Myanmar (Burma)

COUNTRY REPORT

Myanmar (Burma)

3rd quarter 1996

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Summary

Myanmar (Burma) 3rd quarter 1996

September 12, 1996

Political and economic structures pages 2-3

Outlook: The failure of the international community, particularly the refusal of ASEAN, to come together in coordinated sanctions against the SLORC guarantees its continuance in power. But the fact that the SLORC will be denied access to significant capital inflows will prevent economic take-off. The currently poor economic prospects, manifest in sharply higher food prices, will heighten the SLORC’s fear of the NLD and stiffen its resolve to clamp down on its activities. No negotiation is in prospect. pages 4-5

The political scene: The increased assertiveness of the opposition NLD prompted another crackdown on its members from May onwards. This was at first muted by the ASEAN meetings due to take place in Jakarta in late July. Once these were over, the SLORC resorted to arrests, chiefly of the NLD’s second-tier leadership, with a view to weakening its organisational base before any fresh elections. New controls on the flow of information have been brought in. Increasing spending on the military has not prevented hardship for the army. Attempts by the USA and the EU to initiate more decisive action against the SLORC before and during the ASEAN meetings failed to evoke a response. ASEAN’s policy of “constructive engagement” won the day, despite doubts among some of its members. These are not shared by Malaysia, whose prime minister is anxious to hasten Myanmar’s accession to ASEAN, possibly to 1997. Ethnic minorities inside the borders have continued to face severe pressure. Talks with the KNU have failed to produce a ceasefire. pages 5-19

Economic policy and the economy: Aung San Suu Kyi has denied charges that the NLD is “anti-business”. The US embassy has reported on Myanmar’s many economic woes. Foreign investment continues to be modest and to be concentrated in oil and gas and tourism. The budget deficit has risen above 8% of GDP, because of heavy expenditure. Food prices have been rising in 1996, according to unofficial estimates, and rice production is a key concern. Although production was officially up in 1995/96, the export target was not met. Peasants are subjected to a variety of levies, in cash and in kind. Total has been defending its presence in Myanmar, from which the SLORC will profit in earnest when the Yadana gasfield comes on stream. There has been interest in mining prospects from foreign companies, and tourist arrivals are up. Joint ventures will be sought in the banking sector and the government has moved to calm fears after a run on a local bank. Insurance will be open to the private sector. The free-market value of the kyat tumbled in July. The officially recorded current-account deficit virtually doubled in 1995/96. pages 19-26

Statistical appendices pages 27-28

Editor: Anthony Goldstone All queries: Tel: (44.171) 830 1007 Fax: (44.171) 830 1023

EIU Country Report 3rd quarter 1996 © The Economist Intelligence Unit Limited 1996 2 Myanmar (Burma)

Political structure

Official name: Union of Myanmar

Form of state: military council

The executive: since the military coup of September 1988, the State Law and Order Restoration Council (SLORC; last major reshuffle September 1992) has held all executive power

Head of state: chairman of the SLORC, Senior General Than Shwe

National legislature: the Pyithu Hluttaw (People’s Assembly) was abolished after the military coup in 1988; an election was held for a new People’s Assembly in May 1990, resulting in an overwhelming victory for the opposition National League for Democracy. The SLORC refused to allow this assembly to meet

Last national elections: May 27, 1990

Next elections due: unknown

National government: the SLORC controls all the organs of state power

Main political organisations: since the military coup political parties have been permitted to operate provided they are officially registered. A number of organisations, mostly ethnically based, were in armed conflict with the government for many years. In the past two years, most have either reached an accommodation with the government or have suffered serious military setbacks

Main political organisations: National League for Democracy (NLD); Union Solidarity Development Association (USDA); National Unity Party (NUP); Democracy Party (DP); United Nationals Development Party

Main members of the State Law and Order Restoration Council Chairman & minister of defence Senior General Than Shwe Secretary 1 Lieutenant-General Khin Nyunt Secretary 2 Lieutenant-General Tin U Deputy prime ministers Vice-Admiral Maung Maung Khin Lieutenant-General Tin Tun Key ministers agriculture Lieutenant-General Myint Aung border areas & national races Lieutenant-General Maung Thint education Colonel Pe Thein energy U Khin Maung Thein finance & revenue Brigadier-General Win Tin foreign affairs U Ohn Gyaw health U Saw Tun home & religious affairs Lieutenant-General Phone Myint hotels & tourism Lieutenant-General Kyaw Ba information Major-General Aye Kyaw light & heavy industry Lieutenant-General Sein Aung mines Lieutenant-General Kyaw Min national planning & economic development Brigadier-General David Oliver Abel trade Lieutenant-General Tun Kyi transport Lieutenant-General Thein Win

Central Bank governor U Kyi Aye

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Economic structure

Latest available figures

Economic indicators 1991 1992 1993 1994a 1995a GDP at current pricesb Kt bn 186.8 249.4 360.3 473.1 613.2 Real GDP growthb % –0.6 9.7 6.0 7.5 9.8 Consumer price inflation % 32.3 21.9 31.8 24.1 25.2c Population m 42.7 43.7 44.6 45.4 46.2 Exports fobb $ m 464 591 692 879 963 Imports fobb $ m 851 879 1,297 1,547 2,166 Current accountb $ m –344 –275 –292 –339 –630 Reserves excl goldd $ m 258.4 280.1 302.9 422.0c 561.1c Total external debtd $ m 4,853 5,326 5,481 5,518 n/a Debt-service ratioe % 50.9 40.8 34.3 31.8 n/a Exchange ratef (av) Kt:$ 6.28 6.10 6.15 5.97d 5.67d

September 6, 1996 Kt5.85:$1

Origins of gross domestic product 1995b % of total Components of gross domestic product 1995b % of total Agriculture 53.7 Total consumption 88.7 Manufacturing & mining 7.3 Total investment 11.7 Livestock, fishing & forestry 7.0 Increase in stocks 0.2 Transport & communications 2.7 Exports of goods & services 1.0 Construction & utilities 2.3 Imports of goods & services –1.6 Banking & finance 0.1 GDP at producer prices 100.0 Wholesale & retail trade 23.4 Other services 3.5 GDP 100.0

Principal exports 1994b $ m Principal imports 1993b $ m Rice & rice products 197.1 Raw materials 297.5 Pulses & beans 133.3 Transport equipment 223.3 Teak 123.5 Foodstuffs 137.7 Rubber 20.5 Machinery & equipment 134.9 Total incl others 878.8 Construction materials 83.1 Total incl others 1,297.1

Main destinations of exports 1993b % of total Main origins of imports 1992b % of total Singapore 19.4 Japan 25.5 Thailand 17.4 China 15.9 India 15.0 Thailand 10.9 Hong Kong 10.7 Singapore 10.3 China 5.0 Malaysia 7.2 Japan 4.4 EU 5.7 USA 3.7 Indonesia 4.1 a EIU and official estimates. b Fiscal years beginning April 1. c Actual. d End-calendar years. e Based on debt-service payments due. f Calendar years.

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Outlook

External pressure will The State Law and Order Restoration Council (SLORC) has so far proved hobble but not topple impermeable to international pressure. In the past few months the grass-roots the SLORC— boycott movement has notched up some successes. More US garment manufac- turers have stopped sourcing from Myanmar. Two European brewers, Heineken and Carlsberg, have dropped their (quite well-advanced) investment plans. The oil companies, which have shown no inclination to bow to pressure, face the irritation of consumer boycotts and in the case of Unocal, a lawsuit. However, much as it is reviled in the West, Myanmar is not, in the activists’ phrase, the South Africa of the 1990s. The external anti-apartheid movement was an alliance of regional and Western forces, both capable of exerting pressure on the regime. The SLORC, by contrast, does not have to contend with regional hostility. This is one factor limiting Western scope for exerting pressure on the regime. The collapse in recent months of initiatives in the USA and the EU to impose stronger sanctions on Myanmar, in the face of opposition from the Association of South-east Asian Nations (ASEAN), illustrated Western reluctance to alienate Asian governments, some of which invoke regional security considerations when arguing for “constructive engagement” and some of which are important economic partners.

US and EU attempts to devise a coordinated strategy with their Asian allies on Myanmar have thus produced very little. External pressure will be one of several factors ensuring that the SLORC, which cannot rely on Asian governments and investors to provide the capital resources it needs, will not be able to achieve its ambition of creating a new tiger economy, but—short of an unlikely change of stance in the ASEAN countries—it will not topple the regime.

—as the prospects for The SLORC itself appears to feel that internal pressure on it from what it calls internal dialogue look the “destructionists” is on the upswing. The new assertiveness of the National remote League for Democracy (NLD), evident in the decision to call a party conference in May, is one reason for its concern. Another is the fear that deteriorating economic conditions, as manifested in the apparent failure of the main rice crop, rising inflation and the falling free-market value of the kyat, might spark a repeat of the 1988 demonstrations against the regime. The refusal of the top leaders of the NLD and those who attend the party’s weekend forums outside Aung San Suu Kyi’s house to be cowed must suggest to the SLORC that the population may be losing its fear. (SLORC propaganda has recently been making much of the fact that one of the key terms in the opposition’s ideology is non-violent “popular defiance”.) While the SLORC’s fears may be exaggerated, by insisting that “dialogue” can take place only on its terms (namely through the National Convention that it has charged with drawing up a new constitution), it has effectively ruled out negotiation with the NLD. For now the impasse looks total.

