking, the social sector grew at the remarkable rate, and Burma,

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Socialist Period, 1962–88: Sectoral and Social Developments Table 4.15 Social Sector Indicators in Myanmar and Other Countries, 1960–80

Myanmar 1960 Population and Income Population (million) Population growth rate (%) GNP per capita (US$) Education and Literacy Adult literacy rate (%) No. enrolled in primary school (as % of age group) Social Indicators Life expectancy at birth (years) Infant mortality rate (per 1,000) % of population having access to safe water Population per physician (persons) Nutrition Daily calorie supply as % of amount required

1980

22.2 34.8 2.3* — 170 60 56

70 84

44 129 — 15,560

54 101 35/20 5,260

—

103

Average of 33 LowIncome Countries, 1980 65.5 3.2 260 50 94

28.5 94 31 5,810 47

* Average annual growth rate during 1960–80. Sources: Mya Than, A Basic Needs Approach to Development: The Burmese Experience (1984); World Bank, World Development Report, 1982; Report to the Pyithu Hluttaw on the Financial, Economic and Social Conditions (1982).

in relation to its per capita, could be said to be one of the countries best meeting its basic needs” (Mya Than 1984, p. 67). Mya Than has also concluded that with regard to food and clothing, Burma is at the same level as some of its neighbouring countries with higher per capita incomes. However, in terms of access to other social amenities such as population with access to safe water supply and sanitation, Myanmar does not fare well. For example, according to the baseline survey of rural water supply in 1979 conducted by the Institute of Economics, Rangoon, 90 per cent of the rural population in the Dry Zone has to carry water daily beyond the reasonable distance of 200 metres. Then again, according to the Rural Water Supply

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Chapter 4 Table 4.16 Trends in Key Human Development Indicators, 1961–86

1961 1973 1986

Adult Literacy Rate (%)

Life Expectancy at Birth (Years)

Real GDP Per Capita (Kyat)

57 71 80

43.8 52.5 58.2

1,047 1,101 1,510

Source: UNDP, “Human Development in Myanmar” (1998, p. 25).

Department (RWSD), only 20 per cent of the rural population and 35 per cent of the urban population in 1982 have access to safe water supply. These figures are below the average for thirty-three low-income countries (Table 4.15). C.1. Education

As is well known, Myanmar’s educational achievement has its roots in Buddhist heritage. The literacy rate has been very high even before the British occupation because of the monastery education system. It was further augmented in the postindependence period by the “Mass Education Movement” under the Pyidawtha Plan, including the basic education of the three-Rs for all citizens. Furthermore, between 1962 and 1973, the government made vigorous efforts to provide social services. A major campaign to eradicate illiteracy was launched in 1964 with teachers, students, and ordinary citizens taking part. Following a period of experimentation between 1966 and 1968, the movement gathered rapid momentum after 1969. In the twelve years between 1961 and 1973, a 24 percentage point increase in adult literacy was recorded. And almost nine years were added to life expectancy. Since the nationalization of schools and colleges alluded to earlier, public education came to be provided by the Ministry of Education (MOE), which supervised and administered schools and institutions through the Departments of Basic Education, Higher Education, and Technical, Agriculture, and Vocational Education. Three other agencies, the Department of Myanmar Language

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Commission, the Myanmar Board of Examinations, and the Myanmar Education Research Bureau provided support services. The formal school system consisted of basic education (from kindergarten to tenth standard), technical and vocational schools, and higher education from universities and colleges, including the University of Correspondence. Basic education comprises three levels: primary, middle, and high schools. Between 1962 and 1987, the number of primary schools more than doubled to 31,329, and the number of primary school teachers increased by more than threefold to 116,950. Enrolment in every level of schools also increased. The number of females enrolled in primary schools as a percentage of the age group increased remarkably from fifty-two in 1960 to eighty-one in 1978 (World Bank, World Development Report 1982). This is especially significant as it could reduce the infant mortality rate and thus contribute to life expectancy. That said, improvement in student-staff ratios was by no means accompanied by improvement in the quality of education. Apart from lack of proper school buildings and inadequate teaching materials, which are obvious to even the most casual observers, poor salaries and low teacher motivation, and ineffective teacher training severely constrain the learning achievements of children. As noted in several studies, even in regions where enrolment rates were high and dropout rates were low, many children did not acquire minimum levels of learning. As in other economic activities, the inefficiency of the state education system coupled with the need (for high school students) to excel in the tenth grade or national matriculation examinations has led to the emergence of a nation-wide private educational black market known as wine kyushin or round-table tutorial classes conducted by lowly paid public school teachers as well as university teachers to earn an extra income. The burgeoning business of printing and distributing preparatory books for the tenth grade national examinations as well as college examinations is a clear indication of the drastic decline in the quality of public education. Here too, the government, while not

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exactly condoning it, was more than willing to turn a blind eye to it. At the tertiary education level, the 1964 University Education Act, while scaling down the University of Rangoon and the University of Mandalay into Rangoon Arts and Science University and Mandalay Arts and Science University respectively, brought into being several professional institutes. The former Faculties of Medicine under these two universities became the Institute of Medicine 1 (IM 1) and Institute of Medicine 2 in Yangon and Mandalay Institute of Medicine. Likewise, former faculties or departments under these two universities became the Institute of Agriculture, and Institute of Economics. Furthermore, some colleges such as the Dental College at Rangoon were upgraded to the Institute of Dental Medicine. While the impact of these reforms on the quality of higher education cannot be ascertained, they definitely “entailed a substantial expansion of the third level of education with consequential increases in public expenditure” (Thet Tun 1992, p. 18). The decline in the quality of education at the university level was due to other factors, which were not unrelated to the inwardlooking or closed-door policy of isolating the country from the outside world, especially the West. The Burmese language had been used as the medium of instruction in public schools since independence in 1948. However, private missionary schools and the universities continued to give instructions in English until the new education system was introduced in 1965. Under the New University Education Law of 1 October 1964, the new system of education, which came into effect in 1965, compelled the universities to use the Burmese language as the medium of instruction. Moreover, scholarship programmes offered each year by Western democratic countries were also rejected. As there were neither sufficient textbooks in Burmese nor enough of them could be produced, especially in technical subjects, this system was doomed to fail. And failed it did, and unfortunately in more ways than one. First, it led to a rapid decline in the proficiency in English and to the flight abroad of Western educated and trained teachers. This greatly handicapped students of higher learning from reading books

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other than the few available in the Burmese language. Secondly, when the failure of this new educational system was recognized and the English language was reintroduced as the medium of instruction in 1982, there were neither enough books nor enough teachers capable of imparting knowledge in the English language. Another experiment with equally negative impact on the quality of education was the introduction of a two-year regional college system in 1977. The ostensible aim of this new system was to turn students into productive workers in agriculture, industry, or the services in their own right, or as employees in state-owned or cooperative enterprises. In fact, this new system of education was heralded as bet-sohn pyin-nyah yay in Burmese, meaning “wellrounded education”. However, following as it did on the heels of student unrest and demonstrations over the handling of U Thant’s burial, and two consecutive years of students’ and workers’ strikes in 1975 and 1976, it was obvious to most that the real aim was to disperse the student population by containing them in their own regions until they were about to graduate.10 At any rate, this new system of education soon came to be derided as Yi-Gyin-De (in Burmese rhyming regional) college, meaning “laughing-stock”, and it came to an end in 1981.11 The quality of education also suffered from frequent disruptions of learning and discontinuity of the educational process. “The shutdown of schools and colleges due to socio-political unrest, strikes by workers and students, and natural disasters occurred in 1962, 1963, 1967, 1969, 1970, 1974, 1975, 1976, 1987 and 1988” (Mya Maung 1998, p. 229). The longest shutdown of schools and universities occurred between 1974 and 1976, for almost three years, due to workers’ strikes, natural disasters, rice shortages, and the U Thant affair. With regard to public expenditure on education, the government increased its expenditure on education from 152.1 million kyat in 1962 to 888.1 million kyat in 1982, and further to 1,290.5 million kyat in 1987. On the basis of 1970 prices, educational expenditure increased, in real terms, from 100 million kyat in 1961 to 248 million kyat in 1982 (Hill and Jayasuriya 1986, p. 64). However,

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Chapter 4 Table 4.17 Military Expenditure as a Percentage of Combined Education and Health Expenditure, 1960–90

Burma Indonesia Malaysia Philippines Thailand

1960

1990

241 207 48 44 96

222 49 38 41 71

Source: UNDP, Human Development Report, 1997.

a large part of the increase in educational expenditure must have been a waste owing to the failed experiments described above. Apart from the above, a number of studies have found it useful to conduct a comparative analysis of expenditure on education with that on defence. Following that trend, Khin Maung Kyi et al. found decreasing shares of military spending in the government budget to be a striking feature in Southeast Asia, while the contrasting pattern for Myanmar has remained unchanged (Khin Maung Kyi et al. 2000). To be more specific, the relevant table is reproduced below as Table 4.17. C.2. Health

To the extent that life expectancy is an important indicator of the status of health, Myanmar apparently has made great strides in that area (Table 4.15). What needs to be added here is the fact that improvement in that area was made possible not only by public health programmes, but also by that of traditional Burmese medicine beindaw. The public health programmes enabled the creation of Rural Health Centres (RHCs), and Public Health Workers Scheme, both of which have contributed greatly towards raising the public health level in the rural areas. The People’s Health Plan (PHP) in particular was carried out in three phases: PHP I (1978–82), PHP II (1982–86), and PHP III (1991/92). Table 4.18 sheds further light on the improvement in the health

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Table 4.18 Health Facilities and Personnel, 1959–88 Number

Doctors Nurses Midwives Hospitals and dispensaries Hospital beds Rural health centres Maternity and child care

1959/60

1987/88

% Growth, 1959–88

1,221 1,054 1,487 332 9,644 409 345

11,076 8,238 8,187 763 25,759 1,337 348

807 682 451 130 107 227 0.8

Sources: Walinsky (1962, p. 365); Report to the Pyithu Hluttaw on the Financial, Economic and Social Conditions (1987, p. 226).

system of Myanmar. Given the population figures of 20.38 million in 1960 and 38.5 million in 1988, the data in Table 4.18 imply a decrease in population per doctor during the period, from 16,691 to 3,476; as well as a decrease in population per nurse, from 19,936 to 4,673. These figures of progress are quite impressive and compare favourably with those of most developing countries in Asia with more or less the same level of GDP per capita. However, as noted by Mya Maung, “the percentage increase in the number of hospitals and dispensaries and hospital beds was far below the percentage increase in the number of doctors and nurses, indicating a lack of accompanying growth in medical facilities and thus inadequate medical care and services to the general public” (Mya Maung 1998, p. 238). Moreover, even the aggregate expansion in the number of hospitals and dispensaries belie the fact that most of them are poorly equipped with the necessary facilities. NOTES 1. In some cases the difference in the profitably between planned crops and nonplanned crops was so huge that farmers would grow planned crops such as cotton, as dictated, only to destroy them later by pouring boiling water over them. Then, after showing the authorities that such crops could not be grown on their land they would grow crops of their own choice.

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2. For a formula table for compulsory delivery quota of paddy, see Tin Soe and Fisher (1990, p. 136). 3. The paddy/fertilizer price ratio of 0.12 in Myanmar in 1971 may be compared with that of 0.32 in Thailand and 0.72 in Ceylon. See Mya Than and Nishizawa (1990, p. 98). 4. According to one study on the sustainable management of mangrove ecosystem, taking 1924 mangrove forest area as the base (100 per cent), the mangrove forest area in Bogalay declined to 78.66 per cent in 1984 and further to 17.4 per cent by 1995. In Laputta and Mawlamyinegyun, the decline by the year 1995 was 7.18 per cent and 0.28 per cent respectively (Thaung Htay 2000). 5. See Appendix B of the Long-Term and Short-Term Economic Policies (1973). 6. The author was one of the privileged persons, and the only lecturer amongst Rectors and professors of the Institute of Economics, Yangon, and the Yangon Institute of Technology to be included in U Ne Win’s entourage in a tour of industries on the west bank of the Ayeyarwaddy in 1986. On arriving at the Pathein Glass Factory ahead of the VIPs, the author was taken aback when he found that perfectly good glasses were being crushed to be used as inputs to produce finished products as there was neither enough storage space nor markets. 7. Normally, as a country becomes more developed over time, the share of industry in GDP should become larger and that of agriculture smaller. 8. For a definition of “human development”, see United Nations Working Group, “Human Development in Myanmar” (July 1998, p. 2). 9. Besides the national estimate of GDP per capita in kyat, the World Bank, IMF, ADB, EAAU, and so on each have their own estimate of per capita income in Myanmar. In all, there are more than half a dozen estimates of GDP per capita in Myanmar. 10. To this day, Myanmar people young and old, have the greatest of respect for U Thant, the Third Secretary General of the United Nations from 1961 to 1971. The government was so isolated from the public that it completely misread the feelings of the people and made BSPP party members go around wards of townships in Yangon disparaging the name of U Thant so that his burial may be treated like that of any ordinary citizen. 11. It is ironical and perhaps worthy of note that the persons who were directly responsible for both the two new systems of education were two over-zealous civilians, who were trying to be more patriotic and more socialist than their military counterparts.

© 2004 Institute of Southeast Asian Studies, Singapore

Reproduced from Economic Development of Myanmar by Myat Thein (Singapore: Institute of Southeast Asian Studies, 2004). This version was obtained electronically direct from the publisher on condition that copyright is not infringed. No part of this publication may be reproduced without the prior permission of the Institute of Southeast Asian Studies. Individual articles are available at < http://bookshop.iseas.edu.sg >

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“Those who forget the past are condemned to repeat it”. George Santayana

A. Introduction

There is a perception amongst certain groups of people that the 1987 demonetization was the undoing of the socialist regime under military rule. This view is widely skewed. The 1987 demonetization was indeed the catalyst for the political upheaval of 1988. But, as observed by many scholars, both from within the country and from abroad, the collapse of the socialist economy of Myanmar was not something that came about suddenly. Trouble had been brewing since the mid-1980s, if not earlier, due basically to the stagnation of the economy during the BSPP era and the absence of significant economic development. In fact, earlier in the mid-1970s the economy had already been on the verge of collapse but it was rescued by a massive infusion of economic aid and loans. As noted earlier, the twenty-five-year period of military rule has been marked with a series of anti-

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government demonstrations. Whenever the economic situation deteriorated there had been demonstrations, as in 1967, 1974, and 1988. Some scholars see “a clear correlation between economic growth, money and political unrest” (Collignon 2001, p. 88). At any rate, these anti-government demonstrations attest to the general dissatisfaction of the public with the governance of the BSPP regime. However, the government, believing only in its own version of the truth, was unaware of the depth of public opposition to its remaining in office. The 1988 demonstration was the final straw that broke the camel’s back. On hindsight, it would seem that policy failure and bad governance must be given equal weight in bringing about the impoverishment of the nation and the downfall of the regime. Neither of them need be repeated in wearisome detail. Let it suffice that in the sphere of economic policy-making, the main problem has always been the primacy of politics over economics and the government’s emphasis on political expediency and short-term results in almost all its undertakings in order to dispel political discontent. As for governance, the government either did not care or did not have any conception of good governance. The concepts of transparency and accountability, consistency in policy-making, good public administration, and other essentials of good governance seem totally alien to it. It thus not only failed to establish the development fundamentals, but also failed to get the legitimacy that it tried so hard to seek. The resulting outcome after twenty-five years of its misrule was an economy in shreds, reduced to the state of bankruptcy when it was forced to apply for the least developed country status in 1987. In addition, the inefficiency of the official economy in meeting the economic wants of the society at large had led to the black market in effect becoming the real economy. When that real economy itself was effectively grounded by the 1987 demonetization without compensation, there was simply no way out — just a dead end. Thus, when U Ne Win addressed highranking party officials in August 1987, asking them to reconsider fundamentally the validity and viability of the political and

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economic systems they had been constructing and managing for the past twenty-five years, he in effect admitted failure of his regime and invited the call for change. Undeniably, economic factors per se are by no means the only factors to cause the collapse of the socialist regime. As noted by Myat Thein and Mya Than, “The international scene at the time — economic reforms in China, perestroika and glasnost in the USSR and Eastern Europe, the success of the newly industrializing countries (NICs) — all these must also have had some influence in uplifting the aspirations of the Myanmar people and determining the decisions of their leaders” (Myat Thein and Mya Than 1995, p. 215). The new military regime, under the name of the State Law and Order Restoration Council (SLORC) was made to take over an economy that for all practical purposes was bankrupt. B. Macroeconomic Performance B.1. Economic Reforms

After taking over the reins of government in September 1988, the SLORC continued with the economic reform in Myanmar that began with the lifting of the twenty-one-year-old restriction on the procurement and domestic trade of rice and eight other major crops in September 1987. In November 1988, the Foreign Investment Law was introduced along with the removal of restrictions on private sector participation in domestic and foreign trade. The marketoriented economic policy was officially adopted only in March 1989 when SLORC revoked the 1965 Law of Establishment of the Socialist Economic System. The main objectives of economic reforms in the transitional economy of Myanmar are: • • •

To adopt a market-oriented system for the allocation of resources and the distribution of goods and services; To encourage private investment and entrepreneurial activity at home; To open the economy to foreign direct investment and to promote export.

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The official version, presented as the four economic objectives of the SLORC/SPDC, printed in bold letters on the front page of The New Light of Myanmar since 1996 reads thus: • • •

•

Development of agriculture as the base and all-round development of other sectors of the economy as well; Proper evolution of the market-oriented economic system; Development of the economy inviting participation in terms of technical know-how and investments from sources inside the country and abroad; The initiative to shape the national economy must be kept in the hands of the state and the national peoples.

Major economic reforms directly affecting the macro-economy and the external sector may be summarized as follows: •

•

•

•

• •

Introduction of Foreign Investment Law: to enhance technical know-how and investments in all sectors except those reserved for the state; Fiscal reforms: taxation reforms to restructure the tax and tariff systems and to streamline tax collection and customs procedures to be in line with market-oriented system and to tackle the problem of deficits; and stringent scrutiny of government expenditures; Financial sector reforms: building legal framework; restructuring the financial sector; and allowing private sector participation in banking and insurance; Legal system reforms: The combination of Common Law and Civil Law Legal Systems which Myanmar already had and which had been kept intact during the past twenty-five years before 1988 were reactivated with some new legal injection and revocation of the Law of Establishment of Socialist Economic System; Tourism sector reforms: allowing private sector participation in hotels and tourism business; Trade sector reforms: liberalization of domestic and foreign trade, allowing private sector participation in the business previously under the monopoly of SEEs; resumption of

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Myanmar’s Chamber of Commerce and Industry, regularization of border trade; Reforms of frontier areas administration: pacification and promotion of development of minority races in frontier areas.

For details of economic reforms in chronological order see Appendix Table A5.1. As a result of the reform measures summarized above, participation of the private sector in the economy (in terms of value-added contribution to GDP) increased from 68.6 per cent in 1986/87 to 75.5 per cent in 1996/97 and further to 76.3 per cent in 1998/99. See Appendix Table A5.4. In terms of broad aggregates, the increase in private sector participation was concentrated largely in the trade sector where its contribution increased from 52.6 per cent in 1986/87 to 75.5 per cent in 1996/97 and further to 76.3 per cent in 1998/99. In the other two sectors (that is, in the productive and services sectors), private sector participation in the economy increased only marginally. Moreover, the increase in the productive sector appears to be largely at the expense of the co-operative sector rather than that of the state. Overall participation of the cooperative sector in the economy had gone down from 6.8 per cent in 1986/87 to 1.9 per cent in 1998/99. Within the productive sector, the increased share of the private sector between 1986/87 and 1998/99 was led by mining (to 88.2 per cent or by 80.2 per cent) — due to mining concessions given by the government to private enterprises; followed by construction (to 54 per cent or by 43.2 per cent) — as a result of the emergence of private construction companies during the mini-boom in construction; and processing and manufacturing (to 70.8 per cent or by 16.6 per cent) — due to the development of small and medium enterprises. In the agricultural sector, a change in the nature of private sector participation was perhaps even more important than the increase in its share from 93.4 per cent in 1986/87 to 97.9 per cent in 1998/99. To digress briefly, although the state is the ultimate owner of land, the agricultural sector has always been treated as a private sector because most of the productive units were managed by land-

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holding farm families. However, during the socialist period, farm families were under strict state control over production and marketing. But since the decontrol of major agricultural crops in 1987, they came to have relatively greater freedom of choice in the production and marketing of their produce. In short, this change in the nature of private sector participation has provided the incentive for increasing agricultural production. The other sub-sectors in the productive sector, namely, energy and electric power, and two others in the services sector, namely, communications and social and administrative services, remain state monopolies as before. Had these sectors been opened to the private sector, there can be no doubt that the GDP growth would have been even higher. At any rate, it is obvious that the promotion of the private sector was also instrumental in boosting GDP growth rates in the early 1990s to over 7 per cent per annum. It will be seen, however, that they were inadequate to solve the problem of triple deficits — fiscal, trade, and current account — or to raise savings and investment significantly. It will be seen also that in some ways Myanmar seems to have veered off course from the road to a marketoriented economy. B.2. Growth of GDP, Investment, and Savings

Changes in real GDP growth rates between 1989 and 2000 may be seen as a process of recovery from the fall since the mid1980s as well as that of expansion to some new areas of economic activities in the 1990s. Growth rates began to fall to 1.1 per cent in 1986/87; then quickly turned negative to –4.0 per cent in 1987/ 88; and as the economy further weakened, it was –11.4 per cent in 1988/89 (Table 5.1). As indicated earlier, when SLORC took over the reins of government, the country was for all practical purposes almost bankrupt. It was understandable therefore that their efforts to bring the economy back to some measure of normalcy would mainly be determined by political expediency and short-term perspectives. Indeed, one can say on hindsight, that they did a great job in that

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Market-Oriented Period since 1988: Macroeconomic and External Sector Table 5.1 GDP, Per Capita GDP, and Per Capita Consumption, 1985–2000 (In 1985/86 constant producers’ prices) Per Capita Income

GDP

Per Capita Consumption

Year

Million Kyat

% Change

Kyat

% Change

Kyat

% Change

1985/86 1988/89 1989/90 1990/91 1991/92 1992/93 1993/94 1994/95 1995/96 1996/97 1997/98 1998/99 1999/2000

55,989 47,141 48,883 50,260 49,933 54,757 58,064 62,406 66,742 71,042 75,123 79,460 97,810

— –11.4 3.7 2.8 –0.6 9.7 6.0 7.5 6.9 6.4 5.7 5.8 10.5

1,510 1,200 1,221 1,232 1,202 1,293 1,347 1,421 1,492 1,559 1,619 1,650 1,794

— –13.0 1.7 0.9 –2.4 3.1 4.2 5.5 5.0 4.5 3.8 1.9 8.7

1,336 1,045 1,045 1,035 970 1,029 1,085 1,092 1,140 1,145 1,148 1,111 1,145

— –15.5 — –0.9 –6.3 6.0 5.4 0.6 4.4 0.4 0.3 –3.2 3.0

Sources: Review of the Financial, Economic and Social Conditions for 1998/99; International Monetary Fund, International Financial Statistics (monthly), and Yearbook, 1999.

endeavour although some of the measures might have done irreparable damage.1 In any case, as the impact of the market-oriented reform measures began to take effect, the economy began to recover. The recovery from the socialist economic morass was at first excruciatingly slow and tentative but gradually gained momentum. By 1992/93 the level of real GDP was almost back to the level in 1985/86, although in GDP per capita terms, the 1995/96 GDP per capita of 1,492 kyat was still below the 1985/86 GDP per capita of 1,510 kyat. From 1992/93 the GDP had grown at an estimated average annual rate of over 7 per cent during the period 1992/93 to 1995/96. This surpasses the government’s Short-Term Four-Year Plan (1992/93 to 1995/96) target of 5.1 per cent per annum. Strong growth during this period also led to the GDP per capita income in 1996/97 of 1,559 kyat to surpass the 1985/86 level. The per capita GDP in 1999/2000 was 1,794 kyat.

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High growth rates of over 7 per cent per year during the FourYear Plan period (1992/93 to 1995/96) was made possible by a number of factors; private sector development following the adoption of market-oriented policy and economic reforms, inflow of foreign direct investment (FDI) following the introduction of the Foreign Investment Law, strong growth in the agricultural sector due chiefly to the introduction of summer paddy, growth of exports due chiefly to liberalization measures, growth of the tourist industry, and a mini-construction boom. Indeed, as observed by a number of scholars, SLORC tried very hard with lots of energy and enthusiasm to improve the economic conditions in the country. In an important departure from the past, and especially after Senior General Than Shwe, chairman of the SPDC, took over the helm of the government, micromanagement came to be emphasized. It is said that the ministers and deputy ministers were under instructions to make field visits to project sites at least once or twice every three months. This (in theory) gives them a chance to gain firsthand knowledge at the grassroot level. Such visits undoubtedly were instrumental in the completion of many projects on time. But as to whether some of them have been wasteful or to what extent they have contributed to the modernization of the nation is an open question. For it is not in the nature of the command structure for army officers and even more so for civilians to question the feasibility, wisdom or otherwise, of decisions once they have been taken at the top. Furthermore, the fact that all these visits were announced beforehand gave the underlings concerned the opportunity to “Potemkinize” their projects so that dismal failures appeared to be successes completed on time. In this connection, it should be noted that the few civilians who became ministers, deputy ministers, or director generals are not policy-makers but mostly micro-men (preoccupied with micro-level management) who would zealously follow orders strictly. Although the policy of what in Burmese is called Lukawn Lutaw has never been declared openly, unlike in the past, the perceived need to breed “loyal” rather than “able” men remains unchanged, as in the past, and may perhaps eventually lead to the same disastrous end.

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For the moment anyway, many military leaders genuinely believe that the economy is back in shape and that the country is poised for economic take-off; and that anyone who would dare to offer contrary advice is either unpatriotic, foolish, or a saboteur, or all three. Indeed, the success achieved during the Short-Term Four-Year Plan and increasing prosperity for the few during that period is quite visible in the form of high-rise buildings and gleaming houses sprouting up in the major cities, bridges spanning across rivers, fleets of taxis jostling on the roads, restaurants filled with customers, and shops in both urban and rural areas filled with goods. This is best described by an article from the Far Eastern Economic Review excerpted in Box 5.1. However, the brief period of prosperity had failed to effect any changes in the basic economic fundamentals. It will presently be seen that the economy was still plagued with the problem of triple deficits: fiscal, trade, and current account; still handicapped by high inflation, low rates of savings and investment; and above all with uncertain governance. According to official sources, real GDP growth had declined between 1995/96 and 1997/98, largely attributable to the adverse impact of bad weather on agricultural production. Another factor was the shortage of agricultural inputs such as fertilizer and pesticides caused by foreign exchange constraints. The real GDP growth rates in 1996/97 and 1997/98 were 6.4 per cent and 5.7 per cent, respectively. The GDP growth rate in 1998/99 was estimated at 5.8 per cent, maintaining the same trend as predicted by most experts. It is a great surprise therefore, to find that the GDP growth rate in 1999/2000 had shot up to 10.5 per cent! Although the ratio of consumption to GDP at around 89 per cent remains high in 1998/99, the per capita consumption has not increased. As a matter of fact, notwithstanding the high GDP growth rates of recent years, per capita consumption stood still at 1,145 kyat between 1996/97 and 1999/2000 (Table 5.1). This implies that the real consumption of fixed-income earners and low-income groups must have fallen, as the wealthier section of the population (including the dollar earners) seemingly continues

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Box 5.1 Mung Bean Economy Burma’s Currency Needs Reform The chaotic scene at Myanmar Foreign Trade Bank in Rangoon at closing time speaks volumes about Burma’s currency system. Customers wave paper forms to get the attention of the harassed clerks who must handprocess each document because the bank lacks computers. But on the street outside the bank, black-market dealers quickly buy and sell kyat. It’s not just the speed of these transactions that frustrates bank customers. At the official rate of 6.2 kyats to the U.S. dollar versus 110–120 kyats on the black-market, Burma’s failure both to devalue its currency and make it fully convertible into other currencies has become a major obstacle to foreign investment, trade and overall economic growth. The government fears devaluation will raise prices and push up inflation. Finance Minister U Tin Win summarizes how the government sees it: “Adjust the [exchange] rate and risk massive unemployment, runaway inflation and social unrest,” he says, “or keep the differentiation and risk slower growth and less foreign investment.” Investors regard the system as unworkable for most major projects. “You can’t expect to see serious investment in Burma with two exchange rates,” says a Thai businessman in Rangoon. For example, if a foreign investor wanted to set up a 50:50 joint venture in a $10 million project, the Burmese partner will contribute 62 million kyat at the official exchange rate. At the market rate, however, he would have to contribute 1.1 billion kyat. What’s more, while it’s possible to buy anything with dollars, it’s illegal to convert those dollars into kyat or vice versa at anything other than the official rate. Problem is, the government doesn’t have the foreign exchange to convert kyat into dollars. Foreign-exchange reserves were estimated at $137 million in 1992. Officials contend that the parallel exchange rate isn’t a problem. It’s “not an obstacle to investors because they can do all their business here in dollars,” says U Hla Thein, director of Myanmar Foreign Trade Bank. That’s true if investors are exporting from Burma. But for companies like Pepsi-Co, which earns revenue in kyat, it’s become a major headache. Pepsi’s solution: it uses its kyat profits to buy agricultural commodities like mung beans and then sells them abroad for hard currency. Partly as a result of this trade, Burma’s exports of beans and pulses rose by 63 per cent to $125 million in the year to March 1994. Rangoon insists the system will do for now and, indeed, officials quietly encourage investors to exploit the black market. Source: Vatikiotis (1995).

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to enjoy the good things in life. Undeniably, the recent increases in wages and salaries of government employees may have alleviated their situation somewhat. But for others in the lowerincome stratum, the decline in employment opportunities due to marked downturn in the construction and hotel and tourism sectors, and budget cuts of the social sectors probably meant a fall in real consumption. Growth of GDP, savings, and investment are depicted in Table 5.2 and Figure 5.1. The illustrations suggest the close correlation between the rate of investment and the rate of growth of GDP, that is, with the exception of 1999/00. The rates of both savings and investment as a percentage of GDP were fairly high (by Myanmar standards) during the brief period of mini-boom between 1992 and 1997. However, the growth rate of GDP in 1999/2000 and the rate of investment in that year imply an unreasonably low capital-output ratio of just over one.2 It is clear from Figure 5.2 that the performance of the agricultural sector continues to be the most important factor in GDP growth. The percentage of GDP growth caused by agricultural growth has always been quite substantial. In 1999/2000 the contribution of agricultural growth to GDP growth accounted for as much as 45 per cent. See Appendix Table A4.3. This in turn was due to the very high growth of the agricultural sector of 11.5 per cent proclaimed by the government.3 Table 5.2 Growth of GDP, Savings, and Investment, 1989–2000 (As a percentage of GDP) Years 1989–91 1992–94 1995–97 1998/99 1999/2000

GDP Growth

Investment

Savings

Resource Gap

3.1 7.7 6.3 5.6 10.9

11.3 12.9 13.3 11.1 11.0

10.5 12.7 12.9 10.6 10.5

0.8 0.2 0.4 0.5 0.5

Sources: Review of the Financial, Economic and Social Conditions for 1998/99; International Monetary Fund, International Financial Statistics (monthly), and Yearbook, 1999.

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Figure 5.1 Savings and Investment Remain Low and Stunted: Growth of GDP, Savings, and Investment, 1988–99 20% 15% 10% 5% 0% –5%

1988/89

1990/91

1992/93

1994/95

1996/97

1998/99

–10% –15% GDP growth (%)

Investment (% of GDP)

Savings (% of GDP)

Figure 5.2 Growth of Real GDP and Agriculture, 1989–2000 12% 10% 8% 6% 4% 2% 0% 1989/90

1995/96

Growth of GDP (%)

1996/97

1997/98

1998/99

1999/2000

Growth of agriculture (%)

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The emphasis given by the government on the development of agriculture in particular needs to be mentioned (Table 5.3). Seemingly in line with the market-oriented policy, public investment in the productive sectors (excluding construction) had been deemphasized. But amongst the productive sectors the agricultural sector was a major recipient of public investment. In contrast, public investment in the manufacturing sector was marginal. This was a significant departure from past policies. The new emphasis given to infrastructure development, and especially transport, also seems to be in accord with the market-oriented policy. The large proportion of public investment in the social sector, however, was taken up largely by defence. Paradoxical as it may seem, an initial burst of growth in the agricultural sector took place before state investments in that sector could have had appreciable impact. On the other hand, growth in the agricultural sector tailed off in the mid-1990s when state investment in that sector could have had some impact. By most accounts adverse weather and increased shortages of imported inputs (such as diesel and fertilizers) were said to be responsible for the slowdown in the growth of the agricultural sector after 1995. Thus, weather and policy environment seems to be the deciding factors in the growth of the agricultural sector. Rates of savings and investments have remained stunted at around 11 to 12 per cent of GDP throughout the period between 1989 and 2000 (Table 5.2). Inflation, negative real rate of interest, and lack of confidence in the kyat continue to hold down savings to a low level. A low level of savings in turn was largely responsible for low levels of investment, although there were also other reasons for the foreign component of investment such as unattractive investment environment including unrealistic exchange rate. The resource gap, however, had declined from 0.8 per cent of GDP in 1988–91 to 0.5 per cent in 1999/00. The share of private sector investments in total investment, after declining from 56.4 per cent in 1992/93 to 41 per cent in 1996/97, has picked up again to 54.5 per cent and 61.3 per cent in 1997/98 and 1998/99 respectively. However, the increase in the share of private

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53.1 2.2 16.5 1.8 32.6 100.0

47.4 2.5 26.2 3.1 15.6 100.0

Services Trade Social and administration Finance Defence

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100.0

49.8 2.0 14.4 1.5 31.9

18.8 3.4 15.4

31.4 16.7 0.3 1.0 0.4 0.9 12.1

1995/96

100.0

51.1 1.4 18.4 0.8 30.5

22.2 4.8 17.4

26.7 11.0 0.3 1.6 0.2 1.7 11.9

1996/97

100.0

38.9 1.2 14.1 1.0 22.6

23.3 6.7 16.6

37.8 13.2 0.2 1.5 0.1 2.3 20.5

1997/98

Sources: Review of the Financial, Economic and Social Conditions (various issues); CSO.

