Myanmar Economy: A Comparative View, U Myint, 2006

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Burma Studies Conference, Singapore,
13 - 15 July 2006
Myanmar Economy: A Comparative View
by
U Myint
I. Introduction
(a) Building a modern developed nation
1. A stated objective of Myanmar is to become a modern developed nation that will stand shoulder to shoulder – proud, dignified and tall – among the countries of the world. How far has Myanmar come in achieving this goal, viewed from an economic perspective? Where does it stand at present in relation to other nations, and especially those in the Asian region?
2. This paper attempts to provide some thoughts along these lines by looking at Myanmar's official data on: (i) rate of GDP growth; (ii) structure of GDP; (iii) level of per capita GDP; (iv) pattern of household consumption expenditure; (v) commodity composition of exports; (vi) inflation rate and (vii) exchange rate. Since the aim of standing shoulder to shoulder involves making comparisons with others, it will not be sufficient to merely look at the Burmese situation in isolation and come to the conclusion that the country is doing fine and is on the right path. Instead, we must look at and reflect upon the Burmese situation in the light of what has transpired in other countries over the past years. Such a comparative approach is attempted below. The implications of the findings of this approach for policy review and regional integration have also been given some thought.


II. GDP Growth Rate
(a) Good performance
3. Table 1 gives GDP growth rates for the past 6 years of the new millennium for 19 developing Asian countries, including Myanmar. The countries in the table are grouped into four categories, namely: (i) newly industrializing economies (NIEs); (ii) second tier NIEs ; (iii) other developing countries; and (iv) least developed countries.
4. Table 1 shows GDP growth performance of Myanmar in real terms has been good compared to other countries in the region. According to official figures, Myanmar has achieved double digit GDP growth rates for every year for the past six years. The average growth rate of the country was 12.6% per year for the period 2000 - 2005. Since the average annual growth rates for the four categories of developing Asian countries ranged between 4.5% to 5.8% for this period, Myanmar's growth performance has been more than double the growth rates of these countries.

Table 1. GDP growth rates, Selected Asian Countries: 2000 - 2005
(per cent)
Economy 2000 2001 2002 2003 2004 2005 2000 - 2005
(Average)
I. Newly Industrializing
Economies (NIEs)
(01). Rep. of Korea 8.5 3.8 7.0 3.1 4.6 4.1 5.2
(02). Hong Kong 10.2 0.5 1.9 3.2 8.1 5.7 4.9
(03). Singapore 9.7 -1.8 3.2 1.4 8.4 4.1 4.2
(04). Taiwan 5.8 -2.2 3.9 3.3 5.7 4.2 3.5
Average NIEs 8.6 0.1 4.0 2.8 6.7 4.5 4.5
II. Second Tier NIEs
(05). Malaysia 8.9 0.3 4.1 5.3 7.1 5.7 5.2
(06). Thailand 4.8 2.2 5.3 6.9 6.1 5.6 5.2
(07). Indonesia 4.9 3.8 4.3 5.0 5.1 5.5 4.8
Average Second Tier NIEs 6.2 2.1 4.6 5.7 6.1 5.6 5.1
III.Other Developing Countries
(08). China 8.0 7.5 8.3 9.3 9.5 8.5 8.5
(09). Vietnam 6.1 5.8 6.4 7.1 7.5 7.6 6.8
(10). India 4.4 5.8 4.0 8.5 6.5 6.9 6.0
(11). Pakistan 3.9 1.8 3.1 5.1 6.4 7.0 4.6
(12). Philippines 4.4 1.8 4.3 4.7 6.1 5.0 4.4
(13). Sri Lanka 6.0 -1.5 4.0 5.9 5.5 5.2 4.2
Avg. Other Developing countries 5.5 3.5 5.0 6.8 6.9 6.7 5.8
IV.Least Developed Countries
(14). Bhutan 5.5 7.1 6.7 6.5 7.0 8.0 6.8
(15). Laos 5.8 5.8 5.9 5.9 6.5 7.0 6.2
(16). Bangladesh 5.9 5.3 4.4 5.3 5.5 5.3 5.3
(17). Cambodia 7.0 5.6 5.5 5.2 6.0 2.3 5.3
(18). Nepal 6.0 4.8 -0.4 2.9 3.3 3.0 3.3
Avg. Least Dev. Countries 6.0 5.7 4.4 5.2 5.7 5.1 5.4
Avg. All selected (18) countries above 6.6 2.9 4.5 5.1 6.4 5.5 5.2
(19). Myanmar 13.7 11.3 12.0 13.8 12.6 12.2 12.6
Source: Asian Development Bank, Key Indicators of Developing Asian and Pacific Countries (Manila, Asian Development Bank, On-line Edition, 2005).
Source for Myanmar: Ministry of National Planning and Economic Development, Yangon.

(b) Reservations on Myanmar's growth performance
5. Many observers, both within the country and abroad, have expressed reservations on Myanmar's official growth rates. IMF for example, has a conservative outlook regarding Myanmar’s economic performance of recent years because it is of view that other regional countries in a similar situation as in Myanmar did not experience such robust growth over this period. IMF has defined similarity in terms of a low level of development, a large agricultural sector, a pervasive role of the state in the economy, and a recent history of conflict. Bangladesh, Cambodia, Laos and Vietnam were identified as countries having such attributes. It was pointed out that Myanmar, despite its high official growth figures, did not fare well when social indicators are considered in comparison to these countries. It also did not measure up to these countries in terms of per capita GDP in US dollars. Moreover, IMF had difficulty reconciling Myanmar’s high agricultural growth with its official figures on harvested acreage, irrigated area, and the reported decline in the use of fertilizers and pesticides. Similarly, high industrial growth does not seem to be consistent with the relatively low increase in industrial power consumption, manufacturing use of petroleum products and the decline in capital goods imports. IMF concludes that all these imply an implausibly large increase in productive efficiency. IMF expected near zero growth for Myanmar in fiscal year 2003/04 based on its belief of constraints that will arise from a low level of imported inputs, structural rigidities, and delayed effects of sanctions and the banking crisis. In sharp contrast to IMF expectations, Myanmar authorities have estimated a 13.8% growth for this year.
6. The uneasiness of many observers with Myanmar’s official GDP growth rates have led to speculation concerning what might be more realistic growth figures for the country. Thus, ESCAP believes the Myanmar economy to have grown 5% and 4.5% respectively in fiscal years 2004/05 and 2005/06. The IMF in making a forecast of Myanmar’s economic performance for the four years 2004/05 to 2007/08 projects GDP growth rate to average 3.2% in the baseline scenario and 5.3% in the reform scenario. But most Burmese in the business community, and those segments of society living at ground zero and trying desperately to make ends meet, have doubts the economy is growing at all and will probably feel that it is too kind to be saying the country has been experiencing 3% to 5% growth in recent years.
7. Nevertheless, while taking note of the reservations that have been expressed, it will be useful to mention that GDP growth is only one element of economic performance. How about the structure of GDP and level of per capita GDP? How has Myanmar performed in these areas vis-a-vis others in the region? These are taken up below.
III. Structure of GDP
(a) Structural change in Asian countries
8. A shift over time in the relative shares of agriculture, industry and services in GDP is generally accepted as a measure of structural change in an economy undergoing a process of industrialization and modernization. Sectoral shares of GDP for 1970, 1980, 1990 and 2003 – a period extending over the past three decades – for selected Asian countries are

Table 2. Sectoral Shares of GDP, Selected Asian Countries: 1970, 1980, 1990 and 2003
(per cent)

Economy AGRICULTURE
1970 1980 1990 2003 INDUSTRY
1970 1980 1990 2003 SERVICES
1970 1980 1990 2003
I. NIEs
(01). Hong Kong n.a. 0.8 0.3 0.1 n.a. 31.7 25.3 12.0 n.a. 67.5 74.5 84.6
(02). Singapore 2.2 1.3 0.4 0.1 36.4 38.1 34.4 32.7 61.4 60.6 65.3 66.4
(03). Taiwan n.a. 7.7 4.2 1.8 n.a. 45.7 41.2 30.4 n.a. 46.6 48.4 67.8
(04). Rep. of Korea 29.8 14.9 8.5 3.2 23.8 41.3 43.1 34.6 46.4 43.7 48.4 62.2
II. 2nd Tier NIEs
(05). Malaysia n.a. 22.9 15.2 9.5 n.a. 35.8 42.2 48.6 n.a. 41.3 42.6 45.5
(06). Thailand 30.2 23.2 12.5 9.8 25.7 28.7 37.2 44.0 44.1 48.1 50.3 46.3
(07). Indonesia 35.0 24.8 19.4 16.6 28.0 43.4 39.1 43.6 37.0 31.8 41.5 39.9
III. Other Devlg
Countries
(08). Philippines 28.2 25.1 21.9 14.5 33.7 38.8 34.5 32.6 38.1 36.1 43.6 53.5
(09). China 42.2 30.1 27.0 14.6 44.6 48.5 41.6 52.3 13.2 21.4 31.3 33.1
(10). Sri Lanka 30.7 26.2 22.9 19.0 27.1 29.8 27.3 26.3 42.2 44.0 49.8 54.7
(11). Vietnam n.a. 50.0 38.7 21.8 n.a. 23.1 22.7 40.0 n.a. 26.9 38.6 38.2
(12). India 44.5 38.1 31.0 22.4 23.9 25.9 29.3 26.5 31.6 36.0 39.7 51.1
(13). Pakistan 40.1 29.6 26.0 23.3 19.6 25.0 25.2 23.2 40.3 45.5 48.8 53.4
IV. LDCs
(14). Bangladesh n.a. 41.2 29.4 21.0 n.a. 16.3 20.9 25.3 n.a. 42.5 49.7 53.7
(15). Bhutan n.a. 56.7 43.2 33.2 n.a. 12.2 25.3 39.5 n.a. 31.1 31.5 28.8
(16). Cambodia n.a. n.a. 55.6 37.2 n.a. n.a. 11.2 26.8 n.a. n.a. 33.2 36.0
(17). Nepal n.a. 61.8 51.6 39.2 n.a. 11.9 16.2 20.9 n.a. 26.3 32.1 39.9
(18). Laos n.a. n.a. 61.2 48.6 n.a. n.a. 14.5 25.9 n.a. n.a. 24.3 25.5
(19). Myanmar 49.5 46.5 57.3 51.9 12.0 12.7 10.5 13.6 38.5 40.8 32.2 34.5
Sources: Asian Development Bank, Asian Development Outlook 1995 (Hong Kong: Oxford University Press, 1995); Asian Development Outlook 2002 (Manila: Asian Development Bank, On-line Edition, 2002); Asian Development Bank, Key Indicators of Developing Asian and Pacific Countries (Manila, Asian Development Bank, On-line Edition, 2004).
Source for Myanmar: Ministry of National Planning and Economic Development, Yangon.
Notes: (i) Agriculture comprises agriculture, forestry, livestock, hunting and fishing.
(ii) Industry comprises manufacturing, mining, construction, electricity, gas and water.
(iii) Services comprise all other branches of economic activity in GDP not included in (i) and (ii) above.
(iv) "n.a." means data are not available.
(v) Countries in the table are ranked in ascending order based on share of agriculture in GDP for year
2003.

