EARLY ECONOMIC HISTORY OF MYANMAR
Historically, Burma was the main trade route between India and China since 100 B.C. The Mon Kingdom of lower Burma served as important trading center in the Bay of Bengal. After Burma was conquered by British, it became the wealthiest country in Southeast Asia. It was also once the world's largest exporter of rice. It produced 75 percent of the world's teak and had a highly literate population.
According to Michael Adas, Ian Brown, and other economic historians of Burma, Burma's pre-colonial economy in Burma was essentially a subsistence economy, with the majority of the population involved in rice production and other forms of agriculture. Burma also lacked a formal monetary system until the reign of King Mindon Min in the middle 19th century. Land was technically owned by the Burmese monarch. Moreover, exports, along with oil wells, gem mining and teak production were controlled by the monarch. Burma was vitally involved in the Indian Ocean trade. Logged teak was a prized export that was used in European shipbuilding, because of its durability, and became the focal point of the Burmese export trade from the 1700s to the 1800s. [Source: Wikipedia +]
During British occupation, Burma was the second wealthiest country in Southeast Asia after the Philippines. It was also once the world's largest exporter of rice. During British administration, Burma supplied oil through the Burmah Oil Company. Burma also had a wealth of natural and labor resources. It produced 75 percent of the world's teak and had a highly literate population. The country was believed to be on the fast track to development. +
History of Land Tenure and Property in Myanmar
According to Countries and Their Cultures: “In areas under Burmese rule, land traditionally was held on the basis of service to the court and could be leased or sold and passed on to one's heirs; it also could be taken away by the court. In more remote areas, land ownership tended to be related to continual cultivation and occupancy. Under the British, private ownership became widespread in the central areas and a system of land taxation was introduced in which failure to pay property taxes could result in the loss of land. Before World War II, in the southern delta area absentee ownership of productive land was widespread. In the central area, agricultural land tended to be in the hands of small-scale owner-producers. Shortly after independence, the government passed a land nationalization act that was intended to turn land owned by wealthy landlords over to those who worked the land. However, that act was not implemented. A second act passed in 1954 met with only partial success. [Source: Countries and Their Cultures everyculture.com~*~]
“The revolutionary government that seized power in 1962 nationalized the larger commercial and manufacturing establishments, including those of Indian traders. This created a large black market economy as people attempted to circumvent government control of commerce. The revolutionary government attempted to remove the landlord class and turned all land over to peasant producers while retaining ultimate ownership for itself. In practice, agricultural tenancy was not eliminated, and producers had the added burden of state intervention. After 1988, the government allowed a greater role for the private sector and foreign investment. While these reforms have allowed greater private ownership, considerable insecurity remains among those who own property. ~*~
Burma-Myanmar Economy Under the Generals
Burma was the world's largest rice exporter when it won independence from Britain in1948. After more than four decades of unbroken military rule it is now one of Asia's poorest countries The Washington Post reported: “Sixty years ago, Burma was among the wealthiest countries in Southeast Asia, outshining its neighbors with higher standards of living and greater social mobility. Its universities attracted students from across the region, and its rich stock of natural resources promised steady growth. But decades of mismanagement by military rulers who have kept as tight a grip on the economy as on their political power have sent the country to the bottom of regional and global rankings -- among the worst for poverty, health care and corruption. The education system has been deliberately weakened in response to students' anti-government organizing, and virtually all avenues to prosperity are controlled by senior generals. [Source: Washington Post, August 16, 2008]
Hannah Beech wrote in Time, “Although the generals have been adept at political repression, their record on economic management is abysmal. In 1987 a former regime leader demonetized Burma's currency, wiping out the savings of millions, and introduced new bank notes that were divisible by the number 9 simply because he considered the digit auspicious. Things haven't gotten much better since then--even though Burma is blessed with lucrative natural resources like natural gas and timber. Obsessed with its own survival, the junta spends 40 percent of the nation's annual budget on the 450,000-strong army while 90 percent of the population lives near or below the poverty line. Inflation is more than 30 percent. A fuel hike last month led to a tripling of bus fares on some routes, leaving many commuters unable to afford their ride to work. "At this rate, even a meal every day might become a luxury," says housekeeper May Oo, who now spends 60 percent of her salary on her daily bus ride to and from Rangoon. The hardships are made more unbearable by a widening wealth gap. The country's military leaders are enjoying ever more ostentatious lives, their wallets fattened by gas-pipeline deals with neighbors China, India and Thailand. [Source: Hannah Beech, Time, September 17, 2007]
Burmese Way to Socialism
Ne Win quickly took steps to transform Burma into his vision of a 'socialist state' and to isolate the country from contact with the rest of the world. A one-party system was established with his newly formed Burma Socialist Programme Party (BSPP) in complete control. Commerce and industry were nationalized across the board, but the economy did not grow at first if at all as the government put too much emphasis on industrial development at the expense of agriculture. In April 1972, General Ne Win and the rest of the Union Revolutionary Council retired from the military, but now as U Ne Win, he continued to run the country through the BSPP. A new constitution was promulgated in January 1974 that resulted in the creation of a People's Assembly (Pyithu Hluttaw) that held supreme legislative, executive, and judicial authority, and local People's Councils. Ne Win became the president of the new government. [Source: Wikipedia]
After a parliamentary government was formed in 1948, Prime Minister U Nu embarked upon a policy of nationalization. The government also tried to implement a poorly thought out Eight-Year plan. By the 1950s, rice exports had fallen by two thirds and mineral exports by over 96 percent. A coup d'état in 1962 was followed by an economic scheme called the “Burmese Way to Socialism,” an isolationist policy that nationalized all industries and promoted self-sufficiency. Military officers took over these companies, as well as many civil service positions.