16.5 4.1 12.4

20.3 8.0 12.3

Infrastructure Power Transport and communications

29.8 11.2 0.2 0.9 0.6 0.8 16.1

24.8 5.4 1.0 2.9 1.2 4.8 9.5

1994/95

Productive Sector Agriculture Livestock and fishery Forestry Mining Processing and manufacturing Construction

1990/91

Table 5.3 Public Investment, by Sector, 1990–2000 (As a percentage of total)

100.0

44.8 0.7 9.0 5.4 29.7

20.2 4.8 15.4

41.5 20.5 0.4 2.6 0.1 2.2 15.7

1998/99

100.0

36.6 0.8 11.8 1.1 22.9

21.6 6.6 15.0

41.8 14.2 0.1 1.5 — 5.7 20.3

1999/2000

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sector investment was partly due to the slowdown in state investments. In real terms, the increase in state investment by 14 per cent to 79,598 million kyat in 1998/99 (at current prices) from 68,402 million kyat in 1997/98 (at current price) would even be less than the latter as the inflation rate of 49 per cent was significantly higher. B.3. Monetary and Fiscal Developments 4

Creating an efficient and functioning financial and banking infrastructure to facilitate a growing volume of trade and economic activities and mobilize financial resources is crucial for a country such as Myanmar. There are some who even consider that the transformation of the Myanmar economy should start with monetary reform. Following a change of government in 1988 and the adoption of a market-oriented policy by this government, the financial system and the banking sector had to be transformed, once again, into one that was more suited to market-based new surroundings. Accordingly, the structure of the financial institutions was transformed by new bank laws passed in 1990, namely, the Central Bank of Myanmar Law, the Financial Institutions of Myanmar Law, and the Myanmar Agricultural and Rural Development Bank Law. The structure of the Myanmar financial system in the early 1990s comprised banking and non-banking financial institutions, on the one hand, and government finance organizations, on the other. With the exception of Myanmar Agricultural Development Bank (MADB), all the banking and non-banking financial institutions as well as government finance organizations were placed under the Ministry of Finance and Revenue. The Myanmar Agricultural and Rural Development Bank (MARDB), which was under the Ministry of Finance and Revenue, was transferred to the Ministry of Agriculture and Irrigation in 1996 and reorganized and/or named as MADB. It would be irrational not to include the MADB in the financial system just because it comes under the Ministry of Agriculture and Irrigation. Government finance organizations include the Budget Department, Customs Department, Internal Revenue Department, Pension Department, and Revenue Appellate Tribunal.

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Financial institutions in Myanmar are headed by the Central Bank of Myanmar (CBM). On paper, at least, the Central Bank of Myanmar Law confers upon the CBM broad powers to operate with relative independence and to exercise supervisory and regulatory authority over a wide range of financial institutions, both stateowned and privately owned. And in accordance with traditional central banking functions, the Central Bank of Myanmar is responsible for issuing currency and formulating and implementing monetary policy. In practice, however, the CBM is not unlike many other central banks in underdeveloped countries. It has little authority over the issuing of currency; and whatever monetary policy it may conduct is subject to “fiscal dominance” — that is, it is dictated or constrained by purely fiscal considerations. Besides the Central Bank, the MEB, MADB, and MFTB remained more or less as they were before; and the Myanmar Investment and Commercial Bank (MICB) came into being as a new member of the state-owned banks. The Small Loans Department was separated from the MEB in 1992 and set up as a finance company called the Myanmar Small Loans Enterprise.5 Since the rules and regulations pertaining to the above-mentioned financial laws (and in particular the Financial Institutions Law, which provided the basis for the creation of private commercial banks, including foreign-owned ones) came into force in 1992, twenty-one private commercial banks and forty-seven representative offices of foreign banks have been established.6 The strategy of the government regarding financial development is to give domestic private banks a headstart to become more efficient and competitive before allowing foreign banks to upgrade their representative offices into full-fledged banks. In short, the banking sector is likely to remain closed to foreigners until domestic banks become strong enough to compete. To enhance financial savings, interest rates on savings deposits and saving certificates were raised from 8 to 10 per cent and 10.9 to 12 per cent respectively in July 1992. These rates, it may be noted, were well below the CPI inflation rates of 29.1, 22.3, and 33.6 per cent for the years 1991/92, 1992/93, and 1993/94 respectively. In other words, real interest rates were still steeply

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negative. Then in October 1993, a rural savings scheme was introduced to encourage farmers to save and enable them to borrow. This scheme might not have been effective because underpaid civil servants had little motivation to go to the villages to urge farmers to save. Surprisingly though, Myanmar’s total savings increased, at least in nominal terms from 23,339 million kyat in 1993 to 30,963 million kyat in 1994, and further to 48,350 million and 76,872 million kyat, respectively, in 1995 and 1996. The Central Bank rate was raised from 11 to 12.5 per cent in January 1995 and then to 15 per cent in 1 April 1996. The minimum deposit rate was fixed at not more than 3 per cent below Central Bank rate, and the maximum lending rate was fixed at not more than 6 per cent above this rate. Thus, private commercial banks were free to set their rates anywhere between 12 and 21 per cent. However, the 21 per cent ceiling still left lending rates lower than inflation. Nevertheless, judging by the growth in the volume of deposits and loans, the progress of private banking was quite impressive. Nominal deposits of private banks rose from 1,577 million kyat in 1993 to 37,103 million kyat in 1996 (a twenty-three-fold increase within a very short period); and a further fivefold increase to 186,168 million kyat in 1999 (Table 5.4). Loans and advances to the private sector from these banks increased from about 1,294 million kyat in 1993 to 26,222 million kyat in 1996; and further to 97,066 million kyat in 1999. In relative terms, the increase in deposits of private banks was from 5.2 per cent in 1993 to 35.8 per cent in 1996. The increase in loans and advances was from 4.7 per cent of total domestic loans in 1993 to 36.1 per cent in 1996 — a remarkable performance, though still small in comparison with the private sector share in GDP of around 75 per cent. Thus, as bemoaned by one of the bankers, had the private banks been allowed to open additional branches throughout the country the increase would have been even greater (Wint Kyaw, January 2002, p. 34). The development of private banking in Myanmar appears more impressive if we take into consideration the negative real interest rates, credit restrictions, and lack of “banking habits” among the

© 2004 Institute of Southeast Asian Studies, Singapore

1,294 4.7 3,516 10.4

4.9

11.6

1,305.8 3,533.8

4,839.6

1994c

9,719 25.1

11.9

27.2

3,722.3 11,982.8

15,705.1

1995d

26,222 36.1

20.9

35.8

56,98.3 31,315.3

37,013.6

1996e

50,488 —

—

—

14,279.3 43,877.1

58,156.4

1997f

© 2004 Institute of Southeast Asian Studies, Singapore

Source: Myanmar Data 2000 (2001).

* Includes fixed deposits and saving deposits. b Includes eight private banks. c Includes thirteen private banks. d Includes fifteen private banks. e Includes twenty-one private banks. f Includes twenty private banks. g Includes twenty private banks. h Includes twenty private banks.

Note: The government stopped releasing money supply and other monetary aggregates after 1996.

Loans and advance (LA) LA as a % of total domestic loans

5.2 2.1

TD as a % of money in circulation (M1)

758.8 818.7

1,577.5

TD as a % of total bank domestic deposits

of which: Demand deposits Time deposits*

Total deposit (TD)

1993b

Table 5.4 Myanmar Private Banks, Deposits and Loans, 1993–99 (Million kyat)

60,866 —

—

—

32,382.4 78,401.4

110,783.8

1998g

97,066 —

—

—

58,409.1 127,759.4

186,168.5

1999h

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people in the country.7 Interest rates for deposits as well as loans of private banks are regulated by the government rather than by the market.8 For example, interest rates for time deposits are fixed at between 16 and 17.5 per cent and for loans at between 19.5 and 21 per cent. The inflation rate is over 20 per cent. And most private banks can only offer short-term lending. Moreover, as can be seen from Table 5.4, the lack of “banking habits” of Myanmar people is such that they prefer to keep their money in the bank in the form of time deposits rather than demand deposits. All this places constraints on the proper functioning of the banking system. Consequently, as a team of scholars from abroad had observed: … most private banks have found creative ways to conduct business, including using growth in equity values to private depositors with a return and providing hire purchase and illegal services such as conduits for illegal foreign equity inflows. (EAAU 1997, p. 130)

The development of the financial sector can be measured by such indicators as the ratio of M1 (currency in circulation and demand deposits) to GDP (M1/GDP), and the ratio of M2 (M1 + time deposits) to GDP (M2/GDP) (Table 5.5). Together, they measure the degree of monetization in the economy. Ideally, as the structure of financial assets becomes more and more diversified and as the people gain confidence in the banking system and develop “banking habits”, M1/GDP should rise, but at a much slower rate than M2/GDP, if financial deepening is occurring. In Myanmar’s experience, M1/ GDP remained more or less unchanged at around 25 per cent between 1987/88 and 1996/97, while M2/GDP declined slightly from 37 per cent in 1987/88 to 35 per cent in 1995/96. If we compare these ratios with those of Malaysia or Thailand, where M2/GDP ratio had increased from nearly 80 per cent in 1992 to 90 per cent or more by 1996 or 1997, the lack of progress in Myanmar’s financial sector development becomes evident.9 The Central Bank began issuing three-to-five-year bonds from December 1993 in order to absorb excess currency in circulation, as well as to eventually contribute towards the development of a capital market. There are no restrictions on purchasing these bonds, which pay a semi-annual interest of between 10 per cent (for three-

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Chapter 5 Table 5.5 Money Supply in Million Kyat and as a Percentage of GDP, 1987–97 Million Kyat

Year 1987/88 1988/89 1989/90 1990/91 1991/92 1992/93 1993/94 1994/95 1995/96 1996/97

M1

M2

M1/GDP

M2/GDP

17,177 23,614 32,842 38,918 52,307 70,428 84,381 119,061 152,605 199,845

25,590 31,273 42,562 51,006 66,791 89,542 109,947 156,077 211,540 —

25.00 30.97 26.34 25.61 28.00 28.24 23.42 25.18 25.23 25.23

37.25 41.02 34.14 33.57 35.76 35.90 30.51 33.01 34.98 —

Sources: Review of the Financial, Economic and Social Conditions (various issues).

year bonds) per annum and 10.5 per cent (for five-year bonds) per annum. Up to the end of April 1998, 13,873 million kyat worth of government bonds have been sold in Yangon and Mandalay (Than Lwin 1998, p. 6). The absence of a capital market in Myanmar was seen as a blessing in certain quarters of the ruling hierarchy because the impact of the East Asian economic crisis on Myanmar might have been greater. It would seem, therefore, that the prospects for mobilizing much-needed resources through the development of a capital market have been pushed back further. As a result, domestic enterprises will continue to face difficulties in raising capital to develop or expand their business. Non-bank financial institutions in Myanmar have not developed much beyond the Myanmar Small Loans Enterprises and Myanmar Insurance. The Myanmar Small Loans Enterprises is a state-owned finance company that deals in small loans business. As indicated above, the launching of this enterprise cannot be regarded as a new venture or development, as it has been in existence for many years as one of the departments of the MEB before 1992. Myanmar Insurance, a state-owned organization, is the sole insurance institution in Myanmar. It underwrites various classes of insurance, such as life, marine, aviation, fire, and so on. With the

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enactment of the Myanmar Insurance Law in July 1993, new types of insurance, such as oil and gas, travel and health, have been introduced. As a consequence, insurance income was said to have increased substantially. Furthermore, the Insurance Business Law has been promulgated in June 1996 in order to promote and liberalize the insurance industry. As in the case of banking, licences will be issued first of all to local private insurance companies fully owned by Myanmar nationals before giving foreign companies at a later phase. At present, Myanma International Insurance Corporation (MIIC) is permitted to operate as a joint-venture entity in 1997. Also, two foreign insurance companies, Mitsui Marine and Fire Insurance Co. Ltd. and Yasuda Fire and Marine Insurance Co. of Japan had opened representative offices in Yangon since January 1996. On the other hand, private sector participation in the insurance business has been put on hold without any definite time-frame. The foreign exchange regime has undergone many transformations since the adoption of a market-oriented policy ten years ago. The one unchanging aspect of it is the official exchange rate, which is pegged to special drawing rights (SDRs) at 8.5087 kyat = SDR 1. Otherwise, there have been many developments, culminating in what can only be described as a two-tiered or even multi-layered exchange rate system. Even before the introduction of foreign exchange certificates (FECs) in February 1993, which have been issued for the convenience of foreigners visiting Myanmar, which at the same time tacitly approved the de facto devaluation of the kyat, business by local and foreign enterprises was being conducted on the basis of parallel exchange rates, reflecting the true market value of the kyat. The FECs turned out to be popular, as a result of which the government eventually allowed thirty foreign-exchange dealers and ten semi-government and private banks to engage in foreign exchange transactions. In line with a market-oriented policy, the strategy of the government seems to be to gradually re-align the value of the kyat to free market equilibrium rates as more and more business

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transactions came to be conducted in the FECs. Recently, however, there has been a set-back in this regard. The fall in the value of the kyat, as well as in the country’s foreign exchange reserves, has led the government to revoke the licences of seven foreign exchange dealers and nine banks.10 There were also other measures which were in fact a reversal of market-oriented reforms, and though not directly connected with the subject at hand, have a bearing on it in so far as they led to the loss of confidence in the kyat. According to one report, “low confidence in the kyat can be seen in the continued flight to gold; gold prices in May 1998 increased by 36.3 per cent compared with May 1997” (EIU Country Report, 2nd quarter 1998, p. 27). Resistance to saving or to depositing money in the banking system will remain as long as people lack confidence in the local currency. Furthermore, as noted by Foo et al.: “An added obstacle to a higher national savings rate is the large disparity in the two-tier exchange rate (that is, official versus unofficial). This keeps non-convertible local kyat away from the banking system.” (Foo et al. 1994, pp. 211–12). The formal financial system, taken as a whole, is still unable to meet the requirements of the private sector. This is nowhere more glaringly obvious than in the rural sector. Despite the proliferation of private commercial banks and the establishment of over fifty branches in recent years, rural communities, where more than 75 per cent of the people live, is still poorly served. The state-owned MADB is in fact the only bank serving the rural communities. But the amount of subsidized credit that farmers receive (at 1,000 kyat per acre through the MADB, though representing a sizeable increase from the previous level of 400 kyat per acre) is still short of requirements. The present level of credit constitutes a mere 7 per cent of the total cost of production per acre. In dollar terms this is equivalent to US$2 to US$3 per acre, which may be compared with US$42 per hectare in Vietnam in 1994. Consequently, most of the poorer farmers are forced to resort to informal money lenders at high interest rates of 5 to 7 per cent per month or at 50 per cent for one season without collateral. High interest rates, combined with low rice-to-fertilizer prices, have meant

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that such farmers could ill afford the use of chemical fertilizers. Hence, their yields and incomes also remained low. The urban sector is not much better off as far as credit is concerned. Most of the small and medium enterprises (SMEs) are not able to get as much credit as they need for expanding their business; and some get none at all. As indicated earlier, this is chiefly because of interest rate ceilings, which makes real interest rates negative, which in turn forces private banks to ration credit on the basis of nepotism or through rent-seeking activities. But Myanmar is not alone in so far as rent-seeking activities are concerned. According to a number of studies on financial liberalization in Asian countries, this seems to be quite common. In any case, because of this practice, financial resources may not be allocated according to the marginal productivity of investment. This could in turn lower the growth rate of income and hence have a negative impact on savings. The most conspicuous evidence of the failure of the financial sector to develop (and properly perform its function of mobilizing and allocating financial resources efficiently), is the burgeoning growth of the parallel exchange market alluded to earlier. Just as the black market stood out as evidence of failure during an earlier period, the parallel exchange market and the dollarization of the financial system and the rapidly depreciating kyat say much about the state of the economy at the present period. See Box 5.2. The government budget in Myanmar mainly consists of the budget of state administrative organizations (SAOs) and that of state-owned economic enterprises (SEEs). The current receipts of the SEEs, which are not included in government revenue, do not even cover their current expenditure. Although the total amount of government revenue increased year by year, in relative terms it fell from an already low level of around 12 per cent of GDP in the mid-1980s to about 7 per cent by 1999/2000 (Table 5.6). This is in contrast to the constant or upward trend of government revenue in relation to the GDP of most ASEAN nations. See Appendix Table A5.8. The above also attests to the lack of built-in automatic stabilizers (such as progressive taxation) in the fiscal system which would enable government revenue to at least keep pace with the

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Box 5.2 The Dollarization of the Financial System Dollarization signifies the displacement of a country’s local currency by dollars in domestic pricing and trading of goods and services. This is happening in Burma today; everyone wants to spend or pass on “bad money,” Burmese kyats, to someone else and receive and hold “good money,” U.S. dollars, as a store of value or wealth, indicating Gresham’s law in operation. The U.S. dollar has been used as a standard of value and a store of wealth in lieu of the kyat by the ruling elite as swell as the public. Since 1988, the Burmese kyat has become bad money due to a lack of confidence, inept monetary policy of deficit financing by printing new banknotes, and the unrealistic official exchange rate and strict foreign exchange controls by the government. The average black market exchange rate of the U.S. dollar in the mid-1990s is over Kt120, compared with Kt6 to US$1 to indicate that the official exchange rate is 20 times overvalued. The process of dollarization began in 1990, when foreign companies sold in dollars. Domestic private companies and even the state enterprises and state-owned shops began following the … foreign companies. The transactions conducted in dollars included the sale of new and reconditioned cars, gasoline, telephones, and foreign-manufactured consumer durables and the installation of phone connections at US$1,000 each and sale of cellular phones at US$4,000 each by the Post and Telecommunication Department of the government. Buildings and apartments built by both state and private contractors were rented out in dollars to foreign companies and diplomats. The SLORC also passed a tax law requiring foreign firms and Burmese nationals who earned wages and salaries in dollars to pay their taxes in dollars. Source: Mya Maung (1998, pp. 74–75).

growth in GDP. Government expenditures also fell in relative terms, but only slightly. Net deficits consequently remained persistent and high at around 5 to 6 per cent of GDP. The financing of these deficits chiefly through an expansion in public sector credit, and an increase in money supply in turn led to inflation. To consider the revenue side first, the main components on the revenue side are taxes, contributions of the SEEs and to a much lesser extent, the “other” category, which comprises capital gains, interest on loans, non-tax receipts, and recovery of loans.

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Table 5.6 Revenues and Expenditures Fall, Deficits Persist: Changes in Government Revenue and Expenditure, 1987–2000 (As a percentage of GDP) 1987/88

1991/92 1995/96

1997/98

1998/99 1999/2000

Receipts

12.1

8.4

6.6

6.8

7.9

7.3

Of which: (Tax revenue) Expenditure SEE balance Overall balance

(6.4) 17.9 –1.0 –5.8

(5.6) 15.0 –2.5 –6.6

(3.8) 13.0 –2.3 –6.4

(3.7) 11.9 –4.2 –5.1

(4.1) 13.6 –5.3 –5.7

(3.3) 12.3 –3.3 –5.0

Source: Review of the Financial, Economic and Social Conditions (various issues).

There are fifteen categories of taxes and duties in the Myanmar government’s tax structure, grouped under four major heads. From late 1988, three types of measures had been carried out to reform the tax structure and administration. The first type was to broaden the tax base. Thus, the Commercial Tax which replaced the Commodity and Services Tax was designed to broaden the base of indirect taxation with lower tax rates on goods and services. The second type of measure was intended to improve tax administration. Thus, measures for improvement of administrative capabilities, such as recruitment of graduates through the Public Service Commission, on-the-job training, refresher courses, and high-level courses were carried out. The third category was concerned with streamlining and simplifying procedures in the collection of taxes. For example, a new customs tariff law enacted in 1992 was implemented, paving the way for the introduction and implementation of the Harmonized Commodity Description and Coding System; and some streamlining of customs procedures, such as reducing the number of documentation and administrative steps without adversely affecting customs control. As a consequence of these interdependent measures, the total tax revenue increased (according to one enthusiast), from 3.4 billion kyat in 1988/ 89 to 38.8 billion kyat in 1997/98, or by almost twelve times during the nine years. However, if we compare this with the 10.5 billion kyat of tax revenue for 1991/92 (when tax reforms should have begun to show some impact) the quadrupling during the six years

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was less than phenomenal. More importantly, as prices had increased by almost as much during the same period, the increase in tax revenues in real terms, if any, may only be marginal. Then again, in relative terms, tax revenues in proportion to GDP had in fact declined from 6.4 per cent in 1987/88 to 3.7 per cent in 1997/98 and still further to 3.3 per cent in 1999/2000. This is in contrast to the constant or upward trend of tax revenues in relation to GDP seen in most ASEAN nations. Therefore, in relative terms or in comparison with other Asian countries, the results of the tax reforms have fallen far short of expectations.11 One obvious explanation that could be given is in terms of the “buoyancy” or elasticity of tax revenues as income grows. This could partly be explained by the fact that in Myanmar’s tax structure, its revenue is heavily dependent on indirect taxes; but recent developments had been led by the agricultural sector, for which no income taxes could be levied. Nevertheless, this could only account for a small part of recent developments in tax revenues. There are two even more fundamental explanations that could be given. One, the fact that tax collectors are all lowly paid government servants who cannot survive on their official incomes means that they willingly turn a blind eye to tax evasion or other irregularities for a fee. There is no need to go into the details here, but to the extent that the above is valid and given the interdependent nature of the reform measures, it follows that most of the reform measures were ineffective and must have been a sheer waste of money. Unless the people who are to implement them can be paid decent wages and salaries, it might have been wiser not to spend too much on reform measures. Two, the rising trend in donations by private firms and enterprises for the favoured projects of authorities suggest that these donations of a rent-seeking nature could, to some extent, also be in lieu of the taxes due to the state by these firms. Transfers from the SEEs have over the years come to constitute a substantial source of budget revenue. Their contributions increased from around 20 to 24 per cent of total receipts in the early 1990s to just over 30 per cent by 1996/97. An interesting fact, however, is that their contribution did not cover (or just barely covered) their

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current account deficits (subsidies) in some years (1988/89, 1994/95, and 1997/98). The transfers were somewhat like contributing to the budget with the left hand, only to take it back with the right hand. In the years when the budgetary contributions of the SEEs were substantially higher than their current account deficits, the difference between these two — call it net contributions — was still well below the financing requirements of the SEEs. However, this matter is more appropriately discussed further on the expenditure side. A final item of note on the revenue side is the fact that especially since 1988, Myanmar has received very little or no assistance from foreign donors or lenders. In fact, Myanmar’s per capita official development assistance (ODA) of US$3.4 in 1995 was said to be the lowest among the forty-eight least developed countries. On the expenditure side, the current expenditure on public goods such as education, health, and justice was relatively small. For example, although the current expenditure on education is usually more than that for other social services, it declined from about 2.6 per cent of GDP in 1990 to approximately 0.64 per cent in 1998; and as a percentage of public expenditure the decline was from 12 to 4 per cent. Similarly, current expenditure on health also declined, from around 1 per cent of GDP in 1990 to 0.18 per cent in 1998. Even more important than these statistics is the state of disrepair of schools and hospitals peppered across the land, clearly indicating a woeful lack of funds. It was the increase in capital expenditures of the SAOs which had been chiefly responsible for the rise in overall expenditures. It is interesting that capital expenditures, which were about one-fourth of expenditures in 1988–90, rose to half by 1991–93 and eventually to equal it (capital expenditures = current expenditures) by 1995/ 96. Over the ten-year period, capital expenditures increased from about 1.6 billion kyat in 1988/89 to 44.7 billion kyat in 1997/98, or by nearly twenty-eight times.12 In the case of SEEs, their capital expenditures have always been significantly less than their current expenditures. The problem with them was that they were incurring deficits so that their “net contribution”, mentioned earlier, was negative in some years. So, to

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return to the matter of the financing requirements of the SEEs and their net contributions, the difference between the two in any one year gives an indication of the burden imposed by the SEEs on the budget and can also be regarded as the costs of not privatizing them, assuming for the sake of simplicity, that all of them should or could be privatized. This figure for 1996/97 works out to over 20 billion kyat and constitutes roughly 40 per cent of the overall government budgetary deficit. For 1997/98, the estimated figure was 40 billion kyat, constituting some 60 per cent of the budgetary deficit.13 B.4. Inflation

Inflation, according to official data, hovers around 20 to 30 per cent per annum.14 Besides budgetary deficits and increases in money supply, other contributory factors to the inflationary process in Myanmar were over-bidding of agricultural products for export, over-building of certain infrastructural facilities, and depreciation of the kyat in the parallel market for foreign exchange, which increases the prices of imported goods used as inputs in the production process.15 Apart from the above, the cause of it (unlike in the past) is more complex than it appears. On the one hand, there can be no doubt that large budget deficits financed by money creation must have led to the usual “demand-pull” inflation whereby too much money chases after too few goods and services, resulting in rising prices (Table 5.7). On the other hand, rising prices could also result from the supply side as the cost of doing business — of getting anything done — is being pushed up for a variety of reasons. As one scholar has put it: a lot of money has also to chase after valued services such as having a telephone line repaired, clearing goods from customs, enrolling a child in the kindergarten, and in getting required signatures, stamps, sanctions, approvals, and permits to satisfy a bewildering variety of bureaucratic rules and regulations, not only in the conduct of business, but in normal everyday life. All these, together with inadequacies in infrastructure and generally poor quality of services provided by the public utilities lead to high cost and contribute to “cost push” inflation. (U Myint 1997, p. 22)

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Table 5.7 Budget Deficit, Money Supply, CPI, and Market Rate of US$, 1987–2000 Fiscal Year 1987/88 1988/89 1989/90 1990/91 1991/92 1992/93 1993/94 1994/95 1995/96 1996/97 1997/98 1998/99 1999/2000

Budget Deficit (Million kyat)

Money Supply (Million kyat)

CPI (Base year = 1986)

Market Rate of US$ (Kyat)

4,022 6,315 8,020 11,204 12,311 12,095 15,517 29,647 38,820 51,739 57,241 91,876 106,725

9,713 15,937 21,513 32,333 43,737 60,200 74,982 98,323 131,800 176,865 223,730* 275,247* 373,999*

126.53 155.00 191.73 233.73 301.80 369.09 492.99 603.66 735.51 882.81 1,182.10 1,762.22 1,963.47

30 42 50 58 84 99 120 113 117 149 222 327 344

* Estimates made on the assumption that 90 per cent of budget deficit is financed by monetization. Sources: Statistical Yearbook (1997, 2000, 2001); Selected Monthly Economic Indicators (March–April 2000).

In addition, three other “cost-push” factors merit attention. They are the price hike of electricity, the rising cost of transportation and the decline in the production of some essential commodities. The price hike of electricity from 2.50 to 25 kyat/kwh in March 1999 and the rising cost of transportation have both contributed to the increase in the prices of essentials for which demand is generally inelastic. The rising cost of transportation across the country came about from innumerable forms of local taxes, municipal taxes, wheel taxes, toll charges, and so on. According to the author’s rough calculation, out of the total cost of transportation of 35,000 kyat for a round trip from Monywa to Mandalay and back for a truck load of goods, the cost of local taxes, municipal taxes, toll charges, and so forth amounted to 9,850 kyat or approximately 28 per cent of the total costs. And each year some of these charges continue to rise while new innovative forms of local taxes somehow emerge out of the blue.

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Besides the factors mentioned above, the increase in the prices of some food items, such as beef, in recent years could be due to their production lagging behind that of population growth. For example, the average annual increase in the production of beef between 1995/ 96 and 1998/99 was below the population growth rate of 2 per cent. Finally, inflation in Myanmar fed on itself as it were by being more severe than in the economies of its trading partners (Figure 5.3). What it did was to speed up the depreciation of the kyat in the parallel foreign exchange market. And as indicated above, this in turn increased the prices of imported goods (in kyat) used as inputs in the production process, thereby further pushing up the prices of goods. Moreover, the impact of inflation was such that by reducing the purchasing power of fixed income earners such as government employees, whose wages and salaries could not keep up with the persistent rise in the prices of basic commodities, it led to cost-push inflation partly through attempts by such people to seek other sources of income. In this regard, it must be mentioned that the government did indeed increase the nominal wages and salaries of government servants at least three times. The latest increase in April 2000 was Figure 5.3 Inflation in Myanmar and East Asia, 1988–99 60% 50% 40% 30% 20% 10% 0% 1988/89

1990/91 Myanmar

1992/93

1994/95

1996/97

1998/99

East Asia average (excluding Myanmar and Lao PDR)

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by as much as five to six times the previous levels of pay. See Tables 5.8a and 5.8b. But before the increase, in the intervening period (between 1989 and 1999) the real income of government employees had steadily been eroded by higher prices of goods and services (Figure 5.4). To make up for their lower purchasing power, government officials on their part became accustomed to devising ingenious ways to supplement their meagre incomes. Those who provided service or granted permits to the public quite openly and unashamedly asked for “fees” to expedite the service that they were required to provide in the normal course of duty. Those who did not have such opportunities, such as teachers, would quietly take in students they teach at school to their home for “private tuition” at a fee. Then again, for many in government service, moonlighting had become a necessity. The latest increase in the nominal wages and salaries of government employees, while making up lost grounds, is not likely to repair the damage done to the integrity and honesty of government employees any time soon. B.5. Privatization

Privatization, which is the transfer of ownership and/or decisionmaking authority from the public to the private sector, can take many forms. It can be in the form of an outright sale, leasing, or transfer of management, in full or in part as a joint venture, of a public enterprise to the private sector. A broader definition includes deregulation, which involves doing away with constraints imposed upon competition against public enterprises. In order to enhance the “proper evolution of the market-oriented economic system” the privatization process was initiated in 1995. The Privatization Commission, established in January 1995 to coordinate and supervise the transfer of SEEs to the private sector, earmarked a number of enterprises for privatization. But, apart from the privatization of cinema halls under the Ministry of Information, to date it has had very little success. A number of reasons have been given for the failure. One of them was that there were hardly any takers in the private sector. As

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Chapter 5 Table 5.8a Civil Service Pay Scale, 1986, 1998, 2000 (Kyat/month)

Grade

1986

1998

2000

Daily rated labourer

8.50/day

20/day

100/day

Lowest salaried worker

100–110

600–750

3,000–3,500

Clerical officer (junior)

125–150

800–900 1,000–1,100

3,600–4,000

Clerical officer (senior)

260–380

1,100–1,200

4,800–5,300

Administrative officer/ tutor/secondary teacher

320–440

1,250–1,350 1,425–1,525

5,400–5,900 6,000–6,500

800–1,000

1,575–1,675 1,750–1,850

7,500–8,500 8,700–9,700

1,300

2,125 2,250

10,000–11,000 11,500–12,500

2,375 2,400 2,500 2,700

13,000–14,000

Senior administrative officer/lecturer Director/professor Director-general/rector

1,500

15,000–16,000

Source: Lokethar Pyithu Neizin (daily; various issues); The New Light of Myanmar (various issues).

Table 5.8b Remuneration of Private Bank Employees, 2000 Rank Managing director (MD) General manager (GM) Deputy general manager Senior manager Manager Deputy manager Assistant manager Supervisor Assistant supervisor Senior bank assistant Junior bank assistant Driver/peon/watchman

Gross Income (Kyat/month) 70,000 60,000 50,000 42,500 30,500 26,000 21,500 18,500 15,500 13,500 11,500 10,500

Source: Average of three private commercial banks in Myanmar.

