Thursday, October 25, 2007

Burma -- a failed state compared to neighbours

By Myat Soe September 21, 2006

Burma, an impoverished and underdeveloped country, has suffered from decades of internal political disputes, low levels of foreign investment, lack of technical expertise, ruling regime’s xenophobia, and its political schizophrenia. Due to these, Burma has been left behind in every sector when compared with other neighbouring countries. All social services in Burmaa, including the country’s health and education systems, have suffered terribly for over 40 years of military rule. Basic infrastructure has been neglected; priorities are decided and funds allocated based on an ideology which has all the hallmarks of the military - rather than according to real need. If truth were told, long-term economic mismanagement under the military rule has not permitted the economy from developing in line with its potential. Even thought the generals always claim that significant growths have been achieved in Burma, the country still remains a poor Asian country with no improvement of living standards for the majority of the population over the past decade.

As reported by the Fund for Peace, Burma has been defined as a failed state, and the country is in danger of collapse. As indicated by the source, the country is ranked according to twelve social, economic, political, and military indicators, including economic decline and inequality, demographic pressures, war, and corruption. A failed state is defined as “one in which the government does not have effective control of its territory, is not perceived as legitimate by a significant portion of its population, does not provide domestic security or basic public services to its citizens, and lacks a monopoly on the use of force.”

On the other hand, the regime’s Prime Minister Soe Win claimed on July 21, 2006 that the economy grew by 13.6% in the fiscal year (FY) 2004, and the country’s gross domestic product to 19 percent in the 2006-2007 fiscal years, up from 17.5 percent last year. However, the regime’s economic statistics are unavailable or very unreliable. The number might actually come out from skyrocketing inflation and the use of natural resources. One of the recent regime’s initiatives is to sell Burma’s large natural gas, but the economic growth in general could not be sustained given existing patterns in the use of natural resources.

Also, since GDP is measured in Kyats, they have a serious problem when they want to track the change in output over time. The problem is that the value of the Kyat to purchasing power is itself changing. As prices have risen over the years, the value of the Kyat has steadily fallen. Trying to keep track of the GDP using Kyats in different years is like trying to keep track of a child’s height using a ruler whose length changes each year. The regime’s statistics were reported in nominal terms, not in real term. . For example, one of the main causes for continued sluggish growth is the large trade deficit. All citizens in the country are relying on foreign products. Burma’s imports are always greater than exports. We won’t see this large deficit in the regime’s statistics because of the great volume of black market trading. The distinction between nominal and real values is crucial in macroeconomics. Whenever we want to track significant changes in key macroeconomic variables, such as GDP, the average wage rate, income, or any of its components, the economists use real variables. According to the Economist Intelligence Unit, there are increasing signs of a pick-up in economic activity, but there is still little evidence to support the junta’s claims that the economy is growing at double-digit rates.

In actual fact, the ADB (Asian Development Bank) reported in the recent years that an assessment of economic development in Burma is handicapped by incomplete information and deficiencies in the reliability of data. Inflation appeared to rise to double-digit rates in 2005. Significant improvements in economic performance are unlikely in view of structural weaknesses in domestic policies, which include the monetization of fiscal deficits and a dual exchange rate. In deed, a major ongoing problem is the failure to achieve monetary and fiscal stability.

Moreover, Burma had experienced a severe banking crisis. Before 1997, there were 43 foreign bank offices in Burma. Now, 22 foreign banks remain in Rangoon. A majority of foreign bank representative offices have withdrawn from Burma due to lack of credibility and confidence on government’s financial policies. The World Bank has approved no new lending for Burma since 1987, and has no plans to resume its programme. The country is currently in arrears to the World Bank, and has failed to enact economic and other reforms. Burma became a member of the International Monetary Fund (IMF) and World Bank in 1952, the International Financial Corporation (IFC) in 1956, the International Development Association (IDA) in 1962, and the ADB in 1973. Since July 1987, the World Bank has not given any loans to Burma. Since 1998 Burma has been in non-accrual status with the Bank. The IMF performs its mandated annual Article IV consultations, but there are no IMF assistance programmes.

Burma's total foreign debt now stands at over $ 6 billion. The debt is too low if the Burmaa compares with other neighbouring countries. However, no financial organization will approve lending for Burma if the regime is in power. The international community, financial institutions, and foreign investors do not trust the regime’s policies and commitments toward its own citizens. It is true that the real problem and solution for economic growth in Burma is “regime itself”.

(The writer Myat Soe is Research Director of Justice for Human Rights in Burma. He graduated from Indiana University, and earned his MBA from Indiana Wesleyan University.)

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