Ne Win, the socialist military dictator who was behind the 1962 coup also was the mastermind of "the Burmese Way to Socialism." The catastrophic program accelerated the process of turning a resource-rich country into an economic basket case. A few years after the program was started Burma had to import food to keep it population from starving
Ne Won believed that economic progress threatened the Burmese way of life. His policies were similar to those of North Korea. Private businesses were nationalized, property was sized, entrepreneurship was discouraged and foreign investment dried up. Inefficiency, corruption and black marketing characterized the economy. Between 1962 and 1988, the Burmese government for all intents and purposes bankrupted the country. The business class shrunk due to decades of socialist policies. In the late 1980s Ne Win suddenly declared the currency worthless and replaced it with denominations such as 45 and 90 divisible by nine—his lucky number. Riots and unrest followed that left hundreds dead and triggered the Aung San Suu Kyi-led pro-democracy movement.
Impact of the Burmese Way to Socialism
The "Burmese Road to Socialism” allowed Myanmar’s military to take over the nation’s economy. Mismanagement that led to chronic inflation and near economic collapse by the late 1980s sparked mass protests that came close to overthrowing the government at that time. After the failed street uprising in 1988, there were limited moves toward liberalization. But today, according to the Washington Post, “ the government remains heavily involved in the economy, with military officers heading most state enterprises, often as a reward for political loyalty. A handful of enterprises known as "crony" companies for their closeness to the junta benefit from policies that promote monopoly. [Source: Washington Post, August 16, 2008]
Bertil Lintner wrote in the Washington Post, “As such delusions of grandeur suggest, Burma is no ordinary military-ruled country. When the army first seized power in 1962, the country underwent a transformation entirely different from that of nearby countries such as Thailand, South Vietnam, Indonesia and Pakistan where the military was also in control. “That's because the Burmese army seized not only political but also economic power. What the generals branded "the Burmese Way to Socialism" meant that most private property was confiscated and handed over to military-run state corporations. The old mercantile elite, largely of Indian and Chinese origin, left the country -- as did many of Burma's intellectuals. Before the 1962 coup, Burma had one of the highest living standards in Southeast Asia and a fairly well-educated population. Afterward, its prosperity fled along with its best and brightest.\> [Source: Bertil Lintner, Washington Post, September 30, 2007 \>]
“The Burmese Way to Socialism was abolished after a massive pro-democracy uprising in 1988, following years of misrule. At the time, even larger crowds than last week's took to the streets in Rangoon and other cities to vent their frustrations with a cruel regime that had done nothing to improve the lives of ordinary people. Then as now, soldiers were sent out to disperse the demonstrators, but using far deadlier force than we've seen in the current crisis. At least 3,000 people were gunned down by an army bent not on seizing power but on shoring up a bankrupt regime overwhelmed by popular protest. \>
Demonetization and Worthless Money in the 1980s
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. +
Economy Under the Military Junta in late 1980s and 1990s
After 1988, the regime retreated from totalitarian socialism. It permitted modest expansion of the private sector, allowed some foreign investment, and received much needed foreign exchange. The economy is still rated as the least free in Asia (tied with North Korea). All fundamental market institutions are suppressed.