given in table 2. It shows some common patterns in the structural shifts within the four categories of economies into which the countries have been grouped.
9. For the four Newly Industrializing Economies, Hong Kong and Singapore as city states have no significant agriculture sector, and consequently and luckily for them, no problem of rural poverty. For the remaining two, agriculture only accounts for a small share of GDP in 2003: 1.8% for Taiwan and 3.2% for the Republic of Korea. For all NIEs the share of industry in GDP fell over the period 1980 to 2003, for Hong Kong from 31.7% to 12.0%, for Singapore from 38.1% to 32.7%, for Taiwan from 45.7% to 30.4%, and for the Republic of Korea, from 43.4% to 34.6%. For all NIEs, the share of services in GDP rose over the period 1980 to 2003. In 2003 services account for 62.2% of GDP in the Republic of Korea, 66.4% in Singapore and 67.8% in Taiwan. The case of Hong Kong with a share of services amounting to 84.6% in 2003 is exceptional. Due to rising land and labour costs, Hong Kong has shifted its industrial base to South China with which it has close cultural, linguistic and historical ties and where it has also found a congenial climate for foreign investment and private sector development.
10. As for the three second tier NIEs, the share of agriculture in GDP fell sharply in all of them over the past three decades. In Thailand it fell from 30.2% to 9.8% and in Indonesia from 35% to 16.6%. So by 2003, agriculture accounts for between 9% to 17% in this group of countries. With this decline in agriculture, industry’s share increased in all three countries to around 44% to 48% of GDP.
11. With respect to the third group designated as “other developing countries”, in China the share of agriculture in GDP fell from 42.2% in 1970 to 14.6% in 2003, while the share of industry rose from 44.6% to 52.3% over the same period. The South Asian countries, the Philippines and Vietnam also experienced substantial declines in the share of agriculture as well as increases in the share of services. But changes with respect to the share of industry in GDP appear mixed for these countries.
12. There are six countries in the fourth group designated as “least developed countries.” The data base is not strong for them, especially for earlier years. Nevertheless, available data illustrate some clear trends. Over the period 1980 to 2003 the share of agriculture in GDP decreased from 41.2% to 21.0% in Bangladesh, from 61.8% to 39.2% in Nepal and from 56.7% to 33.2% in Bhutan. Similarly, over the past decade 1990 to 2003, the share of agriculture decreased from 55.6% to 37.2% in Cambodia and from 61.2% to 48.6% in Laos. All the five least developed countries noted above, experienced rises in the share of industry in GDP for the years for which data are available. For example, in Bhutan the share of industry increased threefold from 12.2% of GDP in 1980 to 39.5% in 2003 mainly due to coming on stream of a large hydroelectric project in the country in the late 1980s.
(b) Lack of structural change in Myanmar
13. As for Myanmar, the country has a long tradition of data collection and analysis and we can go as far back as the colonial days to obtain information on the structure of the economy. Thus, national income accounts of Myanmar are available for the year 1938/39, and the share of agriculture in GDP for that year is estimated to be 47.9%. Keeping this figure in view and noting that the share of agriculture to be 51.9% in 2003 as indicated in table 2, it seems that the share of agriculture in GDP has risen in Myanmar in the course of the past 60 years.
14. With increasing reliance on agriculture for decades, official statistics seem to show that industry’s contribution to GDP has remained subdued in Myanmar. Industry's share in GDP is estimated to be 13.6% in 2003. In 2000 the share was considerably smaller and estimated at 8.8%. Insufficient dynamism in the industrial sector is reflected in its low contribution to GDP compared to other countries. Myanmar’s share of industry in GDP is one of the lowest among 19 countries in table 2 and is substantially below the figure for Bhutan (39.5%), Cambodia (26.8%), Laos (25.9%), Bangladesh (21.0%), and Nepal (20.9%).
15. Another disturbing fact is that the share of services in Myanmar's GDP is estimated to have fallen from 38.5% and 40.8% in the earlier years to 34.5% in 2003. This additional element makes Myanmar's experience somewhat unique – rise in the share of agriculture and stagnation or decline in the shares of industry and services over the past three decades.
16. To conclude, although Myanmar officially belongs to the “least developed countries” group, its experience with structural transformation of the economy is different from the pattern that can be observed for other countries in this group. Myanmar’s experience is also different from trends in structural transformation that can be discerned in table 2 for the other three groups of countries in the region.
III. Per Capita GDP and the Catching-Up Question
(a) Early and late industrializers
17. Since the early days of the Industrial Revolution which began in England over the period 1760 to 1830, and that initiated the process of modern economic development in the world, there have been countries that industrialized earlier and those that followed. There is a long historical tradition for followers to try to catch up with the front-runners. In the latter half of the nineteenth century, it was France and Germany and the rest of Europe trying to catch up with England. In the post World War II period it was Japan trying to catch up with Europe and America. Then in the 1970s it was Korea and Taiwan trying to catch up with Japan. More recently, second generation Newly Industrializing Economies such as Malaysia and Thailand want to catch up with those in the first generation, like Singapore.
18. In the catching-up process, followers have traditionally drawn upon the experience, knowledge and openings made by the front-runners. In the nineteenth century, recruiting and enticing away skilled engineers and technicians from England was a favourite pastime of industrialists in Europe. Even the United States, with high standards of intellectual property rights, did not maintained such standards in the early stages of the country's development. Authors such as Charles Dickens have been known to complain that enterprising Americans had sold pirated copies of his works without paying him the appropriate royalties. In this context, it may be useful to mention that the Asia and Pacific region has many countries that are masters in the art of "creative imitation" – that is to import, imitate, adapt and improve on a technical innovation developed elsewhere, so that finally the imitation is better, less costly and outperforms the original.
19. Normally, a latecomer develops at a faster pace because it starts from a low economic base, can draw upon the experience of those in front, and can proceed along the path already cleared by the front-runners. This helps the catching-up process. The process is further facilitated by an attitude problem that often afflicts a front-runner. For example, in the late nineteenth century rivalry between England and Germany to gain industrial supremacy in Europe, the British were giving specifications of their products in feet and inches, the catalogs and manuals were printed only in English, and although cheaper goods would be more suitable for the pocket books of consumers in Europe at that time, the British refused to produce cheap goods. This was so because, as Number One in the world, it had a reputation to protect and did not want to produce cheap goods. The outcome, as can be expected, was that England did not do well in the competition. It also shows that a country's success often has within it the seed of its own decline. As a latecomer, Myanmar is spared this problem. Nevertheless, this incident is worth recalling because Myanmar has a rich cultural heritage, and efforts are currently underway to revive the glories of its past. It will be desirable to ensure that revival of past glories does not lead to illusions of grandeur but instead becomes a vital force that enhances national confidence and determination to meet the development challenge of the twenty-first century.
20. In light of observations made above, a question arises: should Myanmar try to catch up with some country? The Myanmar authorities have expressed a desire to do so. For example, the Thirty Year Industrial Development Plan which is currently under implementation aims to reach a stage of industrialization in Myanmar that will
(i) be at the same level as fellow ASEAN countries by the end of the Second Five Year Plan (that is by year 2015);
(ii) be on a similar status as advanced Asian countries, like Japan by the end of the Fourth Five Year Plan (2020); and
(iii) catch up with the industrialized countries of the West by the end of the Sixth Five Year Plan (2030).
21. However, at the meeting of the Industrial Development Committee held at Yangon on 22 April 2003, a statement was made that the industrial sector's share is planned to rise to 37% of GDP at the end of the 30 year plan. But as we can see in table 2, industry's share in GDP has already reached around 37% in Malaysia, Thailand, Indonesia, Philippines and China a decade and a half ago in 1990. Perhaps catching up can be thought of in terms of reaching a stage of industrialization that enables the people of Myanmar to enjoy the same level of per capita GDP as in other countries. This is considered below.

Table 3. ASEAN Countries: Per Capita GDP in 2002
(PPP US$)
Country Per Capita GDP
01. Singapore 24,040
02. Brunei 19,210
03. Malaysia 9,120
04. Thailand 7,010
05. Philippines 4,170
06. Indonesia 3,230
07. Vietnam 2,300
08. Cambodia 2,060
09. Laos 1,720
10. Myanmar 1,488
Source: UNDP, Human Development Report 2004 (New York: Oxford University Press, 2004); table 1, pp. 139 -142.
Note: Per Capita GDP in PPP$ terms for Myanmar is available only for 1996 and is estimated to be PPP$1,027. Since official statistics indicate that there has been a 44.9% increase in per capita GDP (in real terms) between fiscal years 1996/97 and 2002/03, the GDP of Myanmar in 2002 is assumed to have risen by 44.9% to PPP$1,488.
The purchasing power parity (PPP$) of a country's currency is the number of units of that currency required to purchase the same representative basket of goods and services (or a similar basket of goods and services) that a US dollar would buy in the United States. See UNDP, Human Development Report 1997, p. 239. To give an illustrative example, suppose a basket of 5 commodities and services consisting of a gallon of petrol, a kilogramme of rice, a litre of cooking oil, a kilogramme of chicken, a haircut at the barbershop and bus fare for city travel for a distance of one kilometer costs a total of Kyats 20,000 in Myanmar and the same or similar basket of 5 commodities and services costs $40 in the United States, then PPP$1 = 20,000/40 = Kyats 500.

