Burma Economy

A great deal of economic activity in Burma is unrecorded. Some analysts believe the informal economy is larger than the formal economy. This gray economy includes private banking networks, smuggling, barter trade, unrecorded agriculture production, corruption, and illicit activities, such as narcotics production. Burma remains one of the world's largest producers of opiates and amphetamine-type stimulants. Narcotics production and trafficking plays a major role in the economy. Money laundering is also common.)
Naturally Rich But Undeveloped and Impoverished
Burma (Myanmar) is a poor but resource-rich country with a population estimated by the government at about 52 million. After decades of poor governance, Burma has not developed to its potential. In fact, Burma's economic position relative to its neighbors has weakened considerably under the past four decades of military rule. Agriculture and natural resources extraction dominate the economy, accounting for 60 percent of GDP. Most of the population is rural and living at a subsistence level. The World Bank has estimated annual per capita income at about $300 (based on 1997 figures), though the GOB has sometimes claimed that it is over $3000, a figure repeated by the WTO (i.e., $3657 for 1997) at the May 2001 Least Developed Countries (LDC) Conference in Brussels.

Despite moderate growth throughout the past decade, economic gains have not been shared by the majority, which continues to live in severe poverty. According to studies conducted by the World Bank, nearly 23 percent of Burma's population lives below minimum subsistence levels. Only 40 percent of its inhabitants have access to safe water. Average life expectancy is 60 years; infant and maternal mortality remains high by developing country standards. UN agencies have found that nearly 40 percent of children are malnourished and HIV/AIDS is a serious problem throughout the country. Furthermore, the government dedicates few resources to social services, and has slashed health and education budgets significantly in the past 10 years in real terms. In 1999, the World Bank found that state spending on education is among the lowest in the world, equivalent to 28 cents per child annually. In June 2000, the World Health Organization (WHO) determined that Burma ranked second to last among 191 nations surveyed in quality of health services. The World Bank concluded there is a silent emergency in Burma, and that deprivation on this scale will undoubtedly have long-term repercussions.

Government Role in the Economy

Military Junta Tightly Controls Economy
Burma is governed by a military dictatorship that tightly controls the economy. While some market reforms have been adopted over the past decade, many aspects of the economy are still controlled by the state. The State Peace and Development Council (SPDC) governs by fiat. Policy decisions are not based on the rule of law but are determined according to the generals' whims. There is no press freedom or right of assembly. Economic policy is often determined based on strategic, military factors. The state bureaucracy is resistant to change and slow to make decisions.

While Senior General Than Shwe is the ultimate chief and arbiter, in the past few years General Maung Aye, the Vice-Chairman of the SPDC, has assumed a prominent role in economic policy. Regarded as a hard-liner, General Maung Aye oversees the Trade Policy Council, an extra-ministerial committee that determines trade and economic policy. In addition, two military corporate entities, Myanmar Economic Corporation (MEC) and Union of Myanmar Economic Holdings Ltd. (MEHL), have expanded their reach into both strategic and profit-making sectors, and are assuming a key role in the manufacturing sector.

The SPDC's military intelligence apparatus, led by Secretary-One Lt.-General Khin Nyunt, is extensive. Directorate of Defense Services Institute (DDSI) personnel often track and monitor the private sector as well as diplomatic personnel. Businesses operating in Burma should expect to be monitored closely by military intelligence.

In the past few years, the ruling generals have turned increasingly towards crony capitalism, rewarding personal friends and family members with preferential treatment. Certain companies close to the junta, designated as the "national entrepreneurs," have been given special import permits and preferential lending. State economic enterprises and the military holding companies also benefit from official favoritism. Special favors include preferential tariff rates and customs duties; preferred access to natural resources; monopoly privileges in certain lucrative areas of commerce and industry; special considerations in the issuance of licenses and permits; subsidized prices for land, buildings, petrol and diesel, gas, electricity and water; preferential exchange rates; and preferential treatment on government contracts.

The government monopolizes international trade in certain key commodities, such as rice. Internally, some commodities remain subsidized and some are rationed. Highly negative real interest rates and an undeveloped banking system deter business activity. The government also periodically intervenes in the foreign exchange market by detaining currency brokers to prop up the Burmese kyat.

The SPDC has run chronic state budget deficits, which have contributed, to rapid monetary growth and chronically high inflation. In FY 00/01 the state budget deficit was expected to amount to 7.9 percent of GDP. No budget has been released at all in FY 01/02.