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Gross domestic product Kyat: real exchange rate (b) % change, year on year 1990=100 10 350

8 Kt:$ 300

6 Kt:DM 250 Kt:¥ 4 200 2

150 0

-2 100 1991/92 92/93 93/94 94/95 95/96(a)

(a) Estimate. (b) Nominal exchange rates adjusted for changes in relative consumer prices. 1990 91 92 93 94 95(a) Sources: EIU; IMF, International Financial Statistics.

Review

The political scene

The SLORC seeks to After the formal release from house arrest of the leader of the National League hammer the NLD— for Democracy (NLD), Aung San Suu Kyi, in July 1995, the ruling State Law and Order Restoration Council (SLORC) sought to marginalise her and her party by ignoring their calls for dialogue. As it became evident that the challenge to the junta’s legitimacy posed by the party, which won 80% of the seats in the 1990 elections but was then barred from government, would not go away, the SLORC took harsher action. Two decisions by the NLD—its withdrawal in November 1995 from the National Convention, which is charged with drawing up a constitution under SLORC auspices, and its convening of a party conference in May 1996, which resolved among other things to draw up an alter- native constitution—made it clear that dialogue, for which the SLORC regards the National Convention as the only proper forum, would not be possible on the junta’s terms.

Since early this year the SLORC has been stepping up its repression of the NLD. In May, when the NLD announced its congress, around 260 people, mainly elected NLD MPs, were detained. The chief curb on the extent of the repression has been the SLORC’s fears of an international backlash on a scale that would thwart its diplomatic ambitions. Until the end of July these fears focused on the annual meetings of the Association of South-east Asian Nations (ASEAN; see below). Once these were out of the way, a new round of arrests and trials began in August. The crackdown was stepped up after the return from Malaysia of a delegation that included the two most powerful figures in the regime, the chairman of the SLORC, Senior General Than Shwe, and its first secretary, the military intelligence chief Lieutenant-General Khin Nyunt. The crackdown stopped short of Aung San Suu Kyi and the other top leaders of the NLD. Their movements are severely limited and they are routinely vilified in the state- controlled press, but they have not been rearrested. Instead, the strategy seems to be to isolate the NLD leadership by removing the next echelon.

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Other considerations may have prompted the crackdown. One is the state of the economy and memories of the protests of 1988, which gained their initial impetus from economic discontent. The combination of rising food prices, the devastation of the main rice crop by pests and intermittent runs on the kyat in the free market raised the spectre of a fresh round of popular protest. The SLORC may also have judged that popular defiance of its attempts to stop the NLD leadership from holding its weekly forums outside Aung San Suu Kyi’s house might presage a new activism.

In addition, after a burst of activity at its last session (1st quarter 1996, page 9), the National Convention may finally be coming to an end (if the SLORC so chooses). Having placed so much emphasis on the National Convention in its public self-justifications, the next step for the SLORC would be to hold elections under the new constitution. To avoid a repeat of the 1990 elections, it will wish to ensure as far as possible that it does not have to contend with an NLD with a countrywide organisation.

—after a brief respite for The arrests in May came just three weeks after ASEAN had indicated that it was diplomacy ready to accept Myanmar into the ASEAN Regional Forum (ARF), bringing the forum’s membership up to 21. The desire not to embarrass its prospective ASEAN partners over its controversial entry into the ARF, whose members include the USA and the EU, may have prompted the release of almost all of those arrested in connection with the NLD conference within days of their arrests. Moreover, despite the issuing of Law No 5/96 of June 7 aimed at stop- ping both activities, Aung San Suu Kyi continued with impunity to hold her weekend People’s Forums and to insist that the NLD will continue to draw up a constitution of its own.

An honorary consul dies However, events continued to threaten further embarrassment for the junta’s in custody friends. Potentially most embarrassing because of the victim’s European connec- tions was the death in custody in June of James Leander (Leo) Nichols, a former honorary consul for several European countries and godfather and close friend of Aung San Suu Kyi. Mr Nichols had been sentenced to three years’ imprisonment on May 17 for unauthorised use of a fax machine. He had been suffering from high blood pressure, a heart condition and diabetes. The Norwegian government, for which Mr Nichols had acted as honorary consul, claimed to have evidence that he had died after being tortured (the Norwegian foreign ministry said that he had been deprived of sleep and adequate medical attention) and several European governments called for an independent autopsy. A statement from the Myanmar embassy in Bangkok rejected an independent autopsy on the grounds that it would “compromise the principles of national sovereignty and non-interference in internal affairs”. A commentary in the government-controlled New Light of Myanmar on July 15 gave the unrepentant official view: “I cannot find a reason why there is such exagger- ation and fault-finding over the death of an unimportant crook. The bad-hat must have died because of destiny, as a retribution.” The article also gave details from Mr Nichols’s autopsy, which purported to show that he must have been in poor physical condition when he entered prison. A church memorial service was never held despite having been given official permission, reportedly because the churches were scared off from holding it by the military.

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NLD MPs resign “under Where it could, the SLORC appears to have preferred to avoid arresting senior duress” NLD figures during the period before the ASEAN meetings. Instead, it seems to have relied on intimidation to remove some from public life. Between late May and mid-July, 16 NLD MPs were reported to have resigned. Announcements of their resignations were carried in the state-run press and on Radio Myanmar. All said that the MPs had resigned of their own free will, usually for reasons of health or because they had “no desire to engage in party politics”. Aung San Suu Kyi told the French news agency Agence-France presse (AFP) that the MPs had signed away their offices as a condition for their release from jail or after being threatened with long prison terms or the loss of their state-owned apartments. This stratagem had its limits, however. In late July two NLD MPs, Dr Aung Khin Sint, a former health ministry official who won the National Literary Prize in 1973, and Dr Myo Nyung, who was detained under the Medicine Act, were reportedly arrested for refusing to resign their seats. As of early August, according to a statement from the exiled National Coalition Government of the Union of Burma, the number of MPs elected in 1990 from all parties was down to just 17.

The SLORC mobilises In a tactic used previously in attempts to discredit its opponents, the SLORC has against the mobilised large crowds to attend rallies throughout the country. In early June “destructionists” rallies were held in small towns to denounce Aung San Suu Kyi and the newly assertive NLD as “destructionists”. Rallies in towns such as Sandoway and Sittwe (Arakan), Toungoo, Myaungmya, Pakokku, Monyin, Mergui and Kentung (eastern Shan State), Kawthaung, Thayet and Myingyan were, according to reports in the official media, attended by crowds of anything between 20,000 and 43,000. The figures were clearly intended to contrast with the smaller numbers believed to be attending the weekend People’s Forums outside Aung San Suu Kyi’s house. (At one of the better attended of these, on June 9, an estimated 10,000 were present.)

The SLORC-sponsored rallies were re-broadcast at length on state television. The speakers did not deviate from the approved script. In Myingyan, for example, a district labour officer, following official discourse word by word, denounced “Mrs Michael Aris, the modern political stunt actress, the Western fashion model, the queen of the NLD”. In recent months a new set of slogans, dubbed “the people’s desires”, have been appearing on posters across the country. One stands on the street outside Aung San Suu Kyi’s house. They enjoin people to “oppose those relying on external elements, acting as stooges, holding negative views; oppose those trying to jeopardise the stability of the state and progress of the nation; oppose foreign nations interfering in the internal affairs of the state; and crush all internal and external destructive elements as the common enemy”. Personal attacks on Aung San Suu Kyi, often with racist overtones, have become common in the state-controlled media.

A new crackdown is From mid-August a straightforward crackdown began. As of August 21, 11 launched people had been sentenced under Section 5G of the Emergency Powers Act. One of these, Win Htein, Aung San Suu Kyi’s personal assistant (and like several others in the NLD leadership a former military man who fell out with the regime of General Ne Win) was sentenced to seven years’ imprisonment. The SLORC issued a statement saying that under instructions from Win Htein a team of five NLD members had been sent out to the countryside to collect

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information on the state of agriculture. The SLORC claimed that the information they sent back was false and designed to discredit the regime in fora such as the UN Human Rights Commission. Like Win Htein, each of the five was sentenced to seven years’ imprisonment. On August 21 two NLD activists were arrested on charges of having contacts with the exiled wing of the party, distributing leaflets and planning to set up a clandestine office in Monywa. The crackdown went wider than the NLD. One of the first of the August arrests was of five students who allegedly had had contact with senior NLD members. Among the 34 arrested in August, nine had apparently done no more than attend the weekend forums outside Aung San Suu Kyi’s house.

In their weekend talks on August 18 Aung San Suu Kyi and the NLD deputy chairman, U Tin Oo, deplored the arrests, criticising in particular the arrest of the nine who had attended the forums. On August 24 Aung San Suu Kyi accused the SLORC of trying to destroy the democracy movement by arrests and intimidation.

