BANGKOK - The latest report on Myanmar by the Asian Development Bank (ADB) states that the country's economy is on the verge of collapse, as the military government struggles to provide basic services. According to the Myanmar Economic Update report, taxation is amongst the lowest in the world, while only three people out of every 20 have access to electricity and only one person in 200 has a telephone.

The military's continued iron grip control of the country has done little to ease the economic burden. The escalating economic crisis has forced the junta's hand to some extent over its relations with pro-democracy leader Aung San Suu Kyi and for over a year now the two have engaged in a dialogue process. The talks have resulted in the release of nearly 200 political prisoners, although an estimated 1,500 remain in detention.

Since 1991, bilateral assistance has largely dried up in the wake of international sanctions. However, countries of the region have pursued a vigorous policy of engagement and in July 1997 Myanmar was admitted to the Association of Southeast Asian Nations (ASEAN). Myanmar continues to receive loans and grants from some countries, including the China, India, Japan, Singapore, and Thailand, and from the Organization of Petroleum Exporting Countries (OPEC). Of these, China has been the biggest supporter, supplying most of Myanmar's military hardware, including tanks, patrol boats and fighter jets, along with military training. Many believe that the two countries closely cooperate in the area of intelligence.

Chinese President Jiang Zemin arrived in Myanmar on Wednesday for a four-day visit that will likely involve trade discussions. Jiang is the first Chinese head of state to visit the country since 1985. Officially, China is Myanmar's third most important trading partner, with bilateral trade estimated to be worth more than US$600 million a year, but unofficially, informal trade likely doubles this total. Through low-interest loans, China has also funded the country's infrastructure through deep-sea port, road and airport projects.

Military intelligence chief Lieutenant-General Khin Nyunt has said that Myanmar's economy has been growing without international assistance at over 8 percent a year over the last five years. "I am confident that, with increased inputs from abroad, our economic growth will be more rapid," he said. But his assertion contrasts sharply with the findings of the ADB's report.

It states that Myanmar's prospects for growth over the medium term are constrained by growing macroeconomic imbalances and impediments to structural adjustment. However, prospects could be improved if Myanmar were to recommence reforms and undertake needed adjustments. Ultimately, poverty reduction and broader improvements in the quality of life will rest on policy and institutional frameworks that serve to promote durable and equitable growth.

According to the report, official development assistance could have an important role in serving these objectives and meeting Myanmar's still considerable development needs. Myanmar's gross domestic product (GDP) is estimated to have grown at an average annual rate of 5.9 percent since the beginning of reforms in 1988. With a population growth rate of about 2 percent per year, this translates into per capita income growth of about 4 percent per year, which is close to the average performance of other developing member countries of the Asian Development Bank (ADB) during the 1990s.

State-owned economic enterprises (SEEs) dominate public finances, accounting for nearly 75 percent of public expenditure, only about 6 percent of which goes toward capital expenditures, the report says. A small and declining share of public sector expenditures has been going to investment in physical and human resource development. Public expenditure has been squeezed by a low and declining rate of revenue collection, which at 5.1 percent of GDP in 1999-2000 was among the lowest in the world. Inadequate public revenues have jeopardized the delivery of essential public services.

Myanmar has been operating under increasing resource constraints. Myanmar's international reserves are meager and its external arrears and debts are increasing. At the end of 2000, Myanmar's international reserves covered only about two months of imports. Flows from the private sector (foreign private investment, suppliers' credits, and private transfers), which had been relatively buoyant prior to 1997, suffered in the wake of the Asian crisis and as a result of stiffening sanctions. The hike in world oil prices in 2000 exacerbated foreign exchange constraints as Myanmar is a net oil importer. The inflow of official development assistance from bilateral and multilateral agencies has been very small and confined largely to humanitarian aid. Myanmar has responded to the erosion of its reserves by tightening trade and exchange regulations.

But, according to the ADB, other imbalances have a longer legacy. Perennial budget deficits and frequent recourse to inflationary finance has encouraged the use of US dollar in everyday transactions and fueled a secular depreciation of the domestic currency. Maintenance of the fixed official parity confers ever larger subsidies on entities that import at the official exchange rate, imposes stiffer taxes on those that export at the official exchange rate, and provides fertile ground for rent seeking.