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Figure 5.4 CPI, Food, and Salary, 1989–2000 2,500

10,000 9,000

2,000

CPI index

7,000 1,500

6,000 5,000

1,000

4,000 3,000

500

Nominal wages (kyat)

8,000

2,000 1,000

0

CPI Salary (tutor)

1999/2000

1998/99

1997/98

1996/97

1995/96

1994/95

1993/94

1992/93

1991/92

1990/91

1989/90

0 Year

Food Salary (lecturer)

some have pointed out, this in turn was due partly to the valuation problem in that the full book value of the initial investment in the enterprise offered for privatization was unreasonably and unrealistically high, and partly because new owners or partners were required to take on existing staff. But even if there were people from the private sector willing to take on some of the ageing SEEs, the problem of financing would be huge given the underdeveloped banking sector and lack of capital markets in Myanmar. Then again, overvaluation of the true worth of the enterprises offered for privatization may be deliberate since some, if not many, ministries are really not very keen to have their enterprises privatized. The root of all the above-mentioned problems may lie in the fact that the Commission itself is not really aware of the tremendous costs to the country and society of not privatizing SEEs or privatizing them very slowly. Besides the direct budgetary costs alluded to

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earlier, there are indirect costs stemming from budgetary deficits caused by the SEEs such as increases in money supply, inflation, hardships for the poor and needy and so on. The fact that the essence of privatization is greater efficiency and competitiveness may also be a forgotten factor. If, on the other hand, none of these doubts are justified then the only remaining conclusion is primacy of politics over economics and political considerations above all else, as usual. C. External Sector Performance: Foreign Trade and Investment

According to official statistics, Myanmar’s external sector does not appear to be very important as external trade constitutes a mere 2 or 3 per cent of GDP. However, official statistics grossly understate the true situation because of valuation via the distorted exchange rate and also because of a significant amount of unrecorded trade across the border. The actual share of trade in GDP, according to some estimates, could be double the official estimate (EAAU 1997, p. 119). In accordance with the market-oriented policy of the government, the Ministry of Trade has amended, annulled, and supplemented existing laws, rules, procedures, and notifications. With a view to developing the private sector, the SEEs were allowed to form joint-venture corporations with local and private entrepreneurs; registration of exporters and importers were encouraged; and foreigners were allowed to set up companies and branches. In the initial period of registration in 1988/89, there were only 130 organizations of various types and the number has increased to 38,782 by 1999/2000. Between 1990/91 and 1999/ 2000 the number of registered exporters and importers had grown from 2,677 to 13,780 or by more than five times. The Union of Myanmar Federation of Chamber of Commerce and Industry or UMFCCI for short was formed earlier in January 1989 to support internal and external trade. As a measure to promote private sector participation in foreign trade, private companies were initially allowed to retain 60 per cent

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of their export earnings. The retention rate was raised to 100 per cent in March 1990. Then again, in addition to conventional practice, other measures such as “import first and export later” and importing and exporting on consignment basis were undertaken to promote foreign trade. Great efforts were also made to develop the tourist industry. However, the state retains its monopoly on exports of rice, teak, petroleum, natural gas, gems, jade, pearls, and other items. Exports of such items are controlled by the relevant government ministries. Also, since the imposition of restrictive import policy in March 1998, some of the above-mentioned measures such as “import first and export later” were rescinded. Moreover, exporters were required to spend 80 per cent of export earnings to import essential “A” priority list items before permission can be obtained for importing selected non-essential items. With few exemptions, vehicle imports have also been officially banned since 1996. Exports and imports grew rapidly after these initial reforms were introduced in the early 1990s. According to data provided by Myanmar authorities to IMF, exports of Myanmar in U.S. dollars increased fourfold from about 219 million in 1987 (or 215 in 1989/90) to about 897 million in 1995; but more slowly since then to 1,309 million in 1999/2000 (Table 5.9). But against the previous high of about US$470 million in 1980, the increase up to 1995 was almost twofold. Note also, that up to 1994/95 the increase in exports was achieved through the increase in export volume, while its unit value was becoming somewhat unfavourable. Imports increase by over fivefold, from about US$268 million in 1987 (or US$201 million in 1989/90) to about US$1,831 million in 1995; and again more slowly since then to US$2,355 million in 1999/2000. As a result, the trade deficit has increased by over twenty times between 1987/88 and 1999/2000. In fact, the increase in perennial trade deficits to around US$1,000 since 1996/97 has led the government to impose restrictive import policy and take desperate ad hoc measures mentioned above. But, as noted above, these measures in turn have led to the slowdown in the growth of exports.

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Trade balance is still the most important item in Myanmar’s external accounts. Nevertheless, “services” and “private transfers” came to be increasingly important as positive items. The service accounts have benefited from large receipts of royalties from oil and gas explorations and land lease payments from foreign hotel operations. Receipts from tourism and private remittances have also increased significantly. Nonetheless, there were no improvements in the current account balance between 1990 and 1999 owing to the tremendous increase in imports, as a result of which the merchandise trade balance widened further during the same period. See Appendix Table A5.5. The net effect of foreign direct investment on the balance of payments cannot be determined on available evidence, for while its substantial contribution to the capital account is clear-cut, its impact on imports is not so clear. In relative terms, downhill trend in exports and imports as a percentage of GDP witnessed in the preceding decade continued unabated from 1988 onwards all the way to the end of the study Table 5.9 Exports, Imports, and the Balance of Trade, 1987–2000 Year (Base year = 1985) 1987/88 1988/89 1989/90 1990/91 1991/92 1992/93 1993/94 1994/95 1995/96 1996/97 1997/98 1998/99 1999/2000

Trade Indices

Value (Million US$)

Export Unit Export Volume Value Export Import 82 53 72 100 96 108 149 145 150 221 285 380 433

94 92 111 100 101 88 81 87 136 104 94 86 80

219 147 215 325 419 591 696 917 897 929 1,011 1,125 1,309

268 244 201 269 646 1,010 1,302 1,488 1,831 2,107 2,451 2,116 2,355

Trade Balance Deficit/Surplus of Trade as a % of Imports –49 –97 14 56 –227 –419 –606 –571 –484 –1,178 –1,440 –991 –1,046

Sources: IMF Report (1998, 1999, 2001); UNCTAD Report (2001).

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–18.3 –39.7 7.0 20.8 –35.1 –41.5 –46.5 –38.4 –26.4 –55.9 –58.7 –46.8 –44.4

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period (Figure 5.5). They both went down from 2.9 per cent and 4.5 per cent of the GDP respectively in 1988/89 to 0.3 per cent and 0.7 per cent of GDP respectively in 1999/2000. See Appendix Table A5.5 for details. But, as noted earlier, official figures of trade in kyat are grossly understated due to the existence of a huge illegal trade. Nevertheless, to the extent that export and import as a percentage of GDP can indicate the degree of openness of an economy, Myanmar, as in the past, seems to be becoming less and less open and more and more inward-looking. Clearly, this trend is not only contrary to the officially proclaimed policy, but also to those HPAEs which have enjoyed such great economic success. Changes in the composition of exports, at least up to 1995, clearly reflect the unusual sectoral trend observed earlier. That is, the share of agricultural products in exports increased during the past decade from 27 per cent in 1987/88 to 46 per cent in 1995/ 96 (Figure 5.6).16 Since then, however, it has gone down markedly due to the decline in rice exports as well to the increase in garment Figure 5.5 Downhill Trend in External Trade Continues: Export and Import as a Percentage of GDP, 1988–2000 8% 7% 6% 5% 4% 3% 2% 1%

Export

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Import

1999/2000

1998/99

1997/98

1996/97

1995/96

1994/95

1993/94

1992/93

1991/92

1990/91

1989/90

1988/89

0%

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Chapter 5

exports included in the item “others”. The share of forest products, which came to replace agricultural products from the top spot by the mid-1980s, was back in second spot, having declined from 45 per cent in 1987/88 to 25 per cent in 1995/96. Again, the share of forest products has also gone down significantly by 1999/2000 for the same reasons as above. Inclusive of animal and marine products (but excluding border trade) the share of primary products in total exports still amounted to nearly 85 per cent in 1995/96. But for the reasons given above, this share had gone down to less than 60 per cent by 1999/2000. Exports through border trade which is included in others and constituting approximately 13 per cent of total domestic exports in 1993/94 had declined to around 5 per cent in 1995/96. The increase in the share of agricultural products in exports was due in large measure to the recovery of rice exports and a dramatic increase in the export of pulses and beans. Rice exports surpassed the 1 million ton mark in 1994. However, the increase in the domestic price of rice soon forced the government to scale down its exports. As for pulses and beans, exports increased from nearly 200,000 metric tons in 1990/91 to over 769,000 metric tons in 1997/98, or by almost four times; but from then it tailed off to around 600,000 metric tons by 1999/2000. As noted by a number of scholars, this achievement has largely been the outcome of relative price incentives. Another noteworthy performance concerns the exports of fish and fish products. The increase in the exports of this item has also been as dramatic as that of pulses. In terms of entirely new export products, the most significant change in the structure of exports was in the tremendous increase in garment exports, which for the sake of comparison with preceding periods, are included in “others”. Note, however, the foreign exchange earned from garment exports was only the value added portion of the products, as most of the raw materials are imported. On the whole, there has been little or no change in the structure of Myanmar’s exports. Myanmar’s achievement in recent years, even after ignoring the fact that its manufactured exports consist mainly of garments (plus the added advantage of a low

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Figure 5.6 Structure of Myanmar’s Export, by Type of Commodity, 1985–2000 100%

80%

60%

40%

20%

0% 1985/86

1990/91

Agricultural products

1995/96

1997/98

Animals and marine products Minerals and gems

1999/2000 Forest products

Others

export base) pales in comparison with those of the HPAEs where manufacturing constituted over 70 per cent of their merchandise exports. Changes in the composition of imports were determined partly by market forces and partly by government directive requiring importers to include in their imports, goods of high priority to the state. In 1990/91 capital and intermediate goods imports constituted two-thirds of total imports while the rest were taken up by consumer goods. In 1995/96 this had more or less been maintained. Capital and intermediate goods comprised 60 per cent, with consumer goods constituting 40 per cent of total imports (Figure 5.7). Here, too, the trend was unchanged: the structure of imports by 1999/2000 still resembled that of 1990/91. Myanmar’s external trade continues to be mainly with Asian countries. In this respect it has not changed. Within Asia, however, there has been some changes in the destination of exports and sources of imports. Myanmar’s exports to ASEAN member countries, which had increased from less than 20 per cent in 1987/88 to slightly

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over 40 per cent by 1990/91 and whose share maintained up to the Asian crisis, fell significantly after the crisis in spite of the fact that some border trade was included in it. Its share was replaced by the rest of Asia and especially China. Myanmar’s exports to China increased from about 4 per cent in the mid-1990s to around 10 per cent by 1999/2000. The most significant change in the source of imports was the declining importance of industrial countries including Japan, and the increasing importance of ASEAN and China, which together accounted for about 75 per cent of Myanmar’s total imports. Imports from Japan declined from about 24 per cent of total imports in 1995/96 to less than 10 per cent in 1999/2000. Note also that unlike in the case of exports, imports from ASEAN continue to increase even after the crisis. This is because after the rapid industrialization of the original ASEAN member countries, Myanmar’s trade with ASEAN came to be characterized less by competition than by complementarities (Myat Thein 1997, p. 4). The Myanmar Foreign Investment Law, which many considered “liberal”, provided several attractive incentives to potential foreign Figure 5.7 Structure of Myanmar’s Import, by Type of Commodity, 1985–2000 100%

80%

60%

40%

20%

0% 1985/86 Capital goods

1990/91

1995/96

Inter-industry goods

1997/98 Consumer goods

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1999/2000 Others

161

Market-Oriented Period since 1988:Figure Macroeconomic and External Sector 5.8 Exports of Myanmar, by Country, 1990–2000 100%

Rest of the world Europe

90%

America

80% 70% Rest of Asia

60% 50% 40% 30%

ASEAN

20% 10%

ASEAN

Rest of Asia

America

Europe

1999/2000

1998/99

1997/98

1996/97

1995/96

1994/95

1993/94

1992/93

1990/91

0%

Rest of the world

Figure 5.9 Imports from ASEAN Continue to Increase: Imports of Myanmar, by Country, 1990–2000 100%

Rest of the world

90%

Europe

America

80% 70% Rest of Asia

60% 50% 40% 30% 20%

ASEAN

10%

ASEAN

Rest of Asia

America

Europe

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Rest of the world

1999/2000

1998/99

1997/98

1996/97

1995/96

1994/95

1993/94

1992/93

1990/91

0%

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Chapter 5

investors. These incentives were: • •

•

• • • •

• •

Exemption from income tax for a period extending to three consecutive years from the year of commencement of business; Exemption or relief from income tax on profits of the business if they are maintained in reserve fund and re-invested within one year; The right to accelerate depreciation with respect to machines and equipment, building, or capital assets at rates approved by the Trade Council (TC); In the case of exports from the enterprise, relief from income tax of up to 50 per cent of profits on the export concerned; The right of an investor to pay income tax on behalf of employees and to deduct such payments from assessable income; The right to pay income tax on the income of foreign employees at rates applicable to local citizens; The right to deduct from assessable income, research and development expenses relating to the enterprises which are carried out by the state; The right to carry forward and set off losses up to three consecutive years from the year the loss is sustained; Exemption or relief from customs duty or other internal taxes or both, on such raw materials imported for the first three years’ commercial production upon completion of construction.

Following the introduction of this liberal Myanmar Foreign Investment Law, FDI started coming into the country from 1990 onwards (Table 5.10). But even before the mid-1990s the volume of FDI inflow into Myanmar paled in comparison with that of Vietnam, which introduced its own foreign investment code at about the same time.17 One major difference between these two countries was that Vietnam had realigned its exchange rate so as to make its currency internationally convertible whereas Myanmar had not. The top recipient of FDI inflow had been the oil and gas sector. The manufacturing sector had been slowly attracting FDI from 1994/ 95. Likewise, the hotel and tourism sector also became an important

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recipient of FDI. But the limited success of the tourism industry and especially the 1996 “Visit Myanmar Year” had led to its decline in importance. Since the onset of the Asian economic crisis in July 1997, FDI inflows into Myanmar have practically dried up. The approved amount in 1998/99 and 1999/2000 were US$29.5 and 55.6 million respectively as compared with US$2,814.2 million in 1996/97.18 The total approved amount as of 31 March 2000 was US$6,914 million. Of that total, 44 per cent was from just four ASEAN countries — Singapore, Thailand, Malaysia, and Indonesia (Table 5.11). Thus the dramatic decline in FDI inflows since the Asian crisis mentioned above seemingly reflects this situation. Apart from that, the near completion of the construction of the Yetagun and Yadana gas pipelines could be a contributory factor. Then again, it is also likely that a part of FDI could be coming into the country under the Myanmar Citizens Investment Law (MCI) in order to take advantage of the fact that taxes could be paid in local currency. In contrast to the drastic decline in FDI, the foreign exchange component of investment under the MCI increased by a hefty 128.1 per cent between 1997/98 and 1998/99. Above all, the lack of a sound investment environment was a major factor inhibiting the inflow of FDI. According to a questionnaire conducted by the Japan Federation of Economic Organizations in 1995, among the factors inhibiting the inflow of FDI were the existence of “dual exchange rates”, “lack of infrastructure” (particularly poor electric power condition), “poor telecommunication services and expensive charges”, “unstable macroeconomic environment”, “frequent changes of rules and regulations and lack of transparency in its administration”. Since then, the loss of investor interest in Myanmar could be due to new restrictions imposed in March 1998 on trade, as well as loss of trade privileges from the European Union and the United States. Apart from the above, the lack of a level playing field in the formation of joint ventures, which favours the SEEs, MEHL, and MEC vis-à-vis private enterprises could also be an important factor. See Appendix Table A5.10.

© 2004 Institute of Southeast Asian Studies, Singapore

© 2004 Institute of Southeast Asian Studies, Singapore

Agriculture Livestock and fisheries Mining Manufacturing Oil and gas Construction Transport and communication Hotel and tourism Real estate Industrial estate Other services

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 2,814.2

6.0 17.5 178.3 923.5 695.6 17.3 47.9 114.9 623.5 181.1 8.6

1996/97

777.4

5.7 5.8 2.7 319.2 172.1 0.0 106.6 40.0 122.2 0.0 3.1

1997/98

Source: Ministry of National Planning and Economic Development.

Total

Sector

No.

29.5

0.0 5.0 4.9 19.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0

1998/99

55.6

0.0 3.3 18.5 13.1 5.3 0.0 0.0 15.5 0.0 0.0 0.0

1999/2000

Table 5.10 Foreign Direct Investment, by Sector, 1996–2000 (Million US$)

6,914.09

14.35 283.62 524.12 1468.98 2308.37 17.27 275.69 818.06 997.14 193.11 13.39

Cumulative as of 31 March 2000

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Table 5.11 Foreign Investment, by Country, 1996–2000 (Million US$) Country Australia Austria Bangladesh Canada China Cyprus Denmark France Germany Hong Kong India Indonesia Israel Japan Republic of Korea Macau Malaysia The Netherlands Panama Philippines Singapore Sri Lanka Thailand U.K. USA Total

1996/97

1997/98

1998/99 1999/2000

Cumulative as of 31 March 2000

10.06 1.00 — 7.50 23.11 — — 5.37 15.00 — — 210.95 — 72.15 9.04 — 235.10 154.84 — — 603.47 — 613.49 512.19 341.00

42.02 — — 5.30 0.50 — — — — 56.88 — 25.42 2.40 26.85 29.70 — 124.80 — 30.53 140.00 137.73 — 130.36 24.91 —

— — — — 2.66 — — — — 4.00 4.50 1.05 — 4.69 — — — — — — 4.00 — 7.38 1.17 —

— — — — — 5.25 — — — 5.74 — 1.38 — 5.10 2.82 — — — — — 3.83 — 16.50 15.00 —

82.08 72.50 2.96 37.83 31.92 5.25 13.37 470.37 15.00 133.00 4.50 238.79 2.40 229.30 102.15 2.40 587.17 237.84 30.53 146.67 1,352.26 1.00 1,188.85 1343.88 582.07

2,814.25

777.39

29.46

55.61

6,914.09

Source: Myanmar Data (2000).

The progress achieved towards market-orientation and establishing the foundations for sustained growth during the past decade may be summed up by briefly considering the following two questions: •

•

How far or how near is Myanmar towards achieving the transformation of its centrally planned economy into a marketoriented economy? To what extent has the basic economic fundamentals for sustained growth been achieved?

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The author’s overall assessment regarding the first question is that Myanmar is further away from transforming the centrally planned economy into a market-oriented economy in 1999 than in 1996 or 1997. For example, the privatization process, which was supposed to take off in 1995, has not only slowed down or stopped; the Ministry of Industry 1 is in fact implementing more than seventy new industrial projects all over the country. Then again, since the SLORC changed its name to the State Peace and Development Council (SPDC) in November 1997, government intervention in the market has been on the increase. And the government’s command and control over the economy has become more pervasive. This has taken many forms. In foreign trade, the controls that have been imposed since 1997 were: •

• •

•

•

•

July 1997 regulation by the Central Bank which limits foreign remittances of foreign exchange certificates (FECs) purchased by the kyat to US$50,000 per month; December 1997 notification which made hard currency the only means of payments in the conduct of border trade;19 March 1998 notification according to which 80 per cent of imports must be essential imports before permission can be obtained for importing selected non-essential items; Further regulations by the Central Bank which further limits foreign remittances of FECs purchased by the kyat to US$30,000 per month and then to US$20,000 per month; November 2000 regulation by the Central Bank, which limits foreign remittances of FECs purchased by the kyat to US$10,000 per month; In December 1997 and January 1999, a 5 per cent commercial tax was replaced by an extra income tax of 2 per cent and an 8 per cent commercial tax, payable in foreign exchange.

In the financial sector, foreign exchange licences held by nine private banks to operate foreign exchange transactions were revoked in March 1998. Also, private banks were prohibited from opening any further branch banks throughout the country. Joint ventures with foreign banks which had already been negotiated were also stopped.

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With regard to the granting of permission to conduct business, the openly declared policy of the government was not to give any group or class of people special preference or monopoly power. But in practice, military holding companies such as Myanmar Economic Corporation (MEC) and Myanmar Economic Holdings Ltd. (MEHL) are treated most favourably. The government’s commitment towards the establishment of a level playing field that is so necessary for the proper evolution of a market-oriented economy thus has become highly questionable. Above all, the government stopped releasing the annual Review of the Financial, Economic and Social Conditions published by the Ministry of National Planning and Economic Development, and data on the money supply and other monetary aggregates. This is strange, since according to official media, the economy was supposed to be doing very well. This too is against the trend in neighbouring countries where such information has over the years become more easily available, as well as more informative, accurate and readable. More importantly, in so far as the lack of, or a lessening of, transparency and accountability is the adjunct of a command economy, Myanmar has become a more control-oriented command economy. As in the past, the government seems to have little appreciation of the need for fair and open markets, transparency, accountability, and freedom of information, these being some of the basic ingredients that make up good governance. See Figure 5.10. Figure 5.10 shows the approximate progress of economies in transition towards being a market economy. The vertical axis shows the degree of government intervention in the economy, and the horizontal axis shows the degree of macroeconomic stability. Hong Kong and Singapore are in the upper-right corner of the figure, the position of advanced market economies. In Figure 5.10, Myanmar in 1987 is placed at the right of both Vietnam and Laos, indicating less macroeconomic stability, chiefly but not only because of its lower rate of inflation. As for placing Myanmar above Vietnam and Laos in 1987 with regard to the degree of government intervention, it is because most would consider the latter two countries to be more socialistic and

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Chapter 5 Figure 5.10 Economies in Transition Less government intervention (free market economy)

▲

Hong Kong * Singapore * (M’97)

▲

▲

More macroeconomic stability

* (L’97)

▲

(V’87)*

▲

(M’87)*

(V’02) * * (L’02) ▲

▲

*

▲

Less macroeconomic stability

▲ (V’97)

(M’99)

(L’87)*

▲ More government intervention (controlled economy) M = Myanmar L = Laos V = Vietnam ’87, ’97, ’99, and ’02 = 1987, 1997, 1999, and 2002.

centrally planned economies. However, for reasons mentioned above, since 1997 Myanmar has drifted further away from transforming its controlled economy into a market economy whereas Laos and Vietnam appear to be progressing towards a market economy. The table at the top of the next page, which summarizes the macroeconomic performance of the SLORC/SPDC period between 1989 and 1999, partly provides the answer to the second question. These figures also support the assessment regarding macroeconomic stability in Figure 5.10. As regards exchange rate unification (not shown in the table), there has been some progress in Myanmar owing to the de facto

© 2004 Institute of Southeast Asian Studies, Singapore

Market-Oriented Period since 1988: Macroeconomic and External Sector Average Annual % Change Year 1989–91 1992–94 1995–97 1998/99

Deficit*

169

Trade (% of GDP)

GDP Growth

Inflation

(% of GDP)

Export

Import

3.1 7.7 6.3 5.6

24.9 26.1 25.2 49.1

–6.8 –5.2 –6.0 –5.7

2.1 1.4 0.8 0.4

3.2 2.2 1.6 1.0

devaluation since 1996 when the assessment basis for customs duties were changed from the official rate of exchange to some 100 to 150 kyat per U.S. dollar accompanied by reduction of tariffs to a fraction of previous levels. However, this improvement still falls short of full international convertibility of the currencies. Part of the answer to the second question is provided by Figure 5.11, which summarizes the macroeconomic performance of the SLORC/SPDC period between 1989 and 1999. The figure compares the macroeconomic performance between these two periods in terms of GDP growth, current account balance, inflation, and budget deficit. The four performance dimensions are joined up to form a diamond for each period; the bigger the diamond, the better its economic performance. The size of the diamond in 1998/99 does not appear to be any bigger than in 1989/90. In addition, savings and investment rates remained low and stunted at around 11 or 12 per cent of GDP; the value of the kyat continued to depreciate; the banking sector remained underdeveloped; the ratio of exports to GDP kept falling; and the backward structure of the economy was such that it was still heavily reliant upon the agricultural sector. Above all, government intervention in the economy and sudden and arbitrary changes in policy remained much the same as in the past. What all this means is that Myanmar today still lacks the “development fundamentals” necessary for sustained development and is still mired in a vicious cycle of poverty and human deprivation. In this sense, the economy in the year 1999 was much the same as it was some forty years ago in the early 1960s.20

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Chapter 5 Figure 5.11 Macroeconomic Performance Big is beautiful G

12

6

▲

1998/99

CA

BD

▲

60

1989/90 40 20 0

0

3

5

7

P

–0.2

0

+

1

Note: G = GDP growth rate; CA = Current account balance; BD = Budget deficit; G, CA, and BD as a percentage of GDP; P = Prices (% change per year).

In other words, Myanmar’s development over a longer period shows no evidence of a fundamental break in the growth dynamics (Collignon 2001, p. 90). As pointed out by Collignon, the World Bank too arrived at the same conclusion: The current reform efforts are, therefore, unlikely to push the Myanmar economy to a higher growth path on which the bulk of the population would enjoy substantially better living standards. (World Bank, Myanmar, p. xiv)

This is not to say that nothing has changed. As compared with the preceding period the government can proudly point to the roads, bridges, railways, dams, reservoirs, and irrigation canals

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that had been built during the past decade. But infrastructure and other sectoral developments are the subject matter of the chapter to follow. NOTES 1. The fact that the institution authorized to issue notes and currency was put under the control of the army may be regarded as an ill-advised decision that perhaps has done irreparable damage to Myanmar. 2. With regard to the high GDP growth rate of 1999/2000, it should be noted that in recent years the authorities seem to have become more conscious of the image that real GDP growth rates lend to the performance of the economy. Thus, the Chairman of the Central Committee for Economic and Agricultural Development, in his address at the work co-ordination meeting on the implementation of annual plans for 1999–2000 of Yangon, Ayeyarwaddy, and Bago divisions stated that “The economic strength of the State is to be measured with GDP; therefore concerted efforts are to be made to increase the value of the goods produced and services provided in respective regions”. See the statement by General Maung Aye in The New Light of Myanmar, Wednesday, 7 July 1999, p. 6. However, even before the onset of the Asian financial crisis in July 1997, much of the growth-propelling factors mentioned above have for various reasons lost their momentum. This is partly attested by the declining growth rates recorded by almost every sector every year from 1996. 3. Favourable weather notwithstanding, growth in the agricultural sector of that magnitude is highly questionable. For, as far as agricultural inputs are concerned, the level of inputs in 1999/2000 as compared with 1998/99 had either fallen or remained stagnant. For example, the amount of fertilizers distributed in 1999/2000 of 199,000 metric tons was below that of the 210,000 metric tons distributed in 1998/99. The seasonal credit to the agricultural sector had increased only slightly, up from 10,359 million kyat in 1998/99 to 11,186 million kyat in 1999/2000. According to a reliable source, seasonal loans for major crops covered only 6 to 12 per cent of actual expenditures. Consequently, yields of major crops had remained more or less stagnant. This, amongst other reasons, has made many sceptical about the high growth of 1999/2000. The Asian Development Bank (ADB) and the Economist Intelligence Unit (EIU) amongst others estimated the GDP growth in 1999/ 2000 at between 4 and 6 per cent. What seemed likely was that 1999/2000 had a greater coverage than those of the preceding years, and so the high growth rate of the agricultural sector as well as that of the GDP. For example, it is said that in some townships previously unrecorded cultivated areas in

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Chapter 5 reserved forests or what in Myanmar language are known as Lare Pone, or hidden agricultural land, were included in the 1999/2000 GDP. Likewise, previously unrecorded numbers of chicken, pigs, and piglets owned by both urban and rural households in the informal sector are also said to have been included in the 1999/2000 GDP.

4. This section is partly based on the author’s ISEAS Working Paper on “Improving Domestic Resource Mobilization in Myanmar” (1999). 5. For more details of the banking system, see Myat Kyaw (1996) and Than Lwin (1998). 6. As one of the private banks had to close, at present only twenty private commercial banks are functioning. 7. Many regarded the demonetization of 1964, 1985, and 1987 as having destroyed the “banking habits” of Myanmar households and arrested the development of banking in Myanmar. 8. In the 1977–90 period, real interest rates (nominal interest rates minus inflation rates) in the East Asian countries averaged 4 per cent. 9. Another standard measure of financial depth is the ratio of currency in circulation to M2 or the ratio of broad money to narrow money (BM/NM). In fact, noting this ratio for 1996/97 at 62 per cent was rather high, the IMF commented that Myanmar’s banking sector “barely fulfils its core functions” as it fails to mobilize savings. Again, the ratio, 1.5, of broad money to narrow money in Indonesia in 1980 was the same as that of Myanmar in 1987/88. By 1990, this ratio in Indonesia had increased to 3.6, whereas it had remained unchanged in Myanmar in 1996/97. An increase in BM/NM from 1.6 to 3.6 is equivalent to a fall in NM/BM or a fall in the ratio of currency in circulation to M2 from 66.6 to 27 per cent. For more details of indicators for measuring financial development, see Lynch (1996). 10. The nine banks were: Myawaddy Bank, Inwa Bank, Myodaw Bank, Myanmar Citizens Bank, Co-operatives Bank, Fisheries Bank, Myanmar Industrial Bank, Sibin Thayar Yay Bank, and Myanmar Mayflower Bank. Years of efforts that these banks have put in to forge business relations with the international business community and to build confidence was destroyed overnight effective from 9 March 1998. 11. Extremely low tax ratios coupled with high marginal tax rates suggest that tax evasion as well as tax avoidance must have been widespread in Myanmar. Noting this, Myat Thein and Mya Than conclude that there must have been plenty of scope for increasing tax revenues, but that it would “require better tax administration, visible and easily understandable penalties for tax evasion, simpler tax laws so as to make compliance more convenient, and last but not

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least, minimal and equitable tax rates” (Myat Thein and Mya Than 1955, p. 244). 12. The tremendous increase in capital expenditures was explained by the authorities in terms of the infrastructure needs of the nation and of brighter prospects in the long run. Myanmar’s infrastructure, it is said, lags far behind the times. Hence the reason why the previous Government of State Law and Order Restoration Council [and] the present Government of State Peace and Development Council (SPDC) have been obliged to build up the required infrastructure at great expense. Thus the SPDC, although fully aware of the deficit in the National Budget, has had to inevitably incur heavy expenditure in the face of many limitations and difficulties in the interest of brighter prospects in the long term. There can be no doubt that roads, bridges, railways, dams, reservoirs, and irrigation canals could benefit the country in the long term. But the issue is not that expenditures on such infrastructural projects should not be incurred. As observed in an earlier study by Myat Thein and Mya Than, the important or real issue is “one of balancing the infrastructural needs of the country with the need for providing price stability and a sound macroeconomic environment” (Myat Thein and Mya Than 1995, p. 244). The lack of macroeconomic stability and consequent failure to mobilize sufficient resources could equally and irreparably hurt future prospects. Putting this more starkly, there is the negative or dark side along with the positive or bright side to expenditures on infrastructural building. The real issue is one of balancing the trade-off between the two. 13. The 20 billion or 40 billion kyat estimated above are by no means the only costs of not privatizing the SEEs or privatizing them very slowly. They are merely the direct costs. If the indirect economic and social costs in terms of budgetary implications — increases in money supply and inflation and accompanying hardships for the poor and needy — are to be added, the costs of not privatizing or delayed privatization will continue to climb. 14. The average rate of inflation in 1978–87 was 5.6 per cent per annum. There was thus not a great deal of depreciation in the value of the kyat. Note also that the inflation data in the 1990s could have been understated because of the use of the outdated consumer basket of 1986. For details see IMF (May 1997, p. 15). 15. To be sure, the disparity in long-term trends in the rates of inflation between Myanmar and East Asia had initially induced the depreciation in the value of the kyat, which then became a causative cost-push factor in its own right in the inflationary process. 16. But as compared with the early 1980s when its share was over 50 per cent, its share of 46 per cent in 1995/96 cannot be considered as unusual.

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17. The annual average inflow of FDI into Myanmar between 1990 and 1999 of about US$797 paled in comparison with that of US$3,740 for Vietnam. 18. In this connection it needs to be noted that what affects the rate of growth of the economy is not the approved amount but actual disbursements, which have usually been well short of the amount approved by as much as 50 to 60 per cent. 19. In November 2000 the requirement that border trade be conducted in hard currency was waived. Instead, border trade is to be conducted in the same currency: that is, if exports are sold in kyat, imports as well as custom duties are to be paid in kyat; if exports are sold in yuan, imports as well as custom duties are to be paid in yuan, and so on. 20. The general trend of other indicators such as the stagnant per capita consumption, the unchanging structure of production, and continued reliance on traditional exports provide additional support to the conclusion that Myanmar’s economy, in essence, has not progressed much beyond what it was some forty or so years ago in the early 1960s.