(b) Per capita GDP
22. The per capita GDP of Myanmar for fiscal year 2003/04 is estimated to be K144,984. How does this level of Myanmar’s per capita GDP compare with those in other countries? To find this out, we will need to have the per capita GDP of Myanmar expressed in a common unit, such as the US dollar. The Myanmar authorities have, however, wisely refrained from making any official estimate of the value of the country's GDP in terms of US dollars.
23. But there are others who are more daring and have attempted to make their own estimates. The World Bank for example, considers Myanmar to be among Southeast Asian countries with a level of GDP per capita between $323 and $396 in 1997. The IMF, in its September 1999 report, estimates Myanmar's GDP in FY 1998/1999 to be $14.2 billion, taking care to state in a footnote that this figure represents a "staff estimate at the market exchange rate and after adjustments to take into account unrecorded transactions." The Myanmar population for 1998/1999 is estimated at 48.16 million and this gives a per capita GDP in US dollars of $295. IMF in its March 2004 report on Myanmar has revised the country’s GDP for 2001/02 down to $7.7 billion, and with a population of 50.1 million for that year, per capita GDP fell to $154. Then again, in its March 2005 report IMF has revised Myanmar's GDP figure up to $13.6 billion for 2003/2004 which gives a per capita GDP of $260. Another estimate, made by the United Nations Committee for Development Policy, considers Myanmar’s per capita Gross National Income to be $282 in 2002.
24. On the other hand, Asiaweek says Myanmar's per capita GNP is $765 according to the "latest available figures from national and multilateral sources." A more optimistic estimate is made by the World Trade Organization. In a document presented to the Third United Nations Least Developed Countries Conference held at Brussels in May 2001, the WTO claims Myanmar's per capita income in 1997 amounted to $3,657. With these wide and inconsistent estimates, trying to figure out the per capita GDP of Myanmar in US dollars is likely to be an undertaking that falls in the realm of social science fiction.
25. In any event, using the nominal exchange rate to make inter-country comparisons of per capita GDP in terms of a common currency such as the US dollar may not be appropriate. The general feeling is that the purchasing power parity dollar rate of exchange for currencies prepared by the United Nations International Comparisons Programme gives a more meaningful measure for making international comparisons of GDP and its components.
(c) Catching-up
26. Table 3 gives the per capita GDP in PPP$ terms for 10 ASEAN countries. The table shows Myanmar is at the bottom of the list. This means Myanmar has a wide choice of countries to catch up with. However, due to national sensitivities and historical and other reasons, not all choices are really open. Thus, most Burmese will probably feel that it won't be much of a challenge to try to catch up with Cambodia and Laos. Striving to catch up with Thailand, a traditional rival, is not likely to have much appeal either. Perhaps, Malaysia could be an acceptable choice.
27. Malaysia’s per capita GDP in 2002 is estimated to be PPP$9,120 (table 3). If Myanmar is able to maintain its high average annual GDP growth rate of recent years of around, let us say 12%, and its population continues to grow at an annual rate of 2%, then its per capita GDP will grow at 10% per year. What is required is to find out how many years it will take for Myanmar's per capita GDP of PPP$1,488 growing at 10% annually to reach Malaysia's per capita GDP of PPP$9,120.
28. High school algebra can be used to provide the answer. The calculation is as follows:
Let Y = future or target per capita GDP = 9120
A = present per capita GDP = 1488
r = growth rate of per capita GDP of 10% expressed as a decimal = 0.1
t = time in years to be determined
Then using the compound interest formula:
A(1+r)t = Y
(1+r)t = Y/A
t log (1+r) = log (Y/A)
t = log (Y/A)/log (1+r) = log (9120/1488)/log (1.1) = 19.0225
This can be checked:
A(1+r)t = 1488(1.1)19.0225 = 9120
29. The above calculation shows that if Myanmar's GDP in 2002 grew at the rate of 12% per year and this growth rate is maintained for two decades, and if Myanmar's population growth rate is 2% per year, then it would take 19 years for per capita GDP of Myanmar to reach the level of Malaysia's per capita GDP in 2002.
30. However, Malaysia with its "2020 vision" is hoping to attain developed country status in another 14 years from now. So, in a time frame of a little less than a decade and a half, Malaysia expects its per capita GDP to rise to PPP$28,741 – the figure stated in the UNDP report for a country in the "high income" group. This means, even if Myanmar continues to maintain its high GDP growth rate of 12%, it will take 31 years to catch up with the level of per capita GDP that Malaysia hopes to attain by 2020. And Malaysia’s per capita GDP in 2002 only forms 38% of the per capita GDP of Singapore, 34% of Japan and 31% of the high income Western countries. Hence, the objective of catching up with ASEAN neighbours and developed economies in Asia and other parts of the world, in terms of per capita GDP, within the time frame set in Myanmar’s Thirty Year Industrial Development Plan, seems unlikely to be fulfilled. And of course, if Myanmar’s official growth rates turn out to be somewhat optimistic and cannot be sustained, and the economy only grew at a more realistic 3% to 5% per year as estimated by some observers, then the outcomes of speculation on years required to catch up with others are better left unmentioned.
IV. Pattern of Household Consumption Expenditure
(a) Household expenditure pattern
31. The pattern of consumption expenditure of an average Burmese family is given in table 4. The figures are published by the Central Statistical Organization (CSO) and are based on its sample survey of monthly consumer expenditures of an average household in Yangon. The table gives data for two years, 1986 and 2001, and thus shows how the pattern of consumption expenditure has evolved over a fifteen year period. It reveals the following.
32. The size of the average household in Yangon has declined from 5.78 in 1986 to 5.20 in 2001. The monthly expenditure of this smaller household, mostly to meet daily necessities, rose from K997 to K37,428 over this period – a thirty-seven fold increase.
33. There has been an increase of 3.43% in the share of food in the household expenditure of an average family in Yangon over the 15 year period. But no significant shifts seemed to have taken place in the share spent on major food items. There has been small increases in the share of expenditures on meat amounting to 0.12% and on rice amounting to 0.78%. The increase in share spent on fruits and vegetables is higher at 2.85%. On the other hand, there has been declines in shares spent on fresh fish amounting to 0.89% and on oil and fats amounting to 2.1%.

Table 4. Household Expenditure per Month in Yangon, 1986 and 2001
Year Expenditure
1986
(Household size = 5.78) Expenditure
2001
(Household size = 5.20) Increase
Ratio Share
Change
(%)
Increase in
expenditure
Item of household expenditure (a)
Value (Kyats) (b)
Share
(%) (c)
Value
(Kyats) (d)
Share
(%) (c/a)
Ratio
(d-b)
(+)increase
(-)decrease
Total 996.84 100.00 37,428.06 100.00 37.55 ...
FOOD 647.29 64.93 25,585.87 68.36 39.53 +3.43
(1) Meat 106.44 10.68 4,041.07 10.80 37.97 +0.12
(2) Rice 97.61 9.79 3,955.03 10.57 40.52 +0.78
(3) Fish (fresh) 103.08 10.34 3,537.41 9.45 34.08 -0.89
(4) Cooking oil and fats 91.44 9.17 2,647.41 7.07 28.95 -2.10
(5) Fruits and vegetables 40.31 4.04 2,576.47 6.89 63.92 +2.85
(6) Spices and condiments 56.58 5.68 1,158.76 3.10 20.48 -2.58
(7) Eggs 18.39 1.84 951.67 2.54 51.75 +0.70
(8) Beverages 16.67 1.67 787.15 2.10 47.22 +0.43
(9) Pulses 19.01 1.91 747.21 2.00 39.31 +0.09
(10) Fish (dried) 5.56 0.56 707.35 1.89 127.22 +1.33
(11) Ngapi & nganpyaye 21.02 2.11 524.08 1.40 24.93 -0.71
(12) Milk & milk products 8.95 0.90 336.78 0.90 37.63 0.00
(13) Sugar and other food 15.58 1.56 273.93 0.73 17.58 -0.83
(14) Other 46.65 4.68 3,341.55 8.92 71.63 +4.24
NON-FOOD 349.55 35.07 11,842.19 31.64 33.88 -3.43
(1) Fuel & light 71.50 7.17 2,363.90 6.32 33.06 -0.85
(2) Travel expenses 47.78 4.79 2,363.28 6.32 49.46 +1.53
(3) Charity and ceremonials 13.20 1.33 1,233.15 3.29 93.42 +1.96
(4) House rent and repairs 30.37 3.05 1,147.79 3.07 37.79 +0.02
(5) Education 22.11 2.22 897.01 2.40 40.57 +0.18
(6) Clothing and apparel 51.19 5.14 847.14 2.26 16.55 -2.88
(7) Personal use goods 19.26 1.93 645.17 1.72 33.50 -0.21
(8) Medical care 18.61 1.87 636.81 1.70 34.22 -0.17
(9) Cleansing and toilet 30.19 3.03 540.10 1.44 17.89 -1.86
(10) Other household goods n.a n.a 292.35 0.78 ... ...
(11) Tobacco 23.26 2.33 251.12 0.67 10.80 -1.66
(12) Recreation 4.27 0.43 140.74 0.38 32.96 -0.05
(13) Stationery & school sup. supplies 12.13 1.22 133.65 0.36 11.02 -0.86
(14) Furniture 2.77 0.28 60.63 0.16 21.89 -0.12
(15) Crockery 1.35 0.14 11.13 0.03 8.24 -0.11
(16) Other 1.56 0.16 278.23 0.74 178.35 +0.58
Source: Central Statistical Organization, Statistical Yearbooks 1995 and 2001.
Notes: Expenditure items under both food and nonfood categories have been listed in order of magnitude for 2001.
n.a means not available.
34. As for the nonfood category, a significant change is the rise in the share of “charity and ceremonials” (C&C) in total expenditure. In 1986, the average family in Yangon spent K13 per month on this item and of the 16 items listed under the nonfood category, C&C’s share (1.3%) is ranked tenth. In 2001, C&C became a major item of expenditure. The amount spent on it (K1,233), is ranked third on the list of nonfood expenditures, behind “fuel and light” (K2,364) and “travel” (K2,363). The amount spent on C&C in 2001 is higher than the money the household spends on house rent and home improvements (K1,148), on education (K897), on clothes (K847), as well as on health (K637).