Wasteful consumption and expensive capital outlays with dubious returns have added to inflationary pressures (i.e., lots of money chasing after a limited supply of goods and services, fueling price rises). In addition, inefficient and loss-making state-owned enterprises, energy shortages which disrupt production, a volatile local currency that is chronically weak, ad hoc administrative measures restricting trade and currency transactions, and endemic corruption that adds to the cost of business have all contributed to chronically high inflation rates.
Foreign Economic Relations
Burma's foreign economic relations reflect the xenophobic preferences of its military government. Believing in the virtues of a self-sufficient economy, and fearful of the impact of western sanctions, Burma's government has tended to avoid external connections. Where it has developed those connections, it has focused primarily on other regional states, including, in particular, China, Japan, Korea, India, Bangladesh and the ASEAN states.
International Aid
Most foreign aid ceased in the wake of the suppression of the democracy movement in 1988. It now represents less than one percent of GDP. According to the IMF, official grants totaled $259 million in 1997/98 and $99 million in 19998/99. Burma largely receives grants of technical assistance (mostly from Asia), limited humanitarian aid from Japan, and concessional loans from China and India. In 2000, Japan announced plans to significantly boost ODA aid to Burma, including $28 million to refurbish (in stages) the Baluchaung dam.

Burma became a member of the IMF and World Bank in 1952, the International Financial Corporation (IFC) in 1956, the International Development Association (IDA) in 1962 and the Asian Development Bank (ADB) in 1973. There have been no World Bank loans to Burma since July 1987. Since 1998 Burma has been on a non-accrual status with the Bank, with $25 million in overdue payments as of June 1999. The IMF performs its mandated annual Article IV consultations. Apart from limited technical assistance to improve statistics collection, there are no IMF assistance programs. The ADB has so far provided 32 loans totaling $530.9 million for 28 projects. All the loans have been closed. Burma has not paid its loan service payments to the ADB since January 1998. As of June 1999, overdue payments amounted to $28.7 million. While the ADB has not processed loans to Burma since 1988, it sends periodic consultative missions there. Burma's total foreign debt now stands at $5.9 billion.

Economic Integration
Burma is involved in the Program of Economic Cooperation in the Greater Mekong Subregion. As such, it participates in regional meetings and workshops supported by the ADB's regional technical assistance. In addition, the other IFI's and the United Nations Development Program are maintaining closer coordination. Burma joined the Association of Southeast Asian Nations (ASEAN) in 1997, and has eagerly participated in that regional forum, even hosting a number of seminars, symposia and conferences. Due to difficulties in reforming its economic and trading system, Burma has requested extensions on compliance with the upcoming ASEAN Free Trade Agreement (AFTA). As one of ASEAN's least developed members, Burma also has an extra 5 years (until 2008) to comply with most of AFTA's liberalization requirements. Burma is also a member of the WTO and the Bangladesh, India, Myanmar, Sri Lanka and Thailand Economic Corporation or BIMSTEC.

Major Trends and Outlook

Economic reforms have stagnated since the mid-1990's. The SPDC has continued to exert a heavy hand in the economy with a policy turning increasingly inward. In the past six years, significant backtracking on earlier progress is evident. The concepts of laissez faire, open markets, transparency, accountability and freedom of information are alien to the ruling generals. Thus, under the current regime, there are unlikely to be any reforms that substantially loosen the government's command and control over the economy. Meanwhile corruption is rising and the benefits of the market economy have not been widely shared. As legitimate local and foreign business experience growing difficulty in this environment, there has been a noticeable shift to business conducted in the unrecorded sector, as smuggling and the laundering of narcotics proceeds become more prominent.
Major Reforms Needed

Burma's economy suffers from major macro-economic imbalances. As reported by the IMF, the World Bank, and other noted economists, a series of key reforms and the improvement in the quality of statistical data and their availability are sorely needed. The international financial institutions (IFI's) have recommended that Burma: a) adopt a single market-determined exchange rate, and abandon its inflated official rate; b) urgently cut military and state deficit spending while upgrading investments in human resources; c) create an independent central bank to rein in the money supply and get a handle on inflation; raise bank interest rates; d) initiate sound governance that will include a predictable regulatory environment and effective taxation policies; e) privatize state enterprises and break up private monopolies; and f) attack corruption and introduce transparency into the largely covert system.
Local Markets Depressed
Rampant inflation, a chronic foreign exchange shortage, and significant local currency depreciation have all worked in concert to depress local markets. Embassy surveys estimate that FY 00/01 inflation was about 18.5 percent. This is lower than inflation recorded in the mid to late 1990's, but still high by any standard. Natural gas exports to Thailand began to produce some hard currency revenue, but far less than originally anticipated. In addition, the government was not able to export much rice, despite plentiful rice stocks, due to the depressed world commodity market, an inefficient state monopoly that includes inadequate storage capacity that affects the quality of the rice, obsolete milling machinery and domestic price controls that disadvantage farmers. Despite a crackdown on currency brokers, the Burmese kyat has become increasingly unstable, plunging in value during the first half of 2001. In the past three years, the black market value of the kyat has fallen by more than half to approximately 600 kyat to the dollar -- 100 times the official government rate of about six kyat to the dollar.
Less Transparent, More Corrupt