Aung San Suu Kyi Aung San Suu Kyi uses such information as that collected by the team sent to continues to hold the countryside in her weekend forums as well as responding to letters from the weekend forums— public. Her speech on July 6 focused on education (“the way in which in many schools... the parents of the children… are forced to give donations to the school and are forced to attend extra sessions in lieu of tuition”) and blatant corruption. In Mandalay new houses costing Kt100m (about $600,000 at the free-market rate) were being built by civil servants who earn only Kt2,000 per month (about $12). A week later a questioner pointed out some of the oddities of the use of forced labour in Sagaing Division. He said that an “invitation to take part in voluntary work” had threatened those who did not accept the invitation with punishment.

Aung San Suu Kyi’s freedom of movement has not greatly increased since her formal release from house arrest in July 1995. She is allowed out of her compound but only under military escort, and her public appearances are strictly limited. Having been barred from travelling to Mandalay in March and forbid- den publicly to celebrate the Burmese New Year in April, she was allowed to attend the ceremonies on July 19 for Martyrs’ Day, the national holiday which marks the assassination of her father, Aung San, the hero of independence, and several of his closest colleagues. She does, nonetheless, give frequent interviews to visiting foreign journalists. She told one around this time that there had been no progress towards democratisation since her release, but that the democracy movement is “slowly gathering steam”.

—and maintains her call In early July the SLORC said that if Aung San Suu Kyi agreed to go into exile, for dialogue talks on political reform could begin. She made it clear that she would not take up the offer. She told the Financial Times that there were no preconditions for dialogue: a new parliament, a transitional government, the future role of the military and her own participation in talks were all negotiable. The military has now made it clear that the 1990 elections, which the NLD won comprehen- sively, can no longer be regarded as having any validity and that, having walked out of the National Convention, the NLD is barred from returning to it. It shows absolutely no inclination to change the provisions of the draft constitution

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which reserve powers for the military in the legislative and executive branches. Nor is it likely to drop the provisions which by disqualifying from the pres- idency a person who has lived abroad for 20 years or is married to a foreigner bar Aung San Suu Kyi from the office.

The SLORC says the In his address to the ASEAN foreign ministers’ meeting at the end of July the National Convention is foreign minister, U Ohn Gyaw, presented the standard SLORC position that the forum for dialogue the proper forum for dialogue is the National Convention, whose deliberations may be drawing to a close after nearly four years. Ohn Gyaw told the foreign ministers that delegates had already approved by consensus 15 chapter head- ings and 104 basic principles and have agreed on self-administered regions and states and the separation of powers between the executive, legislature and judiciary. When it resumes in October the convention will discuss the separation of powers between judicial bodies of the states and the regions. When it walked out of the convention last November, the NLD’s rejection of the body was comprehensive: it criticised the way the delegates had been selected (the overwhelming majority were appointed by the SLORC), the procedures it followed and the undemocratic principles enshrined in the draft it had produced (1st quarter 1996, page 7).

The SLORC introduces Recent cases have highlighted the SLORC’s obsessive desire to control the flow new controls on of information. As already noted, Mr Nichols was jailed in May for unauthor- information— ised use of a fax machine. Earlier, a troupe of vaudevillians led by Par Par Lay was imprisoned for mocking the SLORC in an Independence Day celebration at Aung San Suu Kyi’s house (2nd quarter 1996, page 9). On July 29 the SLORC promulgated the Television and Video Law of 1996 with the declared aim of banning “decadent videotapes which will undermine Myanmar culture and tradition”, thereby ushering in a new form of media control.

Key institutions in the system of control are the Directorate of Psychological Warfare of the Ministry of Defence, which has sweeping powers over what appears in the media—for example, it controls television programming—and the Press Scrutiny Board, which censors the press. A recent article in the Bangkok Nation recounted the SLORC’s approach to controlling popular culture such as nyeint, the mixture of “burlesque, vaudeville and cabaret” of which Par Par Lay’s troupe was regarded as one of the foremost exponents. The SLORC has tried to curb the influence of the night-long variant of nyeint, known as pwe, by banning all-night performances and warning troupes not to make political jokes. In the south of the country performers must tell the authorities their jokes in advance. The Military Cultural Group performs an approved version of pwe. Top performers have been detained. One of them, Zaganar, probably the country’s best-known exponent of the genre, has boycotted performances staged by the People’s Relations Department.

The Television and Video Law forbids the private transmission of television broadcasts unless authorised by the government, and provides for a punishment of five years’ imprisonment and the confiscation of equipment for any- one violating the ban. Private operators of video businesses must be licensed by Video Business Advisory Committees which are to be set up in each of the 14 states and divisions. Licensed operators may not show videos which have

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not been passed by the Video Censor Board, another new body. Punishments for violation of the law are up to three years’ imprisonment and/or a fine of up to Kt100,000 ($17,000 at the official exchange rate) as well as confiscation of the tapes. Copying, distributing, hiring or exhibiting copies of television programmes made by the government or videotapes passed by the censor board and held under licence by another video business are subject to similar punishments.

—and meets the press— The SLORC held the first of what it promises will be monthly news conferences for foreign correspondents on August 1. The briefing was given by the head of the SLORC Information Committee and minister of information, Major- General Aye Kyaw; the foreign minister, Ohn Gyaw; the finance and revenue minister, Brigadier-General Win Tin; and the director-general of the Depart- ment of Public Relations and Psychological Warfare of the defence ministry, Brigadier-General Aung Thein. All but one of Myanmar’s accredited foreign correspondents are Myanmar citizens working for foreign media outlets; the single foreign news organisation to have a national based in Yangon is the Chinese agency, Xinhua. In addition to 17 Myanmar reporters and the Xinhua correspondent, the conference was attended by several Japanese journalists as well as press attachés from a number of embassies. The briefings, which had been requested by journalists working for foreign news organisations, were perhaps a sign of the regime’s growing confidence following its admission as an observer to ASEAN. One of the two main topics was the ASEAN foreign ministers’ meeting (see below). The other was the economic situation, on which the authorities sought to offer reassurance in the light of such recent manifes- tations of uncertainty as the run on the Myanma Mayflower Bank and the sharp fall in the free-market value of the kyat (see Economic policy and the economy). The minister of finance and revenue also addressed the question of falling budget revenue, insisting that a variety of measures to boost them had brought “positive results”.

A few days before the briefing the new policy had been hailed by the editor of New Light of Myanmar, Min Kyaw Min. “If you want any news, come and get it,” he wrote. He told his readers that the “newly reconstituted” Information Committee of the SLORC would be holding monthly briefings with subjects for discussion designated in advance.

—after issuing a warning Two weeks earlier, possibly at the same meeting credited with inspiring the decision to hold the briefings, the SLORC had taken a less persuasive approach to the media. On July 15 the minister of information, Major-General Aye Kyaw, met the country’s accredited foreign correspondents. According to the report of the meeting broadcast on Myanmar TV, the minister noted that in other countries foreign correspondents are foreigners who have no attachment to the countries they are assigned to, adding that since foreign correspondents in Myanmar are Myanmar citizens, it is necessary that they be patriotic. He said that no investigations had been carried out into the “subjective” work of some foreign correspondents. However, he added: “We are aware of who they are.” The AFP report of the meeting suggested that the minister had been even more explicit, deploring what he called biased reports “based on false accusations against the government by the opposition”.

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Growing defence The Foreign Economic Trends report produced by the US embassy includes defence spending— as one of the country’s three “principal growth sectors” along with agriculture and tourism. It estimates that, including some “unidentified expenditures”, spending on defence accounted for 41.3% of central government spending in 1994/95. These figures do not include subsidies in the form of fuel, healthcare, rice and other items, or the true kyat value of arms and equipment procured abroad using hard currency. The embassy concludes that if these items are included, defence may well account for over half of central government spending.

—has not made life easier This high level of spending is apparently not sufficient to create conditions for the troops that satisfy the common soldier, if the testimony of deserters quoted by the exiled National Coalition Government of the Union of Burma is to be believed. The deserters complained about bad treatment of other ranks by officers, of being forced to repress civilians and of their own lack of freedom. They were also dissatisfied with their material conditions including meagre rations and low salaries from which they are expected to buy their uniforms and medicine. A private is paid Kt600 per month (only about $100 even at the official rate, and just $4 at the current free-market rate), which a variety of deductions (“savings”, “donation”, “welfare”, “unit reserve”, “calendar”, “rice for widows” and “compulsory monthly lottery”) reduces to just Kt400. Dissatisfaction with material conditions is easily explained. Despite its large share of total central government spending, annual expenditure on defence probably amounts to no more than about $500m. This is clearly not enough to support a military whose numbers have been growing very fast. Troop strength increased from 175,000 in 1988/89 to 325,000 in 1994/95, and the eventual goal is that the armed forces should reach a complement of 475,000.

The SLORC warns the Much of the SLORC’s propaganda is directed at the Tatmadaw (the armed military of the NLD danger forces). One persistent theme is that only a military government can ensure national stability. A recent article in a state-owned newspaper, Kyemon, asked “apart from the military, how can a civilian govern the country without a constitution?”. It also played on military fears about the Tatmadaw’s fate should the NLD come to power. It accused the NLD of harbouring plans to relocate the War Office in Indaing, about 30 miles from Yangon, in the hope of preventing future coups, to dismiss senior officers above the rank of lieutenant-colonel and to reduce the size of the armed forces by 25%. The SLORC also argues that the NLD in power would reorient foreign policy towards the West and there would be a corresponding unwelcome deterioration in Myanmar’s relations with China. “The acts of the daughter-in-law’s group are clear. They are blindly following orders from the West, which come through her husband.”