Table 5. Average Household Monthly Income and Expenditure
in Myanmar in 1997
State/Division (a)
Income
(Kyats) (b)
Expenditure
(Kyats) (a-b)
(c):Balance
(Kyats) (a/b)
Ratio of
income to
expenditure
(%)
States and Divisions
01. Yangon 16,660.99 15,499.75 +1,161.24 107.49
02. Kachin 13,196.61 16,368.98 -3,172.37 80.62
03. Tanintharyi 12,712.76 19,294.50 -6,581.74 65.89
04. Ayeyarwady 12,311.42 12,267.99 +43.43 100.35
05. Kayin 11,800.54 14,944.75 -3,144.21 78.96
06. Mon 10,767.66 13,708.00 -2,940.34 78.55
07. Bago 8,673.64 13,595.22 -4,921.58 63.80
08. Mandalay 8,650.39 13,834.31 -5,183.92 62.53
09. Shan 8,393.82 16,649.91 -8,256.09 50.41
10. Sagaing 7,760.88 13,565.15 -5,804.27 57.21
11. Chin 6,836.21 10,820.20 -3,983.99 63.18
12. Rakhine 6,660.56 12,033.68 -5,373.12 55.35
13. Magway 6,560.61 11,773.30 -5,212.69 55.72
14. Kayah 4,622.15 11,017.56 -6,395.41 41.95
Cities
01. Yangon 18,997.36 16,234.81 +2,762.55 117.02
02. Mandalay 11,058.03 18,273.60 -7,215.57 60.51
Whole Country
01. Union 10,122.98 13,784.51 -3,661.53 73.44
Source: Central Statistical Organization, Report of 1997 Household Income and Expenditure Survey (Yangon: CSO, 1999).
35. There are several possible reasons why C&C has become more important in the everyday life of an average Burmese city dweller. It could be that the family is performing more meritorious deeds because its members have become more interested in the next life than in the present one. Or it could be that the family is taking advantage of (or is being persuaded to take advantage of) the many new opportunities for making contributions to charities, welfare activities, community self-help schemes and other worthy causes (such as building roads and public works) that have mushroomed in the country in the process of transformation into a market-oriented economy. Or it could simply be that the household is playing an active part in numerous ceremonies, celebrations, festivals, mass rallies and rituals that have become a major national preoccupation in recent years.
(b) Comparison with others
36. How does Myanmar’s current pattern of household consumption expenditure compare with others in the region and with those in the developed world? The structure of a country’s consumption expenditure is influenced by its culture, traditions, customs, values, tastes and preferences and hence making inter-country comparisons in this area is hazardous. Keeping this in view, it will nevertheless be useful to recall a generally accepted principle in economics, known as Engel's Law, which states that for any country or society, a family at a lower level of income devotes a larger proportion of its expenditure to food. Then with rising incomes, the share of food declines while there is a corresponding increase in the share of other items such as housing, consumer durables, transport, education, health, recreation and family welfare services. As shown in table 4, in 2001, 68.36% of the consumption expenditure of an average family in Yangon is on food. For the country as a whole, the share of food for the same year is estimated to be 72%, with rice making up 15.8%. In the countryside and villages, the share of food (and especially rice) in total consumption expenditure is higher. This is particularly so in the rural areas of Chin State where food accounted for 76% of total household consumption expenditure with the share of rice amounting to 17.8%. Compared to this, the proportion spent on food for an average household in a developed country like the USA is around 14%. Even then, not all countries are happy with the amount of food consumed by their citizens. Consider, for example, this observation on the eating habits of the citizens of America.
“Numerous nutrition experts of the U.S. Department of Agriculture and of Health and Human Services have voiced concern that Americans generally eat too much food and, specifically, too much fat, cholesterol, sugar, and salt. Pointing to the incidence of obesity, diabetes, heart attacks, high blood pressure, and tooth decay, the Senate Select Committee on Nutrition and Human Needs has suggested that Americans eat 30% fewer calories from fats, 45% fewer calories from refined sugars, ... and that they reduce cholesterol intake by one-half, and salt intake by two-thirds.”
37. Not only in a developed country like the United States, in no other country in the Asian region does an average family devotes such a high share of household consumption expenditure to food as in Myanmar. In Singapore the share of household consumption on food is 14%, in Thailand it is 32% and in Malaysia, 37%. The share spent on food is lower in other least developed countries as well. For example, in Bangladesh the share is 52%, in Cambodia 57% and in Laos 61% (see footnote 21 below).
38. While the share spent on food has increased slightly relative to nonfood items in the consumption pattern of the average household in Yangon over the past decade and a half, there have been reports of vast changes in lifestyles in neighbouring countries over a similar period. For instance, a study completed in 1997 in Thailand is said to have found enormous changes in the spending pattern of consumers in that country with “money going into family welfare, sanitation, clothing, accommodation, transport and recreation.” According to the study, the share of expenditure on clothes and personal items went up from 9.5% in 1981 to 13.4% in 1996. The percentage spent on furniture, home accessories and appliances increased from 5.2% to 6.6%, the percentage spent on recreation jumped from 11.4% to 14.4%, while eating out at restaurants and hotels rose from 7.8% to 10% over the same period. The study is also reported to have found sharp rises in the shares spent on health care as well as on communications and transport.
39. Myanmar with its cherished traditions and customs need not emulate the spending patterns of others. Nevertheless, the structure of household consumption expenditure reflected in table 4 points to several challenges. First, the large percentage spent on food indicates a low level of income. The income level of the average household must be substantially increased so that the family has enough to spend on other items that are considered desirable in any modern developed society. Second, although the increased preference for charity and ceremonies is understandable, the lack of significant change in the pattern of household consumption expenditure for one and a half decade is disturbing. Third, with regard to food, it is important that the family gets a balanced diet. It is particularly important for children to get a diet that promotes their mental and physical development. Finally, as regards nonfood items, the proportions and the absolute amounts spent on items such as health, education and recreation are too small. Given today’s prices, most residents of Yangon would agree that it would not be adequate for a family of five to spend K897 per month on education, K637 on health care, and K141 on recreation. At the market exchange rate of K615 per US dollar that prevailed in 2001, these amounts translate into $1.46 per month on education, $1.04 per month on health care, and 23 cents per month on recreation.
40. The household income and expenditure survey of 1997 further reveals that average incomes of families in many parts of Myanmar are inadequate to meet household consumption expenditures. Table 5 shows that except in Yangon and Ayeyarwady divisions, estimated monthly incomes of average households were insufficient to cover consumption costs in the remaining 12 states and divisions. The situation appears particularly acute in Kayah, Shan, Magway, Rakhine, and Sagaing state/divisions where estimated incomes accounted for between 42% to 57% of the respective expenditures. For the country as a whole the income of the average family can only meet 73% of its consumption expenditure. Table 5 also indicates that income distribution has been uneven among states and divisions. For example, the estimated income of an average household in Yangon Division (K16,661) is over three and a half times higher than the income of an average household in the Kayah State (K4,622).
Table 6. Value and Volume of Merchandise Exports of Myanmar: 1988/89 and 1998/99 - 2002/03
Fiscal year 88/89 98/99 99/00 00/01 01/02 02/03 88-98 (Avg.) 00-02 (Avg.)
Value of exports: ($ million)
Total exports 320.2 1,113.1 1,353.4 2,442.9 2,620.1 2,960.2 709.3 2,554.6
(01). Pulses and beans 8.3 181.8 188.9 255.3 281.9 268.9 127.8 268.7
(02). Teak 94.3 102.5 116.4 100.2 211.6 213.1 122.4 175.0
(03). Rice and rice products 8.5 26.7 10.4 34.6 112.2 97.1 48.3 81.3
(04). Hardwood 9.7 23.8 31.7 23.4 68.1 73.9 32.4 55.1
(05). Fish and fish products 9.6 52.5 37.1 44.9 46.1 71.8 35.2 45.5
(06). Base metals and ores 11.0 11.8 46.2 49.9 42.7 43.2 8.6 46.3
(07). Rubber 2.0 16.1 12.1 10.3 11.2 13.7 14.1 10.8
(08). Animal feedstuffs 1.0 0.8 0.4 n.a. n.a. 1.0 2.7 n.a.
(09). Subtotal: Traditional exports 144.4 416.0 443.2 518.6 773.8 782.7 391.5 646.2
(10). Border trade 157.8 265.7 157.0 208.7 290.5 516.8 124.8 249.6
(11). Traditional plus border trade 302.2 681.7 600.2 727.3 1,064.3 1,299.5 516.3 895.8
(12). Other 18.0 355.1 312.3 357.2 407.5 398.0 179.7 218.9
(13). Garments n.a. 75.5 436.0 582.8 443.9 455.7 13.2 456.6
(14). Gas n.a. 0.8 4.9 775.6 704.4 807.0 0.1 740.0
Volume of exports
(thousand metric tons unless otherwise noted)
(01). Pulses and beans 17.1 621.5 560.9 831.3 1,034.8 1,038.3 404.2 933.1
(02). Teak (000 cubic tons) 147.7 172.2 234.0 218.2 200.4 429.3 175.3 209.3
(03). Rice and rice products 48.1 120.4 54.9 251.4 939.1 793.5 239.1 595.3
(04). Hardwood (000 cubic tons) 72.0 242.7 335.3 329.4 285.6 308.0 217.2 307.5
(05). Fish and fish products 5.3 46.6 31.4 49.1 71.5 82.0 29.4 60.3
(06). Base metals and ores 25.9 8.2 33.5 36.9 41.7 35.0 27.8 39.3
(07). Rubber 2.3 29.7 29.2 20.1 24.9 21.7 16.3 22.5
(08). Animal feedstuffs 15.8 8.9 11.1 0.4 0.6 20.6 29.1 n.a.
Share in total value of exports
(Percent)





