Lack of growth and international recognition is due to power hungry generals who want to stay in power.
- From: "labour" <twenti@xxxxxxxxxxxx>
- Date: Tue, 5 Apr 2011 21:14:19 -0700
April 1, Irrawaddy
Can Burma's new government deliver economic growth? - Naing Ko Ko
Shortly before handing over power to a new hybrid military-civilian
government, Burma's ruling junta released its budget for the fiscal year
that begins today. Now that the country has ended more than 22 years of
direct military rule (albeit with a government whose cabinet consists almost
entirely of ex-generals), many are wondering what this transition will mean
for one of the world's least-developed economies.
Will it, for instance, launch a period of double-digit growth in both the
medium- and longer-term, such as we have seen in other parts of the region?
And will it allow Burma to rejoin with the international economic and
political system?
Unfortunately, strong growth is unlikely to occur unless the public sector
is able to play a greater role in the market mechanism and citizens are
given the freedom to participate in the decision-making process. Burma has
stagnated economically because its economic, political and legal systems
have experienced zero innovation for decades. The chances of Burma joining
the mainstream global economic order are slim, as it remains heavily
dependent upon its agricultural sector.
Although the Burmese junta has produced a budget for 2011-12 and installed a
new regime, it has done nothing to strengthen market-friendly economic
institutions. The rule of law remains extraordinarily weak, the free flow of
merchandise, people and services is still hindered by arbitrary regulations,
and there is no effective foreign exchange system, making Burma an
unappealing destination for foreign direct investment.
The regime is not alone in its short-sightedness. During the 2010 election
campaign period, only two out of 37 parties-the All Mon Regional Democracy
Party and the National Unity Party-declared their economic and international
trade policy. Surprisingly, none of those 37 parties have officially
declared their policies particularly on economic growth, international
trade, or fiscal and monetary policy. No political party advocated an urgent
need for private-sector development, small and medium enterprises, and free
and fair market competition. Thus, lacking economic ideas and policies from
its politicians, Burma won't achieve economic growth in the short or medium
terms even if a new political regime is established.
Burma' economic growth has stagnated at around 2.5 percent, despite slightly
higher growth in some sectors-particularly exports of gas, timber and
fishery products to Thailand, China and India in the 2009-10 fiscal year.
The government relies heavily on primary goods exports to neighboring
economies for revenue. Moreover, recent privatization schemes have merely
reinforced cronyism, rather than acting as a structural adjustment program.
On top of that, excessive spending on non-productive activities-such as the
construction of tunnels with North Korean assistance, the building of a new
capital, and other expenditures aimed at cementing the military's hold on
power-underpin a huge budget deficit and fiscal imbalance.
With respect to its monetary policy, Burma has multiple exchange rate
systems which don't fit into the international trade and economic order.
Burma badly needs a sound monetary policy and needs to adjust an official
exchange rate regime. The Central Bank of Myanmar must stop printing paper
money in order to control the 34 percent rate of inflation and increase the
value of the currency, the kyat. Empirically, Burma's multiple exchange
rates-the "normal exchange rate," "market rate," "hotel rate," "custom
rate," and "foreign exchange certificates"-have created a market distortion
that is inefficient and unproductive.
Although Burma's official exchange rate is pegged at between 5 and 6 kyat to
the US dollar, the real exchange rate fluctuated between 985 and 1,110 kyat
to the dollar in 2010, according to The Irrawaddy's research department. Of
the various rates in use, the market rate fluctuated the most. In early
2011, this widely used rate moved between 800 and 900 kyat to the dollar.
The new regime urgently needs to overhaul its monetary policy and develop
financial innovation in order to gain foreign investment and economic
growth.
With regard to international trade, Burma has a relatively less restrictive
trade regime and is a member of Asean Free Trade Area and World Trade
Organization. According to the World Bank's 2009-10 World Trade Indicators
report, Burma ranked 121st out of 148 countries on the General Agreement on
Trade and Services Commitment Index regarding the extent of its commitment
to trade liberalization in services. Its international trade relies heavily
on border trade with neighboring countries, and its major export
products-gas, gems and forest and fishery outputs-are not environmentally
sustainable and not competitive in the longer term. Thailand purchases 40
percent of Burmese exports, while China, India and other members of the
Association of Southeast Asian Nations buy most of the rest.
In stark contrast to Thailand and other Southeast Asian countries, Burma's
tourism industry makes a negligible contribution to the country's economy,
due mostly to changing visa regulations, monitoring of tourists and a
multiple exchange-rate regime.
With regard to technology, research and knowledge creation, Burma is
apparently an intellectually impoverished economy. The quality of education
and research is not in good shape. It cannot produce talented human
resources for a competitive labor market. According to the United Nations
Development Program's Human Development Index (HDI) report released in
November 2010, Burma ranked 132 out of 169 countries and spent just 0.6
percent of GDP on the education sector and 0.2 percent on health care. Burma'
HDI ranking is even lower than that of Cambodia, Laos and Vietnam.
In summary, the prolonged existence of a command economy has not favored
Burma's economic growth and well-being. Underdeveloped private sector
participation discourages robust economic activities and growth. The utter
lack of policy development from politicians and the absence of know-how
technology and knowledge management mean that Burma will definitely not
achieve double-digit growth in the medium term, particularly in 2011-12,
although the export of primary raw materials to energy-hungry neighboring
economies will remain strong. Burma's economic growth will only emerge after
the country has a truly democratic government capable of addressing the
weaknesses in the current system and with the political will to implement
major reforms.
Naing Ko Ko is a graduate student studying political economy in New Zealand.
.
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