The outside world backs In the wake of the crackdown on the NLD in May a hardening of international down on sanctions— attitudes seemed a real prospect. There was intensified talk of sanctions in the USA and the EU, and some within ASEAN acknowledged that “constructive engagement” was not working. The crackdown on the NLD took place just two weeks after the SLORC had been invited to join the ARF. The US Trade Representative, Mickey Kantor, dubbed sanctions a “useful tool” and the US secretary of state, Warren Christopher, said that he would raise the issue at the ASEAN meetings in Jakarta in July. At the same time the Danish government,

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shocked by the death in custody of its honorary consul, Mr Nichols, began to seek support for an EU boycott. In the event, these initiatives came to nothing largely because the most influential ASEAN countries—Indonesia, Thailand, Malaysia and Singapore—sought to head them off.

—as ASEAN sets the pace— At the ASEAN foreign ministers’ meeting held in Jakarta on July 20-21 Myanmar was duly given observer status along with Cambodia and Laos. It may become a full member as early as next year. Yangon was also admitted to the ARF at the forum meeting held on July 23, at the same time as India.

The success of ASEAN in rendering Western opposition to Myanmar’s rehabil- itation ineffective was perhaps particularly surprising in view of the incoherence of the stated ASEAN position. There are several strands to the argument in favour of dealing with the SLORC, not all of which are mutually consistent. Among them are the following.

• “The ASEAN way.” In the run-up to the ASEAN foreign ministers’ meeting, the Indonesian foreign minister, Ali Alatas, who was to act as chairman, made it clear that the association was against sanctions on the grounds that it violated the “ASEAN way”. While conceding that the situation in Myanmar was one “which needs some resolution”, he said that quiet talk was to be preferred to economic sanctions or other policies whose effect would be to isolate Myanmar.

• Asian values. A senior Thai official said that Burma was an “emotional issue in the West”, which chose to ignore bloodshed in other parts of the world. He pointed out that it was in no one’s interest to put Aung San Suu Kyi in confrontation with the SLORC, something the West seemed intent on. One of the sharpest ASEAN responses to the warning of EU commissioner Manuel Marin that taking Myanmar into ASEAN could harm ASEAN-EU relations came from Malaysia. The secretary-general of its foreign affairs ministry, Achmad Kamil Jaafar, asked what the Europeans had done about Northern Ireland and genocide in Bosnia. This view was echoed by Mr Achmad’s prime minister, Dr Mahathir Mohamad, who was effusive in his support for the junta when some of its most senior members visited Malaysia in mid-August (see below).

• Non-interference. Mr Alatas acknowledged that ASEAN had received a letter from Aung San Suu Kyi asking the association to intervene with the junta. Mr Alatas, having spent years at the UN fending off inquiries about his own government’s human rights violations, was a sympathetic advocate of non- interference. In this he had the full backing of his president, Suharto.

• Claims of partial success for “constructive engagement”. Mr Alatas also claimed that “constructive engagement” had had “some influence” in securing Aung San Suu Kyi’s release, committing the junta to economic reform and achieving ceasefires with the ethnic insurgencies.

• Making “constructive engagement” more constructive. The Thai foreign minister, Amnuay Virawan, admitted that “constructive engagement” had not been working, but that it had to be persisted with in the absence of evidence that isolation would prove more effective. Filipino officials have expressed a similar view. The solution Mr Amnuay proposed was to “redouble our efforts, make it more constructive”.

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• Realpolitik (variant 1). One unspoken reason for maintaining good relations with the SLORC is the fear that isolation will tighten the Chinese embrace, and facilitate Beijing’s drive for regional hegemony by offering it outlets to the Indian Ocean and a new angle of approach to the South China Sea.

• Realpolitik (variant 2). The senior minister and former prime minister of Singapore, Lee Kuan Yew, a long-time defender of authoritarian regimes in the region, has been a strong advocate of the view that only the military is capable of keeping the country together, and that Aung San Suu Kyi’s liberalism suits her more for her current role of powerless victim than that of leader of a country with problems such as Myanmar’s. (This theme is dear to the hearts of the SLORC; a typical commentary in the state-owned Myanmar Alin on May 27 said: “The present government is taking the responsibilities of states for an interim period. The Defence Services, the most disciplined public service organisation, took over the responsibilities when there were not any effective organisations to lead the country in 1988.”)

—and its “constructive In the event, ASEAN unity was not seriously tested. Reports that Western engagement” policy is governments would be raising their concerns even if it offended their host, unchallenged Indonesia, were not borne out. In Jakarta Mr Christopher, having distanced himself from sanctions, said that he wanted talks with the ASEAN countries to discuss ways to make sure that the SLORC did not take further repressive action and allowed its people greater freedom. In the week before the meeting Mr Marin irritated the ASEAN countries by saying that Myanmar’s admission to the association could damage EU-ASEAN relations. On July 22 the Irish foreign minister, Dick Spring, conveyed to his Myanmar counterpart Ohn Gyaw the concerns of the EU about the deteriorating political situation in Myanmar, but in the meantime the EU governments had deflected the Danish call for economic sanctions by referring the question for study.

In this atmosphere Ohn Gyaw was hardly in a mood to make concessions. He had ruled out dialogue with Aung San Suu Kyi before leaving Yangon (“dialogue with an individual is different from our perception of dialogue”). He gave Mr Spring a report on Mr Nichols’s death, but told a press conference that Mr Nichols had died after eating “something incompatible with his health”. Mr Spring said that Myanmar was welcome to join the ARF, an apparent reversal of Mr Marin’s position. Observers diagnosed that the European backdown was prompted by fears that a tougher stance would undo the good done to relations between the EU and Asian countries by the Asia-Europe Meeting (ASEM) in March.

The EU may act on Despite the lukewarm position of several member countries on sanctions, Myanmar’s GSP privileges the EU may be about to take action against Myanmar on the issue of forced labour. On August 6 EU commissioner Emma Bonino told a Bangkok press conference that its inquiry into forced labour in Myanmar, which is due to be completed by the end of September, is likely to result in the country losing its Generalised System of Preferences (GSP) privileges. Among the evidence it has received is a lengthy submission from the International Confederation of Free Trade Unions (ICFTU) detailing the different types of forced labour allegedly practised in Myanmar. As a least developed country (LDC), Myanmar benefits

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from the suspension of common tariffs on products falling under the EU’s GSP. (Myanmar’s exports to the EU have been falling. According to Myanmar statistics, they accounted for only 1.8% of total exports in 1994/95, down from around 3% in previous years.)

According to the US embassy’s report on the economy, which appeared after the ICFTU had made its submission, forced labour accounts for about 3% of Myanmar’s GDP. Mr Marin said on July 31 said that a new agenda for the EU and ASEAN was being prepared for presentation at the next ASEM meeting, scheduled to be held in Singapore in February 1997, which would include labour rules acceptable to both sides, for example on child and forced labour. The EU has already prepared a paper on the linkages between social matters such as labour standards and international trade rules, that would soon go to the Council of Ministers for discussion and then possibly to the World Trade Organization (WTO) meeting in December. ASEAN has made it clear that it would oppose such linkage.

A new UN rapporteur is A former chief justice of Mauritius, Regsoomer Lallah, is to be the new UN appointed rapporteur on human rights in Myanmar. Mr Lallah was the UN rapporteur on Chile from 1983 to 1994. On past form he is expected to take a tougher line on Myanmar than his predecessor, Professor Yozo Yokota of Japan. Professor Yokota reportedly felt that he was not receiving adequate financial and logistical support from New York for his mission. His reports have provided the basis for strong UN resolutions on Myanmar. His most recent one was presented to the UN Human Rights Commission in February (1st quarter 1996, page 12). At its conference in May the NLD put on record its gratitude to the professor for having looked into the human rights situation in Myanmar with “complete goodwill and sincerity”.

The US Senate refuses to In July, with the US administration’s backing, the Senate stepped back from impose stronger imposing stronger sanctions against Myanmar. The Senate approved an amend- sanctions— ment to the Foreign Operations Appropriations Bill on July 25, which fell short of full sanctions but does contain provision for an investment ban if the SLORC steps up its repression, particularly by taking action against Aung San Suu Kyi or other leaders of the democratic opposition to the SLORC. The amendment would also bar members of the SLORC from obtaining US visas, confirms the ban on most types of foreign aid (anti-narcotics money is exempted), instructs the administration to continue to block multilateral lending and calls for the USA to work with ASEAN and other interested countries on a “multinational strategy” to improve the human rights situation in Myanmar.

The US president, Bill Clinton, may waive sanctions in the national interest. Unocal (which has a 28.26% stake in the $1.2bn joint venture to develop the Yadana gasfield) and Texaco (operator of the Yetagun field) had lobbied hard for this amendment, which was sponsored by William Cohen, a Maine Republican, rather than the tougher McConnell Bill, which would have banned all investment. The bill could still run into trouble in conference, where it is likely to be opposed by the chairman of the House Appropriations Committee, Robert Livingstone, a Louisiana Republican. The New York Times in an editorial said: “The United States has softened its policy towards an outlaw nation and let

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down a leader who deserves its full support.” The Washington Post described the exemption of aid for anti-narcotics activity as “misguided” because “all available evidence suggests that the regime has no interest in controlling the drug trade”. With the bill still to be passed by the House, its threat of sanctions could not be tested in mid-August when the SLORC embarked on its latest crackdown on the NLD (see above). In response to news of the arrests and trials, the US State Department spokesman said that the administration had not ruled out sanctions and was continuing discussions on firmer measures with regional powers including Japan, Thailand and Australia.

