ECONOMICS IN MYANMAR

ECONOMICS IN MYANMAR

Myanmar is one of the world’s poorest countries. While some of it Asian neighbors have posted record growth and become “economic tigers” in recent decades, Myanmar has become an economic basket case with a per capita income estimated at between $600 and $800, about one eighth of that of Thailand. The Myanmar economy remains largely agricultural. The manufacturing sector is poorly developed and important industries are state-owned. Development has been slowed by a lack of technology, shortage of spare parts and poor access to raw materials even though it is rich in resources.

According to the CIA World Factbook: Burma is a resource-rich country but still suffers from pervasive government controls, inefficient economic policies, corruption, and rural poverty. Burma is the poorest country in Southeast Asia; approximately 32 percent of the population lives in poverty. Corruption is prevalent and significant resources are concentrated in the extractive industries are concentrated in a few hands. In recent years, foreign investors have shied away from nearly every sector except for natural gas, power generation, timber, and mining. The exploitation of natural resources does not benefit the population at large. The most productive sectors will continue to be in extractive industries - especially oil and gas, mining, and timber - with the latter two causing significant environmental degradation. Other areas, such as manufacturing, tourism, and services, struggle in the face of poor infrastructure, unpredictable trade policies, undeveloped human resources (the result of neglected health and education systems), endemic corruption, and inadequate access to capital for investment.

According to Countries and Their Cultures: The economy is dominated by agriculture, which accounts for over 59 percent of the gross domestic product and employs about two-thirds of the labor force. Rice is the main product. Production declined after independence but increased during the late 1970s and early 1980s because of the introduction of high-yielding varieties, fertilizer, and irrigation. Since that time, production has barely kept pace with population growth, and Burma, once the world's leading exporter of rice, is barely able to meet subsistence needs of its own population. It continues to export some rice to earn foreign exchange. The production of narcotics from poppies and other sources is widespread in the northern highlands, and Burma is the world's leading supplier of opiates. [Source: Countries and Their Cultures everyculture.com ]

The U.N. has ranked Myanmar as one of the twenty poorest countries in the world, with an estimated annual per-capita income of five hundred dollars. Once Southeast Asia's most prosperous country, Myanmar performs abysmally in every sector except for perhaps opium and methamphetamine production, illegal logging and natural gas production. Economic problems are related to the military's misrule and have been exacerbated by sanctions imposed by Western countries to force political change. Poverty is endemic and AIDS and other diseases are spreading rapidly. In recent years, the government has opened up the economy. Neighboring countries including China, India and Thailand have rushed in to tap its vast reserves of oil and natural gas, which has propped up the regime.

Most Myanmar citizens subsist on an average annual income of less than $200 per capita, the US State Department reports. Kenneth Denby wrote in The Times, “ According to foreign diplomats in Rangoon inflation runs at about 40 per cent. Revenues from the extensive gasfields and rich gem mines in the country appear to have been mostly spent on the construction of Naypyidaw, the isolated capital city that the junta built in the jungles of central Burma. [Source: Kenneth Denby, The Times, September 26, 2008]

Economic Statistics in Myanmar

GDP (purchasing power parity): $89.23 billion (2012 est.), country comparison to the world: 77; $84.02 billion (2011 est.), $79.67 billion (2010 est.); GDP (official exchange rate): $54.05 billion (2012 est.); GDP - real growth rate: 6.2 percent (2012 est.), country comparison to the world: 39; 5.5 percent (2011 est.), 5.3 percent (2010 est.), [Source: CIA World Factbook <^>]

GDP - per capita (PPP): $1,400 (2012 est.), country comparison to the world: 205; $1,300 (2011 est.), $1,300 (2010 est.). Estimates for per capita GDP and per capita income vary quite a bit for Myanmar, witj some sources saying per capita income is as low as $300 per head. Other sources say per capita GDP tripled from $235 in 2007 to $702 in 2010.

GDP - composition by sector: agriculture: 38.8 percent; industry: 19.3 percent; services: 41.8 percent (2012 est.); GDP - composition by sector (percent) agriculture: 54.6 percent, industry: 13 percent, services: 32.4 percent (2005 est.). <^>

Inflation rate (consumer prices): 3.1 percent (2012 est.), country comparison to the world: 81 5 percent (2011 est.); Unemployment rate: 5.4 percent (2012 est.), country comparison to the world: 50; 5.5 percent (2011 est.). Official statistics on employment, and most other economic indicators are notoriously unreliable. <^>

Reserves of foreign exchange and gold: $4.107 billion (31 December 2012 est.), country comparison to the world: 98; $3.931 billion (31 December 2011 est.). Investment (gross fixed): 16.3 percent of GDP (2012 est.), country comparison to the world: 130 <^>

Central bank discount rate: 9.95 percent (31 December 2010 est.), country comparison to the world: 16; 12 percent (31 December 2009 est.); Commercial bank prime lending rate: 13 percent (31 December 2012 est.), country comparison to the world: 31; 16.33 percent (31 December 2011 est.) <^>

Stock of narrow money: $9.965 billion (31 December 2012 est.), country comparison to the world: 77; $8.652 billion (31 December 2011 est.). Stock of domestic credit: $15.66 billion (31 December 2011 est.), country comparison to the world: 89; $11.83 billion (31 December 2010 est.).