Over the past few years, the government has adopted a more secretive and less transparent posture on the economy. In the past three years, the government published few economic figures. Even the annual budget for FY 01/02 was not released this year. However, it appears the senior leadership has succumbed to its own propaganda. At the May 2000 ASEAN Economic Ministers' meeting in Rangoon, Secretary-One Lt. General Khin Nyunt announced that in FY 99/00 Burma had achieved robust GDP growth of 10.5 percent. This figure is more than double what the international financial institutions have predicted, and cannot be explained in any rational way. Moreover, at the May 2001 Third United Nations Conference on the Least Developed Countries in Brussels, Minister for the Ministry of National Planning and Development U Soe Tha announced that in FY 00/01 Burma had achieved a robust GDP growth of 13.6 percent. Finally in a June article of the New Light of Myanmar, the GOB said the GDP growth rate will be 11.3 percent for FY 01/02.
Crony Capitalism Prominent

Perhaps as a means to assert some control over the private sector, the SPDC has adopted business policies that favor a few, select local companies. Termed the "National Entrepreneurs," these companies are said to be contributing to building the nation. Three years ago, a number of construction firms that had been involved in real estate were given large tracts of virgin or "unreclaimed" land to develop on 30-year leases. At the time, the SPDC hoped to raise agriculture production by increasing farm acreage, rather than by addressing the perennial problem of low yields. The "entrepreneurs" were given special import permits for vehicles, equipment, and whatever else they needed. When these companies complained about the high cost of credit, the SPDC lowered bank interest rates nation-wide and instructed private banks to lend them money. Not surprisingly, late last year, 18 corporations were chosen to develop a beach resort area called Ngwe Saung off of Burma's southwest coast, and received the inevitable favored treatment. While the government has long controlled, rationed and subsidized fuel imports, in April 2000, petroleum import rights were given to four local companies who are free to charge market prices. The result of this deliberate policy of corporate favoritism is to create a business environment in which personal connections to the generals, rather than business skill or technical merit, are the most important factors for corporate success.
Policy of Self Reliance and Military Control

The SPDC adheres to a policy of self-reliance that has had limited success. Since reforms stopped and economic growth began to slow in the latter half of the 1990's, the SPDC has tried to pursue an import substitution policy, but, in fact, the ruling generals' whims tend to override all other considerations. Thus the GOB has been largely unresponsive to the concerns of foreign investors, local businesses and the needs of the populace. Even when the governments of favored countries like Singapore and Japan pleaded for a transparent and predictable business environment, the SPDC took little action. When bilateral relations with Thailand worsened in early 2001, the SPDC closed the land borders (as it did in 2000) and banned the import of several Thai products. For a host of reasons, many foreign companies have found they cannot conduct business successfully here. Japanese companies such as Ajinomoto, Toyota and All Nippon Airways (ANA) have withdrawn from Burma during the past 18 months when they found they could not operate as they had originally been led to believe. Several foreign companies have reportedly had their assets seized and business interests taken over by Burmese partners, both military and private.
Gap Between Rich and Poor Widens

At least in the socialist period everyone appeared to be equally poor. Since some large fortunes have been made in the past decade, conspicuous consumption by an urban elite aggravates the growing gap between rich and poor. Now the rich have become "filthy rich" while the poor and middle class struggle along. Inflation averaging 30 percent throughout the 1990's has eroded economic gains for most. Government salaries have become so out of touch that even after last year's five-fold wage increase, civil servants complained about eroded incomes and prospective inflation. Due to the limited buying power, many local businesses report they are struggling to stay afloat. The recent precipitous fall in the value of the kyat has added to everyone's woes by fueling accelerated inflation. High inflation remains a major economic problem, though the GOB claims that it is now in the single digits.
The Policy Environment
Policy shifts in Burma tend to be ad hoc, capricious and inconsistent. In the past two years, the government has tried to collect more foreign exchange, stabilize the kyat, tighten imports and remittances, counter some corruption and bring down food prices.

The GOB seems especially obsessed with securing foreign exchange, but its restrictive policies are inevitably counterproductive. Measures taken in the past two years include a) an eight-fold rise in electricity charges; b) an increase of up to 2000 percent in international parcel post rates which are now levied in hard currency; c) a failed attempt in February 2000 to force overseas workers to remit 50 percent of their earnings back to Burma; d) the levying by the Ministry of Finance and Revenue of a ten percent tax (eight percent commercial tax and two percent income tax) on exports in foreign exchange; and e) the requirement that foreigners as well some local businesses pay their utilities such as electricity and telephone charges in foreign exchange.
New Ad Hoc Restrictions Imposed
In June 2001, due to the kyat's continued weakness, the GOB placed new restrictions on foreign currency transactions. The government withdrew all foreign exchange licenses and reissued them to trusted business cronies and banned (and then revoked) the transfer of funds between foreign exchange accounts. The GOB also halted the issuance and renewal of most passports, viewing travelers as a potential drag on its scarce hard currency reserves.
Gasoline Rations Cut
Due to severe fuel and hard currency shortages, the GOB reduced gasoline and diesel quotas from three to two gallons per day, effective May 1, 2001. The GOB's subsidized prices for gasoline and diesel are 180 kyat and 160 kyat per gallon respectively. The average market rate was 480 kyat per gallon for diesel and 420 kyat per gallon for gasoline. However, on the black market, prices have since surged to 900 kyat per gallon for gasoline and 700 kyat per gallon for diesel. Thus the costs for basic goods and transportation have also risen.