The statements from Mr Christopher and Mr Kantor had suggested that the administration was prepared to take a tougher stance on Myanmar. Moreover, there was more palpable evidence that the boycott movement was gaining ground at the grass roots. In June Massachusetts became the first US state to pass a law preventing state agencies from doing business with companies operating in Myanmar, following in the footsteps of eight US cities which have passed similar laws. The bill’s sponsors estimated that as many as 140 US companies could be affected, including PepsiCo, Texaco and Apple.

—in line with The mission of the US envoys, William Brown, a former US ambassador to administration policy— Thailand, and Stanley Roth, formerly on the staff of the National Security Council, sent in the wake of the May crackdown to forge a consensus with the USA’s allies on how to get a dialogue going between the SLORC and the democracy movement (2nd quarter 1996, pages 7-8) may have caused the administration to rethink its position on sanctions. In a briefing on July 3, shortly after the envoys’ return, a State Department spokesman said that: “The administration believes that our diplomacy might be more effective should we have the freedom to decide, on an Executive Branch basis, when those punitive measures should be taken.” The new line was that the White House would not support sanctions as long as Aung San Suu Kyi was not arrested. Mr Brown told a news conference in Bangkok during the course of the mission that one positive development was that the used of forced labour “particularly in projects that involve American firms” had been “significantly addressed”.

—but reserves the right to One possible indication of a hardening of the administration’s stance was the take firmer action announcement in late August of the appointment of a senior State Department official, Kent Wiedemann, as chargé d’affaires in Yangon. The USA has not had a full ambassador in Myanmar since 1990, when it downgraded the post in protest at the SLORC’s refusal to recognise the results of that year’s elections. Mr Wiedemann is expected to take up his new position in October. In his current post of deputy assistant secretary of state for East Asia and the Pacific he has had responsibility for a number of Asian countries, including Myanmar. Testifying to the US Senate Finance Committee in May, Mr Wiedemann had been the first official to announce a tougher administration stance on sanctions. Because the post is below ambassadorial level, it does not require the approval of either the US Senate or the Myanmar government.

Thailand’s attempts to Fresh from his advocacy of “constructive engagement” at the ASEAN meeting, implement “constructive the Thai foreign minister, Mr Amnuay, paid a four-day visit to Yangon at the engagement”— beginning of August, claiming: “We can mend the problems between our two

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countries; the suspicions of the past have been largely removed.” He told the International Herald Tribune that it was in Thailand’s national interest to have sound relations with Yangon as “if Myanmar runs into problems, it will affect us”. He cited as one instance the large number of Burmese working illegally in Thailand, a relatively minor problem compared with the flight across the Thai border of ethnic minority refugees from continued fighting in Myanmar.

—are largely frustrated The primary purpose of Mr Amnuay’s visit was to promote trade, investment and other forms of economic cooperation. The minister was accompanied by a group of 30 Thai businessmen. The main item on the agenda was the two countries’ common border. Mr Amnuay gave particular priority to discussing the opening of the Friendship Bridge between Myawaddy and Mae Sot which has been delayed for over a year by accusations and counteraccusations of encroachment in the Moei river (2nd quarter 1996, page 11). Myanmar suspended construction of the bridge in June 1995 and demanded the removal of construction materials, rock filling and buildings on the river bank as a precondition for talks.

The visit to Yangon of the Thai prime minister, Banharn Silapa-archa, in March did not improve crossborder relations or lead to a revival of crossborder trade despite hopes at the time that it would (2nd quarter 1996, page 10). Thai traders on the border are suffering badly as a result. Many in the Thai border town of Mae Sot are reported to be on the verge of bankruptcy and selling up. According to the Bangkok Post, over Bt1bn ($40m) had been invested in commercial buildings near the Thai side of the stalled Friendship Bridge. To encourage a revival of trade, the two countries agreed during Mr Amnuay’s visit to issue two-year passes to their nationals which would be valid at the Mae Sai-Tachilek, Mae Sot-Myawaddy and Ranong-Kawthaung checkpoints. In addition, the SLORC agreed to lift a ban on sales of fish to Thailand. The ban had been in effect since early this year after talks had stalled on compensation for the deaths in August 1995 of three Myanmar fishermen. Talks also focused on possible cooperation in various transport projects, including roads between Yangon and Mae Sot (which would open up communications not just with Thailand but with Vietnam and Laos also) and Tachilek and Chiang Tung in the north of the country, and a port at Tavoy.

Dr Mahathir embraces During the visit to Malaysia of a SLORC delegation led by the junta’s chairman, the SLORC General Than Shwe, in mid-August, the Malaysian prime minister, Dr Mahathir, suggested that Myanmar should join ASEAN next year, when the association will be celebrating its 30th anniversary. Malaysia’s proposal is regarded as carrying special weight because next year it will be chairing and hosting the association’s meetings. It was also clear that Kuala Lumpur had consulted with other ASEAN members on the issue of Myanmar’s accelerated admission. Almost simultaneously President Suharto of Indonesia told a Japanese interviewer that the association’s membership would rise to ten next year. The Malaysian foreign minister, Abdullah Badawi, said that Western objections to Myanmar’s membership had been defused during talks between ASEAN and its dialogue partners. The two countries signed an economic, scientific and cultural agreement, which paves the way for workers from Myanmar to take up employment in Malaysia and for business cooperation in construction, oil and gas exploration, mining,

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tourism, and manufacturing. General Than Shwe was accompanied by a 49- member delegation that included Lieutenant-General Khin Nyunt and four other cabinet ministers. Dr Mahathir, always happy for an opportunity to tweak Western sensitivities, dismissed US threats of sanctions as empty and unlikely to be applied because of their possible impact on US investments in other parts of South-east Asia.

Ethnic minorities are The ceasefires of the last few years with the ethnic insurgent groups and their subject to forcible return to the “legal fold” have been taken as one manifestation of what a relocation typical commentary in the state-owned Myanmar Alin in July described as “unprecedented stability and tranquility”. In many parts of the country, however, the army has continued to employ its “four cuts” policy, designed to destroy villages and food supplies to ensure that villagers do not support rebel groups.

An Amnesty International report released in early August based on interviews with Shan, Akha, Lahu, Karen and Mon refugees in Thailand found that tens of thousands of people in Shan and Kayah states had been forcibly removed from their homes and threatened with being shot if they returned. In Shan State alone some 50,000 people had been forced from their homes, and another 10,000, mainly Karennis, had been subjected to similar treatment in Kayah State. It found that others from Shan and Mon states and from Tenasserim Division had been forced to act as porters for the military.

Other reports of the forced relocation of the Karennis confirm that their situation is dire. Karenni houses have been set ablaze to force their inhabitants into a camp near Loikaw in a move intended to end local support for the rebels. As of mid-July about 4,000 Karenni had crossed the border into Thailand to escape relocation. Karennis are reported to have been dying in resettlement camps because of lack of medical attention for common complaints like diarrhoea and malaria. In mid-July the Karenni National Progress Party (KNPP) elected its secretary, Ba Thu, to take over as premier from General Aung Than Lay, who is retiring. He was elected by around 30 Karenni leaders meeting at a base on the Thai-Myanmar border.

Opium refineries reopen The decision in January of the opium warlord, Khun Sa, to order his Mong Tai in Shan State Army (MTA) to surrender seems to have temporarily disrupted the flow of opium and heroin out of Shan State, but trafficking may now have resumed on the same scale as previously. A report from Ho Mong, Khun Sa’s former head- quarters, in the Bangkok Post in late July gave an impression of forlornness. The number of residents had fallen to 4,000 from 18,000 when Khun Sa was there. Shops, karaoke bars and brothels have closed, as has Khun Sa’s military base, Tiger Camp. The Shan leadership has stayed behind under the command of Khun Sa’s eldest son, Zao Cham Herng. Agreement was reached on opening several border crossings between Mae Hong Son and Ho Mong at a meeting in July of the Thai-Myanmar Regional Border Committee in Phitsanulok. Nat- ionals from both sides may cross the border for visits of 24 hours, extendable up to 72 hours. According to Shan sources, Zao Cham Herng is responsible for the welfare of the 1,700 former MTA members in Ho Mong. In all more than

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14,000 MTA members had surrendered by July. Some were being organised by the Myanmar military into people’s militias.

According to the same Shan sources, Zao Cham Herng has also been supervising the relocation of heroin refineries. Other ones that had closed in January and February this year, immediately after Khun Sa’s decision to order his forces’ surrender, have been reopening. Production of amphetamines in Ho Mong itself has also been increasing. Rumours that a US commando squad was about to snatch Khun Sa have given the SLORC the excuse to keep him detained in an army compound in Yangon where several top commanders, including Lieutenant-General Khin Nyunt, are reported to live. Khun Sa has been indicted in New York by a Federal Court and the US government has offered a $2m reward for his capture.

