A legacy of mismanagement: the state of Burma's

economy
by Mungpi
Mizzima News - A legacy of mismanagement Part I
Friday, 03 July 2009 21:05

Chiang Mai (Mizzima) – With decades of economic mismanagement under

military rule, and presently exacerbated by the global economic crisis,
Burma’s economy is facing serious threats to the extent that some
experts are predicting an impending food shortage in parts of the country.
Meanwhile, the generals who have ruled the country since 1988 say
Burma’s economy continues to grow annually.

To analyze Burma’s economic crisis, its causes and possible solutions,

Mizzima's Assistant Editor, Mungpi, caught up with Sean Turnell, an
Associate Professor in the Economics Department of Macquarie University
in Sydney, Australia. He is a member of Burma Economic Watch, which
has for years produced research papers on Burma’s economy, as well as
author of a recent in-depth publication on the history of Burma's financial
institutions.

Mizzima: Sean, can you briefly explain to us the premise of what your
book says about Burma and its financial evolution?

Sean Turnell: My book, Fiery Dragons: Banks, Moneylenders and

Microfinance in Burma, is the history of Burma's financial system, its
banks, moneylenders and in particular microfinance, which is an area of
some hope. It covers the last couple hundred years and is, in some ways,
a history of Burma's economy.

Mizzima: Burma’s military leaders have said that in the past decade
Burma’s GDP has consistently grown by double digits. Do you think
Burma’s economy is really growing as fast as the generals' claim? How
much do the GDP figures provided by the generals reflect true economic
growth?

Sean Turnell: I think those numbers are wildly inappropriate. Burma's

economy has not been growing at anything like ten percent a year
because if it had Burma would now be quite a wealthy country. Clearly it
hasn't been growing at that level at all. We think it's probably been
growing at one-third of that over the last ten years.

Mizzima: Could you tell us at what rate you think Burma's GDP is currently
growing?

Sean Turnell: Well, we think at the moment it's about zero, but in the past
probably three to four percent. It is very much driven by revenue from
natural gas. Other areas of the economy are in a very bad way, so they're
not bringing in much growth at all. But the gas numbers have definitely
pushed the numbers positive, but not anything like the ten percent
claimed by the regime.

Mizzima: To what degree would you attribute the current estimated zero
growth to the global economic crisis?

Sean Turnell: While it's partly the after effects of Cyclone Nargis last year,
but it is probably overwhelmingly at the moment because of the global
financial crisis and the way it's pushed gas prices, as well as the volume of
gas exported to Thailand, down. Thailand's been slowing as well.

Mizzima: Prime Minister Thein Sein has said Burma has sufficient
employment to see the Burmese population through the global economic
crisis, suggesting that Burma’s economy is surviving the global recession.
How much do you think Burma’s economy is impacted by the global
economic downturn?

Sean Turnell: Burma is not at all avoiding the latest financial crisis and it's
impacting the country in a couple of ways. First of all the gas earnings I
mentioned earlier are way down compared to last year, but also in other
ways. As we know, a lot of Burmese people live outside Burma and send
money home in the form of remittances. All of those numbers are likely to
be way down as Burmese people lose jobs overseas and as their incomes
fall. Also, Burma produces commodities – beans, pulses, rice – for export.
The prices of those are going to be down as well. And finally or course,
Burma attracts a small amount of foreign investment and that foreign
investment is likely to be down too. If we look at the totality of all that plus
the regime's mismanagement of the economy, which is the one constant
feature, then I think we can say that growth is way down this year.

Mizzima: As we know, the generals are earning billions of dollars annually

from the sale of gas and oil. But with the fall in oil prices, how much do
you think the generals' income will be impacted? Do you have any sort of
statistics that may give us a rough idea?

Sean Turnell: The current fall in gas and oil prices and energy prices in
general will have a big impact on the generals' wallets. It might not have
such a big impact on the Burmese economy itself because the generals
don't allow that money to come onshore. So, the people who are most
affected by that part are actually the generals themselves. And the impact
for them will be quite significant. If you look at gas prices at the moment,
they're nearly down by one-half from where they were at their peak in
2007. Plus the volumes that are being exported to Thailand are down a
little bit as well. So, the reduction in revenue earned from gas, which goes
primarily to the generals, will be down by quite a bit.