At the time the military regime took power in 1988, the economy was in an extremely bad shape, having suffered severe declines for three consecutive years from 1986 to 1989. The government took urgent reform measures in an effort to halt the decline, spur a recovery and stabilize the economy in the period from 1989 to 1992. As soon as a measure of economic stability were restored, a Short Term Four Year Plan (1992-1996) was formulated with special focus given to the enhancement of production, especially in agriculture and export industries. There was some growth but inflation was high. [Source: The Ministry of Foreign Affairs, Myanmar]
Inflation ran between 30 and 45 percent a year in the 1990s. The government printed money to pay soldiers and bureaucrats. The prices of essentials such as rice and cooking oil have risen dramatically. Food prices rose 400 percent between 1988 and 1995. The Minister of trade told Reuter, "The uprisings and demonstrations that took place in 1988 were mainly because of economic difficulties."
According to official statistic the economy in Myanmar grew 10.9 percent in 1994, but analysts estimate that a more accurate figure was probable 4 or 5 percent. Growth in fiscal year 1993-94 was 6.0 percent. In 1994-95 it was 7.5 percent. In 1995-96 it was 9.8 percent.
Economic Reforms in Myanmar in the 1990s
In early 1990s, the military government of Myanmar introduced market reforms. Like China and Vietnam, it tried to introduce market economy reforms while keeping a repressive government. Small-scale capitalism was “tolerated.” Foreign investment was welcomed albeit with strings attached.
The economy improved somewhat in the mid-1990s. Some expensive hotels were built and new office buildings were erected. But for the most part the reforms seem to have only made the rich richer; little money trickled down to the ordinary people. Aung San Suu Kyi said, “I would like to know exactly what the recent economic developments have done to the country...I want to know what all this is doing for the ordinary people."
The manager of a mini-mart that sold frying pans, pens and canned food, told National Geographic. "Until two years we had nothing. People prized even paper clips. In our hearts we beg for democracy, but people enjoy too what is allowed now."
The government of Myanmar formulated a Five Year Plan spanning 1996 to 2001 with more specific targets, priorities and strategies. Average annual growth rate in real terms of Gross Domestic Product was targeted at 6 percent. During 1996-97, the GDP grew by 6.4 percent. The financial crisis in Asia in 1997-98 resulted in a 5.6 percent reduction of foreign investment, But overall Myanmar was less impacted by the crisis than other Asian nations. Growth was 4.6 percent in 1997-98. By 1998/99, the economy bounced back, with growth of 5.7 percent. [Source: The Ministry of Foreign Affairs, Myanmar]
Exports and imports increased during 1988-89 and 2000-2001, with an increase from $320 million to $1.97 billion for exports and an increase $541 million to $2.48 billion for imports. Myanmar’s trade was mainly with Asian countries. In 1998-99, trade with Asian countries accounted for 71.9 percent of total exports and 93.9 percent of total imports.
Economic Decline in Myanmar the Late 1990s
By the late-1990s, the economy was near collapse as result of mismanagement, sanctions, runaway inflation, and a lack of foreign investment. Industries like tourism and textiles were sluggish. There was growing government deficient, shortages of energy supplies, and shortages of foreign exchange.
Sanction were placed on Myanmar by a number of countries after Aung San Suu Kyi was imprisoned in 1996. Many foreign investors pulled out after only a couple years and new investment didn’t materialize. Total foreign investment in 1998-99 fiscal year was $30 million, just five percent of the total the year before. In addition to the sanctions, investors were put off by the fact that their Burmese partners often muscled them out if the businesses were profitable.
Construction slowed because builders could not pay their workers. Professionals, intellectuals and technocrats fled the country for opportunities outside Myanmar. In the summer of 1996, the government banned nonessential imports and foreign capital from flowing out of the country. This generated a lively black market. Runaway inflation continued. Aung San Suu Kyi told Time, “The inflation rate is absolutely incredible. That's what people are talking about all the time.
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 ><]
Economic Hardships and Banking Crisis in the Early 2000s
In the early 2000s inflation was running at 60 percent, foreign investment had largely dried up and the value of the kyat quickly lost its value against the dollar as the government printed more money. Foreign currency exchange was so unstable that money changers in Yangon closed their doors. A bus driver told the Observer, “Everything has doubled in price: a scale of rice, a cup of tea, even clothes—it’s all so expensive...My son starts school in the autumn and I’ve been saving for months to buy his uniform. Now I can’t afford it because the cost has gone up but my wages have stayed the same,
While this was happening the Myanmar government was boasting of economic growth of 10.9 percent in 1999-2000 and formulated a third five-year short term plan (2001-2006) with an eye to future economic growth and a targeted average annual growth rate of 6 percent.
Myanmar experienced a banking crisis in the early 2000s that it never really recovered from. Three banks completely collapsed and policies by the Central Bank, such as recalling loans from borrowers, made the situation worse. The state of the economy sometimes seem to guided by what was happening to Aung San Suu Kyi. When she was released in May 2002, the value of the kyat shot up 30 percent.