Fiscal year: 1 April - 31 March

Economic Policy Under Myanmar’s Military Regime

According to Countries and Their Cultures: “Since 1992, the military regimes have emphasized self-sufficiency and tried to limit imports. The largest companies and financial institutions are state-owned, with the private sector limited mainly to small-scale trading. In recent years, however, more imported goods, especially from China, have appeared in local markets and there has been growth in the private sector. [Source: Countries and Their Cultures everyculture.com]

In the 1990s and early 2000s, according to the BBC, the military tried opening up the economy to market forces and foreign investment but it never was willing to release its grip on crucial areas of the economy. Imports and exports required licenses, confronting entrepreneurs with mountains of red tape, and opening opportunities for corruption. The trade in rice was entirely controlled by military-connected companies. Internal transport was hobbled by poor infrastructure and frequent military bans on access to troubled areas. Many commodities are subsidised, but available in very limited quantities. There was an official exchange rate for the local currency, the kyat, which is 200 times lower than the black market rate. Add to that the fact that more than half the annual budget went to the armed forces, and that Burma was subject to strict sanctions by the United States and the European Union. The spending of hundreds of millions—perhaps billions—of dollars on a secretive new capital city hacked out of the bush didn’t help matters. [Source: Jonathan Head, BBC, October 2, 2007 ><]

Sean Turnell, an expert on Myanmar's economy at Sydney's Macquarie University, told AP: In Myanmar the military regime “has been about dividing up the domestic economy rather than any sort of outward projection. The regime lacks that developmental mindset. That explains a lot their decisions, which don't make any economic sense. That is what separates them from Vietnam.” [Source: AP, November 18, 2010]

There are concerns that economic grievances could at any moment trigger street revolts as they have in the past. A student-led response to the overnight demonetization of small bank notes in 1988 evolved into a massive pro-democracy protest. In August 2007, a sharp rise in fuel prices and bus fares prompted thousands to take to the streets, including a young generation of Buddhists monks, who often are keenly aware of lay folk's financial difficulties because daily donations in their alms bowls decrease. [Source: Washington Post, August 16, 2008]

Macroeconomics in Myanmar

According to the U.S. State Department: “At the turn of the 20th century, Burma was one of the wealthiest states in Southeast Asia, boasting vast reserves of fossil fuels, rubies, gold, jade, tin, copper, timber, teak, and a plentitude of other natural resources. Today it is the poorest country in the region in per capita GDP. This reversal of fortune is the result, at least in part, of decades of self-isolation, repression and regression in the rule of law and quality of education coupled with economic mismanagement and civil war. The military-business nexus is still strong despite recent political reforms. There is still insufficient transparency relating to revenues from natural resource or into where these revenues end up. Some critics allege that the country’s natural wealth, auctioned off to highest bidder, continues to be siphoned to offshore accounts rather than flowing into the national budget. Investment in many natural resources are still controlled and financed by military controlled enterprises, such as the Myanmar Economic Corporation and the Myanmar Economic Holdings Limited or their sub-entities. Our sanctions remain in place on these entities for this reason. [Source: U.S. State Department, Human Rights in Burma, February 18, 2013]

Burma has been called "the richest of poor countries." In the northern mountains are translucent imperial jade, rubies, diamonds and sapphires; in the central and southern parts of country are 14.6 million acres of rice fields with fertile soil and plentiful rainfall. Burma has the largest remaining stands of teak and padauk , or cherry wood, trees, and valleys filled with opium poppies. It also has petroleum, gold, tin, copper, sliver, lead, zinc, raw rubber, rice, fish and other foodstuff as well a deep well of cheap labor. Despite the fact that Burma is richly endowed with fertile land and resources, its per capita income several hundred dollars a year is among the lowest in the world. The country is so poor that tea shop owners urge the customers not to put to much milk in their tea because "we cannot afford to let people have all the milk they want.” Even Cambodia has surpassed Myanmar in per capita income. [Source: Joel Swerdlow, National Geographic, July 1995]

Economists have said Myanmar needs to take steps to ensure prices and exchange rates are stable, and promote non-agricultural jobs and manufactured exports as Thailand has done. Local laws prevent foreign banks from conducting transactions in the country, something that must change in 2015 as part of an agreement with the 10-member Association of Southeast Asian Nations. As of November 2010, 13 foreign lenders had set up representative offices in Myanmar, including 10 from Asean member countries, according to the central bank.