Karen-SLORC talks In late June the Karen National Union (KNU), one of the few ethnic insurgent continue groups not to have agreed a ceasefire, held its third round of talks with the SLORC in Moulmein. The 11-member KNU delegation was led by General Tamalabaw rather than the more senior General Bo Mya, but the latter is expected to take charge of the talks should the SLORC show signs of wanting “genuine dialogue”. The SLORC delegation was led by the commander of the south-east military command, Major-General Ket Sein. But the talks were led by the deputy director-general of military intelligence, Colonel Kyaw Win, and the chief of military intelligence, Lieutenant-General Khin Nyunt, briefly met the delegation. The latter said that the SLORC had been striving to achieve nationwide peace. According to his account to the Bangkok Post, General Tamalabaw reminded him that he had first attended peace talks in 1963 during the time of Ne Win’s Revolutionary Council. The SLORC is demanding that the KNU lay down its arms as part of rejoining the “legal fold”. The KNU is demanding that the SLORC make political concessions before the Karens will agree to a ceasefire. At the talks the Karens repeated their 12-point proposal, which includes a nationwide ceasefire and a political settlement. Both sides agreed to continue the talks, but did not set a date.

In late July it was reported that more than 100 Karens had died of hunger and disease in eight “concentration camps” set up by the Myanmar army in Kayah State. They were among 70,000 Karens recently expelled from their villages. Martial law and a curfew have been proclaimed in the state. The motive for putting people in the camps is to isolate the remaining insurgents from the population.

Thailand reports a Even if production has now restarted (see above), there are signs of a shortage shortage of Shan heroin of heroin from Shan State. Prices had soared more than tenfold in the three months to late July, according to a spokesman of the Thai Office of the Narcotics Control Board. Heroin is being rerouted through Yunnan, Shanghai and Hong Kong, Laos and Vietnam, and Cambodia and Singapore. In August the Bangkok Post reported that the military in Ho Mong had decided to allow former members of the MTA to grow opium near the Thai border. Unusually, the report drew a denial from the SLORC. A statement issued through the Myanmar embassy in Bangkok said that the report was based on “groundless information” and denied that the government had ever allowed any group to cultivate or traffic in opiates.

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Persecution of the Chin According to a statement drawn up by a Chin human rights organisation for continues the UN Working Group on Indigenous People hearing on July 29, there has been no ceasefire with the Chin. More troops are being sent to the state and forced labour (on the Kankaw-Kaley railway and the Kaley-Haka highway), portering and rape are on the increase. Pupils may not study the Chin language in school, and the organisation complains of other forms of cultural discrim- ination. Forced conversion of Christians to Buddhism is alleged and many thousands have fled to India.

Economic policy and the economy

The NLD issues a statement In February Aung San Suu Kyi issued a “note on economic policy” through a Japanese newspaper, the Mainichi Daily News. She cited the 11 clauses on the economy contained in the National League for Democracy (NLD) manifesto for the 1990 elections. These include: “Amendments to the foreign investment laws with a view to increasing the volume of investments; reductions of foreign debts and resumption of aid and assistance from abroad; review and, where necessary, revision or repeal of laws, decrees, regulations and other restrictions which circumscribe economic activities; and review and revision of the tax system to make private enterprise more profitable.”

Aung San Suu Kyi also responded to charges that she was “anti-business”, saying that she favoured business which “benefits the whole country… [and] makes people happy and satisfied”. She has also said that the regime has not been able to consolidate the relative economic successes of 1991-94. The clear- est evidence for this was the rise in inflation during the past year. In an interview with the Hong Kong television station ATV, Aung San Suu Kyi warned off potential investors from an economy that was “very clearly in bad health”. She cited not just high inflation but also the uncertain state of the kyat, rising unemployment and the waning construction boom.

The USA reports economic The US State Department report Foreign Economic Trends, released on August 1, woes backs up Aung San Suu Kyi’s analysis of the economy and, partly for that reason, it was roundly condemned by the State Law and Order Restoration Council (SLORC). The report says: “The long-term sustainability of Burma’s economic growth is still more questionable due to the persistence of both macroeconomic instability… and the potential for political instability… as well as grossly inadequate human infrastructure development, especially in the field of basic education.” It adds that “each of these problems appears closely related to the high costs of governing by force rather than consent”. As noted above (see The political scene), the report estimates that about 50% of government spending goes on the military and that expenditure on health and education has been falling. It also notes that foreign investment has been declining, deficits have been soaring and inflation is rampant, making for economic instability and requiring drug money to shore up the economy. The minister of national planning and economic development, Brigadier-General David Abel, condemned the US analysis as misleading and politically motivated. He claimed that defence spending was only 8-10% of total budget expenditure.

Investment in primary The director of the Myanmar Investment Commission, Thinn Maung, told a sectors is sought conference in July that the sectors with the largest potential for foreign investors were agro-industry and downstream oil/gas.

There are claims that investment from Asia is primarily in hotels, tourism and expensive department stores that enrich a few, but not in productive areas like infrastructure and manufacturing. After the recent withdrawal of the Danish brewer Carlsberg, its prospective partner, Thein Tun, said that he was negot- iating with Asia-Euro Brewery of Malaysia and expected a deal to be signed within a month. Carlsberg pulled out when the brewery was 80% complete, after the death in custody in June of the Danish honorary consul, Leo Nichols (see The political scene). Thein Tun had earlier had to buy the 40% stake held by PepsiCo in its bottling plant after the US soft drinks manufacturer pulled out in April. (Thein Tun is also a joint-venture partner of the Thai company Siam Cement.) The Dutch brewer Heineken also has pulled out of Myanmar.

Investment figures show Figures issued by Myanmar officials at the beginning of August say cumulative the UK with the UK investment is worth $1bn, with the figures for Singapore $896m, France largest stake $465m, Thailand $423m and Malaysia $420m. Fifteen US companies had had $243.57m worth of investment approved. The US embassy, by contrast, states that to its knowledge as of June 1996 only six firms that “might be characterised as American” had active investments in Myanmar. Oil and gas is the leading sector, with 25 projects in place worth $1.44bn. The minister for national planning and economic development has said that approved investment was expected to reach $7bn by the end of fiscal year 1996/97 (ending March 31). Recorded foreign direct investment (FDI) inflows in the balance of payments are much smaller, including only the equity component of foreign investment.

Realised foreign direct investment by sectora (% of total unless otherwise indicated) 1990/91 1991/92 1992/93 1993/94 1994/95 Agriculture 0.0 0.0 0.0 0.0 0.0 Manufacturing 8.0 0.3 6.4 4.7 10.4 Oil & gas 79.1 97.2 86.4 72.5 41.4 Mining 8.1 1.4 0.3 0.2 8.6 Fisheries 1.3 0.0 0.0 0.5 5.9 Hotels & tourism 3.4 1.1 6.3 21.9 32.8 Transport 0.0 0.0 0.7 0.0 0.9 Total 100.0 100.0 100.0 100.0 100.0 Total ($ m) 225.1 235.1 149.0 91.7 114.6 Balance-of-payments FDI ($ m) 219.0 248.6 137.5 96.2 244.5

a Includes only projects approved under the Foreign Investment Law.

Sources: World Bank, Myanmar: Policies for Sustaining Economic Reform; IMF, Myanmar: Recent Economic Developments.

Another US textiles In early August London Fog joined a lengthening list of US garments manufac- company leaves turers to cease sourcing in Myanmar. Others already to have taken this decision include: Liz Claiborne, Eddie Bauer, Levi Strauss, Reebok, Oshkosh B’Gosh, Macy’s and Columbia Sportswear.

The budget deficit reaches The planning and development ministry’s Review of the Financial, Economic and 8% of GDP Social Conditions for 1995/96 reported that the consolidated public-sector budget (covering central government, state enterprises and cantonment Budget deficit and money supply growth municipalities) registered a record deficit of Kt49.6bn ($8.5m), or 8.1% of GDP,

60 Deficit (% of GDP) in 1995/96. Initial budget projections had been for a deficit of Kt20.8bn. The M1 growth (%) wider deficit was the result of a fall in tax receipts, to 3.2% of GDP. This fall, 50 however, was more or less in line with initial budget projections. The real 40 damage was on the expenditure side: current expenditure, which had been budgeted to fall by 7.8%, is provisionally estimated to have risen by 27.1%, 30 while capital spending increased by nearly 54%. No data are available on how 20 the deficit was financed. In recent years, in the absence of foreign loans, the overwhelming source of financing has been the sale of Treasury bills to the 10 Central Bank. The deficit has been one of the main reasons for the rapid growth

91/92 93/94 95/96(a) of money supply (M1 rose by 34% in the year to December 1995; in the fiscal 1990/91 92/93 94/95 years 1990/91-1994/95 annual M1 growth averaged 35.3%), and has in turn (a) Estimate. Sources: World Bank; Ministry of National Planning and fuelled high rates of inflation. Economic Development.

Prices are rising According to unofficial reports, the poor economic management of the SLORC is prompting a continued and sharp rise in the market prices of key food items, although cooking oil and petrol prices have been falling since January.

As the following table shows, rice prices (4th quality) were far higher in August than they had been in January. This reflects at least partly the poor harvest of 1995/96. The free-market value of the kyat has also been falling, for a variety of reasons, discussed below.