Mizzima: Can you give us some idea as to the how much the generals are
making from the sale of gas? And how much they might be losing from the
falling price of oil?

Sean Turnell: At the peak, in 2007, the generals earned about 3.5 billion
dollars from the sale of gas. We think that will be down to around the two
billion number. So, you can see it's quite a significant reduction. But
equally, the amount of money they are still taking in is quite significant
too.

Mizzima: With Cyclone Nargis devastating Burma’s main rice production

region of the Irrawaddy Delta, some economists have predicted that
Burma’s economy, or at least the agricultural and rice production sector,
will be badly damaged to the extent that it could potentially cause food
insecurity. Sean, how much do you think Nargis has or will impact Burma’s
economy?

Sean Turnell: Nargis will have a big impact, and in particular in the area of
the delta itself. A lot of people are in a terrible position down there. It's
interesting though, because I think with the broader food shortage issue
it's less to do with Nargis and more to do with some of the institutional
failures more broadly, and in particular the failure to provide rural credit
and the failure to provide a lot of the infrastructure that farmers need. So,
to some extent I think the broader food shortage problem is much more a
long-term problem than it is about Nargis, but certainly Nargis would have
had a massive impact on the Irrawaddy Delta itself.

Mizzima: Do you have an idea as to how much the government is actually

spending, of its own money, to help the regions devastated by Nargis
recover?

Sean Turnell: It's actually very little effort that is being expended by the
Burmese regime on post-Nargis reconstruction. In fact, it seems they're
very much leaving that up to the international community, the
international donors and so on. Again, the exact numbers are difficult to
estimate, but we get a feeling that it is somewhat less than 100 million
(U.S. dollars), so it's less that a-third what the international community
has spent in post-Nargis reconstruction. So, the regime is spending very
little on that and leaving it up to the international community. This is
another way the regime could be using gas earnings in a more productive
way than they are at the moment.
Source Part 1: Mizzima News -
http://www.mizzima.com/edop/interview/2400-a-legacy-of-mismanagement-the-state-of-
burmas-economy.html

A legacy of mismanagement: the state of Burma's

economy – Part II
by Mungpi
Mizzima News – A legacy of mismanagement Part II
Friday, 03 July 2009 21:11

Chiang Mai (Mizzima) – With decades of economic mismanagement under military rule,
and presently exacerbated by the global economic crisis, Burma’s economy is facing
serious threats to the extent that some experts are predicting an impending food
shortage in parts of the country. Meanwhile, the generals who have ruled the country
since 1988 say Burma’s economy continues to grow annually.

To analyze Burma’s economic crisis, its causes and possible solutions, Mizzima's
Assistant Editor caught up with Sean Turnell, an Associate Professor in the Economics
Department of Macquarie University in Sydney, Australia. He is a member of Burma
Economic Watch, which has for years produced research papers on Burma’s economy, as
well as author of a recent in-depth publication on the history of Burma's financial
institutions.

Mizzima: Speaking of a rural credit system in Burma, what sort of system

is currently in place in Burma?

Sean Turnell: Burma's rural credit system has almost totally collapsed. It's
actually in a terrible state. The government has long had a policy of
having just one monopoly provider of rural credit in the form of the
Myanmar Agricultural Development Bank, or MADB, and the MADB is in a
bad way at the moment. It's been decapitalizing over the last few years as
it has made losses and the government has taken a lot of its capital for its
own purposes. So, the MADB is in a bad position. It's very much limited in
the amount in can lend, in both its capacity and in terms of some very
strange regulations the government imposes on it. Most of the problems
of rural finance in Burma are institutional. They're very policy driven. And
we see it very much in the form of the MADB and its problems.

Mizzima: What then needs to happen to again make the rural credit
system operational?

Sean Turnell: There's a lot they could do. But probably the most significant
thing they could do is instead of wasting all that gas revenue at the
moment, why not channel that into the rural financial system –
recapitalize the MADB and perhaps come up with some new institutions
which could combine the insights of microfinance plus the branch network
of a big, state agricultural lender. Many countries around the world have
done similar sorts of things. At the moment, of course, the regime is not
particularly willing to do any of that.