Myanmar Money, Exchange Rates and Banknotes

The currency of Myanmar is the kyat (pronounced chat), which is divided into 100 pyas. Exchange rates: kyats (MMK) per US dollar: 867.6 (2012 est.); 815 (2011 est.); 5.58 (2010 est.); 1,055 (2009); 1,205 (2008). Myanmar has 12 banknotes in circulation: 50-pyas, 1 kyat, 5 kyat, 10 kyat, 20 kyat, 50 kyat, 100 kyat, 200kyat, 500 kyat, 1,000 kyat and 5,000 kyat and 10,000 kyat.

In far northern Myanmar, people still use salt as a form of currency. Hunters using crossbows and poison arrows kill small deer and monkeys and exchange their skins for salt and tea. The value of banknotes used to be so so low that large amounts of banknotes were weighed instead of counted. Brokers in a small colonial-era building in Yangon sort through bundles of cash, part of an ancient "hawala" money transfer network used widely in Asia and the Middle East, and one of the only ways to get cash out of Myanmar.

In April 2012, Myanmar started the adoption of a managed floating foreign exchange rate regime, moving the exchange rate from a peg of 8.5 kyat to a managed floating exchange rate. The rate was quoted at 830 kyats per U.S. dollar in June 2012, up from 818 kyat per U.S. dollar when it was first applied. Myanmar's foreign exchange rate against the U.S. dollar has been traditionally designated as around six kyat per U.S. dollar since 1975, while the market exchange rate fluctuated between 780 and 1, 000 kyats per dollar for the past several years, standing for most of the time around 800 kyat per dollar in 2011.

In 1987 Ne Win, the socialist dictator of Myanmar at the time, introduced the 45-kyat and 90-kyat banknotes, for the simple but perplexing reason that these were divisible by and added up to nine, his lucky number. He believed this move would also ensure he would live to the lucky age of 90. In 1985, 75-kyat notes were introduced. This note was supposedly introduced to commemorate his 75th birthday. It was followed by the introduction of 15- and 35-kyat notes in 1986.

The chinthe (mythical lion) favored by military regime was put on Myanmar banknotes and coins after 1988.

In 1997, the government took one-kyat banknote out of circulation because the watermark image of national hero Aung San was considered too feminine, and thus an allusion to his daughter Aung San Suu Kyi. Pro-democracy demonstrator used to wave the banknotes at rallies. The designer of the banknote was reportedly jailed.

Demonetization and Worthless Money in Myanmar

The currency of Myanmar was demonetized (declared unusable) several times making savings worthless overnight in most cases with little or no compensation. The reason for the practice was to strike at black market traders who withheld large amounts of currency outside the banking system. To this day people in Myanmar have little faith in the currency or banks and choose to keep their savings in gold, jewelry or real estate.

The 50 and 100 kyat notes were demonetized in May, 1964. This was the first of several demonetizations, ostensibly carried out with the aim of fighting black marketeering. On November 3, 1985, the 25-, 50-, and 100-kyat notes were demonetized without warning, though the public was allowed to exchange limited amounts of the old notes for new ones. All other denominations then in circulation remained legal tender. [Source: Wikipedia +]

Only two years later, on September 5, 1987, the government demonetized the 25-, 35-, and 75-kyat notes without warning or compensation, rendering some 75 percent of the country's currency worthless. The resulting economic disturbances led to serious riots (see 8888 Uprising) and eventually a coup d'état in 1988 by General Saw Maung. On September 22, 1987, banknotes for 45 and 90 kyat were introduced. Following the change of the country's name to Myanmar on June 20, 1989, new notes began to be issued. This time, the old notes were not demonetized, but simply allowed to fall into disuse through inflation as well as wear and tear. +

In 2003, rumours of another pending demonetization swept through the country, resulting in the junta issuing official denials, but this time the demonetization did not materialize. In 2004, the sizes of the 200, 500, and 1,000 kyats were reduced in size (to make all Myanma banknotes uniform in size) but larger notes remain in circulation. 50 pya, 1, and 5 kyat banknotes are now rarely seen, because of their low value. +

Myanmar’s Dual Exchange Rate Policy

The national currency is the kyat. Burma currently has a dual exchange rate system similar to Cuba. The market rate was around two hundred times below the government-set rate in 2006. In 2011, the Burmese government enlisted the aid of International Monetary Fund to evaluate options to reform the current exchange rate system, to stabilize the domestic foreign exchange trading market and creates economic distortions. The dual exchange rate system allows for the government and state-owned enterprises to divert funds and revenues, but also gives the government more control over the local economy and temporarily subdue inflation. [Source: Wikipedia +]

From 2001-2012, the official exchange rate varied between 5.75 and 6.70 kyats per US dollar (8.20 to 7.00 kyats per euro). However, the street rate (black market rate), which more accurately took into account the standing of the national economy, varied from 750 kyats to 1335 kyats per US dollar (985 to 1475 kyats per euro). Black market exchange rates (US dollar to kyats) decrease during the peak of the tourist season in Burma (December to January). In April 2012, the Central Bank of Myanmar announced that the value of the kyat against the US dollar would float, setting an initial rate of K 818 per US dollar.