Vehicle Imports Banned

Vehicle imports have been banned officially since 1996, but exemptions are granted to friends and relatives of the regime. As a result, a large secondary market in used cars and car parts has sprung up. The price for scarce import permits is reported to be about ten million kyat or about $25,000. As a result of these restrictions and perverse incentives, there has been a tendency to import only luxury vehicles, especially fully-loaded four-wheel drives such Pajeros and Land Cruisers.
Bank Interest Rates Cut
In April 2000, the Central Bank cut interest rates from ten percent to nine percent for savings, despite an inflation rate then in the range of 45 percent. The lending rate was dropped from 15 percent to 14.5 percent. This monetary policy adjustment was made to prime the economy by encouraging bank lending to the "national entrepreneurs," as well as to reduce the cost of government borrowing.
Government Salaries Boosted
Government salaries for civilian and military personnel were raised by an average of 500 percent in April 2000. This has been the first government wage increase since 1993. Nonetheless, workers complain that the new wage rates remain inadequate to provide for a family. Embassy estimates a minimum salary of 45,000 kyat per month is required to support an urban family of five. Rumors circulated in March 2001 that another salary increase for civil servants was in the offing at the start of the new fiscal year (i.e., 1 April), but it never materialized.

MAJOR SECTORS
Agriculture Production and its Exports

Agriculture, livestock and fisheries and forestry comprise fully 60 percent of Burma's economy. Due to favorable weather conditions, the agriculture sector grew 10.5 percent in FY 2000/01 according the GOB data. Burma remains primarily a rice growing country, with total paddy production in excess of 20 million metric tons. The growth in output is due entirely to a considerable increase in the seeded area. Burma's rice, due to its inferior quality, has difficulty competing in the world rice market, especially against Vietnam, which also exports a huge amount of "25 percent broken" rice like Burma. Despite weak global demand, Burma's rice exports in CY 2000 amounted to 158,861 metric tons (and 27,190 metric tons of paddy), an increase of 180 percent compared to CY 1999's 56,705 metric tons. In 2000, Bangladesh was Burma's largest rice importer, but Singapore and Malaysia were also important buyers of superior quality rice. However, depressed world commodity prices resulted in lower sales prices and a decrease in overall export revenues. The state continues to monopolize rice exports.

Pulses and beans production has shown strong growth over the past decade. As a result, pulses and beans became Burma's number one export earner in FY 2000/01. FY 2000/01 exports of 639,100 metric tons were valued at 1,280 million kyat, destined primarily to India and the surrounding region.

To increase the productivity of the overall agricultural sector, the government has tried to increase the area under cultivation, and yields per acre. However, while crop area was expanded, yields have remained stagnant. The price of inputs, such as fertilizer and diesel fuel to run irrigation pumps, is also beyond the reach of most farmers. In addition, the government continues to exact a quota of all paddy production at below market rates, and monopolizes trade in key sectors. Lack of affordable agriculture credit and fertilizer also prevents farmers from making the kinds of investments necessary to increase yields. The SPDC's policy of turning over large acreages to favored corporations for corporate farming makes the system even more inequitable.
Fisheries
With extensive private sector and some joint venture participation, fisheries showed rapid growth in FY 99/00. With 2,830 kilometers of coastline and a continental shelf area of 229,500 square kilometers, Burma is a natural for fisheries development. There are over 378,648 hectares of mangrove area and many broad littoral zones along the coastal strip, which provide good opportunities for aquaculture production, particularly shrimp farming. Shwe Ayeyar Co., Ltd. and Regal Integrated Marine Resources Ltd. signed a memorandum of understanding on the shrimp farming project at Kan Maw Island, in the Tanintharyi Division on May 2, 2001. It is reportedly the largest foreign investment project in the livestock-breeding sector. The development of shrimp culture industry has been gaining momentum in Burma since 1998, and spread rapidly along the coastal zone. In FY 99/00 government data claimed over 130,000 acres of fishponds, a dramatic increase from a decade earlier. Prawns and fish products were the number two export earner in FY 99/00, bringing in 762 million kyat, according to official data. With the addition of cold storage and modern production facilities, Burma is now able to export fish to much of the world
Forestry
Forestry continues to be an important earner of foreign exchange for the GOB. Burma still boasts some of the world's last remaining teak and hardwood forests. The state officially controls most timber exports. Due to a lack of processing facilities, Burma
tends to export whole, uncut logs, which are processed elsewhere. Teak and hardwoods were the third and sixth largest export earners last year. In 2000, 29,505 metric tons of teak logs were sold through tender sales amounting to $36 million. Private sector exports of forestry products, including wildlife, amounted to $53 million. Forestry production officially showed negative growth in the past two years. However, illegal logging is reportedly booming. Despite an official ban on timber exports through the border, many logs are trucked to China and Thailand.
Manufacturing
Manufacturing and processing, which accounts for 6.5 percent of GDP, grew 15.4 percent in FY 99/00, according to official figures. While state economic enterprises still dominate this sector, new growth has been primarily in garment manufacturing, which has boomed in Burma over the past five years as companies have relocated to Burma to avoid U.S. and Canadian quota restrictions. Burma's garment exports – 90 percent of which go to the United States – doubled in 2000 to more than $400 million and – barring the application of new U.S. trade sanctions or increased consumer boycotts – will probably rise to more than $600 million in 2001.

