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Web-only Exclusives
November 30, 2000

From Our Correspondent: Hirohito and the War
A conversation with biographer Herbert Bix

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Asiaweek Time Asia Now Asiaweek story

RE-EMERGING MARKETS

A New 'Burmese Way'

Myanmar Takes a Circuitous, Rocky Route Toward Prosperity

By Susan Berfield Yangon


WANTED: INVESTORS WITH NERVES of steel to take advantage of Myanmar's economic opening. The ideal candidate would be comfortable operating in a country emerging from decades of decline. He or she should have a proven ability to meet deadlines and wait -- patiently -- for returns. Experience with military governments is greatly preferred, but not essential. We offer a vast store of natural resources, relatively cheap labor and some 100,000 tourists a year. Please contact the appropriate minister with proposals.

That, roughly, is the message Myanmar's ruling military government has been sending out to entrepreneurs around the world. Since late 1988 the junta, known as the State Law and Order Restoration Council (SLORC), has slowly begun steering the economy off the disastrous "Burmese way to socialism." It has done that by taking the first steps to sell off government assets, permitting some private domestic banks to operate, promoting foreign investment and allowing greater economic freedom for farmers and the burgeoning business elite. The emphasis, though, has clearly been on foreign investment. "No matter what else the reforms accomplish," says a businessman in Yangon, "the government wants to suck foreign currency into the country like a black hole."

In a move designed in part to increase that inflow, the military junta released opposition leader Aung San Suu Kyi from six years of house arrest in July 1995. That has sparked some new investor interest, particularly from the Japanese. Despite the uneven pace of reform and serious questions about the country's economic stability, many other Asian firms have been eagerly staking a claim. But so far few are willing to make major commitments. Most prefer, for now, to invest their time establishing contacts rather than their money.

Renewed interest from Japan may change the equations. Many Japanese have been sitting on their hands as Southeast Asians, particularly Singaporeans and Thais, have opened their wallets in Myanmar. Before the military crushed a democracy movement and retook power in 1988, Japanese trading houses had a strong presence in Yangon. But when Tokyo followed the West's lead and suspended its generous aid program after SLORC came to power, corporate Japan pulled back. Now that Suu Kyi is free, Japanese executives appear poised to go on a buying binge and Tokyo has promised to resume aid. As Uchida Katsumi, a Japanese diplomat in Yangon, puts it, "Now it's time to encourage Myanmar to move ahead."

Among those eager to give Myanmar a helping hand are 21 major Japanese firms, including Fuji Bank, Hitachi and trading giant Marubeni. Company bosses visited the country in early December "to window-shop first," as an observer described it. Few doubt they will be back to invest. One leading plant engineering firm, Chiyoda Corp., recently announced it will propose development projects in Mandalay, 700 km north of the capital. And Japan and Myanmar recently agreed to open a direct air route.

Opportunities are springing up elsewhere. Myanmar is likely to become an official observer of ASEAN this year and could join the organization by 2000. The country recently received an International Monetary Fund team to upgrade its ability to collect economic statistics. It is a "step in the right direction to seek further IMF support," a Fund spokesman says. The IMF and the World Bank stopped aid and assistance to Myanmar in 1990, when SLORC ignored the results of an election in which Suu Kyi's National League for Democracy won a landslide victory.

A MATTER OF TIMING

Suu Kyi has asked investors and donors to wait and see if SLORC is really serious about democracy before pouring money into the country. "That's a joke," replied Brig.-Gen. David Abel, minister for national planning and economic development. "Money motivates big businessmen. They are not worried about what politicians say."

Maybe not. In the seven years since SLORC began courting investors, foreign money has helped reinvigorate Yangon and Mandalay. Four- and five-star hotels are rising against the capital's colonial-era skyline; a few modern office buildings have appeared along the city's airport road and in its still-decrepit central district. Billboards advertising imported Japanese and Korean TVs, refrigerators and karaoke machines stand next to those touting military slogans.