© 2004 Institute of Southeast Asian Studies, Singapore

Reproduced from Economic Development of Myanmar by Myat Thein (Singapore: Institute of Southeast Asian Studies, 2004). This version was obtained electronically direct from the publisher on condition that copyright is not infringed. No part of this publication may be reproduced without the prior permission of the Institute of Southeast Asian Studies. Individual articles are available at < http://bookshop.iseas.edu.sg >

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“Governments must govern themselves before they attempt to govern others. Exercise of power is always a trust. If we care for long-term results, power should be used with justice and charity”. His Excellency S. Radhakrishnan, Vice-President of India, 1956

A. Introduction

Following the introduction of the Foreign Investment Law in 1988 and the official revocation of the “1965 Law of Establishment of Socialist Economic System” in 1989, a series of liberalization measures were carried out in order to enable the transition to a market-oriented system. These definitely have a positive impact on sector-wise reforms. But since SLORC became SPDC in 1997, there has been some back-tracking, and the government’s command and control over the economy has become more pervasive. Also, sudden and arbitrary changes in policy, referred by some as “flip-flop” policy or “swing door” policy, meaning that doors tend to close immediately after they are pushed open, tend to add uncertainty to the business

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environment. This, together with macroeconomic instability (making up an unsound business environment), has a negative impact on sector-wise reforms. The major economic reforms by sector may be summarized as follows: • •

•

•

• • •

Introduction of Foreign Investment Law: enhancing development in all sectors except those reserved for the state; Industrial sector reforms: restitution of small and medium-sized establishments; transfer of management autonomy to state-owned economic enterprises (SEEs); allowing more private sector participation through the relaxation of restrictions on private investment; promotion of cottage industry; promotion of privatization; Land and agricultural sector reforms: initiating institutional changes such as the establishment of land commission to ensure optimum use of land resources; abolishing price controls, reduction of compulsory delivery quota for paddy; reduction of subsidies; leasing of land for private investment as well as foreign direct investment; measures for production expansion; Fishery and aquaculture sector reforms: granting of fishing rights to foreign fishing vessels, marine fisheries, fresh-water fisheries, aquaculture; Mining sector reforms: building legal framework; allowing private sector participation in mining; Tourism sector reforms: allowing private sector participation in hotels and tourism business; Reform of frontier areas administration: pacification and promotion of development of minority races in frontier areas.

The overriding objective of these sector-wise reforms was, as mentioned earlier, “development of agriculture as the base and allround development of other sectors of the economy as well”. The emphasis on agricultural development was an important departure from the past. Likewise, although no specific mention has been made in the reform agenda, the greening of hills and mountains in the Dry Zone in central Myanmar to arrest the process of

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desertification was also worthy of note. Then again, although some mention has been made of the development of minority races in frontier (or border) areas, the magnitude of the efforts made to promote the economic and social development of the border areas was such that it must also be regarded as new and deserves to be noted. However, the control-oriented disposition of the government in much of its undertakings remains unchanged. As noted earlier, energy, electric power, and communications, remain, as before, state monopolies. Equally important, in spite of the fact that the SEEs in the manufacturing sector have been found to be too inefficient and too costly, it will be seen that the government was not only dragging its feet on privatization but was in fact implementing over seventy new enterprises. In the social sector, at no time in the history of Myanmar had the lofty social objectives of the government been stated so explicitly (and repeated daily) as in the following four social objectives: • • • •

Uplift the morale and morality of the entire nation; Uplift the national prestige and integrity and preservation and safeguarding of cultural heritage and national character; Uplift the dynamism of patriotic spirit; Uplift the health, fitness, and education standards of the entire nation.

Of course, what in fact transpired was quite different in some respects from the above objectives. Nonetheless, the focus of the social sector in this chapter will be on the health and education aspects of social development. Furthermore, as in the above, a comparison with the past will be made when considering measures to be taken to promote health and educational development. B. Sectoral Developments

The structure of the economy in terms of sectoral shares in GDP is shown in Table 6.1. In this connection, it was pointed out that the lack of development during the socialist period under military rule

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was reflected in the unchanging structure of the economy; and further that this development or rather the lack of it was in sharp contrast to the normal course of development where the share of industry grew and that of agriculture declined over time as in the ASEAN economies. Much the same may be said for the SLORC/ SPDC period, though not quite for the same reasons. At current market prices, the share of the agricultural sector in GDP has in fact increased from 57.3 per cent in 1990 to 59.7 per cent in 2000, while that of industry fell from 10.5 to 9.1 per cent. This anomaly in structural change could be attributed to the price liberalization in the agricultural sector since 1987, which brought about significant increases in the prices of agricultural products visà-vis non-agricultural products. In 1985/86 constant prices, the share of the agricultural sector in GDP fell from 47.0 per cent in 1991/92 to 43.1 per cent in 1999/ 2000, while that of industry increased from 13.4 per cent to 17.2 per cent during the same period. The share of the manufacturing sector proper also increased — from 8.8 per cent to 9.5 per cent — during the same period. Note, however, that the sectoral shares of GDP at current market prices show the actual production structure of the economy that matters at any one period. In other words, agriculture’s share in GDP of 59.7 per cent (and not 43.1 per cent) in 1999/2000 actually represents the underdeveloped structure of the economy in 1999/2000. Since Myanmar is at present striving to be a market-oriented economy, it would have been better if the comparison of structural change over time could be based on 1997 prices. In any case, to the extent that agriculture continues to be the dominant sector, Myanmar has not escaped from the vagaries of weather and agrarian boom and bust. B.1. Agriculture

Reforms in the agricultural sector began even before the marketoriented economic system was officially adopted. In fact, in 1987 the twenty-one-year-old restrictions on the procurement and domestic trade of paddy, maize, and seven varieties of pulses and beans were lifted. Since then further reforms followed, along with efforts to

© 2004 Institute of Southeast Asian Studies, Singapore

© 2004 Institute of Southeast Asian Studies, Singapore

Cambodia Lao PDR Myanmar Vietnam

1. 2. 3. 4.

— — 46.5 50.0

1980 55.6 61.2 57.3 37.5

1990 40.7 53.1 59.7 26.0

2000* — — 12.7 23.1

1980 11.2 14.5 10.5 22.7

1990

All

19.3 22.2 9.1 32.7

2000* — — 9.5 19.2

5.2 10.0 7.8 18.8

1990

14.2 16.9 6.5 32.7

2000*

Manufacturing Only 1980

Source: ADB, Key Indicators of Developing Asian and Pacific Countries (1999).

* 1998 for other countries.

Country

No.

Agriculture

Industry

— — 40.8 26.9

1980

Table 6.1 Industry’s Share of GDP Declines: Structural Change of GDP, 1980–2000 (In percentages; at current market prices)

33.2 24.3 32.2 39.9

1990

Services

40.0 24.7 31.0 41.3

2000*

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modernize the agricultural sector in the areas of (a) production, (b) trade and marketing, (c) pricing, and (d) institutions. Reforms on the production side represent both a departure from and a return to the old style of government intervention. On the one hand, farmers are in principle allowed to cultivate crops of their choice and to process them freely. Foreign direct investment is also allowed in agricultural production and other activities, as prescribed by the 1988 Union of Myanmar Foreign Investment Law. In addition, the gradual elimination of subsidies on farm inputs came to constitute yet another component of production reforms. On the other hand, since the introduction of Summer Paddy Program (SPP) in 1992/93, farmers were compelled to grow summer paddy. Although many farmers embraced this, especially as chemical fertilizer and diesel fuel for pump irrigation were subsidized in the initial years of the programme, it nevertheless constrained their cropping choice. Later, administrative fiat came to be the order of the day when concerted efforts were made for increased production of paddy, pulses, cotton, and sugar-cane, which came to be designated as the four pillars of agriculture development (or main pillar crops). In 1999/2000, the total acreage under these crops amounted to 9,403,000 hectares or 64 per cent of gross sown area.1 Trade and marketing reforms allowed various types of organizations — state, co-operatives, joint ventures, and private enterprises — to do business in previously state-controlled agricultural products. Similarly, these organizations were free to export other previously controlled products, with the exception of rice, for which the state still retains its monopoly. With this shift, the domestic market for many of these products, except for rice, came to be integrated with the world market. However, the lack of infrastructure, especially transport, storage, processing, and marketing facilities prevents the domestic market for some of the agricultural products from being fully integrated with the world market. Nevertheless, this development has on the whole been beneficial for the farmer producers as the domestic prices that their produce can fetch tend to align with world market prices.2

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As for pricing reforms, prior to 1987 the official procurement prices of paddy at below free-market prices would remain fixed and unchanged for years on end. After 1987, however, they came to be based on the cost of production and adjusted every two or three years. Furthermore, compulsory procurement of monsoon paddy by the government was reduced to five baskets (of 46 lbs/ basket) per acre for those growing traditional varieties and to twelve baskets per acre for those growing high-yielding varieties (HYVs). With the exception of 1997/98, the amount of compulsory procurement in the 1990s was usually around 10 to 12 per cent of total production.3 Because of this, the implicit tax (representing roughly the difference between free market prices and procurement prices) was a much lesser burden on the paddy growers than it was before.4 This was indeed a big improvement over the past.5 Institutional reforms, which were in essence reorganization of government departments, appear to have had the least impact on agricultural production.6 As far as policy objectives in the agricultural sector are concerned, expansion of food grains production for food selfsufficiency, low food prices especially for the urban population, achievement of self-sufficiency in edible oil, promotion of exportable and industrial crops and conservation of resources have remained more or less unchanged since independence in 1948. At any rate, market-oriented reforms in the first half of the 1990s generated an initial burst of development in the agricultural sector. Apart from the decontrol of prices in 1987, the success during that period must be attributed to the introduction of summer paddy with pump irrigation technology. In other words, as in an earlier period of high growth between 1975 and 1980, price incentives and government support were the two key elements (Table 6.2). However, in contrast to an earlier period when success was realized through the introduction of HYV seeds and improved cultivation practices, high growth since the early 1990s was largely driven by an increase in area cultivated through the introduction of the SPP. The obvious lesson to be drawn from these two experiences

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Chapter 6 Table 6.2 Contribution of the Increase in Area and Yield to the Growth of Paddy Production in Myanmar, 1975–2000 Annual Compound Growth Rate of Production

1975–80 1980–85 1985–90 1990–95 1995–2000 1999/2000

6.35 1.33 –0.51 4.30 2.06 16.45

Growth of Production Attributed to Area

Yield

–0.77 –0.49 0.35 4.00 0.35 8.44

7.18 1.83 –0.86 0.30 1.67 2.92

Note: Contribution of area and yield to growth of production was calculated as g = a + y + ay where, g = growth rate of production, a = growth rate of area and y = growth rate of yield. For some reasons, the discrepancy between g and (a + y) in 1999/2000 was much larger than can be accounted for by ay.

is that if the innovations are profitable and if necessary inputs are readily available, Myanmar farmers are not slow in their response to economic incentives. This is most evident in the tremendous expansion in the production of pulses (Table 6.3). It may be seen from the table that the production of paddy increased greatly between 1992/93 and 1994/95. With the exception of pulses and sugar-cane, most other major crops followed the production trend of paddy. That is, production would peak in 1995/96 or thereabouts, dipped slightly downward or remained unchanged between 1996/97 and 1997/98, picked up again in 1998/99, and eventually in 1999/2000 surpassed the level of the previous peak year. Furthermore, as in the case of paddy, production was affected in most cases by changes in sown area rather than in yields (Table 6.4).7 Pulses and sugar-cane were the exceptions; sown area and production of both continued to increase after 1995/96. Production of pulses increased from 1,165 metric tons in 1994/95 to 1,882 metric tons in 1999/2000, while that of sugar-cane increased from 2,219 metric tons to 5,363 metric tons during the same period. In 1999/2000, export earning from pulses and beans at 1,481 million kyat was second only to forest products at 1,671 million kyat.

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Table 6.3 Agricultural Production, 1985–2000 (In thousand tons) Crop

1985/86

1992/93

1994/95

1997/98

1998/99

1999/2000

Paddy Wheat Maize Millet Groundnut Sesamum Pulses

14,091 187 294 212 551 244.3 611.1

14,603 136 205 135 426 233.4 874.5

17,908 88 280 121 493 299.3 1,165.0

16,391 91 303 164 531 258.7 1,540.8

16,808 92 298 148 553 160 1,597.2

19,808 115 344 166 624 253.2 1,882.0

Cotton Jute Rubber Sugar-cane Tea Chillies Onions Garlic Tobacco

98.2 49 15 3,668 46 32 231 36 73

67.1 38 15 3,356 50 40 176 46 52

84.8 34 27 2,219 52 32 170 41 37

161.1 33 27 5,056 66 39 219 53 57

155.6 33 23 5,344 61 40 469 52 46

172.8 33 26 5,363 62 48 468 66 51

Source: Review of the Financial, Economic and Social Conditions (various issues); Statistical Yearbook (1997, 2000).

Since the launching of the SPP in 1992/93, land-use pattern has been changing slowly but perceptibly (see Figure 6.1). Both the net sown area and gross sown area have increased significantly between 1992/93 and 1995/96, followed by a period of stagnation between 1995/96 and 1997/98, only to increase again in 1998/99 and 1999/ 2000. Consequently, cropping intensity also increased from 126 per cent in 1992/93 to 150 per cent in 1999/2000. Agricultural development over the years has not greatly diminished Myanmar’s ample land resources. The ratio of cultivated land (net sown area) to total land area in 1999/2000 was only 14.3 per cent, while the cultivable waste land of 7.25 million hectares was almost equal to the net sown area of 9.66 million hectares.8 The SPP tailed off after 1995/96 when shortages of key inputs such as fertilizer, diesel for irrigation pumps, and high-quality seeds forced the government to reduce subsidies on these inputs. In addition, export controls, inflation, and rising input prices eroded much of the incentives for production. Consequently, acreage under

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Chapter 6 Table 6.4 Sown Acreage of Some Major Crops, 1985–2000 (In thousand acres)

Crop

1985/86

1992/93

1994/95

1997/98

1998/99

1999/2000

Paddy Wheat Maize Millet Groundnut Sesamum Pulses Cotton Jute Rubber Sugar-cane Tea Chillies Onions Garlic Tobacco

12,114 296 492 535 1,471 3,489 2,110 532 151 190 165 139 160 56 27 134

12,684 374 385 518 1,220 3,379 3,470 416 137 193 197 146 220 65 33 102

14,643 270 424 533 1,252 3,288 4,117 505 97 220 130 151 172 63 28 97

14,294 218 401 608 1,111 2,430 4,914 659 94 333 266 169 190 68 35 93

14,230 245 465 592 1,241 2,788 5,744 804 100 369 311 168 169 115 34 74

15,528 260 519 622 1,400 3,173 6,207 842 95 419 333 175 220 146 41 82

Source: Review of the Financial, Economic and Social Conditions (various issues); Statistical Yearbook (1997, 2000). Figure 6.1 Area Classified by Type of Land and Area Sown, by Type of Planting Classification, 1994–2000 16

Million hectares

14 12 10 8 6 4 2 0 1994/95

1995/96

1996/97

Net area sown Fallow land area

1997/98

1998/99

Gross area sown Culturable waste land

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summer paddy, after increasing from 0.8 million acres in 1992/93 to 3 million acres in 1995/96, declined to just over 2 million acres in the following two years, that is, 1997/98 and 1998/99.9 In any case, the gradual elimination of subsidies on farm inputs came to constitute yet another component of production reforms. Recently, the private sector was urged to import fertilizers for which there is no import tax. The success achieved in the agricultural sector must also be attributed to strong state support services. Indeed such services are generally indispensable for the development and modernization of the agricultural sector in developing countries. In Myanmar, measures taken by the government for agricultural development include the following: • • • • •

Provision of research and extension activities; Provision of agricultural credit; Provision of irrigation water; Provision and support for agricultural mechanization; Development of new agricultural land.

The provision of agricultural research and extension activities for the crop sector was undertaken by the Central Agriculture Research Institute (CARI) and Extension Division of the Myanmar Agriculture Service (MAS) under the Ministry of Agriculture and Irrigation. CARI, with a staff of about 400, conducts basic crop research out of its facilities in Yezin, some 400 km north of Yangon. It is supported by twenty-three research farms throughout the country. Apart from basic crop research, its activities include the breeding of HYVs and upgrading the quality of crops; producing hybrid varieties through bilateral and commercial co-operation; and introducing improved varieties of field crops, fruits, and vegetables from abroad to upgrade quality and increase yield. The Institute coordinated closely with international organizations, including the United Nations Development Program (UNDP), the Food and Agriculture Organization (FAO), and international research institutes such as the International Rice Research Institute (IRRI) and the International Center for Research in Semi-Arid Tropics (ICRISAT).

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Myanmar’s extensive agricultural extension system played a key role during the implementation of the Whole Township Production Program (WTPP) in the 1970s. It gained international recognition for its efforts in extending broad support including distribution of HYVs, fertilizers, and advisory services. Since then, however, institutional capacity and performance of the agriculture extension system came to be impaired by staffing and financial constraint. The provision of agricultural credit, as mentioned earlier, is the responsibility of the Myanmar Agricultural Development Bank (MADB). The MADB is a state-owned bank which took its present form in 1997 when the Myanmar Agricultural and Rural Development Bank (MARDB), under the Ministry of Finance and Revenue, was transferred to the Ministry of Agriculture and Irrigation.10 The main aim of the Bank is to effectively support the development of agricultural, livestock, and rural socio-economic enterprises in the country by providing banking services. MADB provides seasonal loans (or crop loans), term loans, and area development loans. Since 1991/92, new types of loans such as loans for solar salt production, for integrated paddy and fish farming, for mulberry plantation to support sericulture, and so forth, have been introduced as diversification to bring about all-round development of agriculture. Seasonal loans for agriculture currently cover only eight major crops: paddy, groundnut, sesamum, long staple cotton, jute, mung beans, pigeon pea, green gram, and soybean.11 Credits for other crops are not available. In view of the increasing cultivation costs, per acre lending rates were raised in 1995/96 from 400 to 1,000 kyat for paddy, from 300 and 200 kyat to 1,000 kyat for groundnut and cotton respectively, and similarly for other crops. In 1998/99, the MADB disbursed 10,359 million kyat of crop loans and 441 million kyat of development loans. Although lending rates for paddy and other crops had most recently been raised once again, they are still less than 10 per cent of the actual cost of cultivation. Consequently, farmers with little cash reserves have to resort to informal money lenders at high interest rates.

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The provision of irrigation water by the public sector continues to be the responsibility of the Irrigation Department under the Ministry of Agriculture and Irrigation. Since the early 1990s, the government has made great efforts in providing irrigation facilities in order to increase agricultural production. Between 1988 and 1999, 108 irrigation projects (covering an effective area of about 1.5 million acres) were completed by the Irrigation Department and this enabled the irrigation ratio (proportion of irrigated area in net sown area) to increase from 12.5 to 18 per cent during that decade (Table 6.5). An overwhelming proportion, 82 per cent of irrigated land, was used for paddy cultivation. For jute cultivation, irrigation is very important as over 60 per cent of sown acreage of jute is cultivated on irrigated land. As a nominal sum of only 10 kyat per acre per year is charged for the use of irrigated water, which is well below cost recovery from irrigation investment, irrigation water is still being generously subsidized. Farm mechanization played a minor role in Myanmar’s agriculture till the early 1990s.12 In recent years, however, farm Table 6.5 Construction of Dams and Reservoirs and Effective Irrigated Areas, 1990–2000 Year 1990/91 1991/92 1992/93 1993/94 1994/95 1995/96 1996/97 1997/98 1998/99 1999/2000 Total

No. of Dams and Reservoirs

Effective Acres

Total Cost (Million kyat)

9 8 7 9 16 16 12 10 8 13

41,9421 29,182 5,187 145,900 95,530 271,100 207,753 151,137 119,400 91,086

2,119.96 190.00 113.80 506.50 1,435.27 4,457.05 3,515.96 2,900.20 4,854.69 4,046.99

108

1,527,506

24,140.42

Source: Review of the Financial, Economic and Social Conditions (various issues); Statistical Yearbook (1997, 2000).

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mechanization came to be encouraged. The Myanmar Industrial Development Committee was formed in 1995 to transform traditional methods of agricultural production into mechanized farming by promoting the use of farm machinery and implements. A total of twenty-three model industrial villages were formed to facilitate the process of mechanized farming. Agricultural Mechanization Department and Myanmar Heavy Industries were the principal state organizations manufacturing farm machinery and implements locally. The above two organizations also procured them from abroad for distribution to farmers. Between 1994/95 and 1998/99, the number of power tillers, tractors, and threshers registered a large increase, as shown in Table 6.6. Farm mechanization, through time-saving, has proven to be an essential component of increased cropping intensity. Since the early 1990s, local and foreign investment have been welcomed to develop new agricultural land through the utilization of cultivable, fallow, and waste land for plantation, orchard, and seasonal crops. However, there was little or no response. For example, up until 1997 there was only one FDI project in the agricultural sector proper. So, in 1998 the government launched a massive campaign encouraging national private investors with new incentives to reclaim virgin, fallow, vacant, and waste lands all over the country. It was a bold attempt to introduce modernized large-scale commercial farming system as an alternative to the traditional small-scale farming. As described earlier, however, so far only 84,720 hectares (or 0.2 million acres) had been reclaimed out of the total of 434,359 hectares (or 1.1 million acres) granted Table 6.6 Distribution of Farm Machinery, 1994–99 (Quantity) No. 1. 2. 3. 4. 5.

Farm Machinery

1994/95

1995/96

1996/97

1997/98

1998/99

Power Tiller Threshing Machine Thresher Paddy Dryer Inter-Row Cultivator

5,167 1,481 1,411 135 8,190

2,112 1,119 5,500 840 14,650

5,567 382 491 100 1,843

3,349 235 177 3 610

2,868 204 — — 87

Source: Facts about Myanmar Agriculture (2000).

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to private investors. Some, if not many, of the private investors seem to have lost their initial enthusiasm and are said to have no further intention of developing the entire area granted to them as they are beset with innumerable problems. Many of them appear to be facing what in a nutshell can only be described as diseconomies of large-scale farming. In line with the market-oriented policy, the Ministry of Agriculture and Irrigation undertook measures to promote private sector participation, attract foreign investment, and accelerate growth and development. The Ministry implemented the following privatization measures: •

•

• •

Tractors under the Agriculture Mechanization Department (AMD) have been gradually sold out to expand private sector farm mechanization; Distribution of farm inputs like chemical fertilizers, pesticides, and seeds that were formerly handled solely by the Myanmar Agriculture Services (MAS) was gradually transferred to the private sector while subsidies on farm inputs are being removed; Plantation estates were leased out to private entrepreneurs for a ten-to-fifteen-year term; Contract farming with the private sector to grow annual crops and plantation crops such as rubber, oil palm, cashew nut, and so forth.

According to government statistics, 1999/2000 was an exceptional year of high growth, with the agricultural sector achieving a growth rate of 10.5 per cent and paddy production a phenomenal growth rate of 16.5 per cent. Total paddy production at 19.8 million metric tons was the highest ever achieved. As in the second period of high growth, area expansion was a major contributor (8.4 per cent) with yield increase playing a minor role (2.9 per cent). Some observers thought that the success in 1999/2000 was brought about through another massive campaign launched by the government in 1998 to boost agricultural production, which encouraged private investors by providing new incentives to reclaim agricultural land in flooded area, deep-water area, and

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existing fallow, waste, and virgin lands. A major incentive for private investors was that they would be allowed to export 50 per cent of their paddy production. However, relying as they had to on summer paddy, none of them so far succeeded in producing export-quality paddy. As of 30 June 2000 only 84,720 hectares (or 0.2 million acres) had been reclaimed out of the total of 434,359 hectares (or 1.1 million acres) granted to private investors. Out of the total reclaimed area, 6,058 hectares (or 0.014 million acres) had been utilized for paddy cultivation. Since the reported increase in gross sown area for paddy cultivation during the fiscal year 1999/2000 was 486,019 hectares (or 1.2 million acres), the contribution of private investors so far has been negligible. In short, the boost to the latest development (to the extent that the data is reliable), came from traditional farm households, which was unexpected. Traditional farm households still find it profitable to cultivate paddy. Profits per acre for monsoon paddy in 1999 was on average 24,000 kyat as compared with around 21,000 kyat per acre in 1996. For summer paddy, profits per acre in 1999/2000 was 22,000 kyat, which was only slightly higher than that in 1996/97. But, given that the cost of cultivation had also risen in the mean time, the rate of profit had probably gone down. Rice export continues to be handled by state organizations. Hence, as in the past, the volume of rice exported continues to fluctuate greatly, depending largely on the domestic open market price situation and the availability of rice stocks.13 Rice exports increased from 28,000 metric tons in 1997/98 to 120,000 metric tons in 1998/99, only to fall again to 55,000 metric tons in 1999/2000. B.2. Livestock and Fishery

The four main objectives of the government in the livestock sector were: (a) to increase the production of draught animals together with agricultural expansion; (b) to expand dairy production and thus facilitate import substitution; (c) to increase meat production and per capita meat consumption and thereby enhance the nutritional status of the population; and (d) to increase the income of livestock farmers.

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Although the first objective was given the highest priority, success proved to be elusive (Table 6.7). At the same time, it is increasingly felt that animal power has been too slow and not powerful enough for intensive agriculture. As a consequence, mechanical power has increasingly come to be used for deep ploughing. The same could be said with regard to other two objectives where success proved to be equally elusive. This was partly because the development of animal feed industry was still at an embryonic stage. So far there are only two big modern enterprises (not including the military) producing “broilers meat” including feed. Nonetheless, the government continued to push livestock development through breeding programmes, disease and parasite control programmes, and the provision of credit for livestock purchase and pasture development through the Myanmar Livestock and Fisheries Development Bank. Under the patronage of the Ministry of Livestock and Fisheries, Myanmar Livestock Federation, a non-governmental organization (NGO) had been formed at the national, state and division, and township levels during October 1999. The Myanmar Veterinary Council had also been formed during October 1998. It may be seen from Table 6.7 that the growth in the breeding of livestock was such that it was below the annual rate of increase in population. In other words, in per capita terms negative growth has been the experience of livestock breeding over the last decade. The fisheries sector is of considerable importance in Myanmar’s economy, as fish is a major source of animal protein in the diet. In order to tap its vast potential for expansion as well as to cope with the increasing fishing activities in the country, the existing Fisheries Manual of 1905 was buttressed by various other laws. These were the Law Relating to the Fishing Rights of Foreign Fishing Vessels, Myanma Aquaculture Law, Myanma Marine Fisheries Law, and Freshwater Fisheries Law. The four main objectives of the government in this sector were: (a) to increase fish production for domestic consumption and export; (b) to encourage the expansion of aquaculture both in marine and

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Chapter 6 Table 6.7 Breeding of Livestock, 1988–2000 Number (‘000)

Particulars

1988/89

1999/2000

% Change

Cattle Buffalo Sheep and goat Pig Fowl Duck

10,093 2,245 1,500 3,201 34,301 6,236

10,760 2,391 1,745 3,814 41,105 6,173

107 107 116 119 119 99

Source: Statistical Yearbook (1997, 2001).

fresh-water environment; (c) to share the surplus marine resources with neighbouring countries by establishing joint ventures, and (d) to upgrade the socio-economic status of fisheries communities. Figure 6.2 clearly shows fresh-water fisheries to have had more success, in relative terms, than marine fisheries. One of the reasons may be the fact that foreign investment in this sector was concentrated in the fish-processing industry rather than in the fish-catching industry. Another reason may be the suspension of fishing rights granted to foreign fishing vessels since 1994 in order to conserve marine resources. Thus, while exports from this sector had increased, fish catch had not found similar success. Export earnings from this sector accelerated from US$51.0 million in 1992/93 to US$183.7 million in 1999/2000 with marine fisheries contributing 75 per cent of the total catch of 1,171,000 metric tons. Fish exports increased up to 10 per cent of total export earnings in 1999/2000. It just goes to show, in contrast to an earlier period, what private enterprise can do, given enough room to grow. The price to be paid, however, was that some fish and prawns had become so expensive as to be beyond the reach of ordinary Myanmar citizens. Under the patronage of the Ministry of Livestock and Fisheries, Myanmar Fisheries Federation, an NGO was formed in December 1999. State, divisional, and township level federations have consequently come into being and are now in operation. These organizations were formed with producers, processors, exporters, and investors.

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Figure 6.2 Production of Fish and Prawns, by Nature of Catch, 1999/2000 and 1988/89 Offshore fisheries In-shore fisheries Onshore fisheries Marine fisheries Flood fisheries Open fisheries Leasable fisheries Fish culture

600,000

500,000

400,000

300,000

200,000

100,000

0

Fresh-water fisheries

Thousand Viss 1999/2000

1988/89

Conservation of natural resources and non-degradation of the environment is the top priority and concern of the Ministry of Livestock and Fisheries. In addition to measures undertaken for the conservation and sustained exploitation of fishery resources, the Fisheries Department has dispersed and released millions of freshwater fingerlings into reservoirs, rivers, lakes, streams, and other bodies in nature so as to increase fish population. To combat overfishing, fishing during closed seasons and in closed areas are strictly monitored and prohibited by Department of Fisheries and harsh penalties imposed on violators. B.3. Forestry

Forest resources have always been very important for Myanmar. Hence, a reliable estimate of the forest cover is also very important. However, there are varying estimates of it by varying sources. According to some estimates, the forest cover in Myanmar is said

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to be between 33.2 and 34.4 million hectares or between 49 and 51 per cent of the country’s land area.14 Out of these totals, 16 to 18 per cent consists of reserved forest, while the rest belongs to other forest areas. The most valued high-quality teak is to be found only in Myanmar and Thailand. With little left in Thailand, Myanmar is the only country in the world with such teak. In addition to teak and other hardwoods, Myanmar forests also have abundant nontimber forest products such as bamboo and rattan. The forestry sector accounted for more than 30 per cent of total export earnings in the early 1990s, but this share later declined to less than 20 per cent by the late 1990s (17.8 per cent in 1999/ 2000), due chiefly to an increase in foreign exchange earnings by other sectors. Approximately 200,000 people or 1.03 per cent of the total labour force work in the forestry sector. In a reversal of form as compared with an earlier period, the production of teak had decreased while that of hardwood had increased greatly. Likewise, in the production of firewood and charcoal, while that of the former continued to increase, the latter declined from 761,000 cubic tons in 1988/89 to 201,000 cubic Figure 6.3 Extraction of Forest Products, 1988/89 and 1999/2000 900,000 800,000

Cubic tons

700,000 600,000 500,000 400,000 300,000 200,000 100,000 0 Teak

Hardwood 1988/89

Firewood 1999/2000

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tons in 1999/2000. This may be a direct result of conservation efforts as well as a reduction in the annual allowable cut (AAC) of teak, which has been scaled down from 609,500 m3 to 409,060 m3 in order to better preserve the premier species. On the other hand, the harvesting of non-teak hardwoods has been stepped up to stabilize the timber trade, but within the bounds of the AAC. In this connection, it should be mentioned that forest resource management in Myanmar has traditionally been very strong with exploitation-cum-cultural system, known as Myanma Selection System (MSS) as the principal method of harvesting forest resources on a sustainable basis.15 In addition, the Myanmar government has updated some policies and legislations to reflect its commitment to the international forestry obligations and the country’s specific conditions. The Myanmar Forest Policy was enacted in 1995 and the 1902 Forest Act was revised in 1992. Forest Rules were formulated and prescribed in 1995. The “Protection of Wildlife and Wild Plants and Conservation of Natural Areas Law” was promulgated in 1994, replacing the old Burma Wildlife Protection Act, 1936. The development of Myanmar’s Criteria and Indicators for Sustainable Forest Management (C&I for SFM) was completed in October 1999. The most notable achievement, however, is the greening of nine arid districts in central Myanmar. See Box 6.1. B.4. Mining

In the mining sector, the new Myanmar Mines Law was promulgated in mid-1994. According to this law, the Ministry of Mines was empowered to administer all mining activities in the country. The main objective of the Ministry of Mines was to step up the production level in order to fulfil the growing domestic needs of mineral and metal products as well as to promote exports. As mineral resources are very much underutilized, and given the existence of a large mineral potential, the Ministry of Mines has welcomed interested foreign investors to go into joint ventures with the economic enterprises under it. Foreign participation was particularly welcomed in the production of copper, gold, lead,

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Box 6.1 Greening of Hills and Mountains in the Dry Zone in Central Myanmar In order to conserve forests systematically, the Government laid down the project for greening nine arid districts in central Myanmar. The Arid Zone Greening Department under the Ministry of Forestry has been implementing projects for the greening of 13 barren hills in the arid zones. Concerted efforts for conservation and protection of natural forests; pumping water from the Ayeyawady River and systematic planting of trees; dropping seeds from the air using helicopters; raising of nurseries; raising of fuel-wood plantations; prohibition of felling of trees; prohibition of cattle grazing are being undertaken in those areas by the Government in cooperation with the local people. Public awareness to preserve and protect the forests is essential. Indiscriminate felling of trees causes climatic changes and turns the area into a barren and arid zone which in turn leads to less rainfall and the soil to become poor and unfit for cultivating crops. If these zones were left neglected, they would turn into deserts where people could not live in next 50 years time. Thus, it is most necessary for the people to cooperate in implementing the greening projects. The Government is giving encouragement to national private entrepreneurs to undertake land-reclamation programmes in the arid zones and now they are actively participating in land-reclamation and development programmes for the cultivation of crops in those areas. A foreign NGO, in cooperation with Myanma Agricultural Services, has been implementing an agro-forestry training centre at Pakhangyi, Yesagyo township in Pakokku district where middle school level boys and girls are taught and given practical field works in agriculture forestry and environment areas and are also given the chance of long-term training abroad for outstanding students. The arid zones of the country are now beginning to turn green and lush with vegetation. Source: Country Presentation for Myanmar: Third United Nations Conference on the Least Developed Countries (2001), p. 29.

zinc, iron, and steel. Indeed, a number of foreign companies have invested, but some have also pulled out or suspended their rights over various exploration blocks as a result of sanctions and other problems. The share of the mining sector in GDP has not changed over the years. It is still less than 2 per cent. The main products of the mining sector had also remained unchanged. They are

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crude oil and natural gas, and metallic minerals and non-metallic minerals (comprising precious minerals and industrial raw minerals). The production of selected mineral products is shown in Table 6.8. In crude oil and natural gas exploration, Myanma Oil and Gas Enterprise (MOGE), the sole state enterprise along with a number of international companies has been conducting exploration and production of petroleum and natural gas in twelve onshore and offshore areas of the country. As may be seen from Table 6.8, while the production of crude oil had declined between 1988/89 and 1999/ 2000, that of natural gas had increased significantly during the same period. The average annual growth rate of the energy sector for the 1990s was estimated at 8.6 per cent. As regards metallic minerals, the production of tin concentrates, tungsten concentrates, refined silver, and refined lead have all declined between 1988/89 and 1999/2000. However, they seemed to have been more than made up in value terms by the phenomenal increase in the production of natural gas and precious minerals. For, according to official data, the annual average growth of value added in the mining sector was 21.2 per cent during the Short-Term Four-Year Plan, and 19.2 per cent in the last four years, a result of substantial domestic and foreign investment in private production. Thus, the mining sector realized an average annual growth rate of 18.2 per cent between 1988/89 and 1999/2000. Production by the SEEs under the Ministry of Mines, by contrast, had declined significantly during the same period. Export earnings of the sector (not including natural gas), have also dropped markedly from nearly 12 per cent in 1987/88 to about 6 per cent of total export earnings in 1999/2000. A main reason behind the decrease in SEE production was lack of spare parts due to foreign exchange shortage. B.5. Manufacturing

Major reforms in the manufacturing sector comprised the introduction of a number of laws to regulate the systematic development of industries, restitution of small and medium-sized

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4,836 39,085 180 26 227 3,274 224 19,291 20,891 29,780

Crude oil (’000 U.S. barrels) Natural gas (million cu. ft.) Tin concentrates Tungsten concentrates Refined silver troy (’000 oz.) Refined lead Copper matte Jade (kilo) Barytes Coal

Source: Statistical Yearbook (1997, 2001).