Growth of Burma's manufacturing sector is limited by several factors, including the dominance of inefficient state enterprises. Given the poverty of the majority of Burma's population, it is difficult to expand any consumer products marketing beyond the limited urban elite.

Industrial Zones
There are 18 Industrial zones in Burma, including eight in Rangoon and two in Mandalay. Large, medium and small industries have to be registered with the Ministry of Industry 1 or Light industry. The industrial parks in Rangoon and Mandalay have small, medium and large-scale industries while those in other parts of the country only have small-scale industries. These industrial zones have basically the same types of factories encompassing ice making, shoes, textiles, timber, plastic, pipes, flour and paper mills, electronic assembling, traditional medicine, tailoring, paints, iron ropes, marine products, corrugated sheets, rubber, furniture, bottled and canned soft drinks including mineral water and breweries, etc.

Energy Sector

While rich in natural resources, Burma has not tapped its energy resources sufficiently to meet its consumption needs. According to official data, energy (including mining) constituted only 0.7 percent of GDP in FY 99/00. Yet, this sector recorded impressive 84.2 percent growth in FY 99/00 and 66.5 percent in FY 00/01, according to official records.

Two major offshore natural gas fields are now being developed by two international consortia. The Yadana field, with about 6 trillion cubic feet of natural gas, has been developed by a consortium led by UNOCAL and Total. It now produces about 600 million cubic feet per day of gas for export to Thailand. The Yetagun field, which was discovered by Texaco, but developed by a consortium led by Premier Oil, now produces about 100 million cubic feet per day of gas for export to Thailand. Barring any change in contract terms, that total should rise to about 260 million cubic feet per day by 2002 and 400 million cubic feet per day by 2004. As a result of these developments, natural gas has become one Burma's largest export earners, annually bringing in between $350 million and $400 million in hard currency earnings.

Burma's onshore energy supplies of crude oil and natural gas are declining rapidly. Production of crude oil fell to 3.7 million barrels in the past decade, and the economy relies increasingly higher cost imported petroleum and diesel fuels. Reliance on independent diesel generators is the rule rather than the exception in Burma's nascent manufacturing sector. A discovery of oil and natural gas in the vicinity of Nyaungdon in the Irrawaddy delta has added to local production in the past 18 months. The lack of a reliable supply of electricity severely limits the development of the manufacturing sector and is cited as a major deterrent to doing business by current potential investors.
Services
Services, which account for 7.7 percent of GDP, are still largely undeveloped. While the introduction of private sector banking in the 1990's has contributed to a large increase in bank deposits, the government announced that no new private bank branches could be opened after May 2000. Money laundering is endemic in the banking system. There may be room for some growth in providing both computer and educational services to the urban elite and even to the aspiring quasi middle class, since these needs are not being met by the government.
Hotels and Tourism
Both the public and private sectors invested heavily in hotels and tourism in the 1990's, but the sector appears overbuilt and future prospects look bleak. The number of tourist arrivals to Burma has been flat for the past few years. According to statistics issued by the Ministry of Hotels and Tourism, the number of tourist arrivals slipped in FY 00/01 to 113,940, compared to FY 99/00's 196,000, again far below the GOB's goal of 500,000. By nationality, Taiwanese and Japanese are the most prevalent tourist arrivals, followed by French, Thais, Germans and Italians. Rangoon now supports 12 international hotels, but all have occupancy rates far below international norms. (They hover below 40 percent). The consensus is that the myriad of barriers tourist face (e.g., stringent visa and currency procedures, and restricted access to several areas), consumer boycotts in many Western countries, and EU and U.S. sanctions are all serious deterrents to further development of the tourist sector.

