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http://www2.irrawaddy.com/article.php?art_id=720
BURMA IS NOW FACING ITS WORST ECONOMIC CRISIS
In the early 1990s Burma seemed on the verge of an economic boom, but gross economic mismanagement and a vastly overvalued currency have brought the country’s economy to its knees. In the welter of international reporting about weakening Asian currencies, few have paid much attention to the sickest currency of all. In just over a month Burma’s kyat has plummeted on the black-market from 170 to the dollar to 250-300. If the rest of the world hasn’t noticed, Burmese consumers have. They began to realize something was wrong when the supermarkets removed price stickers from their goods. "No one knows what to charge for imported items because no one knows what the Burmese currency is worth," says a Rangoon resident. Indeed, Burma is now facing its worst economic crisis since 1988–the year massive unrest brought the current military junta to power. Today’s crisis is every bit as explosive. While the plunging kyat is its most obvious symptom, Burma’s economic malady runs far deeper. At its heart is gross government mismanagement that has not only debased the currency but fuelled inflation, discouraged foreign investment and depleted reserves. Short of cash, the government has begun stealing from its citizens, denying them access either to gold or to their own foreign exchange accounts. It’s a long way from the early 1990s, when Burma seemed on the verge of an economic boom. New buildings were springing up all over Rangoon, and there were more cars in the streets than ever before. But that mini-boom is exactly what caused the kyat’s collapse, according to the International Monetary Fund and independent economic analysts. "There was no real growth, no production. Rangoon was little more than a Potemkin village," says Josef Silverstein, professor emeritus at Rutgers University, in the United States. Adds a Rangoon-based economic analyst: "The money came from remittances from workers overseas, and from a massive influx of drug money into the legal economy in the mid-1990s. Money came in-and went out again [much spent on expensive imports]. And now the party is over." The roots of the crisis stretch back to 1989, soon after the State Law and Order Restoration Council seized power. By selling a chunk of its Tokyo embassy compound for what a well-placed source in Rangoon estimates at $300 million, Slorc was able to buy itself a measure of stability and push forward with its economic agenda. "The Slorc appeared to be doing all the right things," says the source. "It liberalized the economy and welcomed foreign investment, and there was somedegree of coordination of the government’s activities. The government sustained the illusion of progress partly through the fiction of its official exchange rate. Set at six kyats to the dollar, it values the currency at 40-50 times the black-market rate. According to a highly critical IMF report issued in May, the government’s use of the official rate to compile macroeconomic figures vastly distorts everything from imports and exports to domestic consumption and GDP. But things began to fall apart in April 1992, when Slorc Chairman Gen. Saw Maung (who died on July 24 this year) was replaced by Gen. Than Shwe. Eager for patronage, Than Shwe redistributed the six economic portfolios then held by Gen. David Abel, who remains minister of national planning and development. As a Rangoon-based Western diplomat puts it: "Economic warlords replaced the economic tsar." The government compounded its woes by creating a three-tier currency regime that all but discredited the already weak kyat. In February 1993 officials introduced foreign-exchange certificates that foreign visitors could swap for dollars, one-to-one, sparing them the need to buy kyats at the official rate. In December 1995 the government also allowed Burmese to hold FECs which they initially could trade at 100 kyats per dollar. As locals dumped kyat and bought FECs, the currency plunged. The FECs might not have mattered had the economy been improving. It was not. Massive problems continued with foreign investment, development and food production. Of the $3.2 billion of investment approved since the first reforms of 1989, only $1.2 billion had been invested by March 31, 1996, according to the IMF. About $900 million went into the oil and gas industry, much of it to drill dry holes onshore in the early 1990s. Other money went into hotels, of which there is now a glut. All in all, says the Rangoon-based analyst, Burma’s direct investment "never translated into any significant development of the manufacturing sector." Or of agriculture. Attempts to restore rice exports to their pre-World War II glory have failed miserably. According to government figures, Burma exported $198 million worth of rice in fiscal 1994-95, but rice exports fell to $78 million the following year, and to $47 million in the year to March 31, 1997...
