Economic reform in Burma?

A top-level committee, including senior military officers and prominent Burmese businessmen, has been drawing up a list of suggested reforms to be considered by the country's top two generals, Than Shwe and Maung Aye, before being implemented.

Earlier this year, the government announced that eleven government businesses, including beer, bicycle, cosmetic, glass, soft drink, textile and paint factories in Rangoon and Mandalay, were being privatised. They would be formed into joint ventures with the government holding 51% and the rest of the shares are being sold to the private sector.

"The value of the shares in these companies, currently worth one million kyat each, will be adjusted every year," the Industry Minister, U Aung Thaung, told Burmese entrepreneurs recently. The private sector investors would run these firms for at least ten years, he said.

The shares in these eleven newly formed joint-venture companies will be put up for auction shortly according to a Burmese government official. The buyers would be allowed to resell their shares, or transfer ownership, the industry minister said.

A newly formed Privatisation Commission is overseeing the sale of these government companies. Nearly a thousand state-owned enterprises are to be partially privatised, or sold off, in the coming year, according to government officials. Nearly two hundred government-operated businesses, including cinemas, hotels, rice mills and saw mills, were privatised by the end of the last financial year which ended in March, according to a government official.

At present the government intends to lease, or auction off, the businesses, and set up joint ventures. Eventually the idea is to trade the shares in these private ventures on a stock exchange. "The government is planning to develop a stocks and share market to help strengthen the growth of the country's private sector," a Burmese businessman said.

The privatisation plan was originally launched more than ten years ago, in 1995, but was soon shelved when the country's top military rulers got cold feet. The plan's revival is intended to develop the country's industrial sector, which has stagnated in recent years. Rising fuel prices and western economic sanctions also have hit Burma's industry hard.

The new privatisation plans have been prompted by the government's need to raise finances, especially to fund the building of the new capital at Nay Pyi Daw, some four hundred kilometres north of Rangoon.

Behind the scenes, Chinese advisors have also been pushing the regime to privatise the country's state-owned enterprises. The joint venture formula being implemented is clearly modelled on the Chinese approach to development, a Burmese businessman said.

"Burma's military leaders have been studying the Chinese and Vietnamese approach to industrial development and feel comfortable that this strategy will help boost industrial production and attract foreign investment while maintaining tight government control," he said.

The current privatisation push is all part of the government's new plans for significant economic reform largely motivated by the country's growing economic crisis. A major restructuring of the economy is being considered. Prime Minister Soe Win launched the probe into the economy last December.

The military regime wants to boost industrial production, increase industrial efficiency and attract foreign investment, a government official said.

The joint committee set up to review the government's economic policy has already reported back to the cabinet. Apart from advocating a comprehensive privatisation programme, the group also suggested a more serious approach to company accounts, a more effective and systematic collection of tax, including both company tax and personal income tax, and drawing up legislation that would allow foreign investors to repatriate their profits.

They also suggested opening up the country's media sector to commercial investors. The information ministry is currently considering allowing the private sector to launch a daily newspaper and a new television channel. The current Burmese owner of the English and Burmese weeklies, the Myanmar Times, has been approached by the Information Minister, General Kyaw Hsan, about a private daily newspaper, according to reliable sources in Rangoon.

The new television channel is further along in the planning stage, according to an industry source. It is expected to involve Thai investment from the Shin corporation.

The committee also suggested that the government had to tackle both, Burma's banking system and the country's antiquated currency exchange rates, before the economy could develop and attract foreign investment.

At present the official exchange rate is 9 kyat to the dollar. But on the black market the rate fluctuates around a thousand kyat to the dollar. "Most significant commercial transactions in Burma are now done in dollars," according to a prominent Burmese economist. "The greenback is effectively the country's currency," he added.

The group suggested that the Burmese currency, the kyat, be floated, or at least pegged to the dollar. Already the government has moved in this direction and recognised the black market rate as the semi-official rate. All transactions between government ministries are done at a rate which is close to the black market rate. An International Monetary Fund inspection team, which visited Burma recently, was impressed by some of the reforms the regime has implemented, including allowing the currency black market to function without restrictions or impediments, according to Rangoon-based diplomats who were briefed at the end of their trip.

Economic analysts and businessmen in Burma all agree that without thorough currency reform any attempt to boost the economy and attract foreign investment is bound to fail. "Only reform of the currency exchange rates will boost business and investor confidence," according to a Burmese businessman in Rangoon, Maung Maung. "Anything less will only distort the economy, discourage investment, especially from abroad, and prevent real economic development," he added.

The government has been reviewing and monitoring the country's banking system, especially the private banks, ever since the banking crisis of 2002. Now the regime realises that confidence in the system needs to be restored and the bank made more effective and efficient. Most significant banking transactions, especially foreign remittances, go through the hundi systeman informal arrangement for transferring funds. The hundi system accounts for more than ninety percent of the transactions

A few months ago, the police Bureau of Special Investigation were asked to examine the hundi system and explore ways by which these transactions could be forced to use the country's banks. They sought the advice of several of the country's top economists. It is unclear, as yet, what conclusions they have arrived at.

Businessmen involved in advising the government are optimistic that the military regime is serious about its plans for economic reform. One of the key men involved, the respected octogenarian and accountant U Hla Tun, recently told colleagues that the government was planning some major economic reforms which would be rolled out before the end of the year.

Other senior analysts are less sanguine. Vested interests are so entrenched that it is impossible to introduce real economic reform, a senior military intelligence officer once told me. The former prime minister, General Khin Nyunt, tried a few years ago but found the resistance too strong to overcome, the intelligence officer confided. Senior economic analysts, both inside the country and abroad, believe the situation is no more favourable to reform now than it was then.

"Burma's leading corporations are mostly owned by, and operated by, the regime's croniesmostly serving and retired military officers," according to a former Australian central banker and expert on the Burmese economy, Sean Turnell.

They rely on "rent seeking" as the only reliable way to make money, he said. This system will be hard to dismantle, he said.

But unless it is, Burma's economic future will remain bleak. Fundamental institutional change, effective property rights and the enforcement of contracts are needed according to Dr Turnell. "Burma's military government has completely stifled economic innovation," Dr Turnell added. But the idea that the regime is turning to the private sector to rescue the economy is also highly unlikely.

"The privatisation program of the ruling SPDC (State Peace and Development Council) is another of the regime's hoaxes," said the leading Burmese activist, Zaw Min. "They are selling of the country's assets at bargain-basement prices to their cronies to keep them happy," he added

How far the regime will go with its privatisation plans and economic reform program remains difficult to predict. The country's top General, Than Shwe, needs to be brought on board, and as yet there is no real sign that he has signed up to the plans. His extreme xenophobia and chauvinism makes him suspicious of opening up the economy and relying on foreigners. But in the end it may be Chinese advice and support that convinces him that Burma has no other option if it wants to avoid the economy imploding sometime in the future.