In February 2002, the economy went through a crisis when account holders withdrew money from Myanmar’s 20 private banks after the collapse of about a dozen private financial institutions. In March2003, there was another, more serious run on the banks. This time it was prompted by a statement by the governor of Myanmar’s central bank that there was nothing to worry about, with of course people taking this mean that clearly there was something to worry about. So many people tried to withdraw their money that the government had to limit withdrawals from bank accounts to around the equivalent of $1,000.
The 2003 banking crisis is believed to have been the result of the collapse of some shady schemes. All the news wasn’t bad. According to government figures inflation fell from 54 percent in 2002 to 8 percent in 2003 due to a banking crisis. Myanmar’s ability to grow was hampered by China’s ability to attract most of the foreign investment that flowed into Asia.
Hike in Fuel Prices in 2005
In October 2005, Alan Sipress wrote in the Washington Post, “without advance notice or explanation, the government slashed fuel subsidies, hiking gasoline prices by nine times, and then boosted bus fares by as much as five times, forcing many day laborers to stay home rather than look for work. "We can't understand the reasons," said a man named Aung, who works for a foreign company. "Who suffers? Only the ordinary people, the office workers, government workers, gardeners. Inflation is tremendous. Our money is worthless." [Source: Alan Sipress, Washington Post, December 28, 2005]
The escalating fuel prices have stoked inflation, now running as high as 40 percent annually, up from about 10 percent a year ago, according to statistics compiled for a Western embassy. U.N. agencies report that malnutrition, rural landlessness and school dropout rates are all on the rise. "People are suffering. But they can't complain. Good or bad, people have no right to say anything," said a Burmese businessman. Yet Rangoon's markets still teem. Store shelves are heavy with cheap goods from China and Thailand. Crowds of peddlers, hawking shoes, shortwave radios and pirated software, make the sidewalks a maze, and the narrow aisles of the traditional meat and vegetable markets are clotted with shoppers.
“Aware that a rice shortage could spark unrest, the government has invested heavily in dams, reservoirs and pump stations for irrigation, directing farmers about five years ago to raise two crops annually rather than one. Rice exports are also regulated. As a result, the staple is widely available and, in recent weeks, the price has dropped.
In 2005, the Myanmar government said the inflation rate was 10 percent, far lower than the 53 percent calculated b the United Nations’ regional economic organization.
Myanmar Economy in the Late 2000s
Inflation dogged the Myanmar economy through the 1990s and 2000s. Inflation averaged 30.1 percent between 2005 and 2007. Between 2005 and 2009 the annual inflation rate in Myanmar averaged 20 percent, according to the Asian Development Bank. Sean Turnell, a specialist in Myanmar's economy at Macquarie University in Sydney, told AFP rampant increases in consumer prices were largely a result of the government's habit of simply printing more money to fund its spending.
In April 2007, the National League for Democracy organized a two-day workshop on the economy. The workshop concluded that skyrocketing inflation was impeding economic growth. "Basic commodity prices have increased from 30 percent to 60 percent since the military regime promoted a salary increase for government workers in April 2006," said Soe Win, the moderator of the workshop. "Inflation is also correlated with corruption." Myint Thein, an NLD spokesperson, added: "Inflation is the critical source of the current economic crisis."
China and India attempted to strengthen ties with the Myanmar government for economic benefit while many nations, including the United States and Canada, and the European Union, imposed investment and trade sanctions on Burma. The United States banned all imports from Burma. Foreign investment came primarily from China, Singapore, South Korea, India, and Thailand.
Economic Hardships That Sparked the Saffron Revolution Protests in 2007
In August and September 2007, there were large anti-government protests in Myanmar that brought 100,000 people into the streets of Yangon and resulted in a crackdown that left dozens dead and over 3,000 people were arrested. The unrest began with protests over a sudden hike in fuel prices.