Managed Float of the Kyat and Unifying Myanmar’s Exchange Rates

In March 2012, Bloomberg reported: “The biggest financial market policy shift since President Thein Sein took power is an attempt to unify the multiple exchange rates. The official rate, pegged to the International Monetary Fund’s special drawing rights, is 6.4 kyat per dollar, about 125 times stronger than the black market rate and available only to state- owned companies. The central bank plans to gradually unify the “various” other rates used by private enterprises and influence the market rate, it said in a statement published in the state-run New Light of Myanmar this week. The bank will publish a reference rate for its currency daily starting April 1, scrapping a 35- year fixed exchange rate, it said. [Source: Yumi Teso, Daniel Ten Kate & Lilian Karunungan, Bloomberg, March 30, 2012 <<]

“Myanmar’s move to a managed float of the kyat may weaken the grip of the black market, where appreciation has been hurting exporters. “The dollar has seen some weakening pressure against the kyat and that is quite a big pain for exporters,” Toshihiro Mizutani, managing director of the Japan External Trade Organization in Yangon, said. “If they can manage to keep it from rising fast it would help.” <<

“China also had an artificially strong currency until 1994, when it abolished foreign-exchange certificates that had allowed state-owned companies to buy dollars cheaper than in the black market. Exporters were able to use a weaker exchange rate for the yuan when bringing dollars back to China. The official and market rates were unified at 8.7 yuan per dollar under a “floating exchange-rate system,” devaluing the yuan’s official rate by 40 percent. <<

“A managed float means it will be controlled around a fixed range and should benefit everyone because it creates a bit more stability,” Saktiandi Supaat, head of foreign-exchange research at Malayan Banking Bhd. in Singapore, said in an interview yesterday. “It’s going to be somewhat similar to what China is doing.” “The current market exchange rate of 800 to 820 seems appropriate as the rate was formed naturally based on market demand and supply,” Yoon Hun Sup, a Yangon-based managing director for Hyosung Corp., a South Korean chemicals and trading company, said. <<

“Scrapping the complex multiple-rate system would reduce constraints on growth in a country with the potential to become “the next economic frontier in Asia,” the Washington-based IMF, which has provided guidance to Myanmar. “It levels the playing field, makes life easier, more transparent, more rational,” Sean Turnell, a professor at Macquarie University in Sydney who has researched Myanmar’s economy, said in a telephone interview on March 29. “It was never possible to be entirely sure who was using what rate, and that opens the window to rent-seeking and corruption.” <<

“The currency reform will be positive for overseas companies doing business there,” Roh Dong Hoon, a Seoul-based senior manager at Daewoo International Corp., a trading company involved in a natural gas project in Myanmar, said in a phone interview on March 29. “Last year, the currency strengthened to 700, and it was difficult for some foreign companies there as they earn money in dollars, but have to pay income to local workers in kyat.” <<

Myanmar Issue 10,000-kyat Banknote

In June 2012, Mizzima News reported: “As part of a revamp of its currency system, Burma has created a 10,000-kyat bank note (about US$ 12), which will go into circulation on June 15. The creation of the note is designed to facilitate high-value transactions. However, the introduction of the new banknote, which is two times that of the face value of the last 5,000 kyat note, is expected to draw public concern, and its impact on the financial market and commodity prices will be monitored, sources said. [Source: Mizzima News, June 8, 2012 <>]

“To eliminate illegal foreign exchange trading, 11 private banks have been granted as authorized dealers to open official money exchangers since Oct. 1, 2011 to enable official trade of three kinds of foreign currencies with kyat at a rate designated in line with daily exchange rate transacting in the international exchange market. The foreign currencies are the U.S. dollar, Singapore dollar and the Euro.” <>

In 2012, the International Monetary Fund delivered a report that said: “Myanmar could become the next economic frontier in Asia if, with appropriate reforms, it can turn its rich natural resources, young labor force, and proximity to some of the most dynamic economies, to its advantage. Delivering on these expectations is already under way.” It cited a number of “key obstacles” that must be put in line with international standards, such as the deposit-to-capital ratio, onerous collateral requirements, administratively set interest rates, and segmented banking activities. These controls and the exchange restrictions led to a large unregulated “shadow financial system,” the report said. Also, “the regulatory treatment of state banks and private banks is uneven, bank governance is poor, and banking supervision does not follow the Basel Core Principles.” In addition, there is no unified national electronic payments and settlement system, although plans are under way to develop the financial infrastructure. [Source: Mizzima News, June 8, 2012 <>]

Debt and Debt Forgiveness in Myanmar

As of 2012 Myanmar owed about $11 billion in external debt while its foreign currency reserves were a little over $7 billion. Debt - external: $5.448 billion (31 December 2012 est.), country comparison to the world: 109; $5.804 billion (31 December 2011 est.).