Other signs of modernity are creeping in. Japanese cars and pickup trucks are replacing the vintage Morris sedans at a quick pace. The government has started collecting parking fees; residents even talk about the beginnings of traffic jams. They also compare notes on new restaurants. "The city is more vibrant than it was just 18 months ago," says Bernard Pe-Win, a Hong Kong-trained businessman who negotiated and oversaw the renovation of Yangon's venerable Strand Hotel in the early 1990s.

While Myanmar doesn't yet have many publicly owned companies, the government is bullish on the prospects for a stock market. Some 20 local firms have already sold stakes to individual investors. More than a year ago, the government and Daiwa Securities Co. of Japan began working together to establish a formal exchange. Once Yangon enacts securities-exchange laws, Daiwa and the state-owned Myanmar Economic Bank are to start up a joint venture to supervise the existing trading. This could happen within the next six months, says Martin Pun, CEO of Serge Pun Associates and a consultant to Daiwa. A full-fledged bourse could be up and running within six years.

The government claims that its reforms helped the economy grow by 6.8% in 1994 and that the private sector now accounts for just over 75% of the country's output. Total approved foreign investment since 1990 is about $2.5 billion. Myanmar, as advertised, has an urban labor force willing to work for an average of about a dollar a day -- not to mention gas reserves, teak, rubies, unpolluted rivers, fertile land and a virtually untouched domestic market of some 46 million people.

In short, it could be a nimble investor's land of opportunity. "Myanmar is like Malaysia in the 1950s," says Hishamuddin Koh, whose Kuala Lumpur-based WHS Resources is just digging into the mining sector. "But its economic take-off will be faster because they have Asian models to emulate." Lt.-Gen. Kyaw Ba, minister of hotels and tourism, agrees: "We won't make the same mistakes as other countries."

THE DOWN SIDE

But a closer look reveals that SLORC's reform program does not measure up to the hype, and widespread corruption and some government policies still weaken the economy. Foreigners can wholly own certain businesses in Myanmar. But if a company needs a local partner, most get better initial results if that partner is connected to the government. SLORC maintains a monopoly on the export of rice, teak and minerals. This means that the government's claim to account for only 22% of the country's output is a bit disingenuous. Agricultural production makes up about 40% of the country's GDP and is still basically government-controlled. Privatization has hardly advanced; the government so far has succeeded in unloading a few cinemas. The financial sector also remains closed to foreigners. The generals, one Yangon resident says, can set their own agenda, and the command economy is still very much the order of the day. Meanwhile, the black market remains huge and flourishing.

The biggest drag on growth, and perhaps investor confidence, may be Myanmar's grossly overvalued kyat. The country's official exchange rate is about six kyat to the dollar; in the "free-market," a greenback fetches about 123 kyat. The distorted rates make many government statistics suspect. It is also why nearly all of the money entering the country goes into industries that generate foreign currency. The fat kyat is one of two principal reasons that multilateral lenders like the World Bank don't loan money to Myanmar to build badly needed roads, ports and power plants.

The other reason is that major Western donors want to see more political reform and fewer human-rights abuses before they help SLORC. The generals have so far shown no inclination to reconcile with the opposition. When in late November Suu Kyi's NLD boycotted the military-run National Convention drafting a constitution, SLORC replied that it would "annihilate" troublemakers.

Little international support and years of bad management have left the economy in a shambles. Inflation is high, official savings are low and Myanmar isn't paying back its foreign debt, half of which is owed to Japan. The World Bank reports that investment in such areas as health and education as a percentage of GDP has been decreasing over the past five years. About 75% of Myanmar's children don't complete primary school, according to the U.N. Development Program in Yangon. Only defense spending is protected. Since 1989 it has gobbled up between 36% and 45% of the government's budget. Vietnam, by contrast, spent less than 10% on defense in 1994.