Balance of Payments
(Note: For the purposes of analyzing external accounts, the Embassy has relied on IMF figures based on GOB data. The GOB did not publish annual figures in the past three years and continues to record accounts in kyat based on the highly overvalued official exchange rate whereas the IMF has compiled its figures using a U.S. dollar base. Burma's national accounts are subject to distortion based on the use of multiple exchange rates.)
Trade

According to the FY 99/00 IMF balance of payments schedule, recorded imports fell 6.5 percent to $2.5 billion in FY 99/00. Recorded exports increased by 1.7 percent to $1.1 billion. The trade deficit narrowed marginally to $1.4 billion. The SPDC continues to exert strict controls on trade, although smuggling in both directions is rampant. A significant amount of hard currency also comes from the drug trade, which largely consists of opium and amphetamines.

Burma's principal recorded exports in FY 99/00 were pulses and beans (17 percent), teak logs (10 percent), dried prawns and fish products (8 percent), rice, sesame, hardwoods, maize, rubber and other agricultural projects. Unrecorded exports smuggled across the border included teak, live animals, gems and jade, rice, and narcotics. Burma is one of the world's leading producers and suppliers of opiates, and heroin and metamphetamines are major unrecorded export earners. Banking sources estimate that annual export earnings from narcotics range from $400 - $500 million. Top recorded imports in FY 99/00 were machinery and transport equipment, base metals and manufactures, electrical machinery, edible oils, pharmaceuticals, rubber products, condensed milk and other food products, chemicals and fertilizers.

The overwhelming majority of Burma's international trade is conducted within Asia, including Japan. Burma continues to have large trade deficits. In FY 99/00, Burma's largest sources of legal foreign earnings were bean and pulse exports (mostly to India), rice (last year mostly to Bangladesh) and garments (mostly to the U.S.). In FY 00/01, however, natural gas exports (mostly to Thailand) also emerged as a major foreign exchange earner. In FY 99/00, Burma's top four trading partners were unchanged from the previous year: Singapore ($883m), China ($400m), Thailand ($394m) and Japan ($322m). South Korea ($262m), Malaysia ($255m), and Indonesia ($140m) followed them. Besides being Burma's largest import market, Singapore remains its largest investor. India remains the principal export market. The U.S. ranks tenth in Burma's import market and eighth in its export market, according to GOB figures. The U.S. mainly imports garments and exports machinery and tools to Burma. Burma's exports to the U.S. are dominated by garments and textiles, which grew 45 percent in calendar year 1999 (to $186 million) and doubled in 2000 (to $403 million).
Services and Transfers
According to the latest IMF figures for FY 99/00, net services income increased to $229 million and net private transfers declined to $469 million. As a result, the current account deficit decreased to $710 million. The primary source of private transfer income is remittances from Burmese workers abroad. Up to one million Burmese nationals are estimated to be working in Thailand. The 48,000 registered Burmese seamen also bring in significant foreign wages.
Capital Account

According to the latest IMF figures for FY 99/00, on the capital account, official grants totaled $76 million. Net long-term capital showed an outflow of $128 million. Disbursements totaled $129 million while repayments due amounted to $257 million. Foreign direct investment inflows decreased by 49 percent to total only $304 million. Burma relied on short-term financing of $312 million, an increase in arrears of $214 million, and drawing down foreign reserves by $54 million to finance the overall deficit.
Debt
The IMF estimated Burma's total foreign debt at $6 billion at the end of FY 99/00. Bilateral debt to Japan stood at $2.6 billion, amounting to 43 percent of total debt. Multilateral debt was $1 billion, or 18 percent of total debt. Debt to private creditors, including suppliers' credits, totaled $994 million, or 16 percent of total debt. In 1998 Burma ceased making regular debt payments on its multilateral loans. In September of that year the World Bank placed Burma in non-accrual status for mounting arrears. At the end of FY 99/00, it was estimated that Burma had outstanding arrears to Japan totaling $96 million. Traditionally, Japan has extended humanitarian assistance in the form of grant relief for debt paid. However, earlier this year, Japan announced that it would provide Burma $28.3 million to repair the Baluchaung dam, its first major non-humanitarian assistance since its suspension of such aid in 1988. This came in the wake of grants this year amounting to about $7 million for medical equipment for Yangon General Hospital and for a water supply project in the Shan State. While Burma's overall foreign debt is reasonable for an economy of its size, foreign reserves are chronically in short supply. The ratio of external debt to exports was 5:1. Net foreign reserves were reported as $242 million, equivalent to barely two months of import cover.
Infrastructure
Human Resources Neglected

The SPDC has tragically neglected the education of its young people. Due to the junta's paranoia about possible student-led civil unrest, Burma's universities had been closed for the past three and one-half years, with a few minor exceptions. Despite the SPDC's claims that the number of universities has more than doubled in the past decade, few of these facilities are open, and most have been relocated far from urban centers. Over 400,000 students are waiting in a queue to enter the university system. To get rid of the backlog, the university school year has been reduced to three weeks of class and three weeks of exams, which are apparently readily available for sale. All this will seriously undermine the value of higher education and the credibility of future degree holders.