Macroeconomic imbalances cannot be sustained indefinitely and they will ultimately jeopardize growth prospects. The ADB report recommends that measures to strengthen domestic resource mobilization be given priority attention. The ratio of tax to GDP in Myanmar is among the lowest in the world. The tax system is also excessively complicated and suffers from too many exemptions. Myanmar's agriculture sector, which accounts for about 60 percent of GDP, largely escapes direct taxation. A broader tax base, a simplified tax code, and the replacement of implicit by explicit taxes could do much to help mobilize resources, ease fiscal deficits, and moderate inflationary pressures.

There is a pressing need to increase the flow of public resources to basic health and education services, and to other areas where developmental needs are not being met. However, the report states, Myanmar's SEEs are loss-making and are diverting scarce resources away from socially more productive uses. While the privatization of viable state-owned entities should be a long-term objective, greater operating efficiency of SEEs could be encouraged through mechanisms that provide for greater autonomy and accountability of SEEs.

Progress on poverty reduction in Myanmar will hinge on growth prospects and on mechanisms that allow the poor to benefit fully from expanding economic opportunities. Based on a household income and expenditure survey, and using a national poverty line, the Central Statistical Organization has calculated that Myanmar's headcount poverty ratio was 22.9 percent in 1997. Assuming that there has been no change in the headcount ratio since 1997, and that the population is growing at 2 percent, this means that in 2001 there were approximately 11.7 million people in Myanmar who did not have the means to support their basic subsistence.

A variety of social and health indicators also give the ADB cause for concern. In 1999, the official estimate of life expectancy for urban males was 61 years. In 1997, the incidence of malnutrition in children under five years of age was reported to be 31 percent and the under five mortality rate was 77.77 per 1,000 live births.

Estimates made by international organizations paint an even more somber picture. Tuberculosis is still a serious threat to health in Myanmar and malaria control remains a key concern. While there are no official estimates of how widespread the incidence of HIV/AIDS infection is, other sources suggest that it has reached epidemic proportions. There can be little doubt that the spread of HIV/AIDS and growing drug abuse is putting families, communities, and health care systems under additional stress.

While poverty afflicts the lives of a substantial portion of Myanmar's population, official estimates suggest that the incidence of poverty is low compared to other countries with similar levels of per capita income, such as Cambodia, Laos, Mongolia, and Vietnam. Indeed, the estimated poverty incidence is also lower than that of the Philippines, a country whose per capita income is nearly triple that of Myanmar. Whether Myanmar's poverty indicators reflect favorable initial conditions - Myanmar was one of Asia's richest countries in the 1950's and early 1960s - or a legacy of the equalizing socialist policies pursued in the 1980s, or a consequence of favorable agrarian conditions is difficult to determine.

Official estimates of rural poverty also contrast with international patterns. In most parts of the world, including East Asia, income distribution is biased toward urban areas, and the incidence of poverty tends to be higher in rural areas than in urban areas. Apparently, this is not the case in Myanmar, where the official estimates suggest that the incidence of poverty is lower in rural areas than in urban areas. The estimated incidence of poverty also seems to exhibit little gender bias.

Prospects for poverty reduction in Myanmar will depend not just on raw economic growth but also on the quality of that growth, the report states. Broad international experience suggests that reductions in the incidence, depth, and severity of poverty are most likely when economic development is market-led and accompanied by pro-poor policies and interventions. An essential ingredient of such a strategy would be to invest adequate public resources in health, education, and affordable safety nets. The allocation of public expenditure in Myanmar does not currently reflect such priorities.

The role that export restrictions play in promoting food security is unclear. The report cites the experience of countries such as Vietnam as suggesting that easing export restrictions is likely to evoke a strong supply response and generate larger domestic surpluses.

In terms of its prospective industrial development, Myanmar is a low-wage economy, with a comparative advantage in labor intensive activities. Myanmar already has a significant presence in the textile and garments industries, which, notably, benefit from import and export tax exemptions. Myanmar's natural resources also provide ample opportunity for specialization in agro-processing and other downstream, resource-based, activities. Although these are already the largest contributors to manufacturing output in Myanmar, there is still ample scope for market growth through expansion into neighboring markets. but there remain a number of impediments to the development of Myanmar's manufacturing and industrial sector. Entrepreneurial talent and experience is scarce and needs to be nurtured. Likewise the technical, managerial, and marketing skills needed to facilitate operations logistics, including the development of supply and distribution backbones, is in short supply.

According to the report, extensive administrative and bureaucratic control exercised over industry stifles private enterprise and raises business costs. While a variety of measures have been introduced to encourage foreign direct equity investment and significant liberalization has occurred, Myanmar's investment exclusion list is still quite extensive, and approval procedures are cumbersome and lack transparency. Once established, foreign enterprises then have to cope with a variety of discriminatory practices including the payment of higher charges for utilities.

