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Burma's economy—the long road ahead

Following the Parliamentary by-elections in April, much of the commentary has now shifted focus from domestic political reforms and international responses to Burma’s economy and the challenge of achieving sustainable and inclusive growth. A brief discussion of these issues is important in the wake of the Australian Government’s decision to ‘normalise’ the bilateral economic relationship and last week’s visit to Burma by the Foreign Minister, Senator Bob Carr. During this visit, Senator Carr announced that Australia would suspend all remaining financial and travel restrictions against the Burmese Government. He also canvassed the potential for increased trade and investment in areas like mining and financial services as part of a new policy of engagement.

In the early days of its independence, Burma was described as one of Southeast Asia’s most promising economies. This promise, however, has not been fulfilled. Today Burma is one of the region’s poorest countries, with over one quarter of its 60 million people living in poverty. Burma rates 149 out of 187 countries on the UN’s Human Development Index and, in 2011, tied with Afghanistan as the second most corrupt country in the world according to Transparency International (North Korea and Somalia tied for first).

Burma; Human Development Trends, 1980-2011*

Human development trends showing east Asia and the Pacific, Low human development, World and Myanmar
[click graph for larger image] 

* The Human Development Index (HDI) provides a composite measure of three basic dimensions of human development: health, education and income. The HDI sets a minimum and a maximum for each dimension, called goalposts, and then shows where each country stands in relation to these goalposts, expressed as a value between 0 and 1.

Nevertheless, Burma possesses significant economic strengths. It has a young labour force, a large natural resource endowment, and, most importantly, is strategically located between two of the world’s largest and most dynamic economies, China and India. Indeed, when one looks at the extensive network of trade and transport infrastructure across the greater Mekong sub-region, the potential for expanding this network into Burma – enhancing its role as what India’s Prime Minister has described as an ‘economic bridge’ between South and Southeast Asia – becomes clear.

In an effort to boost growth, the Burmese Government’s reform program has included efforts to liberalise the economy by easing restrictions on the exchange rate and foreign investment. As a result of the suspension of Western sanctions and recent economic reforms, The Economist forecasts that GDP growth will increase from a projected 5 per cent in 2012 to 6.9 per cent in 2016, with much of this increase coming from more exports and foreign investment. Higher growth scenarios could be realised if domestic reforms, internal peace efforts and international engagement gain further momentum.

A key test for Burma’s economy will be whether these increases in trade, investment and growth can be sustained and whether they will benefit a larger segment of the population, particularly ethnic minority groups for whom decades of grinding poverty, conflict and dislocation have added fuel to longstanding grievances against the military and their proxies. Burma’s military continues to dominate many elements of the economy, particularly the extraction of natural resources in rural and ethnic minority areas, through various state-owned companies and local commercial ventures.

A recent piece by the US-based Carnegie Endowment advocates five economic policy priorities to bolster popular support for the reform program and generate ‘quick-wins’ for poverty reduction:

  • establish a financially viable government through a transparent and proper budget process 
  • allow increased economic activity by private entrepreneurs free from state or military patronage and respect and protect the property rights of private investors
  • eliminate the broad variety of import and export restrictions in order to jump-start the non-oil and gas sectors of the economy
  • develop natural resources in a way that manages macro-economic risks, minimises environmental and social problems, and provides a transparent basis for providing sustainable public investment in ethnic minority regions
  • work with the international community to assist in clearing debts owed to the Asian Development Bank and the World Bank (estimated at US$5.5 billion) so as to allow Burma to access concessional financing from these institutions.
These kinds of changes are obviously easier said than done; some will face fierce opposition from powerful vested interests associated with the military, most will require sustained support from donor partners, and nearly all will test the civilian government’s limited capacity. Despite high levels of poverty, Burma receives one of the lowest levels of aid per capita in the world, around US$8 per head. As well as easing sanctions, in the 2012–13 Budget Australia increased its bilateral development assistance to Burma by over 30 per cent (from $48.8 million to $63.8 million), with a focus on health, education and rural development. Senator Carr announced last week that Australia’s bilateral aid will reach $100 million per year by 2015 and that the Government will seek to establish a formal development cooperation relationship with Burma. Importantly, $80 million over four years will be allocated to improving basic education outcomes and increasing the number of tertiary scholarships available to Burmese students to study in Australia.

One of the most important issues confronting Australia as it scales up aid to support economic transition is how to ensure that we and other donors do not end up competing with each other for ‘good projects’ and thereby overwhelm Burma’s fragile and evolving systems. One commentator has spelt out the negative consequences associated with this scenario:
...donors will conduct their own uncoordinated (indeed secret) country strategy reviews of Myanmar. Consultant missions will pour in and government officials will find themselves in many repetitive meetings explaining the same basics to each donor mission. Donors will then decide what they want to do, inform the government, which will accept nearly everything as it is grant funding (and what is proposed will be in line with general government priorities and strategies). Limited good office space will then be taken up by donors and, more seriously, many of the best English-speaking educated Myanmar will be employed by donors. The quality public servants that do remain will have much of their time consumed in meeting with donors. Within five years Myanmar could become a typical aid-dependent country.
These concerns have been echoed by The Asia Foundation.

If this outcome is to be avoided, well-coordinated, long-term support for the improvement of Burma’s own development planning, human resource and budget systems will need to be a core part of donors’, including Australia’s, increased assistance.