(01). Pulses and beans 2.6 16.3 14.0 10.5 12.3 9.4 18.0 10.5
(02). Teak 29.5 9.2 8.6 4.1 9.2 7.5 17.3 6.9
(03). Rice and rice products 2.7 2.4 0.8 1.4 4.9 3.4 6.8 3.2
(04). Hardwood 3.0 2.1 2.3 1.0 3.0 2.6 4.6 2.2
(05). Fish and fish products 3.0 4.7 2.7 1.8 2.0 2.5 4.9 1.8
(06). Base metals and ores 3.4 1.1 3.4 2.0 1.9 1.5 1.2 1.8
(07). Rubber 0.6 1.4 0.9 0.4 0.5 0.5 2.0 n.a.
(08). Animal feedstuffs 0.3 0.1 n.a. n.a. n.a. n.a. 0.4 n.a.
(09). Subtotal: Traditional exports 45.1 37.4 32.7 21.2 33.7 27.5 55.2 25.3
(10). Border trade 49.3 23.9 11.6 8.5 12.7 18.1 17.6 9.8
(11). Traditional plus border trade 94.4 61.3 44.3 29.7 46.4 45.6 72.8 40.6
(12). Other 5.6 31.9 23.1 14.6 3.5 14.0 25.3 10.7
(13). Garments n.a. 6.7 32.2 24.0 19.4 12.1 1.9 18.5
(14). Gas n.a. 0.1 0.4 31.7 30.7 28.3 n.a. 30.2
Total exports 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Sources: IMF and World Bank reports on Myanmar.
Note: "n.a." indicates data are not available, or are negligible. Items (01) to (08) are designated as “traditional exports”.
41. According to CSO, sources of income include wages and salaries (in cash and kind), entrepreneurial income, pension, rent, interest, remittances, bonuses, and others (in kind). When incomes are substantially below expenditures, a family has the following options to make ends meet: (i) draw down savings, if any; (ii) sell off assets; (iii) borrow and get into debt; (iv) get handouts from relatives and friends; and (v) tighten belt – eat less, reduce standard of living, take children out of school. Obviously, there are limits to which these measures can be pursued and they are not sustainable in the long run. The large gap between income and expenditure also raises the question of underreporting of incomes. This possibility appears likely as most low-income employees moonlight, seek side income in the informal sector, and wife and children undertake casual work to supplement family earnings.
V. Commodity Composition of Exports
(a) Traditional exports
42. Lack of significant structural shift in production has meant little change in the commodity composition of exports. In the colonial days, in 1938/39, four primary commodities accounted for 72.7% of total exports of Myanmar. Among these, rice tops the list with 3.3 million tons exported in that year and which contributed 46.7% to total export receipts. Myanmar was the number one rice exporter in the world at that time. Minerals were second in importance with a contribution of 12% to export earnings, followed by timber with a contribution of 7%, and another 7% came from other agricultural products.
43. Heavy dependence on a few primary commodity exports continued in the decade 1988/89 to 1998/99 and traditional items accounted for 55.2% of export earnings (Table 6). If receipts from border trade which also consist mostly of traditional items are added, the share of primary commodities in the exports of Myanmar would rise to 72.8% of total export earnings. This means the commodity composition of exports of Myanmar over the decade 1988/89 to 1998/99 has not changed from what it was 60 years ago in 1938/39.
44. The importance of rice in Myanmar’s exports declined over the past decade. During 1988/89 to 1998/99, the volume of rice exports averaged 240 thousand tons per year which amounted to 7.3% of the 3.3 million tons exported in 1938/39 (table 6). Rice accounted for 6.8% of total export receipts during this period. Minerals represent another traditional export item that became less important in recent years. Its contribution to total exports averaged 1.2% during the 1988/89 - 1998/99 period, while the volume shipped abroad averaged 27.8 thousand tons, amounting to 16.5% of the 168 thousand tons exported in the colonial days. With fall in the shares of rice and minerals, other traditional exports gained prominence in the export structure of Myanmar, namely pulses and beans, fish and teak during the 1988/89 - 1998/99 decade (table 6).
45. The performance of pulses and beans exports was particularly good in the 1990s. The export of this item rose from 17.1 thousand tons in 1988/89 to over 1 million tons in 2001/02. Foreign exchange earnings from these exports increased from $8.3 million to $282 million over the period. Liberalization of the export trade of pulses and beans for both domestic and foreign traders underlies the good performance. Removal of restrictions enabled farmers and local business people to respond to market incentives, while involvement and active participation of Indian merchants with their trade links, marketing and distribution skills, and access to credit facilities, helped in exploiting opportunities offered by the Indian market which is the main destination for these exports. Liberalization of the pulses and beans trade provides a valuable illustration of the importance of sound policy decision making for Myanmar. It shows that a good policy move can result in substantial economic benefits, in this case in the form of a sharp rise in exports and foreign exchange earnings for the country.
Table 7. Level of Exports in 2003 and Changes in Commodity Composition of
Exports of Selected Asian Countries: 1980, 1990 and 2004
Economy 2003
Export
Value
($ bil.) Food & agri. raw materials: Share in total exports
(Percentage)
1980 1990 2004 Fuels
Share in total exports
(Percentage)
1980 1990 2004 Manufactured goods
Share in total exports
(Percentage)
1980 1990 2004
01. China 437.9 n.a. 16.2 4.0 n.a. 8.4 2.4 n.a. 71.4 91.4
02. Hong Kong 223.8 1.9 2.9 1.7 0.1 0.3 0.3 95.7 94.5 94.2
03. South Korea 193.8 8.8 4.6 2.0 0.3 1.1 4.2 89.5 93.2 91.0
04. Singapore 144.2 18.4 7.8 2.1 28.9 18.2 9.7 43.1 71.2 83.4
05. Taiwana 143.9 10.1 5.5 2.5 1.5 0.6 2.3 87.9 92.6 93.7
06. Malaysia 99.4 45.9 25.4 10.4 24.7 18.3 11.6 18.8 53.9 75.4
07. Thailanda 80.3 58.2 33.8 18.7 0.1 0.8 2.7 25.2 63.1 74.8
08. Indonesia 62.6 21.8 16.2 19.2 71.9 43.8 17.8 2.3 35.2 55.5
09. Indiaa 57.1 33.2 19.7 12.6 0.4 2.9 5.9 58.6 70.1 76.2
10. Philippinesa 37.0 42.0 20.8 6.6 0.7 2.2 1.6 21.1 37.9 89.8
11. Pakistana 11.9 n.a. 19.5 13.5 n.a. 1.3 2.3 n.a. 78.7 85.6
12. Bangladesh 7.1 31.2 21.1 7.1 n.a. 1.3 0.5 67.7 77.5 92.3
13. Sri Lanka 5.1 65.1 40.1 22.8 17.9 1.5 0.2 16.0 52.7 73.9
Source: UNCTAD, Handbook of Statistics 2002 & 2005 (New York: United Nations, 2002 & 2005).
Notes: "a" refers to share of total exports for year 2003.
"n.a." means data not available.
Manufactured goods consist of Standard International Trade Classification (SITC) codes 5+6+7+8-68.
46. There are two other developments in the Myanmar export scene in the late 1990s that deserve attention. The first is garment exports which burst on the foreign trade scene in 1999/2000. In the previous two years, annual earnings from garment exports amounted to around $70 million. Then they shot up to $436 million in 1999/2000 and became the top export earner, accounting for nearly a third of total export receipts in that year. Foreign exchange earnings from garments increased further to $583 million in 2000/01 and remained high at $444 million in 2001/02 (table 6).
47. The second important development is natural gas exports from offshore fields. Gas became a major export item in 2000/01 and with a contribution of $776 million in foreign exchange earnings in that year, replaced garments as the country's top export earner. Gas continued to hold the top position with earnings of $704 million in 2001/02.
48. With these developments, the commodity composition of exports of Myanmar in the opening three years of the twenty-first century may be described as follows: natural gas is the number one export earner with 30% of total export earnings. Garments follow next with a contribution of 19%. Traditional exports now make up 40%. Unspecified other exports amounting to 11% account for the rest.
49. Natural gas and garments together now contribute nearly half of Myanmar's export earnings. Garment exports have a high import content as textiles, cloth, yarn, other materials and machinery are usually imported from abroad. Hence, value added and net foreign exchange receipts are much less than the value of exports recorded under this item. Moreover, Western developed countries are the main markets for garments and access to such markets can be disrupted by sanctions and boycotts on account of political and other reasons. This has already happened. As for natural gas, it is a non-renewal resource, reserves and exports will decline over time, and as in other countries domestic demand for it may increase with rising needs for energy as the country develops. Moreover, there are other partners in the production sharing agreements entered into, in the development of offshore gas fields, and consequently not all the value of exports recorded under this item represent net foreign exchange earnings for Myanmar.
50. Bearing in mind developments with respect to Myanmar's export trade outlined above, it will be useful to look at these developments in the light of changes that have taken place in the export structure of other Asian countries over the past decades. This is given in table 7. It shows the following:
(i) The value of total exports of Myanmar amounting to $2.8 billion in 2003 forms only 3% of Malaysia's exports of $99 billion, 3.5% of Thailand's exports of $80 billion, and 4% of Indonesia's exports of $63 billion in that year.
(ii) We may say Myanmar's exports of $2.8 billion may be much less than the actual or true value of exports, as a large amount of unofficial and unrecorded exports move across the border. Let us assume the unofficial trade is twice the value of official trade and so amounted to $5.6 billion. Then the total exports of Myanmar (official plus non official) would be $8.4 billion. The point is, $8.4 billion will still be a small percentage (9% to 13%) of the exports of the three neighbours noted above.
(iii) While traditional exports consisting mostly of food and agricultural raw materials still account for 40% of Myanmar's total exports, there has been sharp falls in these exports in all the 13 countries listed in table 7. For example, in the period 1990 to 2004, the share of food and agricultural raw materials in the total value of exports fell from 16.2% to 4.0% in China, from 25.4% to 10.4% in Malaysia, from 33.8% to 18.7% in Thailand, and from 20.8% to 6.6% in the Philippines.
(iv) Major fuel exporters in the region such as Malaysia and Indonesia have reduced their dependence on such exports over the past decades. In Malaysia, the share of fuel exports in total exports fell from 24.7% in 1980 to 11.6% in 2004. In Indonesia, the fall was from 71.9% to 17.8% over the same period. Reduced reliance on fuel exports has been due to declining reserves over the years, growing need for domestic consumption of fuel as the country develops, and rapid growth in non-fuel exports.