The absence of rural credit in Burma and what is almost the

disappearance of cash in the rural economy has very profound
implications, both in the short and long term. In the short term you've got
farmers who aren't able to get access to credit and thus not using
fertilizer, not making repairs and not engaging in ways that could make
their farm practices more productive. So that means that production is
lower. In the short to medium term, then, we can expect the output of
food to be lower than what it would otherwise be. And this, of course,
raises the specter of food insecurity and so on. In the long term there are
several serious effects such as land degradation. Of all the things that
farmers need to do anywhere in the world to keep their farms up to
international best practices, none of that is taking place in Burma. There's
no real investment for the future in terms of increasing productivity.
Whether we look at the short, medium or long run, this is a profoundly
important issue that is really holding Burma back and will continue to do
so into the future.

Mizzima: If the money's not going to infrastructure development and rural

credit systems, where is it going? How much is being spent on military
hardware?

Sean Turnell: Well, the military expenditure of the regime of course is

extreme. Roughly fifty percent of government expenditure is on the
military in various dimensions. Gas revenue is mostly kept offshore, kept
in bank accounts in foreign currency, in order for the regime to do things
like buy military hardware. Also to invest, to some extent, in building
things in Naypyitaw and other projects like that. But certainly it's not
being used in very productive ways and I think that probably the way in
which it's being most used by the regime – we don't know precisely what
the numbers would be – but it would seem that most of it is ending up in
the form of military equipment in some way.

Mizzima: Again, turning back to the political aspect, do you think

economic reforms are possible without reform to the political system or, at
least in the short-term, without real change within the regime?

Sean Turnell: No. I think economic reform in Burma will require dramatic
political change because if we look at the problems with Burma's
economy, most of the problems stem from the fact that there is no rule of
law or property rights. The sound financial and other institutions you need
for a prosperous economy are simply not there. And the fact they are not
there is a direct extension of the nature of the government itself. I don't
see any hope for profound economic reform coming till there is at least
some degree of political reform.

Mizzima: As we have seen time and time again, the junta has blamed
Western sanctions for any economic degradation to Burma's economy. Do
you think sanctions are actually to blame for much of the damage to the
Burmese economy?

Sean Turnell: Not at all. Burma's poverty is overwhelmingly a result of the

regime and its policies as well as the lack of the sound institutions I
mentioned earlier. The fact is they spend so much money on the military
instead of on the various ways they could make Burma more productive.
Those are the real issues. In a sense what they do when they focus on
sanctions in that way is divert tension over what the real issue is. It's also
interesting to reflect that the true sanctioneron Burma in any case is not
really the Western countries who are imposing the sanctions directly, but
in fact it's the government itself by their creating an economic
environment in which no one would be willing to invest. That's the real
problem. That's the real problem in terms of foreigners investing in and
trading with Burma. Of course, it's also a real barrier to Burmese
themselves in conducting productive activity.

Mizzima: Officially the Burmese currency, the kyat, trades at six to the
U.S. dollar. However, in practice the real rate of exchange is closer to
1,100 kyat to the dollar. Can you explain to us any significance to this
gross disparity?

Sean Turnell: Burma's dual exchange rate has a number of effects on the
Burmese economy. Firstly, it's an interesting symbol just of, again, the
bizarre economic policy making and the absence of an economy that's
functioning in the way we'd expect. A nearly two-hundred times difference
creates a degree of uncertainty and sends a signal I think to the
international economy and international investors that Burma's economy
is not functioning in ways we might expect and want. Also, of course, it
raises the specter of corruption. For instance, if one was able to access
currency at the official rate of six to one, then you could make incredible
profits by then selling to the market at 1,100 to the dollar. So, there's an
obvious inflation incentive there. But above all, it distorts the economy,
focuses the mind of people away from productive activity and instead into
ways of trying to make their way through the system and through this
labyrinth of strange laws and strange outcomes.
Source Part 2 – Mizzima News
http://www.mizzima.com/edop/interview/2401-a-legacy-of-mismanagement-the-state-of-
burmas-economy.html