1988/89

Refined Silver Troy (’000 oz.) 5,477 31,782 170 13 191 2,526 58 157,477 10,062 35,837

1991/92 5,227 38,735 489 113 118 1,547 23 304,555 15,530 32,848

1993/94 3,630 63,505 154 19 89 1,585 53 2,154,061 20,145 29,379

1997/98

3,378 60,898 114 7 117 1,855 58 1,256,466 18,270 30,536

1998/99

Table 6.8 Production of Selected Minerals, 1988–2000 (In metric tons unless otherwise stated)

3,480 57,868 131 7 90 1,716 142 5,242,914 27,243 42,099

1999/2000

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establishments, more private sector participation through relaxation of restrictions on private investment, and the promotion of cottage industries. The following laws and notifications were issued by the government to regulate the systematic growth of industries: • • • • • • •

Union of Myanmar Foreign Investment Law of November 1988; The State Enterprises Law of March 1989; Notification No. 1/89 of May 1989 specifying types of economic activities allowed for foreign investment; The Private Industrial Enterprise Law of 1990; The Promotion of Cottage Industries Law of 1991; The Myanmar Citizen Investment Law of 1994; The Science and Technology Development Law of 1994.

However, in so far as there is a consistent set of industrial policy, it has become difficult to identify precisely what that policy is as differing aspects of it have been stressed, sometimes by the same ministry or organization, on different occasions. Then again, and perhaps more importantly, there are statements made by head of state and other government leaders of SLORC/SPDC on several occasions during their tours emphasizing certain aspects of industrial policy. See the Appendix. For the sake of brevity as well as clarity, an effort has been made here to highlight the more common elements comprising a set of industrial policies. These are: (1) To transform the predominantly agricultural economy into agrobased industrial economy by giving priority to agro-based and agro-related industries; (2) To develop import-substituting industries; (3) To promote the development of small-scale industries into medium-scale industries, and then to large-scale industries; (4) To develop export-oriented industries and to promote the export of industrial products; (5) To conduct research for upgrading the quality of export commodities;

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(6) To encourage the production of value-added manufactured products utilizing local natural resources as far as possible; (7) To seek various ways and means for factories to operate at full-capacity utilization; (8) To encourage standardization for manufacturing machinery and parts, and to promote linkages between producers and consumers; (9) In the industrial sector, the government should be responsible only for those industries that the private sector cannot handle while the latter should handle the rest; (10) To protect from environmental pollution. The desire to develop import-substituting industries, agro-based and agro-related industries, local raw material–oriented industries, and to strive for full-capacity utilization constitutes no change from Myanmar’s industrial policy of the past. But in three important areas, a break from the past has been attempted. These concern the promotion of export-oriented industries, a liberal attitude towards private sector participation, including those from abroad, and as it transpired in practice, the establishment of industrial zones. With regard to private sector participation, statement item (9) above, which unequivocally declares the government’s commitment to a market-oriented system, must be considered as a very important break from the past. In order to regulate the systematic development of the manufacturing sector, the government established the Myanmar Industrial Development Committee (MIDC) on 18 July 1995 to replace the National Industrial Promotion Committee (NIPC), formed in 1992. More specifically, the functions of the MIDC are to promote: • • • •

Enhancement of the quantity and quality of industrial products; Increased production of new types of machinery and equipment; Production of machinery and equipment for industrial use; Creation of suitable conditions for changing Myanmar to an industrialized state.

In accordance with the above-mentioned functions, the MIDC conducted industrial exhibitions, seminars, and conferences on

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industrial promotion and technology transfers, and gave guidance in tackling problems facing private industries in industrial zones. Furthermore, the MIDC formed the Myanmar Industrial Development Bank (MIDB) in 1996 to assist in the financing of private industries. With the approval or under the direction of the MIDC, eighteen industrial zones came to be formed in the outskirts of cities and towns in various states and divisions where there were sizeable numbers of private small and medium-sized industries (SMIs).16 A Zone Supervision Committee in each zone had also been formed for reallocating SMI previously located in residential areas and for close co-ordination and promotion of industries in their respective areas. See Appendix Table A6.4 for more details. The development of industrial zones was indeed a great achievement. It will not only mitigate environmental hazards such as fire and industrial pollution (including noise pollution), but also assist in linking the clusters of SMI. However, there have also been problems and instances of state intervention at the micro-level, which may have been harmful to the national interest.17 Apart from the above, private sector participation in the manufacturing sector in general has become vibrant, and fairly high growth rates have been posted during the first half of the 1990s (Table 6.9). In terms of numbers, the number of registered private industries increased from 24,117 in 1992 to 36,303 in 1998 — an increase of 50 per cent or at an average rate of 2,000 establishments per year within a six-year period. The private sector has clearly demonstrated its dynamism by its positive response to the liberalization policies. The positive response of the private sector to market-oriented policies may also be seen from the changes in the structure of ownership (Table 6.10). In spite of the fact that some industries were still monopolized by the state, the share of the private sector in the manufacturing and processing sector had grown from some 54 per cent to nearly 71 per cent. However, it should be noted that the majority of privately owned firms (98 per cent) were very small firms employing less than

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Chapter 6 Table 6.9 Growth of the Manufacturing Sector, 1988–2000 (In 1985/86 prices)

Year

GDP (Million kyat)

Industrial Valued added (Million kyat)

1988/89 1989/90 1990/91 1991/92 1992/93 1993/94 1994/95 1995/96 1996/97 1997/98 1998/99 1999/2000

47,141 48,883 50,260 49,933 54,757 58,064 62,406 66,742 71,042 75,123 79,460 88,157

4,094.3 4,555.0 4,560.3 4,376.4 4,850.0 5,305.9 5,756.9 6,191.6 6,476.4 6,800.5 7,222.1 8,271.9

% of GDP

Annual Rate of Growth of Manufacturing Sector

Four-Year Compound Growth Rate

8.7 9.3 9.1 8.8 8.9 9.1 9.2 9.3 9.1 9.1 9.2 9.4

— 11.3 1.2 –4.0 10.8 9.4 8.5 7.6 4.6 5.0 6.2 14.5

— — — 1.7 — — — 6.3 — — — 6.3

Source: Review of the Financial, Economic and Social Conditions (1997); Statistical Yearbook (2001). Table 6.10 Changes in the Structure of Ownership in the Manufacturing Sector, 1986–2001 (In 1985/86 prices) Year

State

Co-operative

Private

1986/87 1998/99 2000/2001

41.6 28.2 27.6

4.2 0.9 1.2

54.2 70.8 71.2

Source: Review of the Financial, Economic and Social Conditions (1999/2000); Appendix Table A5.4.

ten workers. Hence, their contribution in terms of employment had not been all that significant. Most of the large firms employing more than fifty workers or a hundred workers were the SEEs. See Appendix Table A6.2 for details. The Ministry of Industry No. 1 and the Ministry of Industry No. 2 share the major responsibilities for promoting the development of the SEEs. While the Ministry of Industry No. 1 is largely responsible for the production of a large variety of

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consumer products and light industrial goods, the Ministry of Industry No. 2 concentrates on developing heavy industry. There are also other ministries directly involved in processing and manufacturing. They are the Ministry of Agriculture and Irrigation, Livestock and Fisheries, Forestry, Energy, Mines, Railways, Trade and Information. The internal structure of the manufacturing sector has remained virtually undeveloped throughout the SLORC/SPDC period (Table 6.11). At a glance, the dominance of agro-processing industries such as rice and oil milling, food and beverage production appeared to have become even more pronounced, increasing from 65 per cent in 1981/82 to nearly 80 per cent in 1991/92 and further to 85 per cent in 1998/99. The only other branches having more than 4 per cent of total output in 1998/99 were mineral and petroleum products (5.42 per cent), and industrial raw materials (4.34 per cent). The shares of these two sectors remained consistently around 5 per cent throughout the 1980s and 1990s. On closer look, it may be seen that resource-based industries with domestic market orientation form the bulk of small and medium industries (SMI). They can be subdivided into agro-based industries and agro-supportive industries. Most of the former comprised traditional domestic enterprises such as rice, oil, and wheat flour milling, production of palm sugar, small-scale sugar mills, food and beverage production, tobacco manufacturing, and so on. They are scattered all over the country, catering chiefly to local or regional markets. The latter category comprised mainly cottage industries for producing farming tools, bullock carts, and so on.18 Domestic market-oriented non-resource-based industries consisted of both old and new enterprises. Old enterprises included cement, electrical and machinery components, and chemical fertilizers. New enterprises are concentrated in the plastic, electrical products, and construction materials industry. The production of plastic bags, basins, containers, PVC pipes, transformers, dynamos, concrete pipes, and ceiling boards reflect growing domestic demand for these products.

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Chapter 6 Table 6.11 Relative Importance of Commodity Groups in the Manufacturing Sector, 1981–99 (Percentage share) Value of Production (In current prices)

No.

Commodity Group

1 2 3 4 5 6 7 8 9 10 11 12 13

Food and beverages Clothing and apparel Construction materials Personal goods Household goods Printing and publishing Industrial raw materials Mineral products Agricultural equipment Industrial equipment Transport vehicles Electrical goods Miscellaneous Total

1981/82

1991/92 1996/97 1997/98

1998/99

65.41 8.22 4.14 3.03 0.61 0.88 6.31 5.00 0.62 0.03 2.02 0.89 2.85

79.39 3.13 3.85 1.57 0.49 0.59 4.38 4.04 0.11 0.02 0.49 0.69 1.26

87.12 2.20 1.48 0.90 0.25 0.36 4.26 1.82 0.36 0.05 0.46 0.14 0.60

83.70 1.80 1.35 1.09 0.22 0.23 3.85 6.22 0.29 0.04 0.44 0.10 0.65

84.96 1.48 1.06 0.92 0.16 0.11 4.34 5.42 0.28 0.04 0.52 0.10 0.61

100.00

100.00

100.00

100.00

100.00

Source: Calculation based on data from the Review of the Financial, Economic and Social Conditions (1961/62 to 1998/99).

Export-oriented resource-based SMI, with the exception of handicrafts, were almost non-existent before the early 1990s. New enterprises, which have sprung up recently are firms with private foreign investment and joint-venture enterprises located in Yangon and Mandalay. They are engaged in the export of frozen shrimp, wood-based products, rattan, and cane. These private and jointventure SMIs compete with the SEEs under various ministries. For example, private SMIs producing wood-based products have to compete with wood-based factories of the Myanmar Timber Enterprise under the Ministry of Forestry. Export-oriented non-resource-based industries are also of recent origin. They are concentrated mainly in the textile and garment industry. Most of them are labour-intensive private or joint-venture firms. The larger ones amongst them (at least sixteen) are jointventure enterprises with Hong Kong or South Korean firms. Also, most of these joint-venture enterprises are either with Myanmar

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Textiles Industries under the Ministry of Industry No. 1, or with the Union of Myanmar Economic Holding, a military holding company. Although the resurgence of private industrial activity in the 1990s had been impressive, in terms of employment in the manufacturing sector in Myanmar, it still accounted for 1.7 million people employed or less than 10 per cent of the total labour force (Table 6.12). The fact that the development of the manufacturing sector had been less than satisfactory in terms of employment generated was not surprising given the problems or challenges they had to face. These problems began for the SEEs from the very moment they were set up as import-substituting industries in a command economy beset with the shortages of foreign exchange. As a result, they were hampered by bad management and shortage of foreign exchange needed for imported inputs. True, a number of attempts had been made since the socialist era to improve their management but without much success. On top of that, the foreign exchange shortage situation had deteriorated further. Consequently, they were still faced with much the same interrelated problems as in the past, namely, lowcapacity utilization and poor performance. Figure 6.4, although including some non-manufacturing SEEs, clearly indicates the magnitude of the problem. It may be seen from the figure that up to the early 1990s, SEE deficits were less than the deficits incurred by the state administrative organizations. Then it came to rival that of the state administrative organizations by the mid-1990s (1995/96 excepted), and eventually to surpass the latter and to become almost the sole cause of total budgetary deficits. With the exception of defence expenditure, the SEEs were also chiefly responsible for trade and current account deficits. The figure also illustrates very clearly the heavy burden imposed by the SEEs on the economy. See Appendix Tables A6.5 and A6.6 for details of manufacturing SEEs implemented by the state since the 1990s. As for the problems faced by privately owned SMIs, a noted Myanmar industrialist has provided a list of problems in the form of what he calls the “waterfall of Myanma industries”. The way he sees it, beginning with the import of obsolete technology, problems

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Table 6.12 Contribution of the Manufacturing Sector to GDP and Employment, 1989–99 Gross Domestic Product (Constant price; million kyat)

Year

Employment (Million of persons)

Industry

Total GDP

Share of Industry (%)

Labour Force in Industry

Total Labour Force

Share of Industry (%)

4,555 4,560 4,376 4,850 5,306 5,757 6,192 6,476 6,803 7,259

48,883 50,260 49,933 54,757 58,064 62,406 66,742 71,042 75,057 78,775

9.3 9.1 8.8 8.9 9.1 9.2 9.3 9.1 9.1 9.2

1.1 1.1 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.7

15.22 15.74 16.01 16.47 16.82 17.23 17.59 17.96 18.36 18.72

7.5 7.2 7.0 7.3 7.7 8.1 8.5 8.9 9.3 9.3

1989/90 1990/91 1991/92 1992/93 1993/94 1994/95 1995/96 1996/97 1997/98 1998/99

Source: Review of the Financial, Economic and Social Conditions (1998/99).

Figure 6.4 Deficits of the SEEs and State Administration Organizations, 1989–99 (Million kyat) 90,000

(%) 8.0

80,000

7.0

70,000

6.0

60,000

5.0

50,000

4.0

40,000 3.0 30,000 2.0

20,000

SEE deficit

Government budget deficit

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1998/99

1997/98

1996/97

1995/96

1994/95

1993/94

1992/93

0.0 1991/92

0

1990/91

1.0 1989/90

10,000

Total deficit/GDP %

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follow one another in a cascading manner as in a waterfall, right to the point the product reaches the customer. They are: • • • • • • • • • •

Import of obsolete technology; Import of decaying facilities; Lack of high-technology components; Instability of foreign exchange rate; Rising labour costs; Low brand image; Low-income customer; No sale network; No after-sale service; No customer loyalty.

Another perspective on the problems faced by private manufacturing firms in Myanmar is provided by a recent survey of private SMIs in the four industrial zones in Yangon. See Box 6.2. In fact, in all the surveys of industrial zones, not only in Yangon but also of those in Mandalay, Monywa, and Pakokku, shortage of electricity was invariably found to be the biggest constraint hindering SMI (Kyaw Min Tun 2001). Shortage of electricity, unstable voltage and frequent blackouts often damage the production process, thereby unnecessarily increasing the costs of manufactured products. In Myanmar, the state has been the sole supplier of electricity since the nationalization in 1951 of private companies supplying electricity. B.6. Infrastructure

With regard to infrastructural development, if it is defined broadly to include irrigation, sanitation, schools and hospitals, then it must be said that much had been done towards improving it in the past decade. Most notably, the construction of some 108 dams and reservoirs mentioned earlier in connection with the development of the agricultural sector may be cited (Table 6.5). It is, to say the least, no small achievement. Even if we go by the narrow definition adopted in this book, state investment in the infrastructure sector consisting of power, transport, and communications has consistently exceeded 20 per

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Box 6.2 Type and Magnitude of Constraints in Industrial Zones In spite of the fact that many industries are in full operation, some constraints are encountered which have a tendency of hindering them to function at maximum efficiency. The following table shows the magnitude of constraints of different industrial zones. The severest constraint is allocated a magnitude of 10 points, with the least, a magnitude of 1.

No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Type of Constraint Electricity supply Raw material Labour Transport Financial assistance Technology Communication Market Sanitation and water supply Revenue

Total S. Dagon S. Dagon Points Shwepyithar Hlaingtharyar (1) (2) 40 32 28 25

10 6 9 8

10 9 5 4

10 9 7 8

10 8 7 5

21 20 18 17

3 5 7 4

8 6 2 3

1 5 6 4

9 4 3 6

12 7

1 2

7 1

3 2

1 2

Source: Saw Christopher Maung and U Tun Than Tun (1999).

cent of the total, 1994/95 and 1995/96 excepted. See Table 5.3 in the preceding chapter. The sector has also grown relatively (in accordance with the principle of elasticity coefficient) from over 5 per cent of GDP in 1990/91 to over 7 per cent of GDP in 1999/ 2000. While the priority accorded to infrastructural development is in line with the market-oriented policy (in so far as such developments helped to promote the expansion of the private sector), the fact that power, communications, and much of the sector continues to be a state monopoly is contra to the avowed policy of evolving a market-oriented system. In the electric power sector, which continues to be a state monopoly, there had been increases in installed capacity, power generation, and power consumption due to extension of gas power-generation plants, adoption of high technology in steam power-generation (by

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recycling waste heat), and construction of mini-hydropower plants in addition to diesel generators. Table 6.13 shows electric power installation, generation, and consumption. Although the number of towns and villages having electricity increased slightly between 1989/90 and 1998/99, only about 15 per cent of the population were served with electricity; and per capita electricity consumption of some 60 kilowatt-hours (kWh) was rather low by regional standards. Furthermore, as shortage of electricity, unstable voltage, and frequent blackouts were common, suffice to say that in spite of an increase in installed capacity of 33 per cent between 1988/89 and 1998/99, the demand by far outstripped supply. According to one estimate, installed capacity needed to be increased to twice the present level of about 1,000 megawatts (MW) within the next five years (Dr Kyaw Htin 2000, p. 27). Assuming that to be valid, the ongoing five hydropower projects at Paunglaung (280 MW), Baluchaung No. 3 (48 MW), Monchaung (75 MW), Zaungtu Dam (20 MW), and Thapanzeik Dam (30 MW) would only be able to meet less than half the projected requirements. This means the development of the manufacturing sector will continue to be hampered by lack of electricity and a majority of the consumers in the towns, including Yangon and Mandalay, and villages will continue to suffer for a long spell, perhaps at least another decade, of blackouts and brownouts. In the transport sector, between 1988/89 and 1999/2000, 3,679 miles of Union highways and main roads, 1,217 miles of gravel Table 6.13 Electric Power Installation, Generation, and Consumption, 1989–99

Year 1989/90 1992/93 1995/96 1998/99

Installed Electrification Capacity Generation Consumption Consumers (Megawatts) (Million kWh) (Million kWh) (’000) Towns Villages 793 807 982 1,055

2,494.44 3,006.60 3,762.33 4,579.29

1,572.65 1,831.46 2,262.37 2,848.02

Source: Statistical Yearbook (1997, 2000).

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624 741 826 920

304 314 320 323

788 933 1,015 1,104

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roads, 3,121 miles of earthen roads, and 110 bridges, each of which was over 180 feet long, had been constructed. However, it seems strange that there should be little or no increase in freight ton-miles between 1985/86 and 1999/2000 (about 157,638 and 164,880 freight ton-miles, respectively); while, according to Yangon City Transport, the number of passengers had even declined from 82,994,000 to 50,247,000 during the same period. This anomaly could be due to the availability of roads (constructed using local resources) by far outstripping the availability of diesel oil and gasoline (requiring hard currency to purchase) as at the very least half of the total domestic supply had to be imported. In 1999/2000, imports of these two fuels amounted to twice that of domestic production. More importantly, while the extension of roadways and bridges may to some extent have reduced the cost of transportation, this presumed benefit is likely to be more than offset by increases in the black-market prices of diesel oil and gasoline. Similarly, while rail tracks increased by 1,031 miles between 1988/89 and 1999/2000 (from 2,767 to 3,798 miles); the number of locomotives, carriages, and wagons all registered a decline; from 387, 1,341, and 7,386 to 330, 827, and 3,519 respectively during the same period. Likewise, the number of airfields increased from thirty-seven to forty-three but the number of aeroplanes decreased by one, from ten to nine (and the conveyor belt at the Yangon International Airport remained inadequate and outdated) during the same period. As for the number of passengers, although it did increase from 290,000 to 410,000 between 1988/89 and 1999/2000, the latter figure was still well below 566,000 and 466,000 in 1980/ 81 and 1985/86 respectively. The tale of contradictions or imbalance in infrastructural development seems to be endless. And while it may not be all that harmful for a rich country like Japan to build “roads that go nowhere”, this makes little sense for a country such as Myanmar. Posts and telecommunications in Myanmar is also a state monopoly. Myanma Posts and Telecommunications Enterprise provide three main services: postal services, telegraph services, and

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telecommunications services for both domestic and international communications. Here, too, while the sector grew by some 4.6 times over the past decade, “the achievement has not yet met the demand of the country”. See Country Presentation for Myanmar: Action Programme for the Development of Myanmar, 2001–10 (2001, p. 12). C. Social Developments

As mentioned earlier, the last census taken in Myanmar was in 1983. Hence, the population figures since then are in effect projections. Nevertheless, the population projections of Myanmar, estimated to grow at a rate of nearly 2 per cent per year, are thought to be reliable and consistent with those projected for Myanmar by international organizations such as the United Nations Population Fund (UNFPA). According to official data (Statistical Yearbook, 2000), the total population of Myanmar was estimated at 50.13 million for the year 2000. Employment figures were estimated by the manpower department of the Ministry of National Planning and Economic Development based on the number of people potentially available for work (the working-age population) or the number of people between the ages of fifteen and fifty-nine. The potential labour force for 1999/2000 was estimated at 29.1 million. A consistent set of social indicators of Myanmar is not always available on a yearly basis. Nevertheless, to the extent that they exist, Myanmar’s social indicators usually reveal far better social conditions of the people than one would expect from the per capita income of its people. Be that as it may, little improvements seem to have been made over the last decade in either adult literacy or life expectancy. According to the UNDP in Yangon, between 1986 and 1996, the adult literacy rate increased by only 3 per cent, from eighty to eighty-three, and life expectancy increased by 0.2 years, from 58.2 to 58.4 years. But this is not corroborated by other sources. According to the ADB’s Annual Report, 1998, the adult literacy rate for female and male improved from 72 and 86 respectively in 1985 to 78 and 89 respectively in 1998. Similarly, the gross

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enrolment ratio for primary school education for female and male improved from 96 and 101 respectively to 108 and 112 during the same period. For what they are worth, the above figures are fairly high by regional standards. Table 6.14 shows the human development index (HDI) in ASEAN. It may be seen from this table that Myanmar’s HDI value in 1997 was higher than that of Cambodia and Laos because of Myanmar’s better performance in life expectancy index and/or education index. Both Cambodia and Laos have a higher GDP index than Myanmar. However, the level of social development in six original member ASEAN countries plus Vietnam is well correlated with their overall economic performance. In other words, the higher the GDP index, the higher will be the life expectancy index and/ or education index. This is further attested by Table 6.15, which shows selected social indicators of Myanmar and the Asia Pacific region. As can be seen from Table 6.15, economies in East Asia and the Pacific with a higher level of economic development than Myanmar also outperform the latter economy in most measures of social development. The simple logic of this correlation is that the richer you are the more you can spend on health, Table 6.14 Human Development Index in ASEAN Rank 22 25 56 67 77 105 110 128 137 140

Country

Life Expectancy Index

Education Index

GDP Index

HDI Value 1997

Singapore Brunei Malaysia Thailand Philippines Indonesia Vietnam Myanmar Cambodia Laos

0.87 0.89 0.78 0.73 0.72 0.67 0.71 0.59 0.65 0.47

0.85 0.83 0.79 0.83 0.90 0.78 0.82 0.74 0.41 0.57

0.94 0.92 0.73 0.70 0.59 0.59 0.47 0.41 0.46 0.43

0.888 0.880 0.773 0.753 0.740 0.681 0.664 0.580 0.508 0.491

Source: UNDP (1999).

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education, and provision of basic needs. But it should be noted that in relative terms too the Asia Pacific economies have been spending a larger proportion of their GDP than Myanmar on health and education: 1.7 and 2.7 per cent respectively in the Asia Pacific as compared with 0.3 and 0.9 per cent respectively in Myanmar. Turning now to nutrition, the daily calorie supply per capita of Myanmar of 2,454 and 2,752 in 1988–90 and 1996 respectively Table 6.15 Selected Social Indicators Myanmar

East Asia and Pacific

Population, 1998–99 Population (million) Population growth rate (%) Urban population (%)

47.3 1.0 26.6

— 1.0 33.0

0.3 0.9

1.7 2.7

22.9 60 2.4 5,000

28.5 77 2.1 1,834

88 90 43 60 — 79 131 — 263 217

93 93 20 69 — 37 47 — 183 148

Public expenditure, 1997/98 Health (% of GDP) Education (% of GDP) Social indicators, 1997 Poverty (headcount; in %) Access to safe water (% of population) Fertility rate (birth per woman) Population per physician (persons) Immunization rate (per cent under 12 months) Measles Diphtheria, pertussis, and tetanus Child malnutrition (% under 5 years) Life expectancy at birth (years) Mortality Infant (per thousand live births) Under 5 (per thousand live births) Adult (15–59) Male (per 1,000 population) Female (per 1,000 population)

Source: World Bank, Myanmar: An Economic and Social Assessment. East Asia Region (1997).

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even exceeded those of some of its neighbouring countries that enjoy a higher per capita income (Table 6.16). As regards health, the percentage of malnourished children under three years of age was said to have declined from 36.7 per cent in 1991/92 to 15.3 per cent in 1996/97.19 C.1. Education

The government has done much for the promotion of education. This includes the extension of primary-level education to make it accessible to all school-age children, improving the quality of primary education in collaboration with international organizations, introducing computer technology to schools, upgrading of basic, higher, and vocational institutions, and transferring some institutes and training schools to the relevant ministries so as to make them more effective. Hence, apart from the Ministry of Education, which is responsible for all matters pertaining to both basic and higher levels of learning, the Ministry of Health, Defence, Culture, Agriculture and Irrigation, Forestry, Livestock Breeding and Fisheries, Co-operatives, Progress of Border Areas and National Races and Development Affairs, Science and Technology also came to be responsible for medical, agricultural, forestry, veterinary sciences, and other related education. Table 6.16 Changes in Average Per Capita Nutrition Levels, 1988–96 Calories per Capita per Day No.

Country

1. 2. 3. 4. 5.

Thailand Malaysia Indonesia Vietnam Myanmar

1988–90

1996

2,280 2,671 2,605 2,215 2,454

2,334 2,899 2,930 2,502 2,752

Source: Commonwealth of Australia, Subsistance to Supermarket: Food and Agricultural Transformation in South-East Asia (1994); ADB, Key Indicators of Developing Asian and Pacific Countries (1994); UNDP, Human Development Report (1997).

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Between 1987/88 and 1996/97, the number of primary schools increased from 31,329 to 35,809 or by 14.3 per cent, but the increase tapered off to 35,854 by 1999/2000. Likewise, the number of teachers at the primary level increased from 116,950 to 159,288 or by 36.2 per cent. Special emphasis was given to border areas. Between 1989/90 to 1996/97, the number of schools under the Border Area Development Programme increased from twenty-eight to 379 or by 13.5 times bringing the national average to one school for every two villages. The number of teachers also increased proportionately from 111 to 12,473, that is, by 13.3 times. From these numbers one would expect not only greater access to primary-level education but also improvement in quality in so far as the increase in the number of teachers was by far greater than the increase in the number of schools. However, except for the border areas where the number of students enrolled in schools had increased from 1,553 in 1989/90 to 34,322 in 1996/97, the number of students at the primary level for the Union as a whole changed little. Worse still, between 1996/97 and 1999/2000, the number of teachers at the primary level declined from 159,288 to 139,814. As for quality of education, efforts have been made to enhance it by shifting the emphasis from “subject-centred” to a “childcentred” approach, and from an exam-oriented to a continuous assessment and progression system (CAPS). Under CAPS, the annual examinations have been replaced by “chapter-end tests”, which are held regularly throughout the year. This enables teachers to monitor students’ progress, identify those who are lagging behind and take remedial action before it is too late. To date, CAPS has been implemented in 12,000 schools in 277 townships. One other positive development in recent years was the introduction of computer literacy education at the basic education level. As of October 1996, 707 Basic Education schools all over the country have been teaching computer literacy to students. While something is better than nothing, financial limitations severely constrain the efforts being made. Indeed, to the extent that the quality of education is related to budgetary expenditures, it could be declining since 1997 (Table

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6.17). A look at Table 6.17 will reveal that, in relative terms, the budgetary expenditures on education fell from 3.53 per cent of total expenditure in 1997/98 to 2.52 per cent of the total in 1998/99 or from 0.93 per cent of GDP in 1997/98 to 0.64 per cent in 1998/99. Furthermore, the increase in the number of teachers notwithstanding, low teacher salaries (leading them to seek other sources of income), and the lack of proper teaching materials and school buildings greatly hampered any improvement.20 At the tertiary education level, new universities, institutes, degree colleges, and colleges have emerged since SLORC took over responsibility of state power in 1988. Between 1922 and 1988 there were only twenty-four tertiary-level institutions. But by 1996/97, the number had increased to fifty-four, with thirty-one coming under the Ministry of Education and twenty-three under other ministries.21 This came about through the establishment of new universities, institutes, and degree colleges as well as upgrading of degree colleges to universities, two-year colleges to degree colleges, and the opening of new two-year colleges. Likewise, the number of faculty members in higher education increased from 4,258 in 1988 to 7,327 in 1996/ 97. And the number of students enrolled increased to 369,323. See Appendix Table A6.7 for more details. Again, the numbers suggest greater accessibility as well as some degree of improvement in quality. Certainly, a more balanced geographical distribution of universities and institutes across the country has made tertiary-level education accessible — albeit with lowly qualified teachers — to most students in all the states and divisions. Moreover, this could also provide the authorities with better control over student unrests and demonstrations and thereby prevent disruption to learning and discontinuity of the educational process. For, as is well known, the quality of education must have suffered from frequent disruptions of this nature: Classes at the institutes of higher learning were suspended during 1989 and 1990 due to student unrest and reopened in 1991. No examinations were held from 1988 to 1990. The longest suspension of most undergraduate classes occurred between 1997 and 2000 (comparable with the shutdown of schools and universities between 1974 and

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1995/96 1996/97 1997/98 1998/99

6,948.8 11,123.2 10,357.7 9,991.9

Million Kyat 4.65 5.85 3.53 2.52

% of Total Expenditure

Source: Ministry of National Planning and Economic Development.