In April 2012, Myanmar President Thein Sein visited Japan. One of his primary aims was to get Japan to forgive debt and fund infrastructure projects such as roads and bridges in Myanmar. Japan agreed to forgive $3.5 billion in debt and interest charges (about 60 percent of what Myanmar owed) and resume development funding. Japan has urged other naion to forive Myanmar debt and resumed giving Myanmar low-interest loans.

In January 2013, Associated Press reported: “The World Bank announced a long-awaited deal to allow Myanmar to clear part of the huge decades-old foreign debt accumulated by the country's former military juntas. This will open the door for much-needed loans to jumpstart its lagging but potentially strong economy, experts noted. In view of its need for development, the country must remain friends with the United States and long-standing Chinese ally, said pro-democracy opposition leader Aung San Suu Kyi. [Source: AP, January 28, 2013]

The Japan Bank for International Cooperation, the country's overseas development bank, will provide a bridge loan to Myanmar to allow it to cover outstanding debt to the World Bank and the Asian Development Bank, which totals about US$ 900 million. Myanmar had stopped payments on its old loans in 1987, making it ineligible for new development lending. The loans' knock-on effect would be to bring in more foreign direct investment, already attracted by the country's relatively low-cost economy.The debt deal also clears the way for Japan to push ahead with plans for a US$ 12.3 billion plan to build a special economic zone near the capital, which is currently being developed by a consortium that includes Japanese trading firms Mitsubishi, Marubeni and Sumitomo.

For its part, the Asian Development Bank announced it would extend a US$ 512 million loan to Myanmar under the same sort of arrangement with the Japan Bank for International Cooperation.

Japan was Myanmar's largest creditor before 1988 with US$ 6.39 billion in loans. After that, mainland China became the main creditor with US$ 2.13 billion.

Black Market and Illegal Economic Activity in Myanmar

By some estimates the underground economy makes up 50 percent of the overall economy. Some reports have suggested that the cross-border trade and black market transactions, including drug production and sales, is equal to that of the legitimate economy. Some have said that In many ways the generals are reluctant to make changes because they do very well making money from the underground economy. One economic analyst told Asiaweek,“the system put in place by junta aims to prevent the growth of the middle class which has the potential to lea the country to democracy.”

Alan Sipress wrote in the Washington Post, “For many people in the business community, the line between the licit and the illicit is a blur. Some of the trade is legal, but timber and other products are also smuggled across Burma's remote, unsettled borders. Businessmen say some exports, such as seafood, garments and teak, are relabeled and shipped beyond the region. "They have the means to infiltrate markets in the West. It's onward to somewhere else," said Maung Maung Lay, joint general secretary of Burma's national chamber of commerce. "It's very hard to say the country of origin. It's not stamped on the fish." Some of Burma's timber exports also are shipped onward to unsuspecting consumers outside Asia, including teak that ends up in the United States, Maung Maung Lay said. [Source: Alan Sipress, Washington Post, January 7, 2006 >>]

On the outskirts of the country's largest city, Rangoon, tall stacks of hardwood logs are mostly concealed behind high wooden fences off main roads. Local businessmen say they operate at night, when the illegally cut logs are loaded into metal shipping containers and trucked to Rangoon's port for transport elsewhere in Asia. "You can't do this unless you're close to the army," said a businessman, who like some other entrepreneurs asked not to be named because he feared government retribution for speaking with a foreign journalist.>>

See Drugs, Illegal Logging

Cronies in Myanmar

Simon Denyer wrote in the Washington Post, “A new English word has entered colloquial Burmese, a word that could not even be uttered in public until recently. The word is “crony,” and it describes the business elite who exploited their closeness to the country’s military rulers to amass vast wealth in the past two decades. These well-connected elite made their money in industries such as construction, rubber and logging, as well as in arms dealing and drug smuggling. Their gains have only increased in the past two years, a result of changes that have privatized many state-owned assets and enterprises — and allowed the rich to buy them up at bargain prices. [Source: Simon Denyer, Washington Post, March 26, 2013>>]

“Burma’s business elite have been investing some of their wealth by erecting hotels and office buildings in Rangoon and other cities. But outside these gleaming new buildings, cycle rickshaws still ply the streets, and there are few signs of a more general boom. Small-business owners and shopkeepers say consumer demand remains tepid. The business elite, say critics such as Zaw Aung, a former political prisoner who is a research fellow at Thailand’s Chulalongkorn University, have the power to crush potential competitors, corner the benefits of Burma’s reform process and prevent a new, more diverse middle class from emerging. >>