Prices of selected items, 1996a (Kt) Jan Feb Mar Apr May Jun Jul Aug 2nd quality rice (per pyi) 70 59-64 85 90-95 90-100 100-110 95-100 100-110 4th quality rice (per pyi) 48 48 48 57-65 55-65 60-65 50-60 65-75 Catfish (per viss) 180 220-240 200 250-280 340 450-500 500 350-450 Shrimp (per viss) 180-200 180-200 250 300 250 180-200 250-300 180-250 Chicken (per viss) 380-500 380-500 380-450 450-480 350-450 380-450 380-450 n/a Cooking oil (per viss) 220 210 200 200 206 205 200 200 Petrol (per gallon) 200 210 180 215-220 210-215 195-200 180-190 185-195 Kt:$ (free-market rate) 126 125 126.5 125 127.5 137-138 145-150 156-159b Foreign exchange certificates 124-125 123 124 124 126 136 145-150 156-159 a Surveys carried out in first week of month; 1 pyi=2.1 kg, 1 viss=1.6 kg. b In the second week of July the kyat fell to Kt170=$1 before regaining some of its value in subsequent weeks.

Sources: US embassy; private reports.

Rice production is a key The trade minister, Lieutenant-General Tun Kyi, is reported as having said that concern Myanmar would export rice only after “striving for domestic sufficiency” and that the government would control the prices of rice and paddy: “The trade ministry will work for the convenience of peasants by purchasing paddy rice at a price that is economically feasible for both parties, so as to avoid a situation in which the peasants lose interest in cultivating paddy because of the big fall in paddy prices.” An article commenting on these remarks in Kyemon on July 12

(after noting that “the peasants have nothing to worry about”) did point out that the peasants face a variety of problems, including “losses because the cult- ivation and production costs are so high and the price offered by the trade ministry is very low”. The writer suggested that the solution to these problems is to ensure that the gap between prices offered by traders and by the trade ministry is small.

Production of rice in 1995/96 was officially put at 19.5m tons, around 31.9% up on the 14.8m tons produced in 1992/93, representing an annual rate of increase of 9.8% between these two fiscal years. Much of the increase is the result of a sharp rise in production of summer paddy, which rose by 71.3% per year from 936,000 tons to 4.7m tons, while output from the monsoon crop grew by just 2.3% per year, from 13.9m tons to 14.9m tons.

Multiple cropping is the reason for much of the growth in rice output; the irrigated area has nearly doubled since 1989, according to official data. In addition, supplies of subsidised fertiliser, pesticide and diesel fuel have been increasing.

Components of paddy growth % Increase in sown area 60 Increase in yield 161.9 Increase in multicropped area

1992/93 93/94 94/95 95/96(a)

(a) Estimate. Source: Ministry of National Planning and Economic Development.

Rice export targets are In 1994/95 the government exported 1m tons of rice; for 1995/96 it set a target not met of 1.5m tons. This was not met because of domestic shortages and a poor monsoon harvest. According to Selected Monthly Economic Indicators, published by the Central Statistical Organisation, only 239,700 tons were exported in the first 11 months of 1995/96. Fast-growing varieties are more easily damaged by floods, and storing wet rice without pesticides makes the rice liable to attack by pests. To solve the problem requires investment in drying equipment, pesticides and better storage facilities, all of which are in short supply. This year pests have been particularly virulent. According to a report in the Chicago Tribune in mid-August as much as 85% of rice in storage had been destroyed by the lesser grain borer and the grain moth. The report claimed that the growing prevalence of pests was directly related to multicropping, which provided the bugs with a constant supply of food.

Paddy production 1992/93 1993/94 1994/95 1995/96a Output (’000 tons) 14,837 16,760 18,195 19,568 Monsoon paddy 13,901 13,875 14,391 14,865 Summer paddy 936 2,885 3,804 4,703 Sown acreage (’000 acres) 12,684 14,021 14,643 15,309 Monsoon paddy 11,863 11,871 11,981 12,149 Summer paddy 821 2,150 2,662 3,160 Yield per acre (basketsb) 56.91 59.24 61.45 61.77 of which: monsoon paddy 56.99 57.67 59.48 59.26 summer paddy 55.78 68.21 70.26 71.33

a Provisional. b 1 basket=20.9 kg.

Source: Ministry of National Planning and Economic Development, Review of the Financial, Economic and Social Conditions for 1995/96.

Peasants are subject to a As well as buying rice from the peasantry at below-market prices, the govern- number of levies ment resorts to other kinds of levies on rice-growers. A report from a part-Karen, part-Burman village in the Irrawaddy Delta, south-west of Yangon, notes a number that are imposed. These include road construction volunteers’ fees; school and police station construction fees; and army recruitment fees. The total is said to be about Kt2,500 (about $15) per family per month (more than the monthly pay of a day labourer). There are also levies in kind: “Tatmadaw rice”, which is sometimes paid for, sometimes not; and Sytanar (goodwill) rice and township (local government) rice, which are not paid for. These are all levied at one basket per acre. Average production is about 50 baskets per acre. The SLORC imposes a quota of 12 baskets, for which it pays Kt70 per basket. (The market price is about Kt450 per basket.)

Those unable to grow dry-season rice have their fields confiscated. Those growing other dry-season crops have to destroy them without compensation. Townships are supposed to distribute fuel, fertiliser, pumps and hoses.

Pirates from Myanmar An article in the Bangkok Post in early July described the threat to Thai fisher- threaten Thai fishermen men from Myanmar pirates operating in Burmese waters along the stretch from Moulmein to Mergui, Tavoy and St Matthew island opposite Ranong, where the gangs are based. The pirates have been more active since the beginning of this year. Thai police say that 15 gangs are operating off Ranong: “Many are small-time pirates who operate under the umbrella of nationalist movements led by Burma’s minority groups, such as Arakenese, Karens and even dissident students.” They charge Thai fishermen a protection fee. The Burmese have imposed a ban on Thai fishing in Burmese waters. In order to “avoid the risks and legal complications”, Thai operators have been registering their trawlers with countries that have been given concessions in Burmese waters, including TBE of Honduras, Inter of Singapore and Hongsawadi of Myanmar. As many as 1,000 Thai trawlers could be fishing illegally in Burmese waters.

Total defends its presence A Danish pension fund, Kommunernes Pensionsforsikiring, announced in mid-July that it had sold its $10.45m worth of shares in Total “in anticipation of a possible international boycott of the company” as well as in response to a recent television documentary showing the intolerable living conditions in Myanmar.

Total was described by Aung San Suu Kyi in an interview with Le Monde on July 20 as “the principal support of the Burmese military system”. Its managing director for exploration and production, Daniel Valot, told the Financial Times that Total had been the object of much “disinformation” about its activities in Myanmar. Total has denied using forced or child labour as alleged by television documentary-makers. Mr Valot also objected to Aung San Suu Kyi’s charge that Total was propping up the regime financially. He pointed out that the project at this stage involved expenditure by Total’s partner, the government-owned Myanmar Oil and Gas Enterprise (MOGE), and that revenue would not start to flow until 2001.

Following agreement between the two countries on the disposal of gas from Total’s Yadana field, Thailand and Myanmar have signed a preliminary accord on purchases from Texaco’s Yetagun field. Volume and pricing have still to be agreed. The gas from Yetagun will be piped along the Thai section of the line that will be used to carry the 525m cubic feet per day of gas that is to be delivered from Yadana. It is estimated that the gas sold from Yadana will earn the Myanmar government about $400m per year when it comes on stream. The target date is mid-1998.

Interest in mining At a three-day emporium in early July local and foreign merchants bought prospects $1.4m worth of raw jade. Around the same time, several foreign mining companies signed agreements with the Geological Survey and Mineral Exploration Department of the Ministry of Mines to explore for gold, copper and platinum and conduct feasibility studies. Atina Times Square of Thailand’s agreement gives it two blocks, in the Mandalay area and northern Shan State respectively. The Mandalay Mining Company of Australia was granted two blocks, in the Mandalay area and northern Shan State. East Asia Gold Corporation of the USA was awarded three blocks, two in Kachin State and one in northern Shan State. Newmont Mineral Exploration received two blocks in the Mandalay area and the Ministry of Mines signed an agreement under which the Thai company will prospect for gold, copper and platinum.

Tourist arrivals are up According to the Myanmar News Agency in early August, tourist arrivals were markedly up in the first four months of the 1996/97 fiscal year. There were 46,337 arrivals in April-July, a 57% increase over the same period last year, according to the agency. (On the basis of data for last year released by the Central Statistical Organisation, these figures suggest that there was a 42.5% increase if they were overseas visitors and a 151% increase if they were tourists.)

The government seeks In mid-July the government announced that it was accepting proposals for joint joint ventures in the ventures in the banking sector between any of the 42 foreign banks with repre- banking sector sentative offices in the country and one of the 15 domestic private banks. Regulations governing the structure and activities of these joint ventures will not be issued. Instead applications are to be considered on a case-by-case basis. A draft securities law covering the proposed over-the-counter stock exchange that a joint venture involving the Japanese company Daiwa is to set up (2nd quarter 1996, page 21) has reportedly been submitted to the Attorney- General’s Office.

