Myanmar's two decades of partial transition to a market economy: a negative legacy for the new government

Abstract

Despite more than two decades of transition from a centrally planned to a market-oriented economy, Myanmar's economic transition is still only partly complete. The government's initial strategy for dealing with the swelling deficits of the state economic enterprises (SEEs) was to put them under direct control in order to scrutinise their expenditure. This policy change postponed restructuring and exacerbated the soft budget constraint problem of the SEEs. While the installation of a new government in March 2011 has increased prospects for economic development, sustainable growth still requires full-scale structural reform of the SEEs and institutional infrastructure building. Myanmar can learn from the gradual approaches to economic transition in China and Vietnam, where partial reforms weakened further impetus for reforms.

Acknowledgements

The author would like to express his deepest gratitude to former senior officials of the Ministry of Finance and Revenue, Myanmar, for informative discussions, and to Shin'ichi Watanabe for valuable suggestions. Any remaining errors and omissions are the sole responsibility of the author.

Notes

 1. These figures are calculated from the data in Asian Development Bank (2012).

 2. See IMF (2000) for a review of major elements in the transition processes from a centrally planned to a market-based economy.

 3. Myat Thein (2004) offers a detailed description of the ‘Burmese way to socialism’.

 4. The junta changed its name to the State Peace and Development Council in November 1997.

 5. While MEB loans to SEEs equalled 61% of GDP, savings in the banking sector came to only 11.3% of GDP in 1988.

 6. Such estimates are not available for the fiscal deficit in recent years.

 7. The information on the budget system is based on the facts before 2009. Since then there may have been some changes in the system.

 8. Apart from centrally planned production, some SEEs undertook consignment production for private firms or entered into joint ventures with foreign firms. However, the profits (in a joint venture, the SEE's portion of the profits) were also transferred to the SFA.

 9. These figures are from Statistical yearbook, Central Statistical Organization (CSO), Myanmar.

10. The export tax was reduced in September 2011.

11. At times foreign currency deposits at private banks were also permitted.

12. Starting in February 1993 the government introduced foreign exchange certificates (FECs). Since then it has been possible for FCD holders to withdraw in FECs and to sell these for kyat in the parallel market.

13. These include proceeds from smuggling and remittances from people working outside the country.

14. In addition to these two, there is another linkage. Some SEEs and ministerial departments procured imported goods from private importers using their kyat budget. Government allocation of foreign exchange is concentrated in a small number of SEEs that have regular expenditure in foreign currency. Foreign exchange was not always allocated for one-off purchases of imported machines, in which case they were procured through the kyat budget from private importers. Such official procurement through private importers, when a large sum, may have a depreciating effect on the parallel exchange rate.