In addition, public primary and secondary education has deteriorated considerably since the onset of military rule in the 1960s. This has accelerated since 1988, as the SPDC has slashed real spending on education and health. UN agencies have found that nearly 40 percent of children never enroll in school and two-thirds to three-quarters of Burmese school children drop out before reaching fifth grade. Primary school enrollment has declined in recent years as the result of rising formal and informal school fees. A number of parents complain that many school teachers, who are usually severely underpaid, demand daily "contributions" which cumulatively could amount to a month's wage for most of them.

Given the junta's disregard for education, it will be impossible for Burma to compete with other modern economies.
A Dilapidated Physical Infrastructure
Telecommunications

A serious impediment to modernization is Burma's outdated communications systems. Burma is one of only four countries in the world that does not allow public access to the Internet. Moreover, the switching systems for Burma's land lines are so inadequate that it is often impossible to complete a local phone call. Official figures indicate there are 185 persons per telephone in Burma. Few telephones have international direct dial (IDD) access. CDMA phones were introduced in 1996, at the cost averaging $1500 per phone. Authorities regularly monitor communications.

Last year, the Ministry of Post and Telegraphs (MPT) took over all e-mail services in the country, shutting down the few private providers that had been offering this service. MPT is now offering the Internet, or rather Intranet, to a select group of pre-cleared, high-paying customers, but this service will not be made available to the general public.
On March 16, 2001, MPT officials announced that GSM phones were operational and should be available to the public later this year. Last year, the GOB also said that GSM would be ready in May, and then November 2000, but nothing happened. According to MPT, each phone would cost about a half a million kyat (about $1000 at 500 kyat per dollar), and tariff rates would be two kyat and four kyat per minute for incoming and outgoing (local) calls respectively. Given the SPDC's extreme paranoia about the free flow of information, it is unlikely that there will be any major liberalization of the telecommunications sector under this regime.

Courier Services

Only one international courier service, DHL Myanmar, is allowed to operate in Burma. DHL delivery is routinely intercepted and opened by customs authorities causing a delay of two to three weeks.
Legal System
Burma's legal system and procedures are based on British colonial law and thus belong to the common law legal family. Almost all the criminal, civil, corporate and commercial laws stem from British rule. The latest law regarding the judiciary is the judiciary law, which was promulgated on June 27, 2000. (It has since been amended.) Based on that law, the SPDC constituted the Supreme Court (1 Chief Justice, 2 Deputy Chief Justices and a minimum of 7 judges to a maximum of 12 judges) with primarily military personnel. The Supreme Court sits in Rangoon and Mandalay and if necessary, at any other appropriate place. Under the Supreme Court are the Chief Court, the State or Divisional Courts, the District Courts and Township Courts, with the powers of civil and criminal jurisdiction.

In practice, the judiciary is largely not independent. It has to obey the orders of the SPDC in adjudicating cases. The SPDC usually appoints as Chief Court Judges only those who are loyal to the regime. In short, the Chief Justice and the Attorney General usually comply with the "unlawful" decrees of SPDC.

Lawyers cannot defend their clients independently, especially in cases where the State has a special interest. As such, judges do not allow a free defense in "policy cases" and decisions are predetermined by the SPDC. The SPDC exhibits special hostility towards lawyers. This is reportedly due to the regime's view that lawyers initiated and aggravated the momentous riots of 1975 and 1988. In essence, it is difficult to ensure fair treatment of citizens under the law because the military junta has vested itself with the three key powers of the State: the judiciary, the executive and the legislative.
Insurance
Until 1997, Myanmar Insurance, also known as Myanma Insurance Enterprise, a state monopoly, was the only authorized life and general insurance company in Burma. However, with a view ostensibly towards developing a more competitive insurance market, the government issued the Myanmar Insurance Business Law (No 6 of 1996) and Myanmar Insurance Rules (Notification No 116 of 1997) on June 24, 1996 and June 26, 1977, respectively. Unfortunately, the Insurance Business Supervisory Board which was empowered to introduce the 1997 reforms, proved ineffective. As a result, only one license was issued under the new law to the Myanmar Economic Corporation. MEC quickly formed Myanmar International Insurance Corporation (as an insurer) and Myanmar International Insurance Services Corporation (as an insurance broker).

