- Doy / IPD
27 September 2007
The first sign of the current protests currently underway in Myanmar occurred in a rare display of public outrage over the economic conditions within the country in February 2007. A small group calling themselves the Myanmar Development Committee called on the military rulers to address consumer prices, lack of health care, education and the poor electricity infrastructure. Normally unseen in Myanmar, the protest was quickly broken up after only 30 minutes of activity. Likely in response to the protests, the ruling military junta appointed Brigadier-General Than Han of the Myanmar police to the responsibility of handling civil unrest in Rangoon.
On August 15, 2007, the government made significant cuts to national fuel subsidies, which had an immediate effect of increasing the price of diesel fuel by a reported 100 percent, causing a five-fold increase in the price of compressed natural gas, and placing additional inflationary pressure on an economy already facing estimated inflation levels of 17.7 percent in 2005 and 21.4 percent in 2006.
Once again, similar to the event in February, people took to the street in a rare display of public anger. The current demonstrations have drawn a significant number of Buddhist monks into the streets and have led to national curfews. Violence finally broke out on September 26 as security forces and protesters clashed.
The end of fuel subsidies were likely part of a larger package of reforms that the junta has been planning in order to, among other things, reduce the pressure of global fuel prices in a country that is dependent on diesel imports for its entire economy. Myanmar has an insignificant domestic refinery capacity and a chronic need for foreign currency. The latest Indian proposal intended to regain access to the Shwe gas fields has reportedly included diesel fuel exports, while a deal with Petronas of Malaysia is seeking similar arrangements. [See: "Pipeline Politics: India and Myanmar"]
The International Monetary Fund (I.M.F.) and World Bank made recommendations along the lines of the subsidy cut as part of a larger package of reforms as recently as last year; critically citing the trend toward extraordinarily high deficit budget deficits carried by the junta. The construction of a new capital, Naypyidaw, and the proposed construction of an information technology capital, Yadanabon, along with significant pay raises for civil servants and the military have placed serious pressure on government reserves. The government typically addresses such deficits by printing more money, producing the significant inflationary pressures seen today.
The involvement of private interests should not be overlooked. Leading businessman Tay Za and his holding company Htoo Trading Company may be set to profit from the privatization of the fuel distribution system within the country. In order for the move to be successful, the thriving black market in fuel needs to be eradicated, thus the necessary removal of fuel subsidies and the subsequent rise in prices throughout the country. While power plays between junta leaders and private businessmen have been cited before as causal factors in economic policy changes, the international pattern of subsidy reduction in the face of rising global oil prices suggests that this was not the underlying motive in the move. However, it would be a fairly typical move for the junta to select reforms beneficial to its business partners rather than to the national interest.
The junta has successfully melded the Myanmar economy into one that is dependent and focused on the export of its resources. Arguably, it appears that the junta has little economic planning experience and its priorities lie in the promotion of military power. However, it has produced a situation in which little value is added to any resources, whether it is copper, timber, or energy, producing an economy dependent on imports and exposed to the volatility of resource prices. It has managed resource rents and foreign investment poorly; planned hydroelectric projects will likely be forced to export electricity due to the inability of domestic infrastructure to handle the increased load.
Similarly, the information technology project of Yadanabon, likely a response to a similar project in Malaysia, is typical of the economic oddity that the junta often embarks on with little thought to planning. Communication infrastructure within the country is archaic and will not support the proposed project. Likewise, the jatropha (physic nut tree) plantations currently being planted across the country, another junta project, will not result in any significant economic development. The fuel requires significant infrastructure to turn into bio-diesel, which likely means it will be exported in its raw form to neighboring countries while the land under plantation could arguably be better utilized to feed the population. Regardless, the aging diesel engines that are in use throughout Myanmar will not be able to burn the resulting fuel stock effectively even if the domestic infrastructure were available.
One of the factors that may exacerbate the situation is the state of Myanmar's banking sector. The junta has announced a restriction on withdrawals from banks, raising echoes of the banking crisis of 2003. These restrictions are typical for unstable times, but due to the shaky status of the private banks especially, it is likely to cause even further economic hardship for the people of Myanmar. Monks may represent the spiritual backbone of the protests, but it is the general populace who has been successfully cowed by the junta into an attitude of self-preservation, which will ultimately have to be driven to demand change.
The military has made a supreme effort to remove itself from contact with the population: barracks and bases are situated away from towns, and the new capital is a study in strategic withdrawal to the hinterland. It is the populace who has the most to lose from rampant inflation and evaporating savings, but faces an incredibly resilient and increasingly isolated military that has kept a stranglehold on power since 1962.
The last major uprising in Myanmar occurred in 1988. The underlying cause of the revolt was economic and resulted in violent repression by the military. The outcome of the current protest could be similar. Regardless, due to the decades of military involvement in the economy, dependency on resource exports and a high rate of corruption that pervades the country, the necessary economic improvements will not come easily. Even with peaceful political change, without significant international oversight, the overwhelming precedence of military intervention and control in the country will likely return Myanmar to state-sponsored economic mismanagement.
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