|
Introduction
I appreciate the invitation to meet with you today to discuss the
Economic and Social Assessment report that the Bank has recently prepared on Myanmar. I
propose to first give you some background on the report, and then discuss some of the main
findings and recommendations.
It is important to note before we begin that this report is in draft form. It thus is not
yet an official public document, and while copies have gotten around, at this stage the
purpose is to obtain comments and to make improvements before the report is finalized.
Thus it is not a secret document and is meant to be widely available when it is finalized,
but we are still at the discussion draft stage. Background
The draft report was prepared based on a mission last June that was conducted in a low key
way in parallel with the IMF Article IV Consultation mission. The mission received a high
degree of cooperation from the government and also the UN agencies and INGOs working in
Yangon. The two senior members of the mission were invited to meet with Aung San Suu Kyi
at a luncheon organized by the Australian Ambassador, and discussed their preliminary
findings with her in a pleasant and substantive meeting.
The last Bank economic report on Myanmar was prepared in 1994/5, and we felt that it was
important to update our knowledge of the situation and especially the poverty and social
conditions, in view of increased international attention to the situation in Myanmar and
the impact of both economic policies and the Asian financial crisis on economic and social
conditions.
Collaboration with the IMF has been an important part of this process. In previous years,
Bank staff were invited to participate in the Fund's annual Article IV Consultation
missions. These are conducted under the surveillance mandate that the Fund has with all
its member countries. This year, we decided to send a separate mission in parallel with
the Fund in order to undertake a broader economic and social assessment, with a particular
focus on poverty. The Fund report incorporated information from the Bank's assessment and
our report draws heavily on the macroeconomic and financial sector assessment provided by
the Fund. The two reports provide the most comprehensive surveillance assessment ever
conducted on Myanmar.
The draft report was given to the Myanmar authorities during the Annual Meetings here in
Washington last September. We also sent a number of copies to the UNDP Resident
Representative in Yangon and asked him in his capacity of UN Resident Coordinator to make
copies available to local Embassies and to give one to Aung San Suu Kyi in anticipation of
a proposed visit in October by the UN Special Envoy Alvaro De Soto with Bank
participation. The report was discussed in general terms during that visit.
The government has not given us detailed comments on the report, but has requested that a
Bank mission visit Yangon to obtain comments and discuss the reports findings and
recommendations, with the intention of finalizing the report. We have asked the government
for a clear indication in writing that the SPDC is prepared to address the core issues
raised in the report and to provide their general comments, and this will affect the
scheduling of any further mission. What we are looking for is some concrete indication
that the SPDC is prepared to take the report's assessment seriously and to discuss the
issues in a spirit of genuine policy dialogue. We are also insisting an an open process
that includes the comments and concerns of civil society and the private sector. While the
Bank is not permitted under our Articles of Agreement to take sides in the political
debate, we do believe that all interested groups should have access to the report and have
an opportunity to share their views and concerns. This is very similar to how we have
conducted our role in Indonesia during the past year in a situation of significant
political flux. As I mentioned before, the draft report has been provided to the NLD.
Major Findings and Recommendations
Let me now give you some more details of the reports findings and recommendations.
First, the basic conclusion of the report is that the kind of growth that Myanmar has been
achieving has not been delivering improvements in employment, human development and
poverty reduction that will be needed if Myanmar is to achieve its potential. Our bottom
line assessment is that Myanmar needs both major reforms and external finance to obtain
the kind of development that would best serve the country's long term interests. Progress
on removing core inefficiencies will be needed before a broad structural reform process
can get underway. Foreign investment and ODA will be needed, but these will only be
forthcoming if Myanmar can satisfy the social justice concerns of the international
community that are reflected in UN resolutions.
The core program that we recommend would seek to reform and/or dismantle (i) the
fictitious official exchange rate and its rationing; (ii) the complex and inefficient
mechanism for rice procurement, its domestic distribution and export; (iii) wideranging
restrictions on private sector activity; (IV) budgetary priorities that squeeze
expenditure on social services and infrastructure; and (v) inefficient state enterprises
that claim a large share of public resources and government attention. Implementation of
these reforms would set the economy on the path to broad-based growth and would create the
room for implementing the large agenda of structural reform.
Poverty and Human Development
Although Myanmar's economy continues to register moderate income growth (GNP growth was 5
percent in 1998/99), the benefits of this growth are poorly distributed since most poverty
and human development indicators are unsatisfactory. At $300 per capita, Myanmar is one of
the poorest countries in the World. Life expectancy at birth is 60 compared with an
average in East Asia of 68; infant mortality is 79 per thousand births, compared with the
Eat Asia average of 34; child malnutrition rates are very high and represent the
"silent emergency" in Myanmar. Wasting affects 30% of children under age 10,
reflecting long term deprivation. Education is also a major concern. Official statistics
indicate that a quarter of school age children never even enroll in primary school, and
that drop out rates are very high. Of those who begin the primary education program, only
a third complete the full 5 years.
