Myanmar's bid to join regional groups

Myanmar's bid to join regional groups

Myanmar needs to do more if it hopes to gain membership in
other regional groupings.

By Ahmed M. Khalid

REGIONAL integration is advancing rapidly in Asia as a result
of both market forces and government policies. The successful
experience of some of the Southeast Asian countries of
cooperation in ASEAN has further enhanced the prospects for
closer regional cooperation. Myanmar too is eager to be part of
regional networks. In July 1997, Myanmar was admitted as a member
of ASEAN.

It is evident that the relatively more developed member
countries of AFTA/APEC are at a different stage of development in
terms of economic growth, trade, financial liberalization,
technological progress and labor-market conditions including
manpower skills, wage rates, and so on, as compared with the
emerging economies.

There is, thus, a place and role for every actor within the
framework of the regional grouping to gain benefits and to make
an effective contribution. Movement towards economic
liberalization is, therefore, essential to gain membership in
such regional groupings. Economic reforms initiated in Myanmar in
1988 have produced mixed results. At the early stage of these
reforms, the economy experienced a sharp decline of 11.4 percent
in GDP accompanied by high inflation of 32.5 percent, money
supply growth of 31.3 percent and a fiscal deficit of 5.7 percent
of GDP.

The recovery started in 1992 and continued in later years with
moderate real GDP growth of around 6 percent. Though fiscal
deficits are on the decline, because of limited availability of
external resources and an inefficient system of taxation,
financing through central bank borrowing remains the only source.

Hence, money supply growth and inflation have remained at over
20 percent on average. The gap between the official and black
market exchange rate is extremely high with the official exchange
rate at around six kyat and the black market rate at over 300
kyat per US dollar at the end of 1997.

The process of macroeconomic management involves reforms in
various sectors of the economy. The financial sector plays a
critical role in the process of economic growth but financial
sector reforms may not be successful without fiscal reforms. At
the same time, the market mechanism has to be enforced to
determine the pricing system including commodity prices, interest
rates and exchange rates. Thus in the process of transformation
from command to market economy, it is natural that policy makers,
regulators, bankers, economists and business communities try to
find the dynamic balance fostered by the monetary, financial and
fiscal reforms.

One of the major failures of Myanmar's reform process is the
domestic pricing structure. The economy still has a dual-price
structure that creates other distortions such as inflation,
subsidies, rationing system and dual exchange rates.
Liberalization of the price structure would require market forces
to determine the prices independent of any political and/or
social pressures. If financial markets are well developed and
individuals have undiscriminated credit facilities, there will be
no need for subsidies to purchase inputs. The farmers would be
able to borrow, purchase inputs at the market rate, sell their
produce at the market rate, pay back their loans and could still
make some profit. Such a policy will increase productivity (by
removing artificial shortages), eliminate the need for rationing
and will establish a unified price system in the country.

The capacity to export and willingness to import would
determine the demand for and supply of foreign exchange, and
eventually, the exchange rate for a country. In a reforming
economy where limited resources are available to the industrial
sector, these exports are heavily dependent on imports of raw
materials.

Thus, a policy to open the economy for imports and reduce
tariffs would increase the production capacity of the economy and
stabilize the exchange rates.

In other words, outward oriented policies to promote exports
combined with policies to attract foreign investment and imports
of capital and technology are essential for exchange rate
stabilization. Such policies would reduce and eventually
eliminate the gap between official and black market exchange
rate.

Public confidence, transparency and sustainability of policies
determine the credibility of the regime not only for foreign
investors but domestic investors as well.

Unfortunately, Myanmar has a long way to go in gaining such
confidence and establishing credibility. This should be the
priority, as any reform package would be meaningless and
ineffective without public support and confidence. Such
confidence will help to boost the domestic investment and saving,
inflow of foreign capital and operations of banking and other
financial institutions.

Regular policy evaluation is important and helps to decide
whether to continue or modify the existing policies. Such policy
evaluation requires sufficient data, at least, on the main
macroeconomic variables. Developing countries, in general, face
the problem of data inadequacy. Data availability on basic
economic and social indicators is even more serious problem in
the case of Myanmar. Statistical services should be improved both
in volume and frequency.

Myanmar's economic reforms still face enormous challenges and
problems. Distortions such as supply bottlenecks, monopolistic
pricing, inefficient capital structure, and overvalued exchange
ate still prevail in the economy and there is a need to further
improve the system by reducing these distortions.

Furthermore, the resource mobilization and regulatory
environments have to be improved for an efficient system.

Although, Myanmar has joined ASEAN as a member, formal entry
to other prestigious economic forums such as APEC will depend on
future economic performance and sustainability of economic
growth. Policy makers have to formulate and implement the right
mix of policies to speed up the reform process and maintain it to
achieve target levels of growth. The prospects for Myanmar would
be promising if there is a continued focus on the reform process.

Dr. Ahmed M. Khalid is a Lecturer with the Department of
Economics and Statistics, National University of Singapore.