HURRY UP AND WAIT

To invest in Myanmar you have to bet long on the government, or on peaceful political change. The country is too risky for many Western companies -- with the exception of large investments in gas exploration. The favored phrase among Asian entrepreneurs is "it's still the early days." Of the $2.5 billion worth of projects approved since 1990, at the most about $190 million has actually been implemented each year. In comparison, Vietnam has approved $13 billion of investments since 1988.

The big question is when is the right time for investors to jump in. "The government is going through some growing pains," says Pat James, a U.S. business consultant who has lived in Myanmar since the late 1980s. "But the next four years will give new meaning to the phrase ‘sleeping tiger.' " Until then, he counsels executives to spend money and time cultivating contacts among Myanmar's officials and fledgling business class. The Singaporeans and Japanese, James says, "are very smart about doing business here." They pay to train workers and they provide technical expertise to the government.

But the Singaporeans are not just building trust; they want short-term gains as well. "None are as single-minded about Myanmar as the Singaporeans," says an observer in Yangon. They have stakes in hotels and in Myanma Airways, an agreement to build an international airport in Mandalay, and banks just waiting for permission to start up. The emphasis, in other words, is largely in tourism, where companies earn dollars, not kyat. Indeed, at most hotels, everything from postcards to car service is priced in dollars.

Investors don't like to deal in the over-valued kyat partly because Myanmar prohibits foreigners from freely converting the currency to dollars. Nearly three years ago, the government introduced Foreign Exchange Certificates and last month opened 10 official kyat-FEC exchange centers. But companies that earn kyat can only convert their profits into foreign currency by exporting goods from Myanmar. Usually that means shrimp or pulses. "That kind of counter-trade may be OK for half a million dollars," says Bangkok-based lawyer Gary Biesty, "but there's just not enough shrimp in Myanmar for multi-million-dollar projects."

Yet another economic drawback is infrastructure: there is no efficient transport, constant power supply or reliable telecommunications. How bad is the situation? A local distributor of Rothmans cigarettes in the central town of Taunggyi told her managing director that she preferred to transport shipments to her hometown by air rather than by land; the 400-km journey takes a good truck driver five days.

SMOKY SIGNALS

Then there is the bureaucracy. Business consultants bullish on Myanmar say the approval system is straightforward and the government's reform program is on track. "It's a two-step process," says John Lunbeck, Yangon research manager at Kerry Securities Limited. "You need ministerial and Myanmar Investment Commission approval." Sure, says James, and then the Cabinet could veto the idea and you have to start wooing ministers all over again. "There are no guarantees in Myanmar," he warns, "until you're operational and have proven yourself."

Though the legal code is British-based and well-entrenched, it is also antiquated and largely untested. Tun Shin, legal adviser to the Myanmar Investment Commission, insists there is no cause for worry. "Our legal system is solid and stable," he says. "It wasn't born yesterday." Still, some say negotiating a contract is more a matter of personal finesse than legal skill. "If a company is looking for everything in black and white," says Pun of Serge Pun Associates, "then this is not the right time to come in."

That could sum up the recent experience of foreign businessmen in Myanmar. "There's no transparency," says one investor. "No one knows what SLORC is planning." Most agree that the generals are cautious; some say risk-averse. "They haven't taken the kinds of tough decisions that Deng Xiaoping did in the late 1970s," says Gerald Segal of the International Institute for Strategic Studies in London.

There are good reasons for SLORC to hesitate. It's been burned by investors out to make a fast buck, such as unscrupulous Thai logging and fishing companies. And though there are some very capable ministers in the government, the overall level of economic expertise is low. The biggest obstacle to reform, though, could be the junta's fear of unrest if economic reforms cause high inflation or put people out of work. "The potential for experiment is less than it was when China first opened up," Segal says, "and the potential for things to go wrong is greater."

Given these uncertainties, foreign punters are waiting for substantive changes. "In Myanmar, most are optimistic in the long-term," says one observer, "but few in the short-term." In other words, in this volatile emerging market, the weak-hearted need not apply.


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