According to a government determined poverty line, about one quarter of the population of
Myanmar lives below minimal subsistence levels. Poverty rates are approximately the same
in urban and rural areas, but most of the poor (71 percent) live in rural areas. There is
considerable regional variation in poverty rates. The highest rates of poverty are in the
Chin State, Magway Division, and Kayah State, and the lowest rates are in the Tanintharyi
Division and Shan State.
Structural Imbalances and Proposed Reform
Looking back over the past decade, the economy responded well to the liberalization of
1988. There was a significant expansion in investment, which reached US$800 million in
1996/97 compared to US$58 million in 1990/91. Exports tripled to US$ I billion a year
between 1988/89 to 1997/98. GDP growth averaged over 7% per year up until 1997. In recent
years, however, growth has run out of steam and has not benefited the poor, an acute
currency shortage has emerged, and private capital flows have collapsed. The growth last
year is estimated to have been 5%, fueled mainly by disbursements of foreign private
investment on projects committed in the mid 1990's. Continued decline in growth is
inevitable, unless Myanmar is able to attract new foreign investment, obtain aid flows
that were cut off after 1988, or undertake reforms in public finance and banking to
increase domestic resources for investment, which are extremely low by international
standards. This has led to a situation where Myanmar is caught in a low-level equilibrium
trap with serious macroeconomic imbalances.
Macroeconomic Imbalance
The official exchange rate is pegged to around 6 Kyats per US$1, while the June 1999
market exchange rate was 340 Kyats per US$1. Following the economic slowdown, tighter
administrative controls have been put in place to ration foreign exchange. The foreign
exchange controls generate substantial protection for state enterprises in their imports
and create strong incentives for rent-seeking activities. Relative prices are distorted
thus impeding agricultural and private sector development, and rendering official
statistics less credible.
Unification of the official and parallel market exchange rates would be equivalent to a
significant trade reform. The present exchange rate system results in a large protection
to the favored state enterprises, much larger than implied by the average tariff rate of 6
percent. In addition, the extensive trade barriers also need to be eliminated.
The government budget has remained unbalanced with substantial deficits during much of the
1990s. Fiscal deficits are financed automatically by credit from the Central Bank, a
source of domestic inflation and instability in the economy. The ratio of taxes to GDP, at
3.5 percent, is very low by international standards. Although the government has sought to
broaden the tax base by bringing more services into the commercial tax net (similar to a
VAT), the system is riddled with exemptions given to both foreign as well as domestic
investors. Tax revenues are also eroded by poor tax compliance (caused by corruption and a
weak valuation system for imports) and inflation.
State enterprises are a drain on the budget but their true impact is clouded by the dual
exchange rate system State enterprise reform and privatization must he pursued more
vigorously. This must accompany a reform of the budget process which, at present,
continues in the tradition of central planning, with state enterprises driving the process
rather than broader economy-wide revenue and expenditure projections.
A monetary policy that accommodates the flawed budgetary process contributes to the
double-digit inflation, which peaked at 68 percent in mid-1998 and fluctuated widely
during most of the decade.
A public resource mobilization effort needs to be geared up to protect public expenditures
on basic services. The poor resource mobilization activity has adversely affected
maintenance of essential infrastructure and the delivery of social services, impeding in
turn broad based economic growth and human development. Me structural reforms recommended
(including reform of the exchange rate, the budgetary process, state enterprises, tax
policy and tax administration and others that follow) are urgently needed to strengthen
resource mobilization to promote broad-based economic growth and human development.
Clearly a major issue is the balance between military expenditures and social and
infrastructure expenditures. Published budget figures show that per capita spending on the
military is 9 times that of health services and twice that of education services, and the
trends have been worsening. It seems that military expenditures have also been declining
because of poor revenue performance, which means that a major area for policy dialogue and
change is in the allocation of future incremental revenues.
Agriculture and the Environment
Rural poverty and agriculture are closely linked in Myanmar: for over half of poor rural
households, agricultural production is the primary economic activity. And yet,
agricultural growth has stagnated since the mid 1990s. The decline is even more dramatic
in growth per capita. This lends support to the claim that recent overall GDP growth has
not been sufficient nor has it benefited the poor. Also, it underscores the need for a
second generation of structural reforms to rejuvenate agriculture.
