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Fdi and burma

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Fdi and burma

  1. 1. The Economy of Burma (Myanmar) is one of the least developed in the world, suffering from decades ofstagnation, mismanagement, and isolation. Burma’s GDP stands at $42.953 billion and grows at anaverage rate of 2.9% annually – the lowest rate of economic growth in the [2]Greater Mekong Subregion. Among others, the EU, United States and Canada have imposed economic [3]sanctions on Burma.Historically, Burma was the main trade route between India and China since 100 BC. The MonKingdom of lower Burma served as important trading center in the Bay of Bengal. After Burma wasconquered by British, it became the wealthiest country in Southeast Asia. It was also once the worlds [4]largest exporter of rice. It produced 75% of the worlds teak and had a highly literate population.After a parliamentary government was formed in 1948, Prime Minister U Nu embarked upon a policy ofnationalization. The government also tried to implement a poorly thought out Eight-Year plan. By the1950s, rice exports had fallen by two thirds and mineral exports by over 96%. The 1962 coup détat wasfollowed by an economic scheme called the Burmese Way to Socialism, a plan to nationalize all [5]industries. The catastrophic program turned Burma into one of the worlds most impoverished countries.In 2011, when new President TheinSeins government came to power, Burma embarked on a majorpolicy of reforms including anti-corruption, currency exchange rate, foreign investment lawsand taxation. Foreign investments increased from US$300 million in 2009-10 to a US$20 billion in 2010- [6]11 by about 667%. Large inflow of capital results in stronger Burmese currency, kyat by about 25%. Inresponse, the government relaxes import restrictions and abolishes export taxes. Despite current [7]currency problems, Burmese economy is expected to grow by about 8.8% in 2011. After the completionof 58-billion dollar Dawei deep seaport, Burma is expected be at the hub of trade connecting SoutheastAsia and the South China Sea, via the Andaman Sea, to the Indian Ocean receiving goods from countries [8][9]in the Middle East, Europe and Africa, and spurring growth in the ASEAN region.
  2. 2. INTERNATIONAL TRADEHistorically, most of Burmas export-import trade was with Asian countries. In 1999, more than 80 percentof the countrys export-import trade was with Asian nations, including about half with ASEAN countries.Japan, Singapore, Malaysia, and China are its major trading partners. Singapore is the single mostimportant partner both in terms of imports and exports, providing 31 percent of imports and taking 10percent of exports. There has been a decline in trade with Europe and the United States since the 1988military crackdown on the democracy movement. Burmas export-import trade with the United Statesconstitutes about 5 percent of the total foreign trade.The countrys exports are mostly agricultural products. They include pulses and beans, teak, prawns,rubber, rice and other agricultural products. There is a large black market that smuggles live animals,gems, minerals, teak, and rice into the neighboring countries. BurmaTrade (expressed in billions of US$): Burma Exports Imports1975 .173 .1971980 .472 .3531985 .303 .2831990 .325 .2701995 .846 1.3351998 1.067 2.666SOURCE: International Monetary Fund. International Financial Statistics Yearbook 1999.also conducts brisk trade in narcotics. During the 1997-98 fiscal year, imports included raw materials,transport equipment, construction materials, and food items. While priority was given to the importation ofmaterials needed for the Yadana natural gas pipeline, the government took measures to controlimportation of non-essential goods.In 1998 the country exported $1.2 billion in goods and services while importing $2.5 billion, reflecting asteady increase of imports over exports during the 1993-98 period. In fact, the trade imbalance has beena chronic problem for the country for well over 2 decades. During the 1965-75 period, rice exports fell,and Burma cut back on imports. During the 1976-80 period, although exports increased, there was acorresponding increase in imports. By the mid-1980s, exports declined, but imports continued to soar.The adverse balance of payment situation continues to plague Burma.This imbalance has a negative impact on the economy as a whole, forcing Burma to spend its preciousforeign exchange reserves. To compensate for this situation, the government has printed currency to buyforeign exchange, thereby accelerating the inflationary tendencies of the economy. This inflation haswiped out many of the gains the country made as a result of economic liberalization in the 1990s. Makingmatters worse, the government had to buy foreign exchange from foreign sources at commercial rates.Consequently, Burma was unable to service its debt payment, prompting the World Bank to sever tieswith the country. The net effect for Burmas people is that their purchasing power and standard of livingdeclined.The regime, while continuing to increase military spending, was forced to cut back on education, health,and other essential services. Growing international concern about human rights abuses and the regimesinability to tackle narcotics trafficking have led many countries, including the United States, andinternational financial institutions, to refuse aid or loans to the country. The governments use of forcedlabor has also led to boycotts of Burmese goods.MONEYAdverse balance of payments, decreasing tax revenues, high defense spending, and deficit financing allhave led to the printing of more currency and price inflation. The official exchange rate of the kyat todollar, however, remains unchanged. There are 4 different rates for currency exchange: the official