Aung Zaw wrote in The Irrawaddy, “Indeed, there are many questions that need to be asked. Can cronies become builders of industry and national economic power? How can they contribute back to society by building philanthropic foundations and provide life-long assistance to society? Many showy tycoons and cronies in Burma are not interested in helping society. In fact, critics have charged that contributions from cronies are tiny compared to the money they spend on their posh Italian sports cars.” At same time some “cronies have quietly supported Suu Kyi and the opposition movement and donated to the Burmese community. [Source: Aung Zaw, The Irrawaddy, January 28, 2013 ////]

“Sean Turnell, an expert on Burma’s economy at Macquarie University in Sydney, Australia, thinks the cronies are destructive and resistant to reform. “I think the majority are cronies of the destructive sort—but some might turn out for the better.” “They are rent-seekers pure and simple rather than builders of genuine enterprise,” he added. “[They are] living off government regulatory largesse, the recipients of monopoly and quasi-monopoly profits and so on. As such, they are political animals as much as economic ones. But certainly there are some too who may emerge as something else. On this front, I guess we have to hope so, since they are amongst the few with sufficient capital to do transformative things, if this is what their desire is.” ////

Jill Drew wrote in the Washington Post, “"All they know is stealing," seethed one taxi driver as he took a passenger on a circuitous route to the airport, slowing in front of the house of Tay Za, the owner of a local airline who is close to Senior Gen. Than Shwe, leader of the junta. The villa had an open garage, with two Ferraris inside, one red and one yellow. "They want money, money, money. And we have nothing," he said. The driver keeps a notebook hidden under newspapers on his dashboard. In it he writes, in Japanese characters, how the government controls gasoline sales to siphon money for themselves. He wants to smuggle the notebook out of the country so foreign media can report on the system. The government limits official gas sales to two gallons a day. To buy more, drivers must purchase black-market gasoline -- obtained by sellers who pay kickbacks to government-appointed filling station managers -- at nearly double the official rate.[Source: Jill Drew, Washington Post, October 24, 2007 \\\]

See Separate Article LOCAL GOVERNMENT, BUREAUCRACY, CRONIES AND CORRUPTION IN MYANMAR

Global Firms and Energy Revenues Prop Up Myanmar's Junta

Sean Turnell, a specialist in Myanmar's economy at Macquarie University in Sydney, told AFP "The fiscal situation should be good," on the basis that earnings from gas supplies should fund government spending. "But they (the military rulers) don't bring money they get from gas properly into public accounts," he said. "These funds are not recorded." [Source: Rob Bryan, AFP, September 28, 2010]

In 2008, the Washington Post reported: “So far, the generals have been able to largely shrug off Western sanctions, by dealing instead with India, China and Thailand, to which they funnel vast stores of natural gas. South Korea's Daewoo International Corp. is partnering with Burma to develop the fields, and Chinese firms, including Sinopec and China National Petroleum Corp., have exploration projects underway in the country. Sales of oil and gas topped $3.3 billion in 2007, with $2 billion in sales of gas to Thailand alone, according to Sean Turnell, a professor at Macquarie University in Sydney. Those funds largely disappeared into the military's parallel universe of separate schools and hospitals, subsidized housing and the multimillion-dollar construction of a remote new capital, Naypyitaw, whose name roughly translates as "abode of the kings." It reportedly includes an artificial beach resort, golf courses and an air-conditioned zoo. [Source: Washington Post, August 16, 2008]

At the time Myanmar’s military regime was cracking down on protesters and arresting and killing monks during the Saffron Revolution protests, AFP reported: “Despite global outrage over Myanmar's bloody crackdown on dissent, multinational firms are still vying for the country's rich natural resources, throwing an economic lifeline to the military regime. US energy giant Chevron, French oil group Total and China's top oil producer China National Petroleum Corporation are among companies giving much-needed income to Myanmar, defying activists' calls to pull out. "All these profits go to the regime. These companies don't care about human rights and what is going on in Yangon," said Debbie Stothard, a coordinator of the Alternative ASEAN Network on Myanmar, a regional pro-democracy body. [Source: AFP, September 30, 2007]

Total has a 31-percent stake in Myanmar's major Yadana project, which would carry gas from fields in the Andaman Sea to power plants in Thailand. The project is jointly run by the state-run Myanmar Oil and Gas Enterprise, Thailand's top oil exploration firm PTTEP, and US firm Unocal, which has been bought by Chevron. Chevron owns a 28-percent stake in the Yadana fields. Japan's Nippon Oil Corp., South Korean's Daewoo International, Malaysia's state-run energy firm Petronas, as well as two Indian power giants, Gail India and Oil and Natural Gas Corp., are also jockeying for billion-dollar contracts.

A Nippon Oil spokesman said, "We see the political situation and energy business as separate matters.” A spokesman for Daewoo, which recently discovered record gas reserves in Myanmar, declined to comment on the clampdown but said: "If South Korea decided to impose sanctions against Myanmar, we would have counterplans for that."