1. 2. 3. 4.

Year

Education Expenditure

1.15 1.41 0.93 0.64

% of GDP 2,411.6 2,789.7 3,095.6 2,799.9

Million Kyat

1.61 1.47 1.05 0.71

% of Total Expenditure

Health Expenditure

Table 6.17 Changes in Public Expenditure on Education and Health, 1995–99

0.40 0.35 0.28 0.18

% of GDP

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1976 during the socialist period) for almost three years, during which time distance learning and graduate programmes continued (history seemed to be repeating itself). This resulted in a backlog of students awaiting admission to higher education together with students who matriculated from high school in June 1996 but gaining admission only in June 2000. Enrolment in Arts, Science, Law, and Economics is, however, accepted at the University of Distance Education (formerly University of Correspondence) which was established in 1992. An unintended but positive development arising from the long suspension of undergraduate classes is the emergence of private schools for English language proficiency, computer training, and business classes. Many of the certificates and diplomas of these private schools provide a bridge for further studies abroad. However, as these private schools are located in major cities or urban areas and charge high fees they are beyond the reach of the average family. As a substitute to undergraduate classes during the three-year suspension of classes between 1997 and 2000, the National Centre for Human Resource Development (NCHRD) was created at the Department of Higher Education in 1998, and the universities and institutes of higher learning were made to form their own Centre for Human Resource Development (CHRD). Functioning under the name of the CHRD, the universities and institutes have been conducting evening classes for various certificate and diploma courses of varying duration.22 Without doubt, some of the students will benefit from these courses although enrolment is quite limited and by no means comparable to regular undergraduate classes. These short-cut ad hoc measures can hardly improve the education system in the long run. With regard to the quality of higher education, another aspect that needs to be mentioned is the unrealistically low salaries and lack of privileges of the teaching staff, which has led many truly qualified faculty members, especially males, to find employment either in the private sector or overseas. Moreover, besides the lack of incentives, the fact that professors and lecturers are preoccupied with extra-curricula duties means that they have

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little time to keep abreast of latest developments in their fields of specialization. Then again, and as commented by Professor John Wong (1997), Myanmar’s higher education does not show as strong a bent for the hard sciences and technology as in the NIEs (Wong 1977). For instance, out of a total of 378,000 students of higher education in 1996, the Yangon Institute of Economics and the Yangon Institute of Technology each had about the same number of students (5,200 or 1.4 per cent), while the Institute of Computer Science and Technology had only 811 students. Also, as noted by Than Toe, “although Myanmar is still an agro-based country, only 0.6 per cent of students studied to be proficient in subjects on Agriculture, Forestry, Animal Husbandry and Veterinary Science” (Than Toe 1998, p. 9). In contrast, the University of Distance Education had 198,000 or over 50 per cent of students in higher education. While such a distribution of students may be politically expedient, it does not bode well for the long-term development of Myanmar. Another cause of concern for most university graduates (if not for the authorities) may be the fact that there are little prospects of remunerative employment after graduation. Before the Asian economic crisis, at least some of the more enterprising graduates could obtain jobs in Malaysia, Singapore, Thailand, or elsewhere in the region. But since the crisis that option has also dried up. In a significant departure from the past, the authorities have begun encouraging university teachers to obtain doctorate degrees. Consequently, some ministries have begun conferring doctorate degrees to teachers “just like that” as a matter of policy. Thus, the pendulum has swung to the other extreme, but in a way equally effective in further demeaning and devaluing the value of a university degree. The Education Sector Study of 1992 by the Ministry of Education in collaboration with the UNDP and UNESCO best summed up the state of education in Myanmar. In its Executive Summary it states: For the most part, Myanmar’s education system currently lacks the capacity and flexibility to respond effectively to the evolving pattern of labour demand and to instil the knowledge, skills and attitudes required in a modernizing economy. (Quoted in Han Tin 2000)

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C.2. Health

Myanmar adopted the concept of health as defined by the World Health Organization (WHO) as “A complete physical, mental and social wellbeing and not merely absence of disease or infirmity”. Then again, as a member country of the WHO, it also adopted the health for all people of the country by the year 2000 (HFA/2000).23 Primary Health Care (PHC) is the main vehicle for achieving HFA/2000. The minimum components of the PHC are: health education, adequate supply of food and nutrition, sufficient safe water and sanitation, maternal and child health care including family planning, prevention and control of locally endemic diseases, immunization against the main infection diseases, treatment of common diseases and injuries, and the provision of essential drugs. (Mya Oo, “Human Resource Development”, p. 174)

The Ministry of Health is chiefly responsible for implementing the National Health Policy. As such, it has taken on the responsibility of improving the health of the people through the PHC approach, which encompasses the use of promotive, preventive, curative, and health restorative measures. In practice, however, the allencompassing nature of the PHC approach not only requires the co-operative and co-ordinated efforts of many different government ministries, NGOs, U.N. agencies, bilateral and multilateral agencies, but also the involvement of the population at large. In fact, as a result of such efforts some improvement has been made in the health status of the nation particularly in the remote border areas of the country. One notable feature during the present SLORC/SPDC regime is the special emphasis being given to improving the health of people in the border areas. This is because the development of these frontier regions since the colonial period has lagged behind the rest of the country and there is a great disparity in the provision of health care and educational opportunities for them and those in the urban and rural areas of the country. Hence, the dissemination of health education down to the grassroots level in the rural areas has also become a top priority for the Ministry of Health.

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After 1989 the government successfully negotiated with the armed groups of national races in the border areas for the restoration and prevalence of regional peace and tranquility. Following the successful negotiations, the government began implementing projects for the development of the border areas, with priority placed on the building of physical and social infrastructure. For details, see Lt.-Col. Thein Han (1996). Along with roads and bridges, new hospitals, dispensaries, and other health care facilities were rapidly opened up. See Box 6.3. By 1998, Myanmar’s health care delivery system came to have 745 hospitals and dispensaries with 30,868 beds, 1,387 Rural Health Centres, 348 Maternal and Child Health Centres, and 14,276 doctors with over 12,000 nurses (Table 6.18). In addition, access to health care services has been enhanced by the training of volunteer community-level health workers. Given the population figures of 39.29 million for 1988 and 46.4 million for 1997 (population data is no longer officially made available after 1997), the figures in Table 6.18 imply a slight increase in population per doctor, from 3,202 in 1988/89 to 3,250 in 1997/ 98; but some improvements in the population per nurse, from 4,705 to 4,379. These figures of progress are in no way comparable with those of an earlier period during the socialist regime. To upgrade hospitals in the provinces where indigenous races live, efforts were made to provide them with health care facilities to improve their diagnosis and treatment. To upgrade the general hospitals, “community cost-sharing” programmes were carried out extensively so as to enable the general public to participate in the health services. In order to prevent the overuse of pesticides, which have possible harmful effects on health, research work and educational activities have been carried out. There is also ongoing research to effectively utilize herbal medicine. In fact, the use of traditional herbal medicine in the prevention and treatment of diseases is becoming popular both in urban and rural areas. Registration of indigenous medicines and licences for manufacturing are being issued according to the Indigenous Medicine

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Box 6.3 Activities for Development of Border Areas and National Races Gaining Momentum: Better and Brighter Future for the Border Areas

Border areas of the country lagged behind in development in comparison with other regions of the country due to various reasons. Before 1988, there were armed struggles in those areas so that development could not be undertaken. The insurgents encouraged the production of opium to help finance their activities and those activities actually sowed the seeds of the current drug problems of the region. From 1974 to 1988, Myanmar cooperated with the United States in the anti-narcotic operations and the U.S. government assisted Myanmar for 14 years by providing training programmes and equipment and spare parts to be used in the drug eradication operations. Since then, Myanmar has managed to implement the anti-narcotic operations without substantial external assistance. Realizing the need to promote the economic and social development of the border areas and to respond to the needs of the people living there, the Government has established the Ministry for Progress of Border Areas and National Races and Development Affairs since 1992. The Border Areas and National Races Development Central Committee and the Working Committee have been formed also. The Master Plan for the development of border areas is drawn up, comprising one 3-year plan as the first short-term plan and two 5-year plans. Plan period covers 13 years starting from 1993–94 and ending in 2005–6. In undertaking the tasks for all-round development of border areas, such as building of transport and communications facilities and creating of better conditions for food, health, and education of the local people, special duties have been assigned to many public servants such as education and health employees, employees from the sectors related to agriculture, irrigation, livestock breeding, information, electric power, telecommunications and construction. Coordinated efforts for boosting not only agricultural production but also fish and prawn production are being made in border areas. It is also aimed at regional selfsufficiency of rice. Effective use of fertilizer and farming machinery rendered by the government of Japan under the Food Aid Programme is being done. As regards physical infrastructure, roads of 4,475 miles, 45 big bridges, 418 schools, 46 hospitals, 8 hydro-power stations, 38 dams, 52 post offices, 54 telephone exchanges, 77 TV relay stations, 10 vocational training schools for women, 16 youth training schools were established in the 1990s. The Government spending for the development works of the border areas was 18 billion kyats from 1988 to 31 March 2000. To raise the living standard of national races in the border areas, gradual elimination of poppy cultivation is most essential. Anti-drug abuse programmes are being carried out with added momentum. Mongla area in Shan State near the eastern border of Myanmar was declared a drug-free zone in April 1997. The remaining opium-cultivation areas will soon be turned into drug-free zones one after another. Buck-wheat cultivation is introduced as a substitution of poppy-growing and with the use of technology and seeds from Japan, success has been achieved. The government has decided and committed to eliminate the drugs menace totally with or without external assistance. Supply Elimination, Demand Elimination and Law Enforcement are the three tactics for the implementation of the narcotics drugs control in Myanmar. The region has now developed with greater momentum over the past decade after achieving regional peace, stability and progress. Those who took arms in the past have now exchanged arms with peace and instead of taking arms they are now doing the development activities hand in hand with the government and the local people. Source: Country Presentation for Myanmar: Third United Nations Conference on the Least Developed Countries, pp. 27–28.

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Table 6.18 Health Facilities and Personnel, 1988–99 Number

Doctors Nurses Midwives Hospitals and dispensaries Hospital beds Rural health centres Maternity and child care

1988/89

1998/99

% Growth, 1988–98

12,268 8,349 8,121 763* 25,759* 1,337* 348*

14,276 12,529 10,595 745 30,868 1,387 348

16.4 50.1 30.5 –2.4 19.8 3.7 0.0

* 1987/88 data from Table 4.18. Source: Report to the Pyithu Hluttaw on the Financial, Economic and Social Conditions (1987), p. 226; Statistical Yearbook (1997, 2000).

Act in order to ensure that people relying on traditional herbal medicine have access to reliable indigenous medicine. Most of the above-mentioned efforts were matched by financial resources, at least in the early years of SLORC rule, as indicated by the increase in the allocation of public expenditure to the social sector (Figure 6.5). But in recent years expenditure cuts to reduce fiscal deficits had fallen most heavily on the social sector. In fact, it was the only sector to have had a negative growth rate in expenditure. But the fact that the private sector has been complementing the government in the provision of health services needs to be taken into consideration. For example, the private sector has been mobilizing additional financial resources and managerial skills for the health sector. However, since the public and private sectors often compete for the same resources such as doctors, technicians, and professionals, the development of the private sector in health care is likely to have weakened the provision of health care by the public sector. The SLORC/SPDC’s way of solving this problem has been to allow doctors and professors at public hospitals and Institutes of Medicine to also go into private practice. Doctors with a private practice do not have to give up their public post. They get two incomes: the one from the private practice being much more

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Chapter 6 Figure 6.5 Education and Health Expenditures Fall: Expenditure Allocations to Social Sectors, 1987–99 (As a percentage of GDP)

6%

5.7 5.3

5% 4%

3.9

3.6

3.6

3.1

3%

2.7 2.2

2%

1.9

2.2 1.5

1%

1998/99

1997/98

1996/97

1995/96

1994/95

1993/94

1992/93

1991/92

1990/91

1989/90

1988/89

1987/88

0%

1

Source: Review of the Financial, Economic and Social Conditions (various issues).

rewarding compared with that from the public sector. It is likely that the conflict of interests will sway them to provide greater time and care to their patients in private clinics. And since only those who can afford it go to private clinics, and further since most private clinics are managed by businessmen, the poor and the needy will generally be shut out. Budgetary allocations to the health sector have always been low, but as may be seen from Table 6.17, the budget cuts in that sector in recent years have been quite severe. Expenditures on health declined from 1.05 per cent of total expenditure in 1997/98 to 0.71 per cent of the total in 1998/99 or from 0.28 per cent of GDP to 0.18 per cent during the same period. Also important is the disparity in the provision of health care between the urban and rural sectors. For example, Myanmar has a doctor-population ratio with more than two doctors to every 10,000 people. Yet, in the rural sector, especially in remote villages, hardly any doctors can be found.

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As for the urban sector, the dominance of private health care providers over that of public ones has become an established fact. According to some recent studies, 60 per cent of health visits are to private health care providers. But there are no consumer groups at present to look after the interest of consumers (patients). In addition, the government does not appear to be aware that under the circumstances, there is a need for the public sector to assume greater responsibility to ensure that patients are not over-charged or cheated. In fact, the government does not seem to have any explicit policies on the delivery of health care by the private sector. And it has yet to formulate policies on the privatization of the health sector to ensure that health services including essential public health programmes do not get beyond the reach of the poor. Health education and promotion are fundamental to health development. Through various channels of the public media, education about the prevailing communicable and non-communicable diseases, food and nutrition, personal hygiene, healthy dietary habits, importance of water and sanitation, and so forth are actively carried out by eminent clinicians, public health experts, and professional nongovernmental organizations. Like many countries in the region, access to safe water supplies and sanitation is still not quite satisfactory. Safe water coverage is 44.18 per cent for rural population and 49.31 per cent for the urban population. The incidence of water-borne and water-related diseases is still high mainly due to the lack of a safe water supply and sanitation, as well as ignorance, and poor hygiene and sanitation practices. C.3. Rural Poverty

As noted earlier, successive governments in Myanmar have aimed to improve the social and economic conditions of the peasantry while at the same time extracting the economic surplus from them for developmental purposes. It has also been noted that in practice, the overwhelming emphasis on achieving the latter objective and to maintain price stability in the entire economy tends to dampen the former objective. In the language of the 1990s, the stated aim of successive

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governments in Myanmar amounts to eradicating human poverty.24 And since most of the poor live in rural areas, it further implies alleviating, if not quite eradicating, rural poverty. Although this aspect of economic development was emphasized in the 1990s, freedom from poverty has long been an international commitment and a human right. As noted in the 1997 Human Development Report, the 1948 declaration of Human Rights has the principle: “Everyone has the right to a standard of living adequate for the health and well-being of himself and his family, including food, clothing, housing and medical care and necessary social services”. See Box 6.4. The 1997 Human Development Report also mentions that … during the 1990s this commitment has been made more specific — and linked to time-bound targets — in the declarations and plans of action adopted in major global conferences on children (1990), environment and sustainable development (1992), human rights (1993), population and development (1994), social development (1995), women (1995), human settlements (1996) and food security (1996). (UNDP, Human Development Report, 1997, p. 106)

Myanmar has no national poverty line. However, there are a number of estimates made by international organizations and independent researchers. For instance, according to a 1977 World Bank survey, 40 per cent of the population was poor (cited in International Labour Organization 1996, p. 33). The World Bank survey further reveals that of the 16.7 million in Myanmar classified as poor, 12.5 million lived in rural areas, and 4.2 million in urban areas. A 1997 IMF report observes that “nearly 25 percent of the population are classified as poor and they are mostly uneducated, underemployed, and landless” (IMF 1997, p. 22). In addition, the World Bank assessment for 1997 on the basis of nutrition norms and estimates of minimum subsistence costs, found 22.9 per cent of households, or some 10.6 million people, to be living below the minimum subsistence levels. National poverty rates conceal not only the disparity in poverty rates between regions but also the nature, extent, and seasonal variation in the poverty status of the people in the village economy.

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Box 6.4 A Few Countries Have Already Reached Some of the Goals for 2000 and Beyond

Goal

Southeast Latin Eastern Asia America Europe Sub-Saharan Arab South East and the and the and Africa States Asia Asia Pacific Caribbean CIS Total

Life expectancy above 70 years Under-five mortality rate below 70 per 1,000 live births Net primary enrolment ratio of 100% Girls’ primary enrolment equal to or greater than boys Countries in region

1

6

1

3

6

23

13

53

4

13

2

4

10

31

23

87

0

2

1

0

0

1

—

4

5 44

3 18

1 8

2 5

1 15

16 33

— 25

28 148

Note: The life expectancy goal is for 2005 (ICPD 1994), the under-five mortality goal for 2000 (WSSD 1995), the enrolment goal for 2000 (UNESCO 1996c), and the girls’ primary enrolment goal for 2005 (WSSD 1995). For life expectancy, U.N. 1996b; for under-five mortality rate, UNICEF 1997; and for net enrolment, UNESCO 1996b. Source: UNDP, Human Development Report 1997.

Rural poverty in Myanmar, as may be expected, is concentrated amongst farm households with little or no assets and landless agricultural labourers. As labour is their chief source of livelihood, their poverty status depends much on their dependency ratio or how much family labour they possess relative to the number of dependents. Large households with four or five adult workers and with some land and livestock are generally found to be fairly prosperous. Small-sized households with one or at most two adult labourers are usually found to be the poorest. They live off the land (or common property resources) during two to three months of slack farm work fetching fuel wood or fishing mainly for their own consumption. Even during such hard times they rarely migrate. Around villages in hilly or forested areas, shifting cultivation and the need for fuel wood arising from poverty, lack of physical

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mobility, and population pressure contribute to deforestation and environmental degradation. According to the Participatory Poverty Assessment (PPA) of well-being ranking of households by groups of men and women in the six villages of the three agro-ecological zones — Dry Zone, Shan state, and the Delta Region — the ratio of the number of worse-off (relatively poor) households to the total number of households vary from a low of 30 per cent to a high of 68 per cent. (For households headed by females worse-off households range from a low of 39 per cent to a high of 83 per cent.) Such households characteristically have very little or no assets, and their houses are made of thatch roofs, bamboo mat/palm leaves walls and bamboo floor (Shaffer 1999). In another study of eight villages in the same three ecologically distinct regions, the number of landless farm families as a ratio of the total number of farm families in the village range from a low of 24 per cent to a high of 62 per cent. The average for the eight villages was 47 per cent. From the village economy production point of view, the national average of 36.6 per cent or one-third of landless farm households is just about right for most villages to have neither “shortage” nor “excess” agricultural labourers, given the present level of farm mechanization and the traditional method of cultivation. In other words, a ratio higher than that would mean excess labour and also greater hardships for the landless households (Myat Thein and Maung Maung Soe 1995). At any rate, to the extent that the national estimates are comparable and reliable, they clearly indicate a decline in poverty (including rural poverty) over time. This trend is also corroborated by a study done by the Department of Economics, Institute of Economics in 1997, which found poverty, as defined by the recommended dietary allowance (RDA), to have declined since 1986. Three possible explanations can be given. Firstly, Myanmar had a fairly high GDP growth rate, especially in the last decade, and thus could have experienced the complementarity between economic growth and poverty reduction as in many of the East

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Asian economies.25 Secondly, that fact that poverty is more prevalent in the rural areas rather than in the urban sector, coupled with the fact that Myanmar’s recent growth was led by the agricultural sector, whose growth is broad-based, could also account for the decline in rural poverty. 26 Thirdly, significant improvements in the agricultural terms of trade following the liberalization measures in the agricultural sector in the late 1980s is a likely explanation as well. Despite the improvements described above, Myanmar has not been able to sustain the momentum for accelerated growth. This is largely because, on the one hand, the inflation-prone macroeconomic environment eventually eats away the improvements in real income gains, and on the other, because of the failure to forge a strong linkage between the agricultural growth and the growth of labourintensive rural industries which would have enhanced the employment and income-multiplier effects. NOTES 1. It is highly likely that government control on the choice of cropping did vary from region to region depending on the vigour with which the regional authorities pursued or enforced the targets for the main pillar crops. Farmers in some states and divisions were said to have been forced to grow premonsoon cotton, which had to be watered at least four times a year. A certain amount of financial resources was thus required, which some of the farmers lacked. 2. But from the consumers’ point of view this has not always been a blessing as the prices of some of these products such as “kitchen crops” could rise beyond the affordability of low-income domestic consumers. Because of this, exports of some kitchen crops are now being prohibited from time to time so as to ensure that low-income domestic consumers are not being totally deprived of them. 3. In 1997/98, the government briefly flirted with the policy of abandoning the compulsory procurement system, as a result of which the amount procured went down to less than 800,000 metric tons or about 7 per cent of total production. 4. Apart from the subsidy levied on the use of irrigation water, the actual implicit tax would be somewhat less if the interest factor was taken into

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Chapter 6 account, as farmers were given half the total value of the procured paddy in advance, which they could use as working capital to purchase seeds and fertilizers.

5. The appropriate approach to implement a policy of low and stable food prices for the benefit of low-income consumers is to provide consumer subsidies rather than to depress producer prices. 6. The Ministry of Agriculture and Irrigation was restructured in April 1994, and new departments established: Myanmar Cotton and Sericulture Enterprises, Myanmar Sugarcane Enterprise, Myanmar Perennial Crop Enterprise, and Myanmar Jute Products Enterprise, all of which were previously under the Ministry of No. 1 Industry. In addition, the Myanmar Agricultural and Rural Development Bank (MARDB), under the Ministry of Finance and Revenue, was transferred to the Ministry of Agriculture and Irrigation as the Myanmar Agricultural Development Bank (MADB) in 1997. So, the Ministry of Agriculture and Irrigation now comprised thirteen departments and organizations. 7. Except for 1997/98, when increases in yields were more important in influencing outputs as yields for most crops other than paddy had peaked in that year. 8. In 1994 the ratios of cultivated land to total land area in Thailand, Indonesia, Vietnam, and Malaysia were 40.7 per cent, 21.5 per cent, 16.7 per cent, and 23.1 per cent respectively. 9. The once hoped-for target of 4 million is not likely to be achieved in the immediate future. 10. The MADB’s history stretches way back to 1953 when it came into being as the State Agricultural Bank (SAB). It then became the Agriculture Finance Division of the Peoples’ Bank (PB) system from 1970 to 1975, before being reconstituted as the Myanmar Agricultural Bank (MAB) in 1976. With the enactment of the Central Bank of Myanmar Law in 1990, the MAB was reorganized as Myanmar Agriculture and Rural Development Bank (MARDB). 11. Seasonal loans to individual farmers for the production of monsoon, winter, and pre-monsoon crops such as paddy, beans and pulses, sugar-cane, jute, and long staple cotton are provided annually. These loans are repayable within twelve months of harvest time. Each year the number of borrowers totals 1.6 million and the loan turnover is about 10 billion kyat. Over the past twenty years, term loans amounting to 6,118.91 million kyat were disbursed to farmers for the purchase of cattle, carts, pump-sets, power tillers, tractors, farm implements, and so forth. These loans are repayable in five yearly instalments. The Bank also implements the Government Special Loans Programs, and under the Program for the Development of Border

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Areas and National Races, the government uses special funds to provide loans at a concessionary interest rate of 1 per cent for plantation crops in the Chin state, for switching to growing fruit trees as a substitute for poppy in the “Wa” region in the northern state of Shan, and for draught cattle, carts, and farm machinery in the Kabaw valley, Sagaing division. 12. According to the 1993 census of agriculture, only 2 per cent of households with land holdings used a tractor, less than 1 per cent used power tillers, and less than 5 per cent used water pumps. It is likely that these percentages have improved significantly since then. 13. As Figure 1 shows the domestic open market price of rice and the incentives for increasing paddy production also depend on the export volume. Figure 1 Price

D

S′

A

Wp Dp

B

Wp

C

S

D′ Quantity

In Figure 1, DD′ represents domestic demand and SS′ domestic supply of rice. WpWp represents the demand for Myanmar’s rice by the world at the price of Wp. As the government holds the monopoly on rice exports, it could export AB at price Wp, in which case the domestic price of rice would also be at or near the level of Wp. But should the government decide not to export at all, then the domestic price would be at Dp. Thus, the export ban of rice is tantamount to fixing the domestic price of rice at a low level. With regard to rice stocks, a paragraph from an article by Maung Nyo Min is worth quoting in full: “Over a million tons of rice (1,004,000) was exported in 1995–96. Out of 2 million tons of surplus rice stocks, an average amount of 800,000 tons was either lost or damaged annually. That amount included those damaged by pests and rats, those damaged and wasted [during storage], those smuggled out through border areas, and those damaged due to bad weather. Then the average price for a ton of rice exported was around $200,

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Chapter 6 … for the whole year. So the value of the damaged rice was high, amounting to $160 million”. See Maung Nyo Min, “Myanmar’s Rice Export and Asian Rice Market” (November–December 1999).

14. These estimates were made for the year 1999/2000 by the Ministry of Agriculture and Irrigation and the Ministry of Forests respectively. See Facts about Myanmar Agriculture (2000) and Forestry in Myanmar (1999). According to the analysis of 1989 Landsat TM Imageries, 50.87 per cent of the country is covered with forests. However, data from the Food and Agricultural Organization (FAO) suggest that only 40 per cent of the total land area is covered with forest. 15. “The MSS involves adoption of a felling cycle of thirty years, prescription of exploitable sizes of trees, girdling of teak, selection marking of other hardwoods, felling of less valuable trees interfering with the growth of teak, thinning of congested teak stands, enumeration of future yield trees down to fixed sizes, and fixing of annual allowable cuts (AACs) for teak and other hardwoods. Simple coppice or coppice with standards systems is applied in the local supply forest reserves”, Forestry in Myanmar (1999, p. 4). 16. Besides the number of workers, SMIs are also defined by the amount of capital outlay, production value, and power used to run the enterprise as shown below. See Procedure Relating to the Private Industrial Enterprise Law, 1991. Classification of Private Industries

Size

Power Installed (Horsepower)

Investment (Million kyat)

Number of Employees

Annual Production (Million kyat)

Small

1–25

1.00

50

2.5

Medium

26–50

More than 1.00; up to 5.00

51–100

More than 2.5; up to 10.00

Large

Over 50

Over 5.00

Over 100

Over 10

17. In accordance with its own policy, “the State should not set up industrial enterprises (such as sugar mills) which directly compete with existing private SMIs for raw materials and markets, especially where SMIs still have some excess capacity. Apart from the fact that the State-led industrialization of the Socialist era had failed miserably, scarcity of capital requires that it be used as effectively as possible. Duplication of efforts, where capital is required, should be avoided as much as possible. The State should not also intervene

© 2004 Institute of Southeast Asian Studies, Singapore

Market-Oriented Period, 1988–2000: Sectoral and Social Developments

233

at the micro-level, to close down factories simply because they are not using the latest technology or producing high quality products” (Myat Thein 2001, p. 289). 18. Under the promotion of Cottage Industries Law of 1991, cottage industries are defined as units not employing more than nine workers and using less than 3 horsepower, except in the case of handicrafts where there is no limit on the number of workers. 19. According to a World Bank report, however, moderate wasting (

235

Epilogue

“Given a reasonable period of peace, law, and order, it seems highly possible that this energetic and intelligent people, possessed of a rich variety of natural resources, will attain a consistently rising standard of living”. J.R. Andrus, Burmese Economic Life (1947, p. 356)

The physical appearance of Myanmar has changed significantly for the better since the SLORC/SPDC took over the reins of government in 1988. There are now high-rise, modern supermarkets, trendy restaurants, and gleaming new apartment buildings in Yangon, Mandalay, and many other urban centres where there were none before. There are also many new or widened highways and roads criss-crossing the country and just as numerous bridges spanning rivers big and small throughout the country. Life in some of the villages too has changed, in many ways for the better. In some of these villages, there are now cinema houses, television sets, radios, and bicycles where there were none or very few before. In the central part of Myanmar, the conservation efforts of the Dry Zone Greening Department in co-operation with the local people in nine arid districts are beginning to turn what might have been a desert, into an area green and lush with vegetation. This has also opened up many new opportunities of livelihood where there were few before. In the border areas, the shape of the physical infrastructure has changed even more astoundingly in the form of new roads, bridges, dams, hydro-power stations, schools, hospitals, post offices,

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telephone exchanges, and TV relay stations. There can be no doubt that economic and social opportunities for the people in the border areas have increased tremendously. All these highly visible changes for the better have been brought about by the energetic and untiring efforts of the government and the positive response of the private sector to market forces. More and more people in Myanmar are beginning to enjoy the fruits of its market-oriented policies, though some benefit more than others. While all this looks good, there is a sense of fear, however, that this is merely the effervescence, and it may not last. Moreover, as resources are limited, the downside of devoting too many resources to one area is that fewer resources are left to be allocated to other uses. The increasingly frequent incidents of electric power brown-outs and black-outs in Yangon, let alone in other parts of the country, is a sign of misallocation of resources in the economy. This is not only hindering production and making it costlier than necessary, but also making life miserable for people who have been used to a decent standard of living. Municipal water supply has also become a scarce commodity in some of the townships of Yangon. There are few jobs with adequate pay available for fresh young graduates. As a result, those who somehow manage to get a passport or have other outlets are leaving the country to work abroad. While this sort of brain drain may be politically expedient, it can seriously affect a country with low human resource development such as Myanmar. In any case, many parents resent the fact that they are forced to live apart from their loved ones by economic circumstances. More importantly, Myanmar is still a far cry from emerging as “a new modern developed nation”. It is still one of the “least developed countries” in the world. To be sure, Myanmar applied for the “least developed country” status in order to alleviate its debt burden. Whatever the justification, the fact remains that it is presently classified as one of the least developed countries in the world. According to the latest 2001 UNCTAD report, Myanmar has also been classified as one of the “heavily indebted poor countries” (HIPC) amongst the least developed countries.

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Epilogue

237

What went wrong? In the foregoing, many questions have been posed in this connection and just as many answers have been put forward. It is very important to bear in mind, however, that while the facts of underdevelopment and the underlying economic factors are fairly clear and unequivocal, most of the assessments concerning non-economic factors can only be made in qualitative terms. To recapitulate very briefly, it cannot be argued that Myanmar to this day is afflicted with macroeconomic instability, low rates of savings and investment, the triple deficits — budget, trade, and current account — and continuous depreciation in the value of the kyat. Moreover, its production structure has remained almost unchanged in an underdeveloped state for the past fifty years or so. In short, Myanmar has yet to break out from the vicious cycle of underdevelopment and establish sound economic fundamentals, which are necessary for sustained economic development. And without sustained development, roads and bridges cannot be properly maintained and support productive activities; schools and hospitals cannot be properly equipped, with the result that the benefits of such facilities and improvement in welfare may thus turn out to be more transient than expected. There can also be no doubt regarding the immediate causes of these problems. As has been analysed in the foregoing, low rates of savings and investment are caused by public sector deficits and unattractive investment environment, on the one hand, and lack of development of the financial sector on the other. Budgetary deficits are caused, on the revenue side, by low levels of revenue collection, especially low tax-to-GDP ratio (due to tax evasion and a narrow tax base), and a significant undervaluation of imports; and on the expenditure side, by the financing of loss-incurring state-owned economic enterprises (SEEs). The financing of budgetary deficits through central bank credit in turn is a major factor causing persistently high inflation. Trade deficits are mainly caused by exchange rate distortions, which favour import-dependent SEEs that import at the overvalued exchange rate, and the lack of effective measures and incentives to promote exports.

