Sat, 08 Apr 2000

Pay rise fuels fears over Myanmar

By Philippe Agret

YANGON (AFP): Myanmar's decision to grant wage hikes of up to 600 percent to civil servants has raised new fears about the military's ability to manage a chaotic economy which foreign experts say is already on the verge of collapse.

The pay rise for 1.5 million soldiers, civil servants and state and public services employees came into force from last Saturday, covering 8 percent of the workforce.

Although the new scheme was never announced officially it last week sent the price of the local currency, the kyat, to 345 to the dollar on the black market, compared to its normal rate of around 330.

The currency has since settled down but there are still fears that the new rush of money into the economy could spark rampant inflation and put basic commodities out of reach of those who do not qualify for a raise.

The heavy handedness of the move has dismayed many observers who were relieved that inflation slowed from a punishing 49 percent in 1998-1999 to 23.8 percent by last October.

"The measure is too brutal, there will certainly be inflationary consequences," said a western economist in Yangon.

The wage hike means that an advisor to the government currently paid 2,000 kyats a month, will now get around get 12,000 kyats. An army captain who earns 1,200 kyats will get 6,000 or 7,000 kyats.

Observers said that the government may try to ease the consequences of its unsubtle action by intervening again to keep prices down -- a strategy many believe would be doomed to failure.

A common complaint about the generals who rule Myanmar is that they have little or no idea how to run an economy.

The result is a primitive and informal system propped up by barter and a pervasive black market in everything from currency to gasoline.

"There is no indication that they are taking the (economic) problems seriously ... they have lost perspective," said a Western diplomat here.

A World Bank report which last year warned the junta that political reform was the only route to a functioning economy was dismissed as "exaggerated and inaccurate" by Myanmar's economic minister.

"We have invited the World Bank back because their report has some wrong information, they have not come yet but we have to work together," a government spokesman told AFP.

Physical signs of the decaying economy are obvious.

Power cuts are a daily headache for residents of Yangon and other cities and prices rise and fall dramatically throughout the year.

Foreign investment has all but dried up owing to the Asian financial crisis and the stigma attached to investing in a country blamed by the West for gratuitous human rights abuses.

In new blows to the junta this week, American oil services firm Baker Hughes and a Thai department store owner withdrew investments in the country.

But while few people praise the junta's economic management, some say it was forced to do something about the appalling wage packets offered in the public sector.

"If they don't do it, things can only get worse," a Yangon resident told AFP, pointing out that regular fluctuations in the inflation rate and exchange rates are already a hardship for ordinary people here.

Some seasoned Myanmar observers, well used to the often- surreal nature of life in a country which has for decades lived in isolation from the rest of the world, say that paradoxically, the economic chaos might cushion the impact of the wage hike.

In any other country, they say, a 400 to 500 percent public sector pay rise would drive the economy and the country to the wall.

But in Myanmar's massive informal economy, the normal logic may not apply, one analyst said.

"Who knows? we will have to wait and see."