Apart from natural gas, global companies are also seeking Myanmar's teak, forest products, jade, gems, beans and textiles. "China and Thailand are the major buyers of teak and jade. They just want short-term business interests. They don't care about the lives of Burmese people," said Aung Thu Nyein, a Thai-based Myanmar analyst. Neighboring Thailand is the biggest buyer of Myanmar's exports, and Thai firms have also heavily invested in the agriculture and tourism sectors in the military-run country.

Another big neighbor, India, is also flexing its economic muscle. Major state-run infrastructure firm RITES has committed to spending $130 million to develop a port in Sittwe, 560 kilometers (350 miles) west of Yangon. Indian telecom firm TCIL and pharmaceutical company Zydus Cadila are among Indian firms operating in Myanmar. Russia, which has called the crackdown an "internal matter," also announced in May it would help build a nuclear research center in Myanmar.

Sanctions and the Myanmar Economy

The U.S. imposed trade sanctions on Myanmar in 1988, strengthened them in 1996 and banned all imports from Myanmar in 2003 along with a prohibition on new investment and denial of visas to top junta officials as the U.S. moved from broad-based to more targeted sanctions. The sanctions were stiffened after dozens were killed in the Saffron Revolution in September 2007 and included tighter controls on Myanmar exports and the freezing of assets of additional junta members. Each year the sanctions issue came up for a vote before Congress and were passed almost unanimously in both houses by both Republicans and Democrats.

The U.S. banned imports from Myanmar, restricted money transfers, froze assets and targeted jewelry with gemstones originating in the country. The European Union banned weapons sales and mineral imports.

Many argued the U.S. sanctions on Myanmar accomplished little. The move had little impact because Asian companies in countries that didn’t impose sanction did far more business in Myanmar than the United States and U.S. companies that were already in Myanmar doing business at the time the sanctions were imposed were not affected. Japan and countries in Southeast Asia refused to go along with a U.S. effort to coordinate international sanctions against Myanmar.

Alan Sipress wrote in the Washington Post, “While the NLD has endorsed the U.S. embargo, some of its senior members acknowledged that it has not been very effective. "Exports are continuing to increase," said a senior NLD member, who asked not to be named. "India and China will buy anything we sell. They demand a lot of our raw materials and agricultural materials." [Source: Alan Sipress, Washington Post, January 7, 2006 \|/]

“The country's leaders in particular have succeeded in insulating themselves from the sanctions, which diplomats and economic experts in Rangoon said mainly harm smaller businessmen. The military rulers, their families and some business associates still make money, including from taxes and payments on legal trade, the teak cartel and several government-awarded monopolies enriching tycoons close to the generals. The import of automobiles, for instance, is so tightly restricted by these well-connected businessmen that Burmese say a 15-year-old Japanese sedan might sell for more than 20 times its value elsewhere and the supply of mobile phones is so limited that they can cost more than $2,000.” \|/

Economics, China and Myanmar

Alan Sipress wrote in the Washington Post, “Since 2003, China has lowered tariffs on imports of about 230 Burmese commodities. The governments have set a goal of $1.5 billion in official bilateral trade this coming year, an increase of more than a third. China has agreed to invest in several large mines, including two potentially large nickel deposits, and Chinese businessmen are working with Burmese to develop light industries. Burma's newly established capital, Pyinmana, will be powered by electricity from one of several hydroelectric dams China has helped build. [Source: Alan Sipress, Washington Post, January 7, 2006]

Illegal economic activity between Myanmar and China is also thriving . In the north, more than 100 trucks a day haul illegal teak and hardwood to the Chinese border, according to businessmen who said they witnessed the trade.

See Foreign Investment, Industries, Natural gas, Copper Mine

Myanmar: Next Economic Frontier in Asia?

In 2012, the International Monetary Fund delivered a report that said: “Myanmar could become the next economic frontier in Asia if, with appropriate reforms, it can turn its rich natural resources, young labor force, and proximity to some of the most dynamic economies, to its advantage. Delivering on these expectations is already under way.” It cited a number of “key obstacles” that must be put in line with international standards, such as the deposit-to-capital ratio, onerous collateral requirements, administratively set interest rates, and segmented banking activities. These controls and the exchange restrictions led to a large unregulated “shadow financial system,” the report said. Also, “the regulatory treatment of state banks and private banks is uneven, bank governance is poor, and banking supervision does not follow the Basel Core Principles.” In addition, there is no unified national electronic payments and settlement system, although plans are under way to develop the financial infrastructure. [Source: Mizzima News, June 8, 2012 <>]

Richard Sargent of AFP wrote: “But the challenge of turning potential into reality is significant for a nation with a chronic lack of infrastructure and economic imbalances including an informal exchange rate almost 100 times better than the official one. "We have a lot of challenges.... The problem is that even though there is some capacity within the government they lack exposure and they are stymied by the old bureaucratic culture," said Aung Naing Oo, a Harvard-trained Burmese exile academic. Meanwhile investors are clamouring for a toe-hold and firms are bracing themselves for stiff competition to hire skilled workers. "Experienced local workers will have many job opportunities," said Win Aung, president of the Union of Myanmar Federation of Chambers of Commerce and Industry. [Source: Richard Sargent, AFP, February 14, 2012]