Table 8. Inflation: Selected Asian Economies, 2000 to 2005
(per cent change from previous year, end period)
Year 2000 2001 2002 2003 2004 2005a 2000-2005
(Average)
(01). Hong Kong -3.8 -1.6 -3.1 -2.5 -0.4 1.1 -1.7
(02). Singapore 1.3 1.0 -0.4 0.5 1.7 0.4 0.8
(03). Taiwan 1.2 0.0 -0.2 -0.3 1.6 2.3 0.8
(04). China 0.4 0.7 -0.8 1.2 3.9 1.9 1.2
(05). Malaysia 1.5 1.4 1.8 1.2 1.4 2.9 1.7
(06). Thailand 1.7 1.6 0.6 1.8 2.8 4.5 2.2
(07). Cambodia -0.8 0.7 3.7 0.5 5.6 5.5 2.5
(08). Rep. of Korea 2.2 4.1 2.7 3.6 3.6 2.8 3.2
(09). Vietnam -1.7 -0.4 3.8 3.1 7.8 8.4 3.5
(10). Bhutan 4.0 3.4 2.5 2.1 4.6 5.5 3.7
(11). Nepal 3.5 2.4 2.9 4.8 4.0 4.5 3.7
(12). Bangladesh 2.8 1.9 2.8 4.4 5.8 6.5 4.0
(13). India 3.8 4.3 4.0 3.9 3.8 4.5 4.1
(14). Pakistan 3.6 4.4 3.5 3.1 4.6 9.3 4.8
(15). Philippines 4.0 6.8 3.0 3.5 6.0 7.6 5.2
(16). Indonesia 3.6 11.5 11.9 6.6 6.1 10.5 8.4
(17). Sri Lanka 6.2 14.2 9.6 6.3 7.6 11.6 9.3
(18). Laos 25.1 7.8 10.6 15.5 10.5 8.0 12.9
Average 3.3 3.6 3.3 3.3 4.5 5.4 3.9

(19). Myanmar -1.6 34.6 58.0 26.8 12.0 9.0 23.1
Sources: ESCAP, Economic and Social Survey of Asia and the Pacific 2006 (New York: United Nations, On-line Edition, 2006); table B.7, pp. 208-209; and for Myanmar: Ministry of National Planning and Economic Development, Yangon.
Notes: a refers to estimates.
Countries have been listed in ascending order of average rate of inflation for the period 2000 - 2005.


(v) There has been a sharp increase in the share of manufactured goods in total exports of the Asian countries. By 2004, the percentage of manufactured goods in total exports amounted to 55.5% in Indonesia while in the remaining 12 countries the share was between 75% to 94%.



Table 9. Change in Money Supply (M2): Selected Asian
Economies, 2000 to 2005
(per cent change from previous year, end period)
Year 2000 2001 2002 2003 2004 2005a 2000-2005
(Average)
(01). Singapore -2.0 5.9 -0.3 8.1 6.2 6.5 4.1
(02). Thailand 3.7 4.2 2.6 4.9 5.4 9.6 5.1
(03). Hong Kong 9.3 -0.3 0.5 6.3 7.3 8.2 5.2
(04). Taiwan 6.5 4.4 2.6 5.8 7.4 6.3 5.5
(05). Philippines 8.1 3.6 10.4 3.6 9.9 15.4 8.5
(06). Rep. of Korea 25.4 13.2 11.0 6.7 -0.6 5.0 10.1
(07). Indonesia 15.6 13.0 4.7 8.1 8.1 19.0 11.4
(08). Malaysia 5.2 2.2 5.8 11.1 25.4 24.2 12.3
(09). Nepal 21.8 15.3 4.4 9.8 11.8 12.5 12.6
(10). Bhutan 16.1 7.6 28.5 0.4 19.9 10.7 13.9
(11). Sri Lanka 12.9 13.6 13.4 15.3 19.6 15.0 15.0
(12). India 15.2 14.3 16.8 13.0 16.7 17.1 15.5
(13). Pakistan 12.1 11.7 16.8 17.5 20.5 15.5 15.7
(14). Bangladesh 18.6 16.6 13.1 15.6 13.8 16.8 15.8
(15). China 12.3 15.0 19.4 19.7 14.8 18.4 16.6
(16). Cambodia 26.9 20.4 31.1 14.9 30.4 15.2 23.2
(17). Laos 46.0 13.7 37.6 20.1 21.6 12.5 25.3
(18). Vietnam 35.4 27.3 13.3 33.1 31.0 29.1 28.2
Average 16.1 11.2 12.9 11.9 15.0 14.3 13.6

(19). Myanmar 47.4 43.2 18.4 11.0 32.4 26.0 29.7
Sources: ESCAP, Economic and Social Survey of Asia and the Pacific 2006 (New York: United Nations, On-line Edition, 2006); table B.10., pp. 214-215; and Ministry of National Planning and Economic Development, Yangon.
Notes: a refers to estimate.
M2 "broad money" consists of currency, current and saving accounts and time deposits.
Countries have been listed in ascending order of average rate of money supply growth for the period 2000 - 2005.


VI. Inflation
(a) High inflation
51. Myanmar experienced double digit inflation for four years from 2001 to 2004 (table 8). The rate is estimated to have moderated to 9% in 2005. Despite this improvement, Myanmar remains the most inflation prone country in the Asian region. For the 6 years from 2000 to 2005, the official rate of inflation in Myanmar averaged 23.1% which is over five times higher than the average of 3.9% for other 18 Asian countries listed in table 8.
52. High money supply (M2) growth to finance budget deficits is believed to be the main cause of inflationary pressures in Myanmar. According to official statistics, the rate of M2 growth averaged 29.7% over the period 2000 to 2005 (table 9). This is more than double the 13.6% average growth for the same period for the 18 other Asian countries. However, money supply growth over this period was high in three other countries, namely Cambodia, Laos and Vietnam. Although Laos experienced double digit inflation, Cambodia despite high average M2 growth of 23.2% maintained its inflation rate at a relatively modest level of 2.5%. Similarly, in Vietnam, although money supply increased on average by 28.2%, inflation rate was held down to an average of 3.5% during this period. On the other hand, in Myanmar, with money supply growing on average at 29.3%, which is slightly above Vietnam's, the average rate of inflation is estimated to be considerably higher at 23.1%. Obviously, more than M2 growth has been causing high inflation in Myanmar.
53. One such cause that comes readily to mind is the pattern and nature of government expenditures. There is a tendency for public expenditures in Myanmar to be disproportionately allocated on items that do not contribute directly to current production, such as defense, ceremonies and rituals, and building physical infrastructure – roads, railways, bridges, dams, monuments, museums, office complexes, and modern seaports and airports. Granted some of these may increase output in the future, but for the present, they add to inflationary pressures.
(b) Cost push factors
54. In addition, "cost-push" factors which do not seem to have received sufficient attention, may be just as serious as money supply growth in causing rapid price increases in present day Myanmar. It is not difficult to think of such factors that are contributing to high inflation in the country. These include: (i) use of antiquated and obsolete machinery and equipment in production and in key areas, such as in the transport and communications sectors, giving rise to high costs; (ii) shortage of energy and the unreliable and poor quality of its supply disrupting production; (iii) inefficient and loss making state enterprises in critical sectors of the economy adversely affecting overall economic performance, and contributing to wastage and high costs; (iv) outdated, unclear and complex laws and regulations, and lack of transparency, accountability and consistency in their application, creating delays and uncertainty and adding costs to doing business in terms of time, effort and money; (v) systemic corruption that has taken hold of the country which is posing a heavy burden on the business community, especially small firms in the trade and service sectors that do not enjoy political patronage; (vi) wealthy business cronies do not seem to have been spared either as they, through friendly persuasion, have to contribute huge sums to all sorts of worthy causes and meritorious projects unrelated to their line of work – these firms would naturally treat the large contributions that they are obliged to make as costs for advertisement and improving public relations and such costs will be reflected in the prices that they charge for their products and will have to be borne by their customers, clients and the general public; (vii) large increases in charges for state controlled goods as well as for public services and utilities have contributed to rising costs and high inflation; and (viii) rapid deterioration in the external value of the kyat, its high volatility, ad hoc administrative measures to restrict external trade, and heavy handed intervention in the local parallel exchange market, have led to confusion and uncertainty, and sharp increases in the cost of imported inputs for producers and rises in prices of essential foreign goods, especially medicines, for consumers.
(c) Recent developments
55. The Myanmar authorities expect the inflation rate to fall further to 5% in fiscal year 2006/2007. Several recent developments, however, will make the achievement of this goal problematic. These include (i) raising of official gasoline and diesel prices by over 700 per cent in October 2005; (ii) shift of capital to Nay Pyi Taw in November 2005; and (iii) upward adjustment of salaries of public employees by 500 per cent for low level employees and over 1,200 per cent for top officials beginning in April 2006. The inflationary impact of these is likely to be significant. They also raise complex and sensitive issues and hence should more appropriately be taken up in another paper.
VII. The Exchange Rate
(a) Official exchange rate
56. With regard to the exchange rate it will be useful to begin by noting that the kyat was officially fixed in terms of the Special Drawing Rights (SDR) at the rate of K8.5085 = 1 SDR on 2 May 1977 and has never been changed ever since. Fixing the kyat to the SDR at this rate results in the official kyat exchange rate for the US dollar at around K6 per dollar.
57. For reasons that are not entirely clear the official exchange rate of the kyat has therefore been kept fixed at around K6 per US dollar for the past 28 years. The past 28 years have been a period of dramatic change in the economic environment in the Asian region. The period saw vast shifts in economic and production structures, in incomes, consumption patterns, tastes and lifestyles in many of Myanmar neighbours and in countries that have important trade and economic relations with Myanmar. While these developments took place in its major trading partners, Myanmar went the other way and was designated as a least developed country by the United Nations in 1987. Hence, keeping the official kyat exchange rate fixed at around K6 per dollar for more than a quarter century has meant the rate has gone completely out of alignment with regional and international trends in costs and prices.
58. While the official exchange rate has become more or less meaningless and is no longer operational in the conduct of normal trade and economic relations with the outside world, the regime has introduced the Foreign Exchange Certificate (FEC) in February 1993 and the parallel exchange market to handle an increasing volume of the country's exchange dealings. At present it is estimated that 70 per cent of the country's foreign exchange business is conducted at the parallel rate.
(b) Parallel exchange rate
59. The parallel exchange rate for 2005 averaged K1,065 per US dollar (table 10). In 1988 it stood at K42 per dollar. This means K100 can buy $2.38 worth of imports in 1988. In 2005, K100 can only buy 9 cents worth. In other words, in 2005 the value of the kyat in terms of the US dollar has fallen to 4% of what it was worth in 1988.
60. For ordinary citizens and private business people the parallel rate is the rate at which foreign exchange transactions are conducted. In the local market most imported goods are valued at the parallel rate.
Table 10. Market Exchange Rates in Yangon, 1988 - 1996
(January - December, Annual Average)
Year 1988 1989 1990 1991 1992 1993 1994 1995 1996
Kyats per US$ 42 50 58 84 99 120 113 117 149
Kyats per FEC* n.a n.a n.a n.a n.a 117 110 113 148
Rate diff. ($ - FEC) n.a n.a n.a n.a n.a 3 3 4 1
K100 in US Cents 238 200 172 119 101 83 88 85 67
K100 in US Cents (Index: 1988=100) 100 84 72 50 42 35 37 36 34
Table 10 (contd). Market Exchange Rates in Yangon, 1997 - 2005
(January - December, Annual Average)
Year 1997 1998 1999 2000 2001 2002 2003 2004 2005
Kyats per US$ 222 327 344 372 615 925 965 911 1,065
*Kyats per FEC 217 312 336 350 558 848 811 906 1,044
Rate diff. ($ - FEC) 5 15 8 22 57 77 154 5 21
K100 in US Cents 45 31 29 27 16 11 10 11 9
K100 in US Cents (Index: 1988=100) 19 13 12 11 7 5 4 5 4
Source: No official publications are available on the movement of the free market exchange rate. However, some private individuals and independent observers have kept track of the movement of the free market exchange rate in Yangon.
* The Foreign Exchange Certificate (FEC) was introduced in February 1993 at the rate of 1 FEC = 1 US$
61. However, the official rate of K6 to the dollar is still applied in official and intra governmental foreign exchange dealings. For example, a state enterprise that is engaged in the export trade and earns foreign exchange must surrender the exchange earnings to a central fund and for which it will be paid back at the official rate of K6 for its earnings. This ensures the export enterprise will incur heavy losses. The losses are met out of the government's general budget. On the other hand, favoured sectors, pet projects and high priority expenditures such as for defence are allocated foreign exchange out of the central fund at K6 to the dollar. Such an arrangement will net handsome profits for the concerned importers. Moreover, this type of intra governmental exchange dealings at the official rate will make it difficult to determine (on the government's receipts side) which enterprises are actually making profits and which are not. Similarly, on the expenditure side, valuing certain imports and costs of items purchased at K6 to the dollar will greatly understate the expenses incurred in terms of kyats. In short, the arrangement leads to confusion, lack of transparency and accountability, price distortions, implicit taxes and subsidies, creates vast opportunities for corruption, and exploding budget deficits.