BURMA IS NOW FACING ITS WORST ECONOMIC CRISIS
In the early 1990s Burma seemed on the verge of an economic boom, but gross economic mismanagement and a vastly overvalued currency have brought the country’s economy to its knees. In the welter of international reporting about weakening Asian currencies, few have paid much attention to the sickest currency of all. In just over a month Burma’s kyat has plummeted on the black-market from 170 to the dollar to 250-300. If the rest of the world hasn’t noticed, Burmese consumers have. They began to realize something was wrong when the supermarkets removed price stickers from their goods. "No one knows what to charge for imported items because no one knows what the Burmese currency is worth," says a Rangoon resident. Indeed, Burma is now facing its worst economic crisis since 1988–the year massive unrest brought the current military junta to power. Today’s crisis is every bit as explosive. While the plunging kyat is its most obvious symptom, Burma’s economic malady runs far deeper. At its heart is gross government mismanagement that has not only debased the currency but fuelled inflation, discouraged foreign investment and depleted reserves. Short of cash, the government has begun stealing from its citizens, denying them access either to gold or to their own foreign exchange accounts. It’s a long way from the early 1990s, when Burma seemed on the verge of an economic boom. New buildings were springing up all over Rangoon, and there were more cars in the streets than ever before. But that mini-boom is exactly what caused the kyat’s collapse, according to the International Monetary Fund and independent economic analysts. "There was no real growth, no production. Rangoon was little more than a Potemkin village," says Josef Silverstein, professor emeritus at Rutgers University, in the United States. Adds a Rangoon-based economic analyst: "The money came from remittances from workers overseas, and from a massive influx of drug money into the legal economy in the mid-1990s. Money came in-and went out again [much spent on expensive imports]. And now the party is over." The roots of the crisis stretch back to 1989, soon after the State Law and Order Restoration Council seized power. By selling a chunk of its Tokyo embassy compound for what a well-placed source in Rangoon estimates at $300 million, Slorc was able to buy itself a measure of stability and push forward with its economic agenda. "The Slorc appeared to be doing all the right things," says the source. "It liberalized the economy and welcomed foreign investment, and there was somedegree of coordination of the government’s activities. The government sustained the illusion of progress partly through the fiction of its official exchange rate. Set at six kyats to the dollar, it values the currency at 40-50 times the black-market rate. According to a highly critical IMF report issued in May, the government’s use of the official rate to compile macroeconomic figures vastly distorts everything from imports and exports to domestic consumption and GDP. But things began to fall apart in April 1992, when Slorc Chairman Gen. Saw Maung (who died on July 24 this year) was replaced by Gen. Than Shwe. Eager for patronage, Than Shwe redistributed the six economic portfolios then held by Gen. David Abel, who remains minister of national planning and development. As a Rangoon-based Western diplomat puts it: "Economic warlords replaced the economic tsar." The government compounded its woes by creating a three-tier currency regime that all but discredited the already weak kyat. In February 1993 officials introduced foreign-exchange certificates that foreign visitors could swap for dollars, one-to-one, sparing them the need to buy kyats at the official rate. In December 1995 the government also allowed Burmese to hold FECs which they initially could trade at 100 kyats per dollar. As locals dumped kyat and bought FECs, the currency plunged. The FECs might not have mattered had the economy been improving. It was not. Massive problems continued with foreign investment, development and food production. Of the $3.2 billion of investment approved since the first reforms of 1989, only $1.2 billion had been invested by March 31, 1996, according to the IMF. About $900 million went into the oil and gas industry, much of it to drill dry holes onshore in the early 1990s. Other money went into hotels, of which there is now a glut. All in all, says the Rangoon-based analyst, Burma’s direct investment "never translated into any significant development of the manufacturing sector." Or of agriculture. Attempts to restore rice exports to their pre-World War II glory have failed miserably. According to government figures, Burma exported $198 million worth of rice in fiscal 1994-95, but rice exports fell to $78 million the following year, and to $47 million in the year to March 31, 1997...
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