Rice Procurement and Export. Rice is the most important crop in the Myanmar
economy and removing distortions on procurement and export of rice would have wide
repercussions.
First stage: Removal of exchange rate distortion: As a first step, the state
enterprise exporting rice, Myanmar Agricultural Produce Trading (MAPT), be turned into an
autonomous corporation with independent management.
Second stage: Removal of price distortion: The second stage of reform would aim
at removing the distortions in price policy.
Third stage: Removal of MAPT monopoly on exports: elimination of compulsory rice
procurement, privatization of MAPT.
Agricultural inputs and services: The reform program would not be possible
without market based delivery of inputs to farmers. In particular, farmer access to credit
needs to be improved.
Land reclamation: The reform program outlined above would improve the use of
existing cultivated land and move toward bridging the large yield gap between Myanmar
farmers and their counterparts in the Association of Southeast Asian Nations (ASEAN). It
would also redress rural poverty frontally by increasing agricultural incomes. The
government has been following a different approach in recent years that emphasizes
increasing agricultural output by bringing new lands under cultivation. We have some
serious questions about the environmental and economic cost of these schemes and have
suggested that there be a halt until further study and debate can take place.
Preserving forest: Annual de-forestation rates have doubled (to 1.4 percent)
since the late 1980s. Population growth, inappropriate land use and poor forest tenure
policies account for this. To check this alarming trend, priority should be given to
developing a national land-use plan, clarifying land ownership and use rights, proper land
titling, encouraging leases for establishing community-based forests in degraded forest
areas and promotion of alternative fuels (including kerosene).
Private Sector Development
Myanmar's private sector is remarkably resilient and has survived the socialist era and
the many hurdles and controls that continue to affect the costs of doing business. The
need, of course, is to continue the consolidation of the private sector via a new
generation of reforms.
To allow the private sector greater room in the economy, the role of state enterprises
will have to be scaled down. The inefficient state enterprises distort relative prices for
the private sector, lay claim to the bulk of scarce credit and attract most of the
government attention. Furthermore, their survival is possible only by curtailing private
sector competition. Thus state enterprise reform must be a top priority.
Following the establishment of a Privatization Commission in 1995, the Government has
undertaken some steps toward privatization. In practice, however, progress has
been slow. While it is difficult to make outright sales in the context of macro-economic
uncertainty and lack of investor interest, authorities could do the ground work and
clarify their intentions by developing and announcing a systematic Privatization Master
Plan. This would focus on the institutional design for privatization, valuation of
entities to be designed, and developing an appropriate regulatory framework for the
privatized entities.
A healthy financial sector is key to private sector development and economic
strength. Myanmar is seriously under banked, the accounting and clearing systems need
modernization, there is little competition to the large state-owned banks and The
administered interest rates do not reflect scarcity of capital. Reform would require
establishing a level playing field for state-owned and private banks (particularly in
foreign exchange dealings and reserve requirements), a restructuring of state-owned banks
and granting of bank licenses to joint ventures, and to foreign-owned banks to begin
operations (initially for a limited range of activities).
The legal framework for conducting private business is badly in need of modernization,
particularly regarding the Foreign Investment Law, the Citizen's Investment Law, the
Financial Institutions of Myanmar Law, accounting and auditing standards and the Insurance
Business Law. The legal changes would aim at reducing regulatory burdens and restrictions
on the private sector, simplifying transfer of ownership, facilitating repatriation of
profits, improving access to foreign and domestic credit, and increasing the reliability
of enterprise financial statements.
Myanmar has taken some steps recently to improve its woefully inadequate
infrastructure via pricing reforms in electricity and telecommunications. In the
rural areas, isolation due to poor infrastructure is as severe problem. It prevents
access to markets and delivery of social services. Improvement
infrastructure requires urgent attention.
Delivery of Social Services
Health. Some of the news on health outcomes is encouraging, but declining public
confidence in publicly-provided services is of concern. A serious concern is that over the
last 10 years, usage of public hospitals and dispensaries has fallen by 80 percent. This
stems principally from low budgetary outlays (at about 0.2 percent public expenditure in
Myanmar, is far below regional and developing country averages). This adversely affects
availability of health care staff and medicines and the quality of equipment.
Nutrition. Data collected by both the Ministry of Health and UNICEF show high
levels of moderate and severe malnutrition among preschool-age children. There is
substantial scope for expanding supplementary feeding programs and maternal education
programs. In designing an effective program, national and international experience
suggests that the following should be borne in mind: i) food be supplied to needy children
along with information to the care givers about good nutrition and feeding practices; 11)
prevention of malnutrition is often more important than reversing severe malnutrition; ii)
maintaining the already good breast-feeding practices is a priority; and (iv)
supplementary feeding programs need to incorporate affordable and locally-available foods.