(c) Unification of exchange rate
62. Consequently, there has been a long felt need to reform the exchange rate regime. IMF therefore recommends gradually moving operations of state economic enterprises on to the parallel foreign exchange rate that would not add to the budget deficit and would not disturb the foreign exchange market. One example of how this can be done is by matching importing and exporting enterprises based on their foreign exchange transaction volumes.
63. IMF further says the above measure is a halfway house or a transitional arrangement which will lead finally to unification of the kyat exchange rate, meaning abandoning the official rate of fixing the kyat at around K6 per dollar, so that there will be only one exchange rate and the new official rate will be something close to the parallel rate.
64. Finally, IMF is of view that unification of exchange rate will make accounts of state economic enterprises more transparent, and this will enable more rational allocation of money to them from the central fund. Furthermore, exporting enterprises would be making profits and will have incentive to expand their operations, and thereby improving foreign exchange earnings. In short, the net effect will be good from the point of view of the government budget, output and employment.
65. My own perception about the proposal on the exchange rate is that although moving gradually towards the parallel or free market rate and ultimate "reunification" are desirable they are not enough. We want finally to reach a situation where the kyat exchange rate is largely market-determined and is relatively stable, at a realistic level. In trying to attain this state we want a transitional period that does not cause havoc in our exchange market, leading to uncertainty and rapid increases in prices causing serious economic hardships to the people. Moreover, establishment of a relatively stable kyat exchange rate at a realistic level will require restoration of confidence in the Myanmar monetary authority and that it has the capability and the means to maintain the exchange rate at the new officially set level. To ensure all this through provision of bridging assistance and establishment of a stabilization fund gets us into IMF territory. Unfortunately, IMF cannot mention these things at this stage of the game. This can only come after political compromise, national reconciliation and re-engagement of Myanmar with the international community.
66. Another related issue is the question of how serious the problems are likely to be in the transitional period. One favourable factor on this is that the ordinary citizens and business people are already operating on the parallel exchange rate so the move towards unification should not be too painful. On the other hand, the regime has not permitted a free fall of the kyat by resorting to "administrative measures" – that is arrests, threats and intimidation of those engaged in foreign exchange transactions, closure of exchange counters, forced conversion of foreign exchange at officially designated rates, closure of border trade on numerous occasions, etc. – when it feels that the exchange rate is falling too fast and is getting out of hand. In the mid 1990s, K500 per US dollar was felt by the authorities as the limit and going beyond this was considered to be a loss of prestige for the country. Well, that milestone has long been passed. There have been days during May 2006 when the exchange rate reached over K1,400 per US dollar.
67. So, how far the kyat will fall is hard to predict, but we can be reasonably sure that the fall will be substantial if some attempt is made to liberalize transactions on the current account of the balance of payments. Another destabilizing factor in the exchange market is the activity of key players in the market. These are privileged and well connected business groups and organizations that engage in lucrative speculative activities, by taking advantage of their privileged access to inside information and sometimes by floating rumors, and thereby causing considerable market disruption. What we have, therefore, is a fairly complex and confused situation. It is an area that is crying out for an objective analytical study so as to arrive at an acceptable and effective solution.
VIII. Rethinking Policy and Implications
for Regional Integration
(a) Rethinking policy
68. The above review of changes in Myanmar's structure of national output, pattern of household consumption expenditure, level of per capita GDP, commodity composition of exports, and developments with respect to inflation and the exchange rate shows that they have been significantly different from trends that took place in other countries in the region over the past years. Myanmar will therefore need to make considerable effort to achieve its aim of catching up with the rest and getting into the mainstream of regional development. It will have to do two things. First, it must take bold policy decisions and implement the necessary economic reform measures to graduate from its current status of a least developed country. There is no dignity by continuing to be a least developed country in the midst of neighbours that are rapidly transforming the structure of their economies and are making determined efforts to improve the quality of life of their peoples. Second, in order to become a modern developed nation – to improve the standard of living of ordinary citizens, to enhance technological and economic independence, as well as to play an active part as an equal partner with others in the region – Myanmar must rethink the undue reliance it seems to be placing on its perceived good natural resource base and on building physical infrastructure to fuel growth and structural transformation of the economy.
(b) Strengthening agricultural base
69. Up to now, a key element and an overriding preoccupation in the development strategy of Myanmar has been strengthening of its agricultural base that would foster growth of other sectors as well. This objective was adopted beginning in the early 1970s, and hence we have been building the country's agricultural base for over 30 years. Unfortunately, what constitutes an agricultural base has never been defined. Hence, we are not sure how far we have come in building this agricultural base. We are also not sure when the agricultural base will be built so that we can move on to building other things. With these uncertainties surrounding the agricultural base, the question is, could we have achieved better results if we had tried to build something else over the past decades? With benefit of hindsight, it is doubtful the outcome would be different. Nevertheless, let us forget the past for a moment, think of the future, and pretend that we finally decide to abandon the "all is well, business as usual, roundup the usual suspects who say it is otherwise" view of the economy. What are the possibilities? These are discussed below.
70. There are many good reasons why a country like Myanmar should give priority to agriculture and to build up its agricultural base. But what exactly is this agricultural base? To find this out and to determine whether it has sufficiently expanded to meet the desired objectives, we will need to give consideration and to ensure that, as the majority of the people in the country are in the agricultural sector, farm productivity is rising to increase incomes of the majority of the people. Increasing farm incomes also means improving the well-being of the poorer segments of society as poverty tends to be more widespread in the rural areas. Moreover, agriculture is a major source of export earnings. It has strong links with the rest of the economy by providing raw materials to industry and creating a market for goods and services produced by other sectors. As the largest contributor to GDP, it is the key sector on which reliance has to be placed to mobilize resources for capital formation and economic development. Rise in agricultural productivity will release workers from food production for employment in other sectors. Building infrastructure for rural development such as dams, roads and railways, especially in remote areas, brings benefits to geographically disadvantaged groups and thus meets the country’s social concerns. Hence, there are strong economic and social imperatives for Myanmar to build up its agricultural base. The extent to which such imperatives are met through agriculture development provides a basis for assessing the soundness of the agricultural base to foster growth of other sectors of the economy.
71. However, looking at changes in sectoral shares of GDP of other Asian countries, it seems that in order to play a significant role in the regional economy as an equal partner with its neighbours, Myanmar should not only be concentrating on building up its agriculture base, but should also be redirecting more attention to increasing the shares of industry and of services in GDP. As stated earlier, the thirty year industrial development plan aims to increase industry's share to 37%. This is a move in the right direction.
(c) Flying geese and increasing industry's share
72. To increase the share of industry in GDP, there is a good case for Myanmar to take advantage of available opportunities for development of low technology, labour-intensive and agriculture and resource-based industries in keeping with the “flying geese” pattern of industrialization in the Asia and the Pacific region. This concept of geese in flight is attributed to the Japanese economist Kaname Akamatsu, who in considering the historical pattern of economic development in the Asian context, envisaged a flying geese pattern (or birds flying in an inverted V formation) in the region's growth process, with the leader at the apex and followed by others. Japan as the first Asian country to industrialize was the first nation to take off based on production and export of labour intensive goods. But with economic development in Japan, and rising wages and incomes, together with acquisition of skills and technology, the country moved on to produce more skill and technology intensive products and left labour intensive goods, where it has been losing its comparative advantage, to be taken up by the Newly Industrializing Economies – (Hong Kong, Singapore, Republic of Korea and Taiwan). With growth and increasing technological sophistication in the NIEs, they in turn move towards production of more value-added and skill intensive manufactures, leaving room for second tier NIEs (Indonesia, Malaysia, and Thailand) to expand output and export of low technology and resource and labour intensive products. At the present time, the second tier NIEs are themselves facing rising wages and labour shortages and are making determined efforts to enter into what they perceive as areas of high growth potential for the new century and are laying less emphasis on labour intensive exports. Like Japan and the NIEs before them, the second tier NIEs are actively seeking to relocate their labour intensive export industries in other low income countries, where wages are competitive, labour is disciplined and trainable, and resource base is favourable. Myanmar should therefore exploit these opportunities for increasing inflows of investment and export of labour and resource based products.
(d) Import substitution