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Chapter 7

None of the above problems is new. The question that arises then is why does the government (governments) not reduce the budget deficit, lift the investment and savings ratios, cut down the trade deficit, and tame the inflation? As analysed in this study as well as in many others, these problems came to be entrenched in the economy because of wrong economic policies and strategies, and poor governance. And when it comes to tackling them, instead of carrying out the structural adjustments it is sorely in need of through comprehensive reforms on an ongoing basis, what successive governments have so far done is either to resort to administrative fiats or take ad hoc piecemeal, patchy reforms (that at times work at cross purposes) in an uncoordinated stop-go manner. Successive governments, for political or other reasons, always seem reluctant to take tough decisions and measures to rid the economy of such problems. This in turn could be due to the resilience of Myanmar’s economy which permit governments to postpone the difficult decisions needed to promote development. It could also be due to the fear of perceived threat to national unity, social stability, and regime survival. Furthermore, it is also possible, as some have suggested that the authorities perceived the short-term adjustment costs of such reforms (especially without the safety cushion of external assistance) to be acting against their own interests. After gaining independence in 1948, the government, as it were, started on the wrong foot, by overemphasizing industrialization to the relative neglect of agriculture. For, as pointed out by contemporary Myanmar economists then, the development of primary industries would raise domestic output and foreign exchange earnings more quickly than would that of the manufacturing industries. Moreover, a rising income for the rural population would in turn create demands and thus internal markets for the new industries in the pipeline. Thus, while the overwhelming desire for a more balanced growth in the immediate post-war years is understandable, the need for a dynamic agricultural sector prior to industrialization was clearly evident. Of course, Myanmar was not alone in those days in aspiring to become an industrial country in a hurry. Many neighbouring

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239

countries had similar aspirations and were doing likewise. The difference, however, was that by the time most of them came to realize their mistake round about the mid-1960s or early 1970s, and began to switch their strategy in favour of agriculture and exportpromotion, Myanmar had a change of government. And this new government, under the banner of “Burmese Way to Socialism”, was even more determined to industrialize and be as self-reliant as possible. Seemingly unaware of past difficulties and failures, it continued to emphasize industrial development to the neglect of the agricultural sector. Moreover, under the mistaken notion of selfreliance, it continued to emphasize import substitution, and until the early 1970s, neglected to tap ODA or bilateral external assistance. The fact that this new government was a military dictatorship and a one-party system made matters worse. To be sure, dictatorships (military or otherwise) do not necessarily mean economic stagnation. In this connection, it was mentioned at the very outset that “at a superficial level, South Korea, after President Park Chung Hee took power through a military coup in 1961, was apparently a military dictatorship like any other in the world”; but that “it was able to achieve the ‘take-off’ into sustained economic growth”. The phrase “superficial level” needs to be underlined. A closer inspection will reveal that South Korea, Indonesia, and a few other military dictatorships that have achieved economic success were “were not like any other military dictatorship”. They were in fact the exceptions rather than the rule. The majority of the world’s poorest countries in fact suffer from dictatorial regimes or from single-party systems. The inherent weakness of authoritarianism is not only its lack of incentives for error-correction, but also the fact that citizens cannot easily remove an authoritarian regime if the political leadership proves to be unsound. In any case, Myanmar was not one of those few fortunate exceptions. Like most other such regimes, it was control-oriented and essentially sought to put in place a command economy through wholesale nationalization of nearly all economic activities of any significance. Accordingly, the government relied on administrative fiats, commands, and directives and when necessary on stop-go,

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Chapter 7

ad hoc, contradictory policies rather than on the market, as is the case in South Korea. Moreover, on top of the lack of well-trained administrators and managers, the government chose to promote “loyal” rather than “able” people in its administration. Unlike Indonesia under President Soeharto, where economic policies were formulated with the help of competent economic advisers, the Myanmar government felt that it did not need the advice of technocrats and quite often took decisions based on socialist principles rather than on pragmatism. There was little appreciation of the need for in-depth economic analysis. Price increases were invariably attributed to greedy “profiteers” or “economic insurgents”. The government was also highly sensitive to criticisms of any kind. Thus, it isolated itself not only from the world but also from its own people. By the mid-1960s, the overall deterioration in the economic situation from the cumulative adverse effect of nationalization, mismanagement, and inappropriate economic policies soon began to show up, especially in the form of downward trend in rice exports, overall export earnings, imports, savings, and investment. The public distribution system in particular was so inefficient that it brought into being the black market for goods of domestic origin and those imported legally. Drastic cuts in official imports of consumer goods, on the other hand, spawn the other black market for goods smuggled across the border. Thus, Myanmar in effect came to have three economies — the nominal official economy and two black-market economies. On the production side, the dismal failure of state-led import-substituting industrialization became a burden on the official economy and greatly hampered other developmental efforts. By the early 1970s the economy was in a very bad shape. But when the poor state of the economy forced the government to take a number of reform measures, what it did was to soften its policy of self-reliance by accepting development assistance and foreign loans, and to undertake partial reform measures including management reforms of the SEEs. These measures, as has been recounted, fell far short of what was required. As always, political considerations took precedence over economics, and the

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241

government’s emphasis on political expediency and short-term results remain unchanged. It thus not only failed to establish the development fundamentals, but also failed to get the legitimacy that it tried so hard to seek. Hence, after a brief respite, the economy deteriorated further and eventually the government was forced to seek least developed country status in 1987. The adoption of a market-oriented policy since SLORC came to power in 1988 was a significant change in terms of the overall policy framework. The emphasis given by the government on the development of agriculture was not only a move in the right direction, but was also in line with a market-oriented policy. For an agricultural economy such as Myanmar, it cannot be more natural or correct than to launch market-oriented reforms in the agricultural sector. This together with the subsequent introduction of the Foreign Investment Law of November 1988, and the removal of restrictions on private sector participation in domestic and foreign trade could all be regarded as steps taken in the right sequence. Even the expansionist fiscal and monetary policies (to generate employment and thereby shore up short-term support at least) in its initial phase could be regarded as useful in energizing private sector participation in the economy. Indeed, these liberalization measures to promote the private sector were instrumental in boosting GDP growth rates to over 7 per cent per annum between 1992/93 and 1995/96. Amongst a number of other factors responsible for this high growth were an upsurge in agricultural production due chiefly to the introduction of summer paddy, growth of exports, growth of the tourist industry, and a mini-construction boom. The positive response of the private sector to the liberalization policies clearly attested to the prowess and dynamism of Myanmar’s private sector in promoting development. However, while taking liberalization measures for increased private sector participation, on the one hand, the controloriented disposition of the government prevented it from fully embracing it. As in the past, it cannot get rid of its negative outlook on private sector activities and often resorted to what has been termed as “swingdoor” policy. It failed to appreciate the positive

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response of the private sector to a market-oriented policy and see how its energy could be harnessed for sustainable growth. Instead, it would even encourage monopolistic holding companies to take over the businesses of private enterprises that are becoming profitable export earners or intervene so as to extract foreign currency for itself. More importantly, the “success” in terms of generating employment and achieving high growth rates through expansionist policies was achieved at the expense of macroeconomic stability and all its ramifications. Obviously, the experiences of the mid1970s, when similar short-term success was followed by further deterioration of the economy, seemed to have been forgotten. While the lack of fiscal discipline and expansionist policy of the past had eventually forced the government of the Burmese Socialist Program Party (BSPP) to take the extreme measure of demonetization without compensation, the expansionist policy of the present government, by fuelling inflation, is preventing it from dismantling subsidies and rationing (as in the case of gasoline and cooking oil), exchange controls, and import licensing, and from unifying the exchange rates. Of course, the whole situation could have been avoided or at the very least alleviated, had not Myanmar been starved of external assistance and subjected to economic sanctions. It is ironical and very unfortunate that the end of self-imposed isolation of the socialist era should be followed by a new isolation imposed from the outside. In addition, Myanmar’s uncertain investment environment along with cumbersome administrative procedures prevented a sizeable inflow of FDI since 1997. At any rate, the lack of macroeconomic stability in turn is not only adversely affecting medium-term growth prospects by preventing a sizeable inflow of foreign capital and savings and investment to rise, but is also making future reform efforts more and more unattractive. The already overvalued exchange rate is becoming even more overvalued over time. Negative real interest rates, along with other factors, are hobbling the development of a dynamic financial and banking sector that is essential for the efficient

© 2004 Institute of Southeast Asian Studies, Singapore

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243

mobilization and allocation of resources. Although renewed efforts to improve the performance of the SEEs have not had much success, the privatization process has slowed down to a snail’s pace. On the contrary, unmindful of past failure of state-led industrialization, the government is in fact implementing many industrial projects. Furthermore, like its predecessor, SLORC/SPDC became extremely sensitive to criticisms of any kind. Since 1998 the government has stopped releasing the annual publication of the Review of the Financial, Economic and Social Conditions published by the Ministry of National Planning and Economic Development, as well as data on the money supply and other monetary aggregates; and since 2000/2001, the annual budget. This indicates that the government does not seem to have enough appreciation of the importance of transparency and accountability, both of which constitute the minimum basic ingredients of good governance. Lack of transparency not only invites corruption, but could also give rise to rumours which could be destabilizing. Accountability is essential for trust and respect. Hence, the challenge ahead is to find ways and means to become more transparent and accountable. Of course, it is possible that some of those in the ruling circle may not see the connection between the means and the ends. Others may see modernization only in terms of roads, bridges, and highrise buildings. Still others may be under an illusion that once the roads and bridges are in place, there would be macroeconomic stability. But things do not work this way! The longer macroeconomic stability is shelved, the harder (and costlier) it becomes to attain it at a later date. As it is, the costs of economic reforms are generally more visible than the benefits, which will become apparent only in the long run. Hence, there is a real danger of jeopardizing the whole reform process and future growth prospects. Unlike most modern governments, SLORC/SPDC has chosen not to have any credible think-tank to support its work. It continues to rely on army personnel and micro-men (preoccupied with microlevel management), including those of the past socialist era, to bring about a market-oriented system that is totally alien to them. The need to frequently resort to administrative fiats and hands-on

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approach also suggests that nothing much has changed basically in the way in which the economy is managed. All of this must be changed if Myanmar is to see better longer-term results than in the past. A market-oriented economic system will not evolve automatically; the right environment is required for fair and efficient markets to work and flourish. And as the experiences of the highpeforming Asian economies (HPAEs) have shown, the very first or basic step that needs to be addressed in Myanmar may be to restructure the role and functions of the government. It is also important to remember that much of the success of the HPAEs was achieved through conventional budgetary discipline and prudent monetary policy paving the way for other reforms. It is the desire of the leadership and the people to see Myanmar eventually emerging as a new modern developed nation. But this will not materialize any time soon unless the government which is to lead the nation towards that goal, first re-invent itself, and restructure its role and functions. A proper evolution of a marketoriented economic system entails a modern government that is politically committed to development, while being responsive to the wishes and aspirations of the people, and provision of an economic environment that will encourage the mobilization and efficient use of resources by the public and private sectors. Such an environment, as the experiences of the HPAEs have shown, is a stable macroeconomic environment where government intervention is market-friendly and implemented by means of indirect policy instruments rather than administrative fiats; where policy is transparent, fair, and consistent; and above all, where the government is accountable. What an exciting time it would be for the leadership and the people of Myanmar if they can find a way to institute such a government so that the country can emerge as a new modern developed nation.

© 2004 Institute of Southeast Asian Studies, Singapore

Reproduced from Economic Development of Myanmar by Myat Thein (Singapore: Institute of Southeast Asian Studies, 2004). This version was obtained electronically direct from the publisher on condition that copyright is not infringed. No part of this publication may be reproduced without the prior permission of the Institute of Southeast Asian Studies. Individual articles are available at < http://bookshop.iseas.edu.sg >

245

Appendix

Table A3.1 Investment, Saving, and Growth in Myanmar, 1961/62 to 1988/89 (As a percentage of GDP) Year 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

Growth*

Investment

Saving

Resource Gap

6.0 12.9 –6.1 10.1 –4.3 –4.1 10.1 3.3 8.0 1.3 2.4 –1.0 2.6 2.7 4.2 6.1 6.0 6.5 5.2 7.9 6.4 5.6 4.4 5.6 3.2 5.4 16.4 11.0

11.4 10.6 10.6 18.4 4.3 12.2 15.8 12.8 14.2 12.6 12.2 10.8 10.2 9.0 10.0 10.3 13.0 18.2 22.3 21.5 22.9 22.2 18.0 15.1 15.5 12.7 11.6 12.8

14.8 12.7 11.4 14.1 5.9 10.4 13.2 10.8 10.6 9.2 9.8 10.6 12.8 8.5 8.9 9.6 11.8 13.8 18.0 17.7 17.9 15.1 14.3 11.6 11.5 10.1 8.1 11.1

–3.4 –2.1 –0.8 4.3 –1.6 1.8 2.6 2.0 3.6 3.4 2.4 0.2 –2.6 0.5 1.1 0.7 1.2 5.6 4.3 3.8 5.0 5.1 3.7 3.5 4.0 2.6 3.5 1.7

* GDP growth is calculated by 1969/70 constant prices. Source: Report of the Revolutionary Council to the People on Budget Estimates (1969/ 70 and earlier issues); Report to Pyithu Hluttaw on the Financial, Economic and Social Conditions (1975/76 to 1988/89); and Review of the Financial, Economic and Social Conditions (1990).

© 2004 Institute of Southeast Asian Studies, Singapore

246

Appendix Table A3.2 Investment and Saving Rates in Selected Countries Investment

Saving

1970

1980

1990

1970

1980

1990

14

21.5 30.4 29.1 20.9 29.1 n.a.

13.4 31.2 41.4 30.7 24.2 12.6

11 23 20 5 21 n.a.

17.7 32.9 22.3 29.2 26.6 n.a.

11.7 33.4 34.0 32.3 18.7 2.9

Myanmar Malaysia Thailand Indonesia Philippines Vietnam

26

n.a.

Note: The figures for Myanmar are based on fiscal years. Source: ADB, Key Indicators of Developing Asian and Pacific Countries (various issues). Table A4.1 Number of Households, by Farm Size, 1971/72 to 1987/88 1971/72

Farm Size (No. of acres)

1981/82

1987/88

No.

%

No.

%

No.

%

Below 5 5 and below 10 10 and below 20 20 and below 50 50 and below 100 100 and above

2,785.51 1,003.83 460.39 114.25 1.95 0.26

63.8 22.9 10.6 2.6 0.1 —

2,622.46 1,051.97 502.99 112.92 2.04 0.67

61.1 24.5 11.7 2.6 0.1 —

2,637.90 1,058.58 489.71 103.83 1.47 1.43

61.5 24.7 11.4 2.4 — —

Total

4,366.19

100.0

4,293.05

100.0

4,292.92

100.0

Table A4.2 Growth of GDP and Agricultural Production (At 1985/86 constant producers’ prices)

Period 1961/62 1965/66 1970/71 1975/76 1980/81 1985/86 1986/87 1987/88

Annual Average Growth Rate

GDP (Million kyat)

Agriculture (Million kyat)

GDP

Agriculture

21,745.1 24,303.4 28,746.1 32,241.9 43,831.5 55,989.3 55,396.8 53,047.4

7,886.6 9,358.2 11,262.9 12,140.6 17,278.6 22,243.5 22,343.3 20,906.8

— 2.25 2.84 1.93 5.25 4.16 –1.1 –4.2

— 3.48 3.14 1.26 6.06 4.30 0.4 –6.4

Note: Agriculture includes Livestock and Fishery. Source: Review of the Financial, Economic and Social Conditions (1989/90 and earlier issues). © 2004 Institute of Southeast Asian Studies, Singapore

© 2004 Institute of Southeast Asian Studies, Singapore

(5.2) (39.0) 57.1 (54.6)

Growth of agriculture sector proper

Share of agriculture sector in GDP

Percentage of GDP growth directly contributed by agricultural growth 32.4 (29.5)

(37.1)

(5.5)

45.0

4.8

6.9

1995/96

34.7 (21.7)

(36.2)

(3.8)

44.4

4.9

6.4

1996/97

28.6 (19.2)

(35.2)

(3.0)

43.6

3.7

5.7

1997/98

33.9 (21.6)

(34.5)

(3.5)

43.0

4.5

5.8

1998/99

∆Agri Rate of growth of agriculture × Share of agriculture in GDP –––––– × 100 or ––––––––––––––––––––––––––––––––––––––––––––––––––––– ∆GDP Rate of growth of GDP

Note: Figures in parentheses refer to the agriculture sector proper exclusive of livestock and fishery, and forestry. Percentage of GDP growth directly contributed by agricultural growth is computed as

48.3

4.4

Growth of agriculture sector

Share of agriculture sector in GDP

3.7

1988/90

Growth of GDP

Average Annual Growth Rate

Table A4.3 Contribution of the Agricultural Sector to Growth in GDP, 1989/90 to 1999/2000

45.2 (33.2)

(34.4)

(10.5)

43.3

11.5

10.9

1999/2000

Appendix 247

248

Table A5.1 Appendix Chronology of Major Economic Reforms in Myanmar, 1987–2000

1987

• Participation of private and co-operative sectors in foreign trade • Relaxation of government monopoly on the domestic marketing of paddy and some important crops

1988

• Removal of restrictions on private sector participation in domestic and foreign trade • Introduction of liberal Foreign Investment Law • Restitution of small- and medium-size establishments

1989

• • • • • •

Decontrol of prices Official revocation of the 1965 law of establishment of socialist economic system Regularization of border trade Introduction of SEE law allowing private sector participation in economic activities Relaxation of restrictions on private investment Introduction of the Central Bank of Myanmar Law

1990

• • • • •

Introduction of Myanmar Tourism Law Introduction of 100 per cent retention of exports earnings law Introduction of Financial Institutions of Myanmar Law Introduction of Myanmar Agricultural and Rural Development Law Promulgation of the Commercial Tax law

1991

• Announcement of the Central Bank of Myanmar Rules and Regulations • Re-establishment of Myanmar Chamber of Commerce and industry

1992

• • • •

1993

• Introduction of foreign exchange certificates (FECs) • Announcement of the establishment of four more private banks • Issuance of Treasury bonds in maturities of 5 and 7 years

1994

• Introduction of the Myanmar Citizens Investment Law • Announcement of the establishment of three more private banks • Announcement of licensing of representative offices of 11 foreign banks

1995

• Announcement of 51 establishments to be privatized • Announcement of the formation of Privatization Committee • Permission to establish joint-venture banks between local private banks and foreign banks • Opening of the foreign exchange centre for free exchange of foreign exchange certificates

1996

• Permission granted to local banks to conduct foreign banking business and to pay interest on foreign currency deposits; basic reforms were introduced in 1989, many of which were delayed because of the political situation. Some significant reforms are highlighted in the following subsections. • Contract signed between Japan’s Daiwa Group and Myanmar Economic Bank to establish a stock exchange company • Introduction of law on development of computer knowledge

1997

• Procurement of paddy through a tender bid system in November, 1997, but the plan did not materialize, and the requirement to sell paddy to the state remains as usual • Joined ASEAN/AFTA

1998

• Leasing of fallow and virgin land for cultivation or livestock breeding by private farmers, including foreign investors

2000

• Across-the-board increase of public sector wages and salaries by 5–6 times to be in line with private sector remunerations.

Announcement to lease inefficient state-owned factories Announcement of denationalization of nationalized saw mills Announcement for sale of government palm oil firms Announcement of the establishment of four private banks

© 2004 Institute of Southeast Asian Studies, Singapore

34,300.6 22,243.5 3,981.9 757.7

Goods Agriculture Livestock and fishery Forestry Energy Mining Processing and manufacturing Power Construction

Services Transport Communications Financial services Social and administrative services Rental and other services

I. 1. 2. 3. 4. 5. 6. 7. 8.

II. 1. 2. 3. 4. 5.

© 2004 Institute of Southeast Asian Studies, Singapore

55,989.3

IV. GDP (I + II + III)

Source: Planning Department.

13,388.7

III. Trade value

8,300.0 2,010.4 207.7 1,332.3 2,576.8 2,181.8

5,561.4 278.0 944.6

1985/86

Sector

151,941.4

34,542.3

14,390.4 3,693.1 351.8 270.1 6,023.7 4,051.7

103,008.7 70,325.3 13,978.2 2,695.9 465.3 570.5 11,824.3 386.2 2,763.0

1990/91

604,729.1

140,357.9

41,928.1 17,088.3 1,681.8 1,041.1 10,782.0 11,334.9

422,443.1 321,550.4 36,439.6 4,760.0 600.9 2,569.0 41,594.4 1,871.8 13,057.0

1995/96

791,980.0

179,268.7

54,112.9 25,201.0 2,158.4 1,279.1 11,482.3 13,992.1

558,598.4 421,233.5 48,327.6 6,323.8 591.3 4,241.7 56,610.0 2,202.2 19,058.3

1996/97

1,119,509.2

257,946.3

87,976.2 50,366.6 2,930.9 1,474.8 13,293.1 19,910.8

773,586.7 583,437.1 69,052.6 7,180.8 1,234.8 5,214.9 79,040.0 1,932.5 26,494.0

1997/98

Table A5.2 Value of Net Output, Services, and Trade (At current producers’ prices; million kyat)

1,609,775.6

377,595.1

122,912.8 76,303.7 3,726.9 1,945.0 14,622.4 26,314.8

1,109,267.7 841,222.2 100,698.3 8,653.3 2,164.8 5,730.2 112,773.9 990.5 37,034.5

1998/99

Appendix 249

© 2004 Institute of Southeast Asian Studies, Singapore

49,531.9 8,649.5 (+)43.8 2,566.1 4,802.0 55,989.3

Total consumption Total investment Change in stocks Exports (f.o.b.) Imports (c.i.f.) GDP

Source: Planning Department.

1985/86

Particulars 134,188.4 22,318.4 (–)1,995.2 2,952.6 5,522.8 151,941.4

1990/91 523,876.4 82,581.6 (+)3,540.0 5,032.7 10,301.6 604,729.1

1995/96 701,220.5 118,312.8 (–)21,262.2 5,487.7 11,778.8 791,980.0

1996/97

987,513.2 150,239.8 (–)10,276.4 6,290.0 14,257.4 1,119,509.2

1997/98

Table A5.3 National Production, Consumption, and Investment (At current producers’ prices; million kyat)

1,419,708.8 206,912.4 (–)7,604.8 7,700.3 1,619,016.4 1,609,775.6

1998/99

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Appendix

© 2004 Institute of Southeast Asian Studies, Singapore

13.5 6.8

2.5 4.9 0.0 1.1 1.2 3.2

5.4 6.4 2.6 4.4 — 2.2 4.2 0.0 1.0

Co-op

52.6 68.6

36.9 59.1 0.0 0.0 0.0 87.8

82.7 93.4 96.2 57.6 — 8.0 54.2 0.0 10.8

Private

22.1 22.5

55.0 33.9 100.0 58.0 88.0 5.7

13.5 0.3 0.3 44.1 — 51.7 28.7 99.9 69.3

State

Source: Ministry of National Planning and Economic Development.

33.9 24.6

60.6 36.0 100.0 98.9 98.8 9.0

Services Transportation Communications Financial Social Rentals

Trade GDP

11.9 0.1 1.3 38.0 — 89.8 41.6 100.0 88.3

Productive sectors Agriculture Livestock Forestry Energy Mining Manufacturing Power Construction

State

1986/87

2.4 2.1

3.2 1.2 0.0 23.8 0.5 3.5

1.6 2.0 1.7 1.0 — 0.9 0.9 0.1 0.3

Co-op

1996/97

75.5 75.4

41.8 64.9 0.0 18.2 11.5 90.8

84.9 97.7 98.0 54.9 — 47.4 70.4 0.0 30.4

Private

21.3 21.8

54.5 29.8 100.0 54.8 88.8 3.9

11.4 0.2 0.3 46.2 99.9 10.8 28.2 99.9 45.8

State

2.4 1.9

2.6 1.0 0.0 14.4 0.5 2.9

1.4 1.9 1.1 0.6 0.1 1.0 0.9 0.1 0.2

Co-op

1998/99

76.3 76.3

43.0 69.2 0.0 30.7 10.7 93.2

87.2 97.9 98.6 53.2 0.0 88.2 70.8 0.0 54.0

Private

Table A5.4 Gross Domestic Product, by Form of Ownership, 1986/87, 1996/97, and 1998/99 (As a percentage of sectoral output)

Appendix 251

© 2004 Institute of Southeast Asian Studies, Singapore

1,584.8 –133.3

Capital account balance Errors and omissions

Source: Statistical Yearbook (2000).

–58.7

1,201.5 2,161.1 959.6 383.3 694.6 –311.3 — 194.9

B. Capital account Long-term net borrowing Long-term borrowing Principal payment Short-term net borrowing Short-term borrowing IMF net borrowing Foreign direct investment Other capital

C. Overall balance

–2,395.9 709.0

2,028.3 2,672.6 4,700.9 331.5 –699.1

A. Current account Merchandise balance Export Import Service balance Income balance

Current account balance Grants

1985/86

Particulars

–1,155.9

1,714.5 –210.0

443.3 757.8 314.5 –89.2 –45.1 –44.1 1,361.1 –0.4

–2,841.9 181.2

–3,060.2 2,966.3 6,026.5 –256.2 474.5

1990/91

–445.2

1,181.3 177.3

–228.5 674.5 903.0 –21.5 –4.7 –16.8 1,824.3 –1.0

–2,510.3 743.8

–5,040.9 5,254.5 10,295.4 –57.2 2,587.8

1995/96

Table A5.5 Balance of Payments (Million kyat)

–445.2

1,181.3 0.0

–14.5 1,864.7 –1.0

–667.9 350.8 1,018.7 –14.5

–2,446.3 642.5

–6,004.2 5,496.3 11,500.5 855.9 2,702.0

1996/97

(+)320.1

3,122.7 –621.6

554.4 1,065.9 511.5 –37.7 –26.7 –11.2 2,606.0 —

–3,790.0 1,610.2

–7,676.0 6,290.0 13,966.0 2,892.0 944.0

1997/98

(+)344.4

3,085.1 –20.4

1,421.7 2,001.5 579.8 –53.0 –37.4 –15.6 1,716.4 —

–3,289.1 569.8

–9,133.6 6,583.8 15,717.4 3,061.9 2,782.6

1998/99

252

Appendix

© 2004 Institute of Southeast Asian Studies, Singapore

9.4 (6.2) 16.2 –0.6 –7.4

–1.0 –5.8

–892 –10,299

–700 –4,017

12.1 (6.4) 16.9

14,299 (9,417) 24,598

8,344 (4,373) 12,361

1990/91

–0.5 –4.9

7.9 (5.0) 12.3

–1,311 –12,099

19,802 (12,563) 30,590

1992/93

–1.8 –6.2

6.9 (4.3) 11.3

–8,578 –29,656

32,486 (20,101) 53,564

1994/95

–3.6 –6.9

6.9 (3.9) 10.2

–26,555 –52,163

54,382 (31,357) 80,440

1996/97

Source: Review of the Financial, Economic and Social Conditions (various issues).

* Balance of enterprise current revenue and current expenditure.

As a percentage of GDP Government revenue of which: tax revenue Government expenditure State enterprise revenue and expenditure Overall balance

In million kyat Government revenue of which: tax revenue Government expenditure State enterprise revenue and expenditure* Overall balance

1987/88

–4.2 –5.1

7.7 (3.7) 11.9

–47,468 –59,147

86,783 (49,429) 98,462

1997/98

Table A5.6 Changes in Government Revenue and Expenditure

–5.3 –5.7

7.9 (4.1) 13.6

–85,149 –92,940

116,961 (56,653) 124,752

1998/99

–3.3 –5.0

7.3 (3.3) 12.3

–71,982 –110,380

107,006 (49,920) 145,403

1999/2000

Appendix 253

© 2004 Institute of Southeast Asian Studies, Singapore

217.8 (6.40%)

213.4 (6.20%)

Taxes on the use of state properties

Others

Source: Budget estimates.

Total

3,246.4 (100%)

962.8 (28.10%)

Custom duties

Income tax

1,416.9 (41.30%) 615.6 (18.00%)

1988/89

Commercial tax

Head

10,480.2 (100%)

1,241.9 (11.80%)

724.6 (6.90%)

2,638.3 (25.20%)

3,905.6 (37.30%) 1,969.8 (18.80%)

1991/92

12,562.6 (100%)

1,635.8 (13.00%)

887.3 (7.10%)

2,771.2 (22.10%)

4,088 (32.50%) 3,180.3 (25.30%)

1992/93

17,036.1 (100%)

1,969.3 (11.60%)

1,154.7 (6.80%)

3,938.4 (23.10%)

5,333.1 31.30%) 4,640.6 (27.20%)

1993/94

20,101.2 (100%)

2,226.8 (11.10%)

1,019.9 (5.10%)

4,021.6 (20.00%)

6,092 (30.30%) 6,740.9 (33.50%)

1994/95

Table A5.7 Tax Revenue (In million kyat)

22,643.7 (100%)

2,471.3 (10.90%)

792.2 (3.50%)

4,465.3 (19.70%)

7,121.7 (31.50%) 7,793.3 (34.40%)

1995/96

1997/98

31,357 (100%)

3,805.6 (12.10%)

1,048.2 (3.40%)

7,807.6 (24.90%)

38,845.2 (100%)

5,697.7 (14.70%)

1,449.3 (3.70%)

6,500 (16.75%)

9,478.8 13,140 (30.20%) (33.80%) 9,216.8 12,058.8 (29.40%) (21.10%)

1996/97

254

Appendix

255

Appendix

Table A5.8 Government Revenue and Expenditure in Selected Countries (As a percentage of GDP) Country

1988

1989

1990

1991

1992

1993

Myanmar Revenue Expenditure

8.2 14.3

9.3 16.0

10.4 17.5

9.2 15.8

8.1 12.5

7.7 11.1

Thailand Revenue Expenditure

16.8 17.0

17.8 16.1

19.2 15.7

19.8 16.3

18.6 17.0

18.0 15.9

Indonesia Revenue Expenditure

16.2 21.5

16.7 20.8

19.4 21.4

18.0 20.0

18.8 21.9

17.1 16.7

Malaysia Revenue Expenditure

30.1 33.9

29.9 34.3

31.3 36.1

31.9 34.1

31.6 32.5

30.0 29.4

Philippines Revenue Expenditure

14.7 17.4

17.3 19.4

17.5 21.0

18.7 21.1

18.5 21.2

n.a. n.a.

Vietnam Revenue Expenditure

11.3 18.4

13.9 21.2

14.7 19.7

13.5 14.2

19.0 18.9

22.3 25.8

n.a. = Not available. Source: OECF (1997).

Table A5.9 Tax: GDP Ratio in Selected Countries (In percentages) Myanmar Philippines Indonesia Thailand Singapore Malaysia

5 15 16 17 17 23

Source: UNDP, Human Development Report (1997).

© 2004 Institute of Southeast Asian Studies, Singapore

© 2004 Institute of Southeast Asian Studies, Singapore

22 280.57

70.92

0.16

1 5

131.15 127.70 3.29

78.50

Value

13 11 1

4

No.

27

377.18

40.37

73.86

8

4

98.59 20.04 3.69 1.00

238.22

Value

16 6 1 1

7

No.

1993/94

78

11

6

21 10 5

46

No.

2,814.23

698.10

57.75

741.54 427.84 255.96

1,374.59

Value

1996/97

Source: Statistical Yearbook, 2000.

* Includes one joint-venture project with Myanmar Economic Corporation worth US$13.53.

Total

Production sharing basis Myanmar Economic Corporation

Joint venture (a) State Economic Enterprises (b) Myanmar Economic Holdings (c) Yangon City Development Committee (d) Private enterprises (e) Co-operatives

Wholly foreign-owned

Particulars

1990/91

10

2 2

8

No.

29.45

7.07 7.07

22.38

Value

1998/99

Table A5.10 Foreign Investment of Permitted Enterprises, by Form of Organization (Million US$)

327

60 1

34 4

129 72 18 1

137

No.

6,914.09

2,484.75 13.53

323.63 6.00

1,708.50 1,067.92 309.95 1.00

2,707.31

Value

As of 31/3/2000

256

Appendix

Appendix

Table A6.1 Appendix on Industrial Policy

257

According to the Review published by the Ministry of National Planning and Economic Development, “The main objectives of the processing and manufacturing sector are to transform the predominantly agricultural economy into agro-based industrial economy by giving priority to consumer goods producing industries, to establish export-oriented industries and industries to promote regional development and to establish industries based on domestic raw materials” (Review of the Financial, Economic and Social Conditions for 1992/93). But in another publication by the same Ministry, some of the main sectoral policies of the manufacturing sector were: (a) To enhance the share of manufacturing sector in the national economy; (b) To encourage and expand the scope for international industrial co-operation and economic collaboration with the private sector; (c) To diversify production and export; (d) To acquire modern technology; (e) To achieve full capacity utilization; (f) To protect from environmental pollution. (Economic Development of Myanmar, October 1995). More importantly, Head of State and other government leaders of SLORC/SPDC, emphasized certain aspects of industrial policy (or state guidelines for industrialization) on several occasions during their tour. They were: (a) In the industrial sector, the government should only be responsible for those industries that the private sector cannot handle while the private sector should handle the rest; (b) To develop export-oriented industries and to promote the export of industrial products; (c) To conduct research for upgrading the quality of export commodities; (d) To encourage the establishment of agro-based and agro-related industries; (e) To promote the development of small-scale industries into medium-scale industries, and then to large-scale industries; (f) To encourage production of value-added manufactured products utilizing local natural resources as far as possible; (g) To seek various ways and means for factories to operate at full capacity utilization; (h) To encourage standardization for manufacturing machinery and parts, and to promote linkages between producers and consumers; (i) Factories should make efforts to produce their own required machinery and parts instead of ordering from abroad; (j) Reliance on the import of capital goods and agricultural implements should be reduced; (k) The quantity and variety of agricultural implements should be boosted as required; (l) Development of human resources for industrial development. In another study of industrial development and reforms, industrial policy was said to have the capacity to do the following: (a) To develop industries by inviting participation in terms of technical know-how and investment from sources within the country and abroad; (b) To produce value-added manufactured products based as far as possible on local natural resources and to create local sales as well as overseas markets; (c) To raise efficiency of private, co-operative, and state-owned industrial enterprises as well as labour productivity; (d) To raise capacity utilization of existing factories; (e) To co-ordinate the production of spare parts, components, and tools and die. (Chit So 1999, p. 139)

© 2004 Institute of Southeast Asian Studies, Singapore

258

Appendix Table A6.2 Number of Factories and Establishments, by Size of Work-Force, 1997/98 (Provisional data)

No.