  3. 3. exchange rate, the customs rate, the official market rate, and the black market rate. Officially, US$1equals 6.73 kyats, whereas in the black market the dollar may fetch 375 or more kyats.Exchange rates: Burmakyats per US$1Jan 2001 6.59722000 6.51671999 6.28581998 6.34321997 6.24181996 5.9176SOURCE: CIA World Factbook 2001 [ONLINE].The Asian currency crisis of 1997 added to Burmas currency woes. The sharp decline in the Thai bhathad a negative impact on the kyat. During the 1997-98 fiscal year, according to U.S. embassy estimates,the kyat lost 54 percent of its value. Between April and December 1997, the kyat declined from 167/dollarto 257/dollar. In 1997 and 1998, when the kyat fell, the government intervened to prop up the value of thekyat and took strong measures to keep foreign exchange from leaving the country. It put a monthly cap of$50,000 on remittances , cut the number of banks allowed to handle foreign exchange transactions, andplaced stiff controls on trade.The Asian economic crisis prompted foreign investors to either withhold investments or stay out of theBurmese market. Crises in the neighboring countries, Burmas principal trading partners, cost the countryits export markets. The resultant ballooning of the trade deficit prompted the country to expand itsmoney supply and draw down on foreign exchange reserves. According to the U.S. StateDepartment Commercial Guide for 1999, the country was "virtually bankrupt."FUTURE TRENDSBurma is a resource-rich, naturally beautiful, and culturally significant country. Its potential for growth andprosperity is tremendous. Yet Burma can never reach its potential until the military regime negotiates withthe opposition and transfers power to the elected representatives of the people. The regime, however,has been trying to eradicate the opposition. Most international observers agree that the government mustend human rights violations, release political prisoners, establish sound monetary policies , increase thetax base and revenue, enhance the infrastructure, and further liberalize the public sector if the countryhas any hopes of taking its place in international commerce. Despite announcing plans for suchimprovements, however, the ruling SPDC seems most concerned with retaining its grip on power throughviolence and intimidation of internal opposition and disengagement with the international community. Inthe absence of a change in this program, economic stagnation, poverty, disease, and illiteracy will remainBurmas most notable features.
  4. 4. TOURISM.Like the cash-strapped countries of Jamaica and Cuba, Burma is also actively promoting itself as anisland paradise to increase tourism. Both the government and private enterprises are heavily engaged inthe tourism industry. In order to attract tourists, the country has improved roads, built internationalstandard hotels, and other facilities. In 1988, roughly 40,000 foreigners visited the country, althoughfollowing the suppression of the democracy movement that same year, tourism decreased. Between 1993and 1996, tourism once again revived. The government proclaimed 1996 as "Visit Burma Year" andhoped to attract 500,000 tourists. However, only 180,000 people showed up. In the 1997-98 fiscal year191,000 tourists visited the country. Both the government and the private sector, having invested heavilyin new tourist facilities, were disappointed.Nevertheless, Burma—the land of Buddhist pagodas—has great tourism potential. Rangoon, Mandalay,Pagan, Pegu, and Tawnggys, with their palaces and shrines and pagodas, are the centers of tourism.However, the tense political situation, human rights violations, and boycotts by the internationalcommunity have deterred many people from visiting. Tourism, so far, makes up only a small percentageof the GDP.FINANCE.During the post-independence days, most financial institutions were private. In 1964, the military juntanationalized all of the countrys 24 banks. In their place, the government created 4 state banks. In 1990,the financial sector was revamped under the provisions of the Central Bank of Myanmar Law. Since thenthe financial institutions are the Central Bank of Myanmar, the Myanmar Agricultural and RuralDevelopment Bank, the Myanma Economic Bank, the Myanma Foreign Trade Bank, the MyanmaIndustrial and Commercial Bank, the Myanma Small Loans Enterprise, and Myanmar Insurance. The1990 law also allowed for both private and foreign banks. As a result, by February 1996, 16 private bankswere formed, most of them in Rangoon. During the same period, more than 20 foreign banks openedbranches or offices in Myanmar.The banking sector is still underdeveloped. The people have yet to maintain regular banking habits.Theinflation rate is so high that the real rate of interest does not encourage deposits. But withoutdeposits, banks cannot provide credit. In contrast, during the 1970s, when the interest rate was raised,people deposited more money in the banks.The Burma Securities Exchange was founded in 1996 as a joint venture between Japans Daiwa Instituteof Research and Myanma Economic Bank. The financial sector contributes only a small percentage of theGDP.