Myanmar Seeks Japan’s Help for Economic Zone

Myanmar is considering building an economic zone wth expressways and a deepwater port that can accommodate large vessels. If realized, the economic zone is expected to serve as a distribution hub in Southeast Asia. The Yomiuri Shimbun reported: “Myanmar Finance Minister Win Shein said Tuesday that his nation plans to seek Japan’s support for its project to build a special economic zone, saying, “It is impossible for one nation to prepare necessary funds and technology for the project.” [Source: Yomiuri Shimbun, October 31, 2013]

“For the ambitious Dawei industrial zone, sprawling over more than 200 square kilometers in southern Myanmar near the border with Thailand, Myanmar is considering building expressways and a deepwater port that can accommodate large vessels. If realized, the economic zone is expected to serve as a distribution hub in Southeast Asia. “Foreign companies have pointed out [that building] roads and railways are issues that we have to take on,” Win Shein said. He also touched on the Thilawa special economic zone being jointly developed by Japan and Myanmar on the outskirts of the country’s biggest city, Yangon, and scheduled to open in 2015. “I am expecting the capacity of Myanmar people will be boosted by introducing [Japanese] technology,” he said.

Observers say Japan needs to cautiously decide whether it should provide support to the Dawei special economic zone, a mere concept at this stage. The ambitious plan is to build a zone combining an industrial zone—expected to be one of the biggest in Southeast Asia—and a distribution hub. Under the plan, the production bases of such a wide range of sectors as petrochemical and heavy industries would be amalgamated, while expressways with a total length of 130 kilometers and a deepwater port accommodating large ships at docks would be constructed. The country is eyeing to export products from the special zone to populous nations such as Thailand and Indonesia.

The zone could be an attractive target for Japanese investment, given the cheap labor and the proximity to other Southeast Asian nations, where populations are expected to grow, for exporting goods. In turn, Japan’s investment would “create jobs and transfer technologies” to Myanmar, according to Win Shein. But behind the Myanmar government’s move are armed conflicts with some of its ethnic minorities, a factor destabilizing its domestic political situation. The government reportedly wants to ease dissatisfaction among ethnic minorities by boosting the economy and creating jobs through such large-scale projects. But the plan is merely conceptual at this stage as the country has yet to secure the necessary funds—somewhere around $10 billion. It remains to be seen if the project is economically viable.

Increased Transparency in Myanmar

According to the U.S. State Department: “If Burma is to develop the political economy of a modern, rights-respecting democratic state, the government will have to tackle this nexus with the tools of transparency—auditing, public disclosure, and full accountability for corruption. The Government of Burma has committed to join both the Open Government Partnership and the Extractives Industries Transparency Initiative, both of which will provide opportunities to enhance transparency and ensure broad based development. [Source: U.S. State Department, Human Rights in Burma, February 18, 2013]

Rakteem Katakey of Bloomberg wrote: “Myanmar plans to implement the Extractive Industries Transparency Initiative, which calls for governments to disclose all payments from oil, gas and mining companies, Industry Minister Soe Thane said. “Pressing the button on transparency will help attract major western companies to invest in Myanmar to a certain degree. It shows the willingness of Myanmar’s authorities to fight widespread corruption and provide much-needed regulatory clarity for foreign investors,” said Siddik Bakir, a London- based energy analyst for the Middle East and South Asia at IHS Energy. “Western oil companies interested in Myanmar’s hydrocarbons industry need safety because they know the risks involved.” [Source: Rakteem Katakey, Bloomberg, September 17, 2012]

Aung San Suu Kyi said during a visit to Europe that “transparency is the key” to attracting investments in the oil and gas sector. She cautioned companies from entering into joint ventures with Myanmar Oil & Gas Enterprise, the national oil monopoly, which she said lacked transparency.

But with political and economic reforms private enterprises are often still co-owned or indirectly owned by state. The corruption watchdog organization Transparency International in its 2007 Corruption Perceptions Index ranked Burma the most corrupt country in the world, tied with Somalia.

Image Sources:

Text Sources: New York Times, Washington Post, Los Angeles Times, Times of London, Lonely Planet Guides, The Irrawaddy, Myanmar Travel Information Compton’s Encyclopedia, The Guardian, National Geographic, Smithsonian magazine, The New Yorker, Time, Newsweek, Reuters, AP, AFP, Wall Street Journal, The Atlantic Monthly, The Economist, Global Viewpoint (Christian Science Monitor), Foreign Policy, burmalibrary.org, burmanet.org, Wikipedia, BBC, CNN, NBC News, Fox News and various books and other publications.

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© 2008 Jeffrey Hays

Last updated May 2014

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