Myanmar's public health system is facing serious resource constraints. Although the Ministry of Health's current expenditures have increased over the past five years, public expenditure on health has declined from 0.38 percent of GDP in 1995-96 to 0.17 percent in 1999-2000, one of the lowest levels in the world. Even though the public health system remains functional and the number of facilities, especially in the border areas, has increased, the quality of service is declining and the adequacy of medicines and equipment is decreasing. As a result, public health facilities are experiencing declining usage rates as more people turn to private sector health care providers. Private health care options for both modern medical care and traditional services are expanding throughout Myanmar.

In terms of addressing health care needs, the report states, Myanmar still faces a wide variety of challenges. Rural and border areas need increased immunization and inoculation coverage. To combat diarrhea-related diseases, improved environmental health infrastructure is needed. To ensure that the poor can get access to basic health care services, more resources need to be mobilized to support the health trust fund and, in terms of its use, there is scope for better targeting.

The ADB report says that reforms for Myanmar's basic and higher education are in the pipeline. The reforms, as identified in the Special Four-Year Plan for Education (2000-03), entail improving curricula, upgrading facilities, training teachers, implementing enrolment and retention programs, and expanding higher and nonformal education. In recent years the government has made notable progress in establishing basic education schools, especially in rural and border areas, and bringing the national average up to one school for every two villages. Official data suggest that Myanmar has no significant gender differences in primary school enrolments. The government has also made rapid gains in expanding the higher education system throughout the country. Universities reopened fully in mid-2000 after most classes had been suspended in 1997. However, the government remains concerned about possible student unrest, and its policy of not allowing access to the Internet constrains learning opportunities and adversely affects standards. Although overall education reform seems to be moving in the right direction its potential for success is, at best, tenuous. Financial and human resources are both severely constrained.

Comparatively high parental contributions to basic education are both a positive development and a source of concern. On the one hand, such contributions show a strong commitment by parents to provide their children with the best possible education. On the other hand, they raise concerns about the burden these contributions place on lower-income households and quality differences that are emerging between schools in richer areas and those in poorer areas. The emergence of a two-tier public education system in major metropolitan centers is worrying, with the children of a privileged few attending exclusive schools and receiving a modern education at international standards, while the vast majority of children attend poorly equipped, outmoded schools.

Although Myanmar has made some progress in developing transportation, communications, and energy infrastructure, the report indicates that much remains to be done. Inadequate infrastructure is a bottleneck to growth and the more balanced regional development of the country. Almost half of all roads are simple earth roads and tracks that are not always passable by motorized vehicles, particularly during the monsoon season, and are used mainly by bullock carts.

Despite the significant growth in the telecommunications subsector since 1975, the present system is still basic. The average telephone density of 0.5 per 100 inhabitants is still far below the 1992, decade-old average for Asian and Pacific developing countries of 1.38. Telecommunications are almost nonexistent at the village level and in rural areas. Inadequate telecommunications infrastructure, means, among other things, that the opportunities for Internet-based learning and other services will remain severely constrained even if current policies on Internet access and usage are relaxed.

Since 1988-89, the report points out, Myanmar has not received any new lending from multilateral financial institutions. Nevertheless, several United Nations agencies maintain a presence in the country, though their activities are smaller in scope and scale than in the past and are very small compared to assistance to countries with comparable needs. In recent years, the United Nations has become the largest source of assistance, which is mainly humanitarian. In 2000, total assistance amounted to $47.2 million, with the UNDP and the United Nations Children's Fund (UNICEF) as the largest contributors, accounting for $17 million and $13 million, respectively.

In 2000, bilateral assistance amounted to only about $22 million, of which some $6 million was grants. In addition, a few international and national non-government organizations (NGOs) operate in Myanmar. Assistance from international NGOs increased from $4.5 million in 1999 to more than $7 million in 2000. NGO activities concentrated mostly on HIV/AIDS, primary health, and maternal and child health care.

The fact that the ADB has just conducted a comprehensive survey of Myanmar's economy has led to rumors that the bank is considering resuming loans to Myanmar. It seems likely that the ADB and other international financial institutions are preparing to enter Myanmar's economy as soon as the dialogue process between the junta and the opposition leader Aung San Suu Kyi produces tangible results.

(Asia Times Online)