In February 2007, Jonathan Head of the BBC reported, “a small group of around 25 people attracted little attention at first in the crowded Rangoon market. Then they brought out home-made posters, and began shouting. Their complaints seemed innocuous enough. "Down with consumer prices," read one poster. "We want 24-hour electricity," read another. They pointedly avoided saying anything critical about Burma's military government. That did not spare them. Nine were rounded up and jailed, accused of acting "totally against the law". They were later released, but they had touched a very raw nerve. Though small, these were the first street protests seen in Rangoon for at least a decade. And they highlighted the growing economic distress that was beginning to push huge numbers of Burmese families to the brink of destitution - distress caused by the government's incompetence.[Source: Jonathan Head, BBC, October 2, 2007 ><]
“Towards the end of 2006, prices of basic commodities began rising sharply in Burma. Rice, eggs, and cooking oil all went up by around 30-40 percent. For a population that on average spends 70 percent of its income on food, this was very difficult to absorb. It is not clear why this happened, but the inherent distortions and rigidities in the military's economic management can easily lead to sudden bottlenecks in the supply and prices of basic necessities...A decision to raise admittedly paltry civil service salaries by up to 1,200 percent in 2006 did not help either, although civil servants could scarcely survive on salaries that sometimes fell below $3 a month. ><
“Then came the rise in fuel prices on 15 August. There was no warning. Gas prices rose by 500 percent, and diesel - which more or less powers everything in Burma, from transport to the essential generators - doubled in price. The impact was immediate. People could not afford to go to work, and the increased cost of transport started pushing food prices even higher. Within days activists were out on the streets in protest. When they were arrested, the monks - who can accurately measure economic distress by the food put into their begging bowls every morning - took their place. ><
“Like so many decisions made by the reclusive generals, the sudden hike in fuel prices is hard to fathom. The IMF had advised weaning the population off subsidised fuel, because with rising world oil prices it was becoming an unsustainable burden for Burma, which although rich in natural gas, relies on imports for almost all of its refined petrol and diesel. But it is unlikely the IMF would have supported such a dramatic, and unannounced price rise. ><
“At the time some speculated that perhaps the generals were trying to provoke an uprising, to see who their enemies were. But their ubiquitous intelligence networks would surely already have that information. More likely it implies they did not understand the shocking economic impact the move would have. ><
“Living in a privileged, parallel world, Burma's armed forces are virtually a state within a state, subject to none of the chronic economic insecurity that afflicts the rest of the country. Many of the generals have become immensely rich - the video of the wedding of senior general Than Shwe's daughter, dripping in diamonds worth many millions of dollars, is testimony to that. Secluded in their luxury villas in Naypyidaw, cut off from the squalor of Rangoon and other towns, Burma's military rulers probably had no idea that their clumsy decision would cause such immediate economic pain - that thousands would override their fear of the soldiers, and come out to join the monks on the streets.” ><
Myanmar Economy in 2009 and 2010
In 2009, the Washington Post reported: “The current crisis grew out of protests against an overnight fuel price hike of 66 percent. As the generals and their allies raked in higher profits from exports of oil and natural gas, they rationed fuel supplies for everyone else. Under strict government quotas, private vehicles are allowed 2 gallons a day in the country's principal city, Yangon, while those in Mandalay, the second-largest city, receive half that amount. Drivers who can afford to are turning to the black market. There they can buy as much as they need, at just over $2 a gallon, 75 percent above the government-set price. Sharply higher fuel costs are driving up inflation, which is the highest in Asia at more than 35 percent, according to the International Monetary Fund. [Source: Washington Post, August 24, 2009 ||||]
On the eve of parliamentary elections in November 2010, Rob Bryan of AFP wrote: “There have been some shifts in the economic landscape ahead of the election, with the junta instigating a spate of privatisations of state firms and properties. Along with these sell-offs of assets including ports, factories and cinemas, four conglomerates on international sanctions lists and run by junta-friendly tycoons have been given licences to start up new banks. Sean Turnell, a specialist in Myanmar's economy at Macquarie University in Sydney, told AFP that the cronyism apparent in these recent developments suggested the country was "drifting in a really strange direction away from a totalitarian system into one that works like a semi-criminal economy". [Source: Rob Bryan, AFP, September 28, 2010]
After the parliamentary elections in November 2010, Associated Press reported: “Myanmar's military rulers have moved quickly to attract investors, declaring that the isolated country is open for business. Myanmar Prime Minister Thein Sein gave a rare speech at a regional summit in the Cambodian capital Phnom Penh to promote the country's business credentials and trumpet plans for an investment-friendly regulatory framework. "We encourage participation from the private sector," Thein Sein told leaders and business executives from Vietnam, Cambodia, Thailand and Laos packed into a conference room. "We are creating a pro-business environment in order to work together to get much more business and investment in the region."[Source: AP, November 18, 2010]
In 2011, Reuters reported: “Dollars are pouring into Myanmar's fragile and largely opaque economy, with foreign investors keen to tap its vast resources and visiting traders buying up gemstones. But most of that money ends up lining the pockets of cronies of the military dictators who controlled the country for decades. [Source: Aung Hla Tun, Reuters, July 22, 2011]
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.
© 2008 Jeffrey Hays
Last updated May 2014