73. Aside from exporting labour intensive and resource based products, there are good prospects for Myanmar to promote industrialization through import substitution. Liberalization of the import trade and greater outward orientation with the assumption of power by the present regime has brought a large inflow of consumer goods into Myanmar. For the most part, these are relatively cheap, low technology, and labour intensive products from neighbouring countries such as China, India, Indonesia, Malaysia, Singapore and Thailand. They consist of such goods as processed foodstuffs, simple consumer durables, household utensils, articles for personal care, electrical appliances, sanitary ware, confectionery, simple tools and implements, textiles and clothing, dairy products, beverages, building materials, spare parts, electronic goods, etc. Most of these items could be produced domestically and they seem to offer substantial potential for a selective import substitution strategy. In adopting such a strategy, care must be exercised to avoid the traditional approach to import substitution by promoting industries behind high tariff walls. Tariff protection is likely to be counterproductive in present day Myanmar. It will prevent healthy international competition and foster growth of a class of business people that rely on patronage and special privileges and will probably be unable to survive in a competitive world market environment. It will be bad for Myanmar consumers as well, if cheaper foreign goods are kept out and people must rely on inferior quality domestically produced goods at high prices. Happily, commitments made under the Asean Free Trade Area arrangement will limit the ability of Myanmar to increase tariffs. Hence, exploitation of available opportunities for import substitution of consumer goods will need to be pursued in an atmosphere of generally free and open markets but where the government must ensure "a level playing field" for the local business community. This will require doing away with arbitrary and ever changing rules, regulations, administrative orders, levies, contributions, donations and other unwarranted obstacles that are imposed upon the local businesses that restrict their ability to compete on an equal footing with foreign firms in producing substitutes for the large variety of consumer goods that are now flooding the country.
(e) Leading-edge industries
74. But joining the flight pattern of geese and import substitution must not and need not be the only preoccupation of Myanmar. On the contrary, there are good reasons why Myanmar should not ignore leading-edge industries of the information era and should give serious thought to getting into industries like financial and business services, as well as into others such as telecommunications and information technology, that are regarded as having high growth potential in the twenty-first century.
75. Such a policy decision would be in accord with the key national objective of building a modern developed nation and the stated aim of playing a part in the mainstream of regional development. Hence, there is sufficient justification within the present policy framework for Myanmar to develop a consumer electronics industry like in Malaysia, telecommunications and computer parts and equipment manufacturing capability as in the Republic of Korea and Taiwan, computer software production and outsourcing as in India and provision of financial and business services as in Hong Kong and Singapore. When Myanmar sets its sights on these growth industries and makes a serious effort to compete in the regional and world markets in these areas, it will become essential to critically review the current state of its telecommunications and transport infrastructure, the energy situation, administrative capability, legal and institutional framework, style of macroeconomic management, level of financial sector development, quality of services provided by public utilities, rules and regulations governing conduct of business as well as a number of other factors that are considered necessary to create a climate of free and fair competition that is conducive to private sector development and proper functioning of a market-oriented economy.
76. Stated differently, the point I am trying to make is that as long as we devote our energies to growing rice, beans and nuts, promoting livestock production, and building roads, railways, bridges and dams to demonstrate our capability of doing things by ourselves, and at the same time, seriously believing that these will transform Myanmar into a modern developed nation, then there is no great urgency if phones in the country don't work, if the electricity supply is unreliable, if the telecommunications and transport system, the Internet and financial and business services remain at the rudimentary stage, and if the education system has little relevance to the requirements of a modern economy. But if we set our sights on competing with others in the leading-edge industries of the information age, then these things can no longer be ignored. That is why I tend to believe that we need to have an agonizing reassessment of our approach to building a modern developed nation. We will definitely need to set our sights much higher, not only in words and empty rhetoric, but in deeds and action. When we review our current situation, and reflect along these lines, we cannot help but get a sinking feeling of how far we have been left behind, and the enormity of the task before us. But better late than never. And sooner the better.
(f) Service sector
77. It is regrettable that the share of services in GDP has appeared to have declined in Myanmar, according to official statistics. The service sector is usually considered to be of special importance for a low income country like Myanmar. This is because it is the first activity to attract entrepreneurs in such a country and provides the breeding ground for entrepreneurship. Moreover, effective and quality services can play an important role in increasing productivity, hence many low income countries have been encouraging the creation and development of small private enterprises to supply support service for maintenance, marketing, distribution and transport. Within the service sector, tourism is generally looked upon as one area that has high potential for such a country as it is not affected by a small domestic market or a relatively underdeveloped manufacturing sector. Myanmar has already taken important initiatives to develop its tourist infrastructure and resources and to increase earnings from this source. Provision of support and encouragement for development of other service activities for small private enterprises should be given attention in the development strategy.
(g) Implications for regional integration
78. As we all know, formal arrangements for regional cooperation can take a variety of forms, namely: (i) free trade area, where there is free flow of goods and services between members, but each member retains its own tariffs against non members; (ii) a free trade area becomes a customs union when member countries adopt a common external tariff against non members; (iii) a custom union develops into a common market when there is not only free movement of goods and services but also free movement of labour and capital among members; and finally (iv) a common market becomes an economic union when member countries coordinate and harmonize economic and social policies and the union thus formed takes on characteristics of a single economy by adopting such measures as having a common currency.
79. From all that has been said above, Myanmar has a lot to gain from closer cooperation with its Asean partners. The benefits are more likely in the area of what are called dynamic gains rather than static gains that are associated with "trade creation" resulting from formation of custom unions and common markets. Myanmar has a porous border and generally free flow of goods and services across the border has been taking place anyway since the early 1960s despite tariff and non tariff barriers. Dynamic gains on the other hand consist of benefits that will come in the form of better ideas and more effective ways of doing things and solving problems that Myanmar can learn from its Asean neighbours by greater interaction and cooperation with them. Of course, such benefits can only be realized by engaging in a free and frank policy dialogue in various Asean fora. In addition, good ideas must also be acted upon and Myanmar must make a determined effort to put its own house in order.
80. According to press reports, the 10th ASEAN Summit held at Vientiane in November 2004 agreed to establish an EU style economic union among the 10 Asean member countries by 2020 or earlier. Towards this end it adopted the Vientiane Action Programme which aims among others to "remove, where feasible, barriers to the free flow of goods, services and skilled labour, and free flow of capital". The qualifying words to remove barriers "where feasible" is crucial for Myanmar. I suspect the Asean partners and the Asean secretariat know that it is not feasible for a country like Myanmar to participate in an EU style economic union with them in 2020 or later.
81. Joining a European style economic union, where there will be free flow of goods, services, skilled labour and capital among member countries holds special dangers for a country like Myanmar with an economic structure, consumption pattern, macroeconomic fundamentals and level of development that are all out of line and far behind the rest of the group. It will lead to economic polarization – the most talented and enterprising Burmese people, together with businesses and capital will leave the country to take advantage of better opportunities and higher rewards in the more advanced member countries.
(h) Concluding remarks
82. When we got independence from Britain in 1948, the country was called Burma in those days, and we said "Burma is an agricultural country, and it is rich in natural resources." Fifty years later, we are still saying "Myanmar is an agricultural country, and it is rich in natural resources." As indicated above, in 1938 when the country was a British colony, the share of agriculture in GDP was 48%. In 2003, agriculture's share is reported to be 52%. This proves the point that Myanmar continues to be an agricultural country in 2003 as much as it was in 1938. But it also indicates there is no structural change in the economy and that we are not getting anywhere. I therefore feel that it is high time for Myanmar to overcome its fixation with the idea that it is an agricultural country and that it is rich in natural resources. It will be desirable for Myanmar to more clearly recognize that its most valuable resource is not its rich agricultural land, its forests, its mineral reserves, or its hydrocarbon deposits. It is its people. Such a reorientation in thinking will help bring home the point that exploiting natural resources and building physical infrastructure is not enough. Human capabilities must be improved to make effective use of physical capital that is being built. In addition to building roads, railways, bridges and dams, Myanmar must turn its attention towards what the ASEAN countries as well as the rest of developing Asia is struggling with, namely the more crucial but difficult and challenging task of building social and economic institutions – education systems, health and social welfare services, the legal framework, institutional mechanisms for effective macroeconomic management and economic policy formulation, implementation, monitoring and evaluation, improving the civil service, banks and financial systems, governance and administrative machinery and arrangements for environmental protection.
83. Even in the case of agricultural development, it is not realistic to expect good results will be achieved by merely bringing additional waste and fallow land under cultivation and providing water to crops by building dams. Many other complementary measures are essential for success. These include things like land reform, farm extension, agricultural credit, increased and proper use of modern inputs such as fertilizers, pesticides, proper water control, improved seeds, and farm mechanization. Moreover, there is a wide range of issues related to better pricing, distribution, storage, marketing, grading, processing, taxation and organization and management of agricultural production so that farmers' incentives are not adversely affected, they get a fair reward for their efforts, and middlemen and others do not take unfair advantage of them.
84. Let us continue to grow rice, beans and nuts; raise chickens, ducks and pigs; expand area under cultivation; bring water to crops; and build public works – if these make us feel good and contribute to our sense of satisfaction, achievement and well-being. But let us not glorify these things which the people of Myanmar have been doing since the days of the Burmese kings, and believe that they will transform the country into a modern developed nation in this global village in the information age.