Education. As I mentioned earlier, low enrolment in primary education is a
serious concern . It is impossible to provide good quality education services with the
substantial erosion in education spending over the past decade. Current government
spending in education as a share of national income is among the lowest in the world.
Official data shows that real public spending per child has fallen from about 1200 Kyats
per child (5-9 years) in 1990/91 to a dismal 100 Kyats in 1999/2000. Education financing
is further confounded by the lack of affordability at the household level. The cost
barrier is compounded by the poor quality of infrastructure and little adaptability of
schooling (including schedules and curricula) to local conditions.
A number of long-standing, and well-known, basic issues need to be addressed to improve
education outcomes in Myanmar: i) reversing the trend of declining public resource
allocations for primary education; ii) exempting the poorest children from school fees and
other substantial contributions while providing additional support to help cover such
direct costs of schooling, as textbooks and uniforms; iii) developing flexible school
hours to enable participation by children who need to contribute to family incomes; iv)
increasing teacher salaries in real terms, and (v) reviewing transfer and departmental
policies that encourage teachers to move out of rural areas.
Towards Better Economic Management
Implementing the reforms outlined above implies a different role for the government than
the current one. At present the Government is all pervasive. This is a hugely, demanding
role that few societies have been able to sustain. It places a severe burden on scarce
administrative resources; civil servants can be good regulators to protect the public
interest but their training and education does not equip them to run factories.
Furthermore, the dominant government presence in key sectors crowds out private
individuals who could be generating economic growth and creating sustainable job
opportunities.
Choice of Development Strategy
- A macro-economic framework that is conducive to financial stability and one that
sends correct signals regarding relative prices, including the price of foreign exchange;
- Reduced government presence in direct production of goods and services;
- Increased administrative capacity to monitor and regulate (in the public interest)
private sector activity;
- Use of appropriate fiscal tools (taxes and expenditures) to ensure that only those
strategies are chosen that result in equitable income growth; and
- Ensure adequate financing and institutional capacity to deliver social services
that improve poverty and human development indicators and facilitate broad-based
participation in growth.
Civil Service Reform
Myanmar has inherited a sound tradition of civil service that is badly in need of
rehabilitation. The key to the transition outlined above would be the reform of the civil
service to increase technical capacity and reward performance. Key elements of the reform
would be in the areas of compensation and training:
Salary adjustment: Salaries of public servants are low and
have not been adjusted to keep up with inflation or with the private sector emoluments. A
thorough review of the salary structure is needed to attract and retain the best talent in
the civil service and to discourage corrupt practices.
Training: Modern economic management requires continuous training.
The lack of training assistance for the past 10 years has taken its toll on the middle
level of the government, and this represents a significant drag on potential for improving
policies and implementation of programs. The question of providing technocratic training
assistance deserves to be revisited.
Working with Civil Society
NGOs already are playing an important if limited role in efforts to reduce poverty and
promote human development in Myanmar. This can be strengthened by improving the working
relationship of NGOs with the Government. Specifically, (i) the process for obtaining
memorandum of understanding needs to be simplified and approval time reduced; and (ii) the
framework for NGO operations should be clarified and standardized to facilitate day-to-day
operations and delineate longer term involvement in human development in Myanmar.
Conclusion
I have tried to give you a good understanding of the topics covered by our report and our
views. Fundamentally, Myanmar is facing two major issues as the country grapples with its
history and present day challenges. The first is the relationship of the State to the
peoples of the country. And the second is the role of the State in the economy. Since it
obtained independence after World War Two, Myanmar has been struggling to shape a national
identity that can secure both stability and wellbeing for the 49 million people
representing over 100 ethnic groups. Social and economic policies followed by the military
government since the early 1960's have given a high priority to maintaining stability at
the expense of realizing Myanmar's potential for economic and social progress. The result
has been an erosion of social capital and very low progress on building modem public
institutions. Our basic assessment is that the policies that Myanmar has been following
will not yield long term stability and development unless it adopts a more
"pro-people" stance. It is for this reason that we believe that World Bank.
collaboration with the United Nations is a practical way to help Myanmar resolve
long-standing political and human rights controversies, tackle poverty, and improve the
social welfare of the diverse population. We hope that by working in a coordinated and not
disjointed way we can use our respective mandates to promote social justice and poverty
reduction to help Myanmar find the right path for the future of the country. I hope that
our draft report can make a contribution to this objective.
|