  5. 5. POLITICS, GOVERNMENT, AND TAXATIONBurma fought for independence from Great Britain in the late 1940s under the Anti-Fascist PeoplesFreedom League led by Aung San, U Nu, and Ne Win. The independence movement was a pro-Burman,anti-British, and anti-foreign movement that emphasized Burmese values, symbols, and experiences.This movement had very strong socialist leanings in response to Chinese and Indian domination of theBurmese economy during the British rule. In 1948, the country became independent under the leadershipof U Nu because his political opponents had already killed Aung San, the father of Burmese nationalism.In 1962 the army, under the leadership of Ne Win, overthrew the democratic government and set up theBurmese Socialist Party,nationalized schools, banks, and factories, and followed a policy of socialistcentral planning and international isolationism. Later on, the party of the generals changed its name to theBurma Socialist Program Party. In 1974, all political parties were abolished.In September of 1988, amid massive demonstrations against the government, a new regime seizedpower in a military coup. Calling themselves the State Law and Order Restoration Council (SLORC), thenew regime also changed the name of the country from Burma to Myanmar, something that oppositiongroups still object to. Following the anti-government protests, riots, and bloodshed in 1988, the oppositionparties coalesced into the National League for Democracy (NLD) under the leadership Aung San SuuKyi,the daughter of the martyred national hero, Aung San.Responding to nationwide protests, the SLORC allowed national elections in May of 1990. The NLDdominated the elections, winning 80 percent of the seats in the National Assembly, but the ruling SLORCrefused to concede power and imprisoned NLD leader Aung San SuuKyi. Since that time the SLORC hasexercised complete control over all branches of government. The National Assembly elected in 1990 hasin fact never convened, the judicial system is bankrupt, and all executive positions are held by militaryrepresentatives of the SLORC.In 1997 the ruling SLORC was reorganized as the State Peace and Development Council (SPDC) amid ashakeup that saw several high officials dismissed for corruption. Five top generals, including SecretaryKhinNyunt, consolidated their power but showed no signs of ceding control of the government to theopposition, most of which was banned from any official forms of organization. Like the SLORC, the SPDCis primarily concerned with cracking down on opposition and not on improving the economic fortunes ofthe country.The governments mounting deficit financing, resulting mostly from declining tax revenue and escalatingmilitary expenditures, has had a negative impact on the economy. The regimes policies led to the growthin the money supply and accelerated inflation. Mounting foreign debt and depleting foreign exchangereserves also affected the health of the economy. Military expenditures increased while the funding forhealth and education declined. The governments oppressive attitude towards the opposition has causedinternational censure, prompting foreign firms to pull out or cut back on their activities. Because of foreigneconomic sanctions, Burma is unable to get assistance from other countries or loans from internationalfunding sources.The countrys tax base shrank in the last years of the 20th century, due to the governments inability tocollect taxes because of a corrupt bureaucracy and a black market perhaps as large as the legitimatemarket. The sources of government revenue include general sales and value-added taxes , income fromstate enterprises, taxes on international trade, fees, and grants from donor nations and internationalagencies. The government also collects customs at its border posts, but most of the border trade isunrecorded.The judicial system that Burma inherited from its British colonial masters was abolished in 1974. The newconstitution calls for a council of Peoples Justices. In addition, there are lower courts at the state, town,village and ward level. The courts settle both civil and criminal cases. The armed forces—controlling mostaspects of the countrys politics and government—also exert influence over Burmas judicial system.
  6. 6. Foreign Exchange Rate:The exchange rate has moved from about 1300 kyat per dollar in 2006-07 to 800 kyat to the dollar inJanuary 2012 while the consumer price index has jumped by over two-thirds. World rice prices in dollarshave been generally strong, with Vietnamese five percent broken export prices at $520/ton in December2011, 78 percent above their 2006/07 average. Wholesale paddy prices in Myanmar have plunged 30percent in real terms from 2007 to 2012 and 25 percent in just the last year. For a variety of reasons, thepaddy price to farmers may have fallen even more. This results in less hiring of landless neighbors,migration out of the village (often to a foreign country), less use of inputs and reduced summer paddyplanting. Sharp real price declines in pulses have also been reported, though the exchange rate is only onecontributing factor to their low prices. Poor quality pulses due to untimely rains and reduced demand fromIndia also play some role.