A run on a local bank In mid-July Yangon faced its first run on a private commercial bank since such institutions began to be licensed by the Central Bank in February 1992. Depositors withdrew their funds from the Myanma Mayflower Bank (MMB) in response to rumours that the bank was on the verge of collapse and that its chairman, U Kyaw Win, and his fellow directors had fled. The rumours were also one of the factors behind the plummeting of the kyat for the second time in the space of two months (see below) and the associated take-off of the prices of gold and real estate. Ministerial assurances that the rumours were false and had been spread by “destructive elements” seem to have been accepted. The kyat rallied and the run on the bank ended. Further official assurances to a government- sponsored press conference on August 1 stated that the “current financial system is safe, sound and stable” and were taken to be in part a further attempt to restore confidence in the banks. The MMB is one of Myanmar’s more go-ahead new private banks. Founded in 1994, it was the first bank in the country to introduce automatic teller machines (ATMs) and a point-of-sale system using ATM cards. It was also one of the first private banks to be licensed by the Central Bank to provide foreign exchange services. It has signed a memorandum of understanding with the Siam City Bank of Thailand to set up a joint-venture bank in Yangon.

Two more Japanese banks, Dai-Ichi Bangyo and Sakura Bank, plan to open representative offices in Yangon before the end of the year, bringing the total number of Japanese banks with offices in the capital to seven. The expansion is a response to growing Japanese activity in the country, but it is expected to be several years before the banks upgrade their offices to branch status. The banks are reported to be deterred from doing so by political instability and a regulatory maze which, among other things, makes the repatriation of profits difficult. The Bank of Tokyo (now the Bank of Tokyo-Mitsubishi) was the first to open a representative office, in August 1995. It has since been followed by Fuji Bank (December 1995), Sumitomo Bank and Tokai Bank (May 1996), and Sanwa Bank (July 1996).

Insurance is to be opened At the end of June the SLORC promulgated the Insurance Business Law, ending to the private sector the government’s monopoly of the insurance industry, which has been in force since the early 1960s, and opening it up to private participation. Under the law, private companies constituted in Myanmar may undertake insurance business as insurers, insurance brokers and underwriting agents under licences obtained from the Insurance Business Advisory Board, a body which will be set up by the government. Companies wanting to form insurance companies with foreign participation are required to seek a licence from the Ministry of Finance. The law permits companies to carry out the following types of insurance: life assurance, fire insurance, comprehensive motor insurance, cash-in-transit insurance, cash- in-safe insurance, fidelity insurance and any other type of insurance permitted by the government from time to time.

Myanmar had about 30 local and foreign insurance companies when the then military commander, General Ne Win, seized power in 1962. At that time they were nationalised and the industry was made a government monopoly.

The kyat tumbles On July 12 the kyat fell on the free market to Kt165:$1, having slid in late May from Kt125:$1 to Kt145:$1. Since early 1996 the free-market rate has prevailed for most transactions, except those with the government. There are now licensed money-changers. The government cannot support a fully liberalised exchange rate regime. In 1995/96 the current-account deficit more than doubled in kyat terms to over Kt2bn. Reserves, though increasing, have not been rising nearly as quickly as imports. Reasons for the fall of the kyat include political instability, threats of sanctions and the withdrawal of foreign investors. The scrapping of a 10% tax on foreign currency deposits in June prompted a rush into the no-longer penalised dollar. Other reasons that have been put forward for the kyat’s fall include the breakdown of one of the two main cranes at Yangon port (which hampered exports more than imports), and the need to pay a sub- stantial dollar signing fee to the consortium upgrading the Yangon-Mandalay highway. By the first week of August the kyat was selling at Kt156-159:$1.

The current account (Kt m) 1994/95 1995/96 % change Exports fob 5,405 5,945 10.0 Imports cif –8,766 –9,881 12.7 Net services & transfers 1,895 1,979 4.4 of which: government 0 0 0.0 private 1,895 1,979 4.4 Net interest –396 –510 28.8 Other (net) 904 462 –48.9 of which: travel (net) 766 823 7.4 Balance –958 –2,005 108.0 Source: Ministry of National Planning and Economic Development, Review of the Financial, Economic and Social Conditions for 1995/96.

The current-account As already noted, according to official data, the current-account deficit more deficit widens sharply than doubled in 1995/96 to Kt2bn. Exports rose by just 10% and imports by only 12.7%. The trade deficit, at Kt3.94bn, was nearly 18% higher than the Kt3.36bn recorded in 1994/95. The surplus on services and transfers rose by only 4.4%.

The US embassy’s report on Myanmar’s economy reminds us that such figures are to be taken with a pinch of salt. However, the bottom line—the much larger current-account deficit—fits in with other data and the available anecdotal evidence.

Appendix 1

Quarterly indicators of economic activity in Myanmar

1994 1995 1996 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr Production Annual totals Rice ’000 tons ( 18,195 ) ( 19,568 ) ( n/a ) Qtrly totals Rubbera ’000 tons 4.0 4.0 4.0 4.0 5.0 5.0 5.0 5.0 5.0 2.0b Tin in concentrates tons 128 84 210 157 107 75 185 150 57c n/a Zinc in concentrates “ 989 791 929 948 752 360 410 482 669c n/a Prices Monthly av Consumer prices: 1990=100 247.0 253.0 269.8 285.5 306.5 328.0 349.3 337.3 340.2d n/a change year on year % 32.1 21.0 21.1 23.4 24.1 29.6 29.5 18.1 n/a n/a Money End-Qtr M1: Kt bn 84.4 85.6 88.9 98.3 114.7 119.0 121.6 131.8 n/a n/a change year on year % 19.8 n/a 23.1 31.1 35.9 39.1 36.8 34.0 n/a n/a Foreign trade Qtrly totals Exports fob Kt m 1,410 974 1,120 1,230 1,811 1,119 991 904 552c n/a Imports cif “ 1,274 1,324 1,306 1,381 1,525 1,795 2,040 2,205 706c n/a Exchange holdings Golde $ m 72.4 71.8 72.7 72.4 71.3 67.2 66.7 66.8 69.4 68.0f Foreign exchange “ 344.9 333.4 368.3 421.9 533.9 625.6 654.7 561.1 504.0 544.6f Exchange rate Market rate Kt:$ 6.10 5.92 5.86 5.90 5.52 5.50 5.72 5.78 5.89 5.96

Note. Annual figures of most of the series shown above will be found in the Country Profile. a Estimates. b April only. c Total for January-February. d Average for January-February. e End-quarter holdings at quarter’s average of London daily price less 25%. f End-May.

Appendix 2

Myanmar’s trade with certain major trading partnersa ($’000; monthly averages) Singapore China Thailand Malaysia Japan Jan-Feb Jan-Feb Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Exports to Myanmar fob 1995 1996 1994 1995 1993 1994 1993 1994 1993 1994 Food 2,823 4,376 428 732 745 1,777 123 472 9 89 of which: dairy products 1,246 2,134 272 443 205 417 5 11 0 0 Beverages & tobacco 8,107 8,282 5,428 6,237 1,036 2,357 58 312 0 4 Petroleum & products 1,798 4,525 1,229 1,453 367 754 1,750 2,240 6 4 Animal & vegetable oils & fats 2,698 1,258 1 0 7 192 5,924 8,278 1 1 Chemicals 3,530 6,345 2,336 4,362 2,434 3,255 268 449 267 220 Textile yarn, cloth & mnfrs 1,002 1,592 4,562 8,535 2,380 3,237 74 18 155 99 Iron & steel 3,226 4,136 854 2,936 190 107 6 1 819 470 Metal manufactures 1,021 1,754 1,216 2,196 155 514 7 13 64 112 Machinery incl electric 16,690 13,084 4,957 7,265 799 947 194 200 1,767 1,260 Road vehicles 1,598 1,670 2,074 3,700 240 594 10 7 4,191 2,345 Other transport equipment 0 175 5,694 9,869 0 0 4 6,103b 86 Clothing 1,141 1,172 50 75 797 789 15 8 0 1 Scientific instruments etc 972 1,550 167 258 13 70 3 12 412 590 Total incl others 48,500 56,223 30,759 51,485 12,600 19,838 8,647 18,329 8,317 5,615

Singapore Thailand China India USA Jan-Feb Jan-Feb Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Imports from Myanmar cif 1995 1996 1993 1994 1994 1995 1992/93 1993/94 1994 1995 Food 4,928 5,180 703 1,800 921 1,069 5,650 6,287 742 295 of which: fish & preparations 3,636 4,429 643 1,759 542 544 0 0 592 169 fruit, vegetables & products 512 554 0 3 291 258 5,650 6,287 1 0 Oilseeds 1,451 1,130 0 1 429 82 0 0 474 391 Rubber crude 2,659 2,699 0 0 13 20 25 0 0 0 Wood, lumber & cork 4,737 2,928 11,860 10,555 5,755 5,542 5,004 3,786 233 317 Non-ferrous metal ores 109 32 24 4 689 755 9 26 6 38 Pearls & precious stones 84 0 128 399 3,158 3,835 0 0 256 210 Total incl others 17,278 14,274 12,917 13,075 11,945 12,461 10,798 10,106 6,047 7,226 a Figures from partners’ trade accounts. b Aircraft.