Most general insurance products are available from either Myanmar Insurance or Myanmar International Insurance Corporation. However, policy issuance can take many months. Moreover, the quality of the insurance cannot be guaranteed. If the indemnity is to be in a hard currency, both Myanma Insurance and Myanmar International Insurance Corporation will only front the policy and the reinsurer – the identity of whom is often unknown - is responsible for 100 percent of the cover. A number of unauthorized international insurance brokers operate in the local market. They are friends and relatives of the military, but lack technical know-how and international experience.

Most foreign businesses now elect to arrange their insurance cover outside Myanmar.
Since the middle of 1998, there has been an alarming decline in customer service at both Myanmar Insurance and Myanmar International Insurance Corporation. It is not uncommon for either insurer to decline to pay claims without assigning any reason.
There is no consumer protection body to which grievances can be taken to for relief. As Myanma Insurance is owned by the state and the Myanmar International Insurance Corporation is owned by the military, a policyholder's position is very weak in the event of any dispute over a claim.
Airports and Ports
The government claims to have four international airports: Rangoon, Mandalay, Bago, and Tachileik. The newly constructed $150 million airport in Mandalay (it was opened last September) has primarily handled domestic traffic. However, it is far out of town and the cost of ground transportation is prohibitive for most locals. There is also only one paved access road to the airport. The government is currently building a new airport near Bago, called the Hanthawady Airport, destined to service Rangoon. Meanwhile, Japan has provided assistance to upgrade the existing runway at Rangoon International Airport.

A modern but little used container port was constructed several years ago outside Rangoon at Thilawa. The Asia World Corporation has upgraded the Rangoon port at Ahlone. A number of navigable rivers, including the Irrawaddy, give access to upper Burma. The top generals have announced plans to make the northern river port town of Bhamo an international container port, which would offer a means to transport Chinese exports from Yunnan province to the Andaman Sea.
Airlines
Three domestic airlines operate in Burma: joint ventures Air Mandalay (6T) and Air Yangon (HK) and the national carrier, Myanmar Airways (UB). Due to general safety concerns regarding Myanmar Airways, including three fatal air crashes in the past two years, the U.S. Embassy has advised its employees to avoid travel on this carrier whenever possible. Myanmar Airways, which serves 20 domestic airports, suffered a 37 percent decline in passengers (from 612,000 to 386,00) and a 20 percent rise in cargo (from 2730 tons to 3240 tons) between 1995 and 1999. Myanmar Airways is in the process of buying five used aircraft at cost of $7.7 million from Airlift, Aircraft Sales, Leasing and Charter of the U.K. The sale involves three Fokker F-27-600 and two Fokker F28-400. This deal comes in the wake of Air Mandalay's (a privately owned domestic and international carrier) acquisition of a third aircraft and Yangon Airways' (the other private, but domestic airline) six-month lease of a third aircraft, both in October 2000. Some observers see this purchase as an attempt by the GOB to improve Myanmar Airways' disastrous safety record, which is partly responsible for the plunge in ridership.

Singapore's Region Air took a 49 percent stake in Myanmar Airways International (MAI), effective January 1, 2001. MAI serves Bangkok, Hong Kong, Singapore and Kuala Lumpur, using two Boeing 737-400's with a capacity of 146 seats. Region Air will supposedly provide management, marketing, accounting, cost control, and technical and operational management. So customers should expect improved service and the airline should enjoy increased operational efficiency and perhaps profits.
Roads, Dams and Bridges

The SPDC has put great effort into upgrading Burma's roads, dams and bridges. Official statistics show the SLORC/SPDC has built more than 18,000 miles of road, about 122 dams (there are now 287 dams) and 130 bridges in the past decade.
Given the junta's lack of access to IFI lending, this infrastructure upgrade was accomplished by relying on internal resources, including public sector deficit spending and uncompensated rural labor. Despite improvement, overall infrastructure remains extremely poor and is a major impediment to economic expansion and distribution of goods and services. The SPDC has encouraged the private sector to develop infrastructure as well. For example, Asia World resurfaced the Lashio-Muse highway leading to the China border, and upgraded Ahlone port in Rangoon.
Railways
Official figures indicate Burma has 3,798 miles of rail tracks, 330 locomotives and over 3,519 wagons. We understand that the controversial Ye-Dawei rail line was washed out in monsoon rains only months after construction was completed and is now effectively out of operation.
Power Supply
Power generation in Burma is controlled by Myanmar Electric Power Enterprise (MEPE), a state entity. Thirty percent of total installed capacity of 1,172 megawatts is derived from hydroelectric sources, 18 percent comes from thermal sources, 45 percent comes from gas turbines, and nearly six percent is supplied by diesel generators.

Consumption of electricity exceeds the available power supply. This situation results in rolling power cuts during certain periods of the year. Most of the fledgling industrial sector and expatriate homes rely on independent diesel generators to ensure a steady power supply. Power shortages are likely to increase in the near term as onshore natural gas production wanes.