Size of Work-Force

State

Co-operative

Private

Total

1. 2. 3. 4.

Below 10 workers 10–50 workers 51–100 workers Over 100 workers

811 247 144 398

324 231 75 7

48,898 1,978 124 101

50,033 2,456 343 506

Table A6.3 Percentage Distribution of Factories and Establishments, by Size of Work-Force, 1997/98 (Provisional data) No.

Size of Work-Force

State

Co-operative

Private

Total

1. 2. 3. 4.

Below 10 workers 10–50 workers 51–100 workers Over 100 workers

51 15 9 25

51 36 12 1

96 4 — —

94 4 1 1

100

100

100

100

Total

Source: Review of Financial, Economic and Social Conditions (1997).

© 2004 Institute of Southeast Asian Studies, Singapore

259

Appendix Table A6.4 Myanmar Industrial Development Committee and Industrial Zones No.

Industrial

Yangon Division 1. Yangon Eastern 2. Yangon Western 3. Yangon Northern 4. Yangon Southern

No. of Factories 1,635 618 346 1,075

Supervision Committee Minister for Science and Technology Minister for Co-operative Minister for Industry No. 1 Minister for Science and Technology

Mandalay Division 5. Mandalay 6. Meiktila 7. Myingyan

994 90 304

Minister for Prime Minister’s Office Minister for SPDC Office Minister for Industry No. 1

Sagaing Division 8. Monywa

490

Minister for Transport

Magway Division 9. Yanangyaung 10. Pakokku

679 198

Minister for Electric Power Deputy Minister for Science and Technology

Bago Division 11. Bago 12. Pyay

35 124

Minister for Rail Transport Deputy Minister for Industry No. 2

Ayeyawady Division 13. Pathein 14. Myaungmya 15. Hinthata

153 267 414

Minister for Forestry Minister for Agriculture and Irrigation Minister for Agriculture and Irrigation

Mon State 16. Mawlamyine

482

Minister for Industry No. 2

Shan State 17. Taunggyi

326

Minister for Energy

Thaninthayi Division 18. Myeik

342

Minister for Mine

Source: Ministry of Industry No. 2’s Booth at Defense Services Museum.

© 2004 Institute of Southeast Asian Studies, Singapore

Factory

© 2004 Institute of Southeast Asian Studies, Singapore

Magway Soft Drinks Factory

Yangon Candy Factory Sagaing Instant Noodle Factory

12

13 14 Yangon Sagaing

Magway

Yangon Mandalay

Diamond Soft Drinks and Ice Factory Mandalay Soft Drinks Factory

10 11

Magway Myingyan Monywa Pakokku

Yedashe Bilin

Dyeing and Printing Factory Dyeing and Printing Factory Dyeing and Printing Factory Dyeing and Printing Factory

Thanlyin Sagaing

Location

B. Foodstuff Industries 8 Sugar Mill 9 Bilin No. 2 Distillery

4 5 6 7

A. Textile Industries 1 No. 19 Thanlyin Garment Factory 2 Sagaing Garment Factory 3 Shwedaung Textile and Finishing Plant

No.

26.560 50.360

81.960

140.660 63.520

243.500 136.680

46.480 46.480 98.730 60.040

48.870 49.310 275.590

Million Kyat

0.367 —

—

2.660 0.900

¥5,100m ¥1,885m

— — — —

3.050 — 40.000

Million US$

Investment Capacity (Per year)

Appendix

1,500 tons of sugar 514,800 gallons of strong alcohol 100 metric tons of liquid carbon 5.713 million dozen bottled soft drinks 2.997 million dozen bottled soft drinks 9 million pounds of ice and 26,000 dozen bottled fruit juice 180,000 dozen bottled soft drinks 9 million pounds of ice 720 metric tons of sweets 15 million packets of instant noodle

900,000 men’s shirts 150,000 sets of robe and 89,000 mosquito net 1.32 million yards of white PC cloth 3.85 million yards of multi-colour PC cloth 5.83 million yards of floral design 640,000 yards of finished cloth 640,000 yards of finished cloth 720,000 yards of finished cloth 640,000 yards of finished cloth

Table A6.5 Industries Built from 1988 to 2001 under the Ministry of Industry (1)

260

Thayawady Thayet Yangon Mandalay

D. Ceramic Industry 21 Thayawady Tile Factory

22 23 24

© 2004 Institute of Southeast Asian Studies, Singapore

Sittoung

Sittoung Caustic-Soda Factory

Paleik Newsprint Factory

29

30

Total of 30 new factories

Mandalay

F. Paper and Chemical Industry 28 No. 2 Mandalay Gas Factory

Paleik

Yangon Yangon Yangon

E. General Industries and Maintenance 25 No. 3 Shoe Factory 26 Yangon Umbrella Factory 27 Yangon Bicycle Factory

Thayet Cement Factory Danyingon Brick Factory Naypudaung Tile Factory

Hmawbi Yangon Yangon Yangon Mandalay Magway

C. Pharmaceutical Industries 15 No. 3 Plastic Factory 16 No. 2 Soap Factory 17 Intravenous Injection Factory 18 No. 1 Plastic Factory 19 Mandalay Soap Factory 20 Magway Soap Factory

K5,514.878

1,653.380

163.860

25.500

72.890 78.530 99.020

441.188 110.770 8.920

200.990

3.500 72.940 3.500 13.940 330.230 380.530

US$67.747m ¥7,500.520

3.450

6.600

—

2.600 — —

¥515.52m 0.330 0.670 3.000 —

1.130 — 1.130 0.190 — —

6 million cubic feet of oxygen 3 million cubic feet of acetylene 5,000 tons of caustic-soda 5,000 tons of sulphuric acid 33,000 tons of bleaching liquid 2,850 tons of bleaching powder 1,000 tons of chlorine liquid 7,500 tons of newsprint

600,000 pairs of shoe 500,000 umbrellas 36,000 units of bicycles

60,000 tons of cement 900 tons of bricks 20,000 12-inch by 12-inch tiles

66 million 8-inch by 8-inch tiles

3 million plastic bags 10,000 tons of washing soap 1.84 million 500 cc vials of intravenous injection 4.5 million plastic packets and cement bags 11,220 tons of soap 11,220 tons of washing soap

Appendix 261

Factory

© 2004 Institute of Southeast Asian Studies, Singapore

B. Foodstuff 9 Yangon Candy Jelly Factory 10 Yangon Chocolate Factory 11 DaikU Sweet Factory 12 Meiktila Fruit Canning Factory 13 Hmawby Noodle Factory 14 Yangon Bottled Water Factory 15 Popa Bottled Water Factory 16 Hmawby Biscuit Factory 17 Hmawby Soybean Milk Factory 18 Nyaungshwe Tomato Sauce Factory

A. Textiles 1 Pwintbyu Cotton and Finishing Plant 2 Aunglan Textile and Garment Factory 3 Myingyan Textile and Garment Factory 4 Magway Textile and Garment Factory 5 Aunglan Cotton Fibre and Finishing Plant 6 Monywa Cotton Fibre Factory 7 Yamethin Cotton Fibre Factory 8 Paleik Bandage Factory

No. Location

1,856

19,176.76

16.32

1,162.83

Million US$

Estimated Investment Million Kyat

Table A6.6 New Factories under Way During the Five-Year Plan 2001~6

262

Appendix

D. Ceramics 26 Kyaukse Cement Plant 27 Glass Factory 28 Ceramic Factory 29 Hlegu Brick Factory 30 Thayawady Tile Factory 31 Htonboi Cement Plant 32 Brick Factory 33 Bulb and Florescent Lamp Factory 34 Chinaware Factory 35 Thayawaddy Ceramic Ware Factory 36 Tile Factory 37 Granite Tile Factory 38 Toiletry Factory

C. Pharmaceuticals 19 Aerosol Type Perfume Factory 20 Cream Liquid Makeup and Toothpaste Factory Extension 21 IV Pipe and Hypodermic Needle Factory 22 Palm Oil and Reprocessing Plant 23 Cream Soap Factory 24 Chemical Soap Factory 25 Social Goods Factory

Hlegu Thayawady Htonebo

Kyaukse

Hmawby

Yangon

Yangon

5,285.55

1,990.53

186.42

51.61

Appendix 263

© 2004 Institute of Southeast Asian Studies, Singapore

Factory

© 2004 Institute of Southeast Asian Studies, Singapore

Total of 56 new factories

F. Paper and Chemicals 47 60-ton Newsprint Factory 48 80-ton Paper Mill 49 50-ton Pulp Factory 50 200-ton Pulp Factory 51 50-ton Stationary and Paper Mill 52 30-ton Hydrogen Peroxide Factory 53 200-ton Newsprint Factory 54 200-ton Pulp and Paper Mill 55 100-ton Labutta Caustic Soda Factory 56 100-ton Bamboo Pulp Factory

E. General Industries and Maintenance 39 Yangon Sewing Machine Factory 40 Aluminiumware Factory 41 Paper Packaging Factory 42 Bicycle, Tyre and Tube Factory 43 Vacuum Flask Factory 44 Pre-Fabricated RC Slab Factory 45 Stainless Steel Factory 46 Polyurethane Foam Factory

No.

Thabaung Chauk Monywa Monywa Labutta Pyay

Thabaung Yeni Yeni

Location

45,160.21

11,700

5,151.18

1,218.8

752

49.62

Million US$

Estimated Investment Million Kyat

Table A6.6 (continued) New Factories under Way During the Five-Year Plan 2001~6

264

Appendix

265

Appendix Table A6.7 Institutions, Teachers, and Students, 1996/97 Teachers

Students

Institution Group

No.

No.

%

No.

%

I II III IV V VI VII VIII

26 3 5 2 2 9 4 3

4,735 260 346 242 177 803 582 182

64.63 3.55 4.72 3.30 2.42 10.96 7.94 2.49

141,233 2,475 6,127 20,1597 1,887 6,104 7,857 2,043

38.28 0.67 1.66 54.59 0.51 1.65 2.13 0.55

Total

54

7,325

100.00

269,323

100.00

I — Universities, Degree Colleges, Colleges and Defence Services Academy. II — Institute of Education and Institute of Development of National Races. III — Institute of Economics, Co-operative Colleges and Co-operative Degree Colleges. IV — University of Distance Education and Workers’ College. V — University of Foreign Languages and University of Culture. VI — Institute of Medicine, Dental Medicine, Nursing, Pharmacy, Paramedical Sciences, Community Health and Defence Services Insitute of Medicine. VII — Institute of Technology, Computer Science and Technology and Defence Services Institute of Engineering. VIII — Institute of Forestry, Agriculture and Animal Husbandry and Veterinary Science. Source: Than Toe (1998), pp. 8–9.

© 2004 Institute of Southeast Asian Studies, Singapore

Reproduced from Economic Development of Myanmar by Myat Thein (Singapore: Institute of Southeast Asian Studies, 2004). This version was obtained electronically direct from the publisher on condition that copyright is not infringed. No part of this publication may be reproduced without the prior permission of the Institute of Southeast Asian Studies. Individual articles are available at < http://bookshop.iseas.edu.sg >

266

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© 2004 Institute of Southeast Asian Studies, Singapore

Reproduced from Economic Development of Myanmar by Myat Thein (Singapore: Institute of Southeast Asian Studies, 2004). This version was obtained electronically direct from the publisher on condition that copyright is not infringed. No part of this publication may be reproduced without the prior permission of the Institute of Southeast Asian Studies. Individual articles are available at < http://bookshop.iseas.edu.sg > 278 Index of Names

A Aung Kin, 80–81 Aung San, General, 4, 40, 52

L Lee Kuan Yew, Prime Minister, 8 Lutkenhorst, W., 107

B Ba Maw, Dr., 53 Ba Nyein, U., 54, 60 Ba Swe, U., Deputy Prime Minister, 60 Bodaw Paya, King, 45

M Mali, K.S., 15, 21–22, 27, 45–46 Maung Maung Hla, 73 Maung Maung Lwin, 40, 42, 107, 109 Maung Maung Soe, 228 Mouri, S., 80 Mya Maung, 63, 80, 119, 144 Mya Oo, 220 Mya Than, 33, 55, 65, 73, 79, 88, 93, 112–13, 123 Myat Thein, 55, 65, 73, 123, 228 Myint, U., 148 Myrdal, Gunnar, 16, 43–44

C Collignon, Stefan, 71, 122, 170 F Foo, T.W., 142 Furnivall, J.S., 16, 43 H Han Tin, 219 Hashimoto, Kazushi, 64 Hill, Hal, 15, 46, 75–76 Hla Myint, Dr., 9–10, 58 Hlaing, Aye, 15 J Jayasuriya, 15, 46, 75–76 K Khin Maung Kyi, 42, 53, 118 Khin Maung Nyunt, 64, 80 Kyaw Htin, Dr., 209 Kyaw Min Tun, 207 Kyaw Nyein, U., Deputy Prime Minister, 60

N Ne Win, General, 4–5, 60, 62–63, 71, 122 Nishizawa, 33, 88, 93 Nu, U., Prime Minister, 3, 8, 20, 43–44, 52, 60 P Park Chung Hee, President, 8–9, 51, 239 S Soeharto, President, 8, 63, 240 Steinberg, David I., 53 Sundrum, R.M., 15

279

Index of Names T Takamun, S., 80 Than Lwin, U., 140 Than Shwe, 128 Than Toe, 219 Thein Han, Lt.-Col., 221 Thet Tun, U., 22, 53, 62 Tin Pe, Brigadier, 54, 59 Tin Win, U., Finance Minister, 130 Tinker, Hush, 43 Tun Wai, Dr., 16, 19, 22, 43, 45, 53, 62–63, 68

V Vatikiotis, M., 130 W Wint Kyaw, 137 Wong, John, 10, 219 Z Zuhdi, Susanto, xv

280

A administration, 62–63, 240 frontier areas, 125, 176–77 adult literacy, 86, 112, 114, 211 Africa, 79 Agrarian Committees, 89 Agricultural Mechanization Department (AMO), 188 agriculture, 2 compulsory delivery system, 91 credit, 186 development programme, 88 farm mechanization, 187–89 Five-Year Plan, 33 Green Revolution, 5, 64–65, 93, 97 high-yielding variety (HYV) seeds, 5, 64, 93, 181, 185–86 irrigation, 187 market-oriented period, 178–90 neglect of, 60 parliamentary democracy period, 31–36 price control, 4–5, 52 privatization, 189 reforms, 176, 178, 180 research, 185–86 socialist regime, 85–98 state procurement system, 33, 90, 181 state support services, 185–89 Agriculture Development Bank, 33 anti-Chinese riots, 56 Anti-Fascist People’s Freedom League (AFPEL), 4, 15 anti-government demonstrations, 122 ASEAN, 86, 143, 146, 159–60, 163,

Index of Names

178, 212 Asia Pacific region, 212–13 Asian currency crisis, 6, 160, 163, 219 “Asian Miracle” period, 11 B balance-of-payments (BOP), 59–60 Bangladesh, 1 banking system, 24–25, 135–37 black market, 55–56, 74, 77, 79–81, 240 education, 115 border areas, 235–36 education, 215 brain drain, 236 British colonial rule, 2–3, 5, 14 budget deficit, 5, 66, 72, 205, 237–38 budget surplus, 28, 72 Burma Civil Service (BCS), 21 Burma Corporation, 3, 15 Burma Currency Board, 25 Burma Investment Act, 43 Burma Oil Company, 3, 15 Burma Socialist Programme Party (BSPP), 60, 98, 102, 121–22, 242 Constitution, 52 Burmanization, 15, 52 Burmese Economic Bank, 25 Burmese Way to Socialism, xiv, 4, 52– 53, 239 C Cambodia, 212 Central Agriculture Research Institute (CARI), 185

Index of Topics Names Central Bank of Myanmar (CBM), 136, 139, 166 Central Bank of Myanmar Law 135–36 Centre for Human Resource Development (CHRD), 218 Ceylon, see Sri Lanka China, 1, 123, 160 civil service, 5 climate, 1–2 Colombo Plan, 58–59 colonial period. See British colonial rule Commercial Tax, 145 Commodities and Services Tax (CST), 72–73, 145 Constitution 1947, 3–4 1974, 5 Constitution of the Burma Socialist Programme Party, 52 currency system, 25 D Defence Services Institute, 52 deforestation, 100–2 demonetization, 6, 66, 70, 121, 242 Department of Fisheries, 193 development plans, 16, 18–24 Eight-Year Plan, 16, 19–21, 25, 28, 41 First Four-Year Plan, 16, 22, 45 Second Four-Year Plan, 65 Twenty-Year Plan (TYP), 65, 67 Two-Year Plan, 16, 18, 40 dollarization, 144 Dry Zone Greening Department, 235 duties, 145–46 E Eastern Europe, 123 Economic and Social Board, 23, 43 Economic Council, 23 economic development market-oriented period, 121–71, 175–229 parliamentary democracy period, 15– 48

281

problems, 237–44 socialist regime, 51–81, 85–119 economic growth achievement, 168–70 fundamentals, 10–11 Economic Planning Board, 23 economic policies Burmese Way to Socialism, xiv, 4, 52–53, 239 market-oriented, see market-oriented policies economic reforms, 123–26, 176–77, 248 economy black market, 55–56, 74, 77, 79–81, 240 mung bean, 130 nominal official, 55, 80, 240 education black market, 115 Border Area Development Programme, 215 continuous assessment and progressive system (CAPS), 215 market-oriented period, 214–19 medium of instruction, xiv, 86 parliamentary democracy period, 47– 48 socialist regime, 86, 112, 114–18 Eight-Year Plan, 16, 19–21, 25, 28, 41 electric power, 44–45, 110–11, 208–9 Electricity Supply Act, 44 employment, 2, 211, 236 ethnic groups, 2 European Union, 163 exchange control, 68 Exchange Control Board, 68 Export Price Equalization Fund (EPEF), 73 export-oriented industrialization, 59 external sector performance market-oriented period, 154–71 parliamentary democracy period, 28– 30 socialist regime, 73–81

282

F farm mechanization, 187–89 Farmer’s Rights Protection Law 1963, 88 Financial Institutions of Myanmar Law, 135–36 financial sector reforms, 124 financial system. See banking system fiscal developments. See monetary and fiscal developments fiscal reforms, 124 fishery. See livestock and fishery fishery and aquaculture sector reforms, 176 fishery sector objectives, 191–92 Food and Agriculture Organization (FAO), 185 foreign debt, 80 foreign direct investment (FDI), 59–60, 128, 162, 180, 188, 241–42 foreign exchange, 141 foreign exchange certificates (FECs), 141–42, 166 foreign investment, 62, 160–65. See also foreign direct investment (FDI) incentives, 162 Foreign Investment Law, 6, 123–24, 128, 160, 162, 175–76, 180, 241 foreign trade. See trade forestry annual allowable cut (AAC), 195 market-oriented period, 193–95 Myanmar Forest Policy, 195 Myanmar Selection System (MSS), 195 parliamentary democracy period, 37– 38 socialist regime, 100–2 Four-Year Plan First, 16, 22, 45 Second, 65 Short-Term, 127–29, 197 free trade, 14–15 frontier areas administration, 125, 176– 77

Index Index of of Names Topics G geography, 1 governance, 122 Green Revolution, 5, 64–65, 93, 97 gross domestic product (GDP) growth, market-oriented period, 6, 126–32, 241 parliamentary democracy period, 17– 18 socialist regime, 56–57 H Harmonized Commodity Description and Coding System, 145 health indigenous medicine, 118, 221–23 market-oriented period, 214, 220–25 parliamentary democracy period, 48 socialist regime, 86, 112, 118–19, heavily indebted poor countries (HIPC), 236 high-performing Asian economies (HPAEs), 11–12, 58–59, 70, 76, 157, 244 high-yielding variety (HYV) seeds, 5, 64, 93, 181, 185–86 history, xiv–xv, 2–7 hmaung-kho, 55 Hong Kong, 10, 58, 167, 204 human development index (HDI), 212 I import-substituting industrialization (ISI), 5, 15, 29, 58, 86, 104, 106, 238–39 independence, 3, 15, 238 India, 1, 16 Indian Civil Service (ICS), 21 indigenous medicine, 118, 221–23 Indonesia, 8,10, 16, 54, 57–58, 63, 79, 163, 239–40 Industrial Development Bank, 25 Industrial Development Corporation (IDC), 41 industrial policies, 199–200, 257

Index of Topics Names industrial sector reforms, 176 industrial zones, 201 industrialization. See importsubstituting industrialization (ISI), inflation, 5, 27, 148–51, 242 infrastructure market-oriented period, 207–11 parliamentary democracy period, 43– 45 socialist regime, 109–11 insurance, 140–41 Insurance Business Law, 141 International Center for Research in Semi-Arid Tropics (ICRISAT), 185 International Labour Organization (ILO), 46, 226 International Monetary Fund (IMF), 53, 67, 80, 155 International Rice Research Institute (IRRI), 185 investment and savings market-oriented period, 133–35 parliamentary democracy period, 24 socialist regime, 56–57 Irrawaddy (Ayerwaddy) Flotilla Company, 3, 15, 45 J Japan, 79, 160, 210 Japan Federation of Economic Organizations, 163 joint-ventures, 43–44, 154 K Knappen Tippetts Abbett Engineering Co. (KTA), 16, 21 Plan, 16 Korean War, 36 kyat, demonetization, 6, 66, 70, 121, 242 L labour strikes, 64, 117 land and agricultural sector reforms,

283

176, 178, 180 Land Nationalization Act 1948, 15 Laos, 1, 8, 167–68, 212 Law of Establishment of the Socialist Economic System, 6, 123–24, 175 least developed country status, 80, 236, 241 legal system reforms, 124 liberalization measures, 175–76, 241 livestock and fishery parliamentary democracy period, 37 socialist regime, 98–100 market-oriented period, 190–93 livestock sector objectives, 190 Lukawn Lutaw, 63, 128 M macroeconomic performance, economic reforms, 123–26 market-oriented period, 123–54 socialist regime, 54–73 Malaysia, 8, 10, 12, 57–58, 139, 163, 219 Mandalay, 140, 149, 204, 207, 235 manufacturing market-oriented period, 197–207 parliamentary democracy period, 39– 43 reforms, 197, 199–200 socialist regime, 104–9 market orientation progress, 165–71 market-oriented period, 6–7 economic reforms, 123–26, 176–77 external sector performance, 154–71 GDP growth, 6, 126–32, 241 macroeconomic performance, 123–54 monetary and fiscal developments, 135–48 sectoral developments, 177–211 social development, 211–29 trade and investments, 154–66 market-oriented policies benefits, 235–36, 241–42

284

Martaban Company, 37 Mass Education Movement, 114 Maternal and Child Health Centres, 221 military coup, xiv, 4, 52 military rule, 4–6, 51–81. See also market-oriented period and socialist regime mining market-oriented period, 195–97 parliamentary democracy period, 38– 39 reforms, 176 socialist regime, 102–3 Ministry of Agriculture and Irrigation, 135, 185–87, 189, 203, 214 Ministry of Education (MOE), 114, 214, 216, 219 Ministry of Finance and Revenue, 135, 186 Ministry of Forestry, 203–4, 214 Ministry of Health, 214, 220 Ministry of Industry No. 1, 7, 166, 202, 205 Ministry of Industry No. 2, 202–3 Ministry of Information, 151, 203 Ministry of Livestock and Fisheries, 191–93, 203 Ministry of Mines, 195, 197, 203 Ministry of National Planning and Economic Development, 167, 243 Ministry of Planning and Finance, 67– 68 Ministry of Trade, 154, 203 minority races, 176–77 monetary and fiscal developments market-oriented period, 135–48 parliamentary democracy period, 24– 28 socialist regime, 66–73 mung bean economy, 130 Myanma International Insurance Corporation (MIIC), 141 Myanma Oil and Gas Enterprise (MOGE), 197

Index Index of of Names Topics Myanmar Agricultural and Rural Development Bank (MARDB), 135, 186 Myanmar Agricultural Development Bank (MADB), 135–36, 142, 186 Myanmar Agriculture Bank (MAB), 67–68 Myanmar Agriculture Service (MAS), 185, 189 Myanmar Citizens Investment Law (MCI), 163 Myanmar Economic Bank (MEB), 67, 136, 140 Myanmar Economic Corporation (MEC), 6, 163, 167 Myanmar Economic Holdings Ltd. (MEHL), 6, 163, 167 Myanmar Fisheries Federation, 192 Myanmar Foreign Trade Bank (MFTB), 67–68, 136 Myanmar Heavy Industries, 188 Myanmar Industrial Development Bank (MIDB), 201 Myanmar Industrial Development Committee (MIDC) 188, 200–1 Myanmar Insurance, 140 Myanmar Insurance Corporation (MIC), 67 Myanmar Insurance Law, 141 Myanmar Investment and Commercial Bank (MICB), 136 Myanmar Livestock and Fisheries Development Bank, 191 Myanmar Livestock Federation, 191 Myanmar Mines Law, 195 Myanmar Small Loans Enterprise, 136, 140 Myanmar Timber Enterprise, 204 Myanmar Veterinary Council, 191 N National Centre for Human Resource Development (NCHRD), 218

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Index of Topics Names National Industrial Promotion Committee (NIPC), 200 National Planning Board, 22 nationalization, xiv, 3–4, 15, 44–45, 52–53, 140, 239–40 newly industrializing countries (NICs), 57–59, 123 newly industrializing economies (NIEs), 10, 70, 219 News Agency Burma (NAB), 56 newspaper, 56 nominal official economy, 55, 80, 240 non-governmental organization (NGO), 191–92, 220 O official development assistance (ODA), 5, 64–65, 72, 76, 147, 239 P paddy/rice policy, 91–92 Parliament meeting, 7 parliamentary democracy, 3–4, 7, 15– 48 development plans 16, 18–24 external sector performance, 28–30 gross domestic product (GDP) growth, 17–18 investment and savings, 24 monetary and fiscal developments, 24–28 sectoral developments, 30–45 social development, 45–48 trade, 28–30 Participatory Poverty Assessment (PPA), 228 People’s Bank of Burma, 67 People’s Bank of the Union of Burma Act 1967, 66 People’s Health Plan (PHP), 118 People’s Township Councils, 104 Philippines, 8, 54, 57–58, 79 physical appearance, 235

plans, see development plans political development, 3–7 political economies comparison, 7–12 post-war, 3–7 population, 2, 45, 111, 211 census, 45, 111 poverty, 225–29 Primary Health Care (PHC), 220 Prime Minister, 7–8 private banking, 137–39 private sector participation, 4, 6, 8, 123–25, 166, 201, 241 privatization, 151–54 agriculture, 189 Privatization Commission, 151, 153 Public Health Workers Scheme, 118 Public Service Commission, 145 Pyidawtha Conference, 16 Pyidawtha Discretionary Fund, 47 Pyidawtha Discretionary Grants, 47 Pyidawtha Plan, 16, 42, 114 R race, 2 minority, 176–77 Rangoon Bank, 25 rationing, 242 recommended dietary allowance (ROA), 228 reform measures, 64, 240 agriculture, 176, 178, 180 economic, 123–26, 176–77, 248 financial sector, 124 fiscal, 124 fishery and aquaculture sector, 176 frontier areas administration, 125, 176 industrial sector, 176 land and agricultural sector, 176, 178, 180 legal system, 124 manufacturing, 197, 199–200 mining sector, 176 tourism sector, 124, 176

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trade sector, 124 religion, 12 Reserve Bank of India, 25 Revolutionary Council, 4, 8, 56, 60, 71, 73, 79, 88, 90 rice. See paddy Rural Health Centres (RHCs), 48, 118, 221 rural poverty, 225–29 Rural Water Supply Department (RWSD), 114 S savings. See investment and savings school. See education sectoral developments agricultural, 31–36, 85–98, 178–90 forestry, 37–38, 100–2, 193–95 infrastructure, 43–45, 109–11, 207– 11 livestock and fishery, 37, 98–100, 190–93 manufacturing, 39–43, 104–9, 197– 207 market-oriented period, 177–211 mining, 38–39, 102–3, 195–97 parliamentary democracy, 30–45 socialist regime, 86–111 Short-Term Four-Year Plan, 127–29, 197 Singapore, 8, 10, 58, 70, 79, 163, 167, 219 small and medium enterprises (SMEs), 143 small and medium-sized industries (SMIs), 201, 203–7 problems, 205, 207 social development education, 47–48, 112, 114–18, 214– 19 health, 48, 112, 118–19, 214, 220–25 market-oriented period, 211–29 parliamentary democracy, 45–48 socialist regime, 111–19

Index Index of of Names Topics social objectives, 177 socialist regime, 4–6, 51–81 collapse of, 66, 121 external sector performance, 73–81 gross domestic product (GDP) growth, 56–57 investment and savings, 56–57 macroeconomic performance 54–73 monetary and fiscal developments, 66–73 reform measures, 64 sectoral developments, 86–111 social development, 111–19 South Korea, 8–10, 12, 58, 204, 239–40 special drawing rights (SDRs), 141 Sri Lanka, 16 state administrative organizations (SAOs), 71, 143, 147 State Agricultural Bank, 25 State Agricultural Marketing Board (SAMB), 28, 32–33, 36, 73, 90 State Commercial Bank, 25, 66–67 State Law and Order Restoration Council (SLORC), 6, 8, 123–24, 126, 128, 144, 166, 168–69, 175, 178, 199, 203, 216, 220, 223, 235, 241, 243 State Peace and Development Council (SPDC), 6, 8, 124, 128, 166, 168–69, 175, 178, 199, 203, 220, 223, 235, 243 state-owned economic enterprises (SEEs), 5, 64, 67, 71, 106, 108, 110, 124, 143–44, 146–48, 151, 153–54, 163, 176–77, 197, 202, 204–5, 237, 240, 243 students’ strike, 64, 117 Summer Paddy Program (SPP), 180–81, 183 sustained economic growth achievement, 168–70 fundamentals, 10–11 System of Correlation of Man and His Environment, 52

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Index of Topics Names T Taiwan, 10, 58 taxes, 145–46 telecommunications, 45, 110, 210–11 Tenancy Law 1965, 88 Thailand, 1, 8, 10, 12, 54, 57–58, 139, 163, 194, 219 Thant, U. affair, 117 Thervada Buddhism, 12 tourism sector reforms, 124, 176 township administrative councils, 104 trade, 14 controls, 166 market-oriented period, 154–60 parliamentary democracy, 28–30 socialist regime, 73–81 Trade Corporation No. 1, 91 Trade Council, 162 trade sector reforms, 124 transport, 45, 110, 209–10 Twenty-Year Plan (TYP), 65, 67 Two-Year Plan, 16, 18, 40 U Union Bank of Burma (UBB), 25, 27– 28 Union Bank of Burma Act 1947, 25 1952, 25 Union of Burma Agricultural and Marketing Board (UBAMB), 90– 91 Union of Burma Airways (UBA), 45 Union of Burma Bank (UB*B), 67–68 Union of Burma Co-operative Bank, 25 Union of Myanmar Economic Holding, 205 Union of Myanmar Federation of Chamber of Commerce and Industry (UMFCCI), 154

United Nations Conference on Trade and Development (UNCTAD), 53, 236 United Nations Development Program (UNDP), 53, 112, 185, 211, 219, 226 Human Development Report 1997, 226 United Nations Educational, Scientific and Cultural Organization (UNESCO), 53, 219 United Nations Population Fund (UNFPA), 211 United States, 10, 163 University Education Act 1964, 116 USSR, 123 V Vietnam, 1, 8, 142, 162, 167–68, 212 W wages, 150–51 water supply, 113–14 Whole Township Special Paddy Production Programme, 64, 93, 186 workers’ strikes. See labour strikes World Bank, 115, 226 World Health Organization (WHO), 220 World War II, 2–3, 17, 58 Y Yangon, 56, 112, 140–41, 185, 204, 207, 211, 235–36 Yangon Institute of Economics, 47, 59, 219 Yangon Institute of Technology, 219 Z Zone Supervision Committee, 201

Reproduced from Economic Development of Myanmar by Myat Thein (Singapore: Institute of Southeast Asian Studies, 2004). This version was obtained electronically direct from the publisher on condition that copyright is not infringed. No part of this publication may be reproduced without the prior permission of the Institute of Southeast Asian Studies. Individual articles are available at < http://bookshop.iseas.edu.sg >

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ABOUT THE AUTHOR Myat Thein, Professor and Head of the Economics Department from 1988 to 1995, was also Rector of the Institute of Economics, Yangon from 1995 to 1997. He has carried out numerous field surveys all over Myanmar in connection with various projects sponsored by international organizations, and continues working in his retirement. He has been an ASEAN Research Fellow at ISEAS, Singapore (1998); an international economic consultant for the Asian Development Bank, the United Nations Development Program, the United Nations Convention to Combat Desertification, and the United Nations Office on Drugs and Crime; and a Visiting Research Fellow at Chulalongkorn University, Bangkok (2002). Myat Thein has published and edited a number of books on transitional economies, and has written numerous papers and articles in various national and international journals. He has also participated in a number of regional symposiums as a resource person.

© 2004 Institute of Southeast Asian Studies, Singapore