Myanmar struggling to recover economy

By Deborah Charles

YANGON (Reuter): Still dogged by its unenviable status as a "least developed nation", resource-rich Myanmar's military rulers are struggling to make moves that might attract investments and shore up the economy.

Diplomats and businessmen say economic factors likely played an influential role in the military's unexpected July 10 release of opposition leader Aung San Suu Kyi after six years of house arrest.

"The SLORC has seen the possibilities and potential for the economy with investment," said a diplomat, referring to the military's ruling State Law and Order Restoration Council. "The carrots were dangling."

Once considered one of the region's most promising countries because of its wealth of natural resources, educated workforce and strategic location, Myanmar's economy suffered at the hands of the military government over the past four decades.

A disastrous 26-year experiment with the ill-fated "Burmese Way to Socialism" doctrine started the economy's decline in the 1960s by virtually sealing Myanmar off from the rest of the world.

In 1987, the United Nations dealt Myanmar a harsh blow when it grouped the Southeast Asian nation with Bangladesh and Ethiopia as the world's poorest countries.

But since assuming power in 1988, the SLORC has tried to improve the situation. It adopted an open-market economy plan and has worked to entice foreign investors and funds by loosening up investment laws.

Foreign investment in Myanmar has been on the rise in recent years. Projects through mid-May totaled US$2.6 billion, up from about $2.38 billion at the end of January.

Myanmar desperately needs the hard currency to help boost foreign reserves. Although the economy has been growing steadily over the past few years, inflation is the highest in Asia and the foreign debt is mushrooming.

Diplomats estimate Myanmar's foreign debt at more than $5.5 billion, and say arrears on debt servicing likely top $1 billion while foreign exchange reserves as of March were only $533.9 million.

Although investments are growing, political uncertainty and concern over human rights violations have kept the large-scale investments at bay.

Suu Kyi's release may usher in a new era, businessmen say.

Daniel Cannon, an American currently doing feasibility studies on a variety of infrastructure projects in Myanmar, welcomed Suu Kyi's release and said he thinks the country offers a great investment opportunity.

"I think it's terrific," he said of Suu Kyi's release.

"I think it will lead organizations like the World Bank, Asian Development Bank... and other multilateral financial organizations to rethink their aid plans. They said they would not give aid until they released Suu Kyi, so now I challenge them to act."

Most Western countries and international agencies cut off aid to Myanmar after the military brutally suppressed 1988 pro- democracy uprisings, killing or imprisoning thousands. Suu Kyi was arrested in 1989 for outspoken attacks on the military.

Asian business analysts have said foreign aid is key to getting the necessary infrastructure improvements if Myanmar hopes to attract more business.

Since her release Suu Kyi has urged governments, agencies and investors to wait before stampeding in with money.

"Please wait and see before rushing in with any new investment and aid until we know more about which way things are going," Suu Kyi said in a recent news conference.

Despite the words of caution, investors are gearing up to pour more money into Myanmar, where there are ample opportunities to exploit natural resources like oil, teak and gems in addition to Myanmar's fertile agriculture base.

"This is a very rich country," said Cannon. "If the project is right, money can be made right now. The risk factor is quite acceptable. The money I've invested is money well spent."

Others may be more cautious, due to fundamental problems. Erratic electricity, gasoline shortages, an insufficient road and telecommunications system, and poor port facilities all need fixing.

The hugely over-valued official exchange rate also hampers business because foreign investors must pay the bulk of their expenses in hard currency at the official rate.

The Myanmarese kyat trades at about six to the dollar at the official rate and around 100 on the black market.