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The Economic Consequences of Military Rule in Myanmar

N. Neihsial was on deputation from the Indian Defence Accounts Service to the Institute for Defence Studies and Analyses, New Delhi.
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  • January 28, 2008

    The recent public protests against the general price rise in Myanmar and the government crack down once again drew the world’s attention to the plight of the Myanmarese. But the focus has generally been on the political aspects, particularly the possibility of peaceful reconciliation and subsequent installation of a democratic government. In contrast, this paper attempts to peep into the economic aspects of military rule and its impact on the general public and concludes with certain possible implications for neighbouring countries like India.

    Myanmar, a country of 678,500 sq km, is inhabited by a population of over 47 million people. Its Gross Domestic Product is US$ 80.11 billion. Per capita GDP (adjusted for Purchasing Power Parity) in 2002 was $ 1568, which was less than that of Cambodia ($ 1649) and Laos ($ 1678). Sector wise composition of the economy is: Agriculture 54.6 per cent, Industry 13 per cent, and Services 32.4 per cent. Labour force distribution among these sectors is 70 per cent, 7 per cent, and 23 per cent, respectively. The annual inflation rate is estimated to be 25 per cent (2005).

    Previous decades of poor economic performance was claimed to have been arrested in 1989, with the military government revoking the 1965 Law on Establishment of a Socialist Economic System. This was followed up by a number of legal measures to liberalise the economy and move towards a market system. These measures include: lifting of price controls on agriculture, liberal investment laws, creation of important elements of a financial infrastructure, privatisation of government corporations and subsequent efforts to develop an information technology industry. With these policy measures, the performance of the economy is claimed to have been improved. Sectors that contributed to economic growth were Mining, Communications and Financial Institutions, and not Agriculture — the main stay of the work force and the major component of the country’s GDP. More serious than these aberrations is the existence and operation of two parallel economies — the legal and the extra legal, and the way the military junta controls and exploits both at the expense of the common man.

    As pointed out, nearly 50 per cent of the growth in GDP was contributed by sectors like Mining, Communications and Financial Institutions. The military has been adept in institutionalising its involvements in business. For example, there are two prominent Enterprises/Corporations that are strangely under the Ministry of Defence — the Union of Myanmar Economic Holdings Ltd. (UMEH) and Myanmar Economic Corporation. The first is jointly owned by the Directorate of Defence Procurement and serving and retired military personnel. This firm has become the largest indigenous firm in the country, reaching a registered capital of 10 billion Kyats or $1.4 billion at the official exchange rate. All major foreign investments are done only through this corporation and so far it is reported that as many 47 joint ventures have been entered into through its auspices. Its range of business interests are rather large and include gem production and marketing, garment factories, wood industries, goods and beverages and other trading companies, supermarket, banking, hotels, tourism, transportation, construction and real estate, computers, telecommunications, electronics and equipment, and steel and cement industry. With no public transparency in its finances, UMEH is reported to give extensive business opportunities to the military leadership.1

    The Myanmar Economic Corporation, which is under the Ministry of Defence, is also involved in a wide range of economic activities including trading companies, agriculture produce, hotel and tourism enterprises, gems and mineral extraction and exploration, extraction and sale of petroleum and natural gas, telecommunications and other enterprises that were previously government monopolies. These two enterprises give the typical picture of the nature of privatisation and economic growth in Myanmar.

    The extra-legal economy is significantly as large as the legal one. This is largely contributed to by drug cultivation, production and trading or smuggling. The military’s indirect involvement and direct benefits are widely spoken of but not documented through systematic research. According to the US State Department’s International Narcotics Control Strategy Report, Myanmar continues to be the world’s largest source of illicit opium and heroin though production and cultivation began to decline since 1997.2 Although the State Peace and Development Council (SPDC) is denying its involvement and is officially cooperating with UNODC (United Nations Office on Drugs and Crime), it is difficult to cover up its involvement.

    Its involvement is in the form of corruption in the Army at various levels. A man working in an NGO team in Myitkyina explained, “the government is arresting and imprisoning some drug dealers. But they are released when they pay between 100,000 to 5 million Kyats. The main drug business is done by the wives of police, army and military intelligence officers. The police and the SPDC army are seen to be involved in the drug trade.”3 The evil has its own consequences such as drug abuse, gambling, prostitution and the spread of HIV/Aids from which ills the Tatmadaw (Armed Forces) itself is not entirely free given its involvement.4 Same is the case in respect of the smuggling of illegal arms through Myanmar to India’s North East insurgent groups. Unconfirmed reports suggest that consequent to Myanmar’s signing of cease fire with some insurgent groups, like the KIA (Kachin Independent Army) for instance, the arms used by these groups were made available at cheap prices. Since these are in great demand among insurgent groups in India’s North East, they are smuggled and transported with the help and connivance of the Tatmadaw. The final delivery prices are of course reported to be as high as four to five times of the original price paid. The reported involvement of the military junta in giving sanctuary to Indian insurgents is also stated to be due to the deep rooted and extensive corruption of field Units who, by accepting a few lakhs of rupees from insurgents, are ever ready to give them protection.5

    The question is why a regular army that has been in control of political power for decades is so prone to corruption? Are there things that are fundamentally wrong with the Tatmadaw itself? The answer is ‘yes’. While the top echelons of the Tatmadaw are involved in high level corruption and legitimate control of the economy through the state apparatus, those in the field particularly at the lowest Unit level are at the receiving end when it comes to economic resource distribution. The salary and other benefits like ration even at the officer’s level are hardly sufficient for survival, forget about respectable provision to one’s family.6 The monthly salary of a Major in the Army is stated to be about 1.5 lakh Kyats, which should appear to be quiet high compared to pay package of equivalent rank in India.7 But the problem is, one bag of rice (a little less than 50 kg) costs between 18,000 to 20,000 Kyats. One kilogram of chicken costs 4000 Kyats. An ordinary soldier’s monthly pension is about 700 Kyats, which could hardly buy a cup of tea. It is also reported that ordinary soldiers are unable to feed or clothe themselves in respectable Uniforms. Under these circumstances, field units have no choice but to be corrupt and exploit the common people to fend for themselves. Thus, the involvement of Army, police and intelligence officers in drug trafficking, smuggling and other social evils including trafficking in women is only a logical extension of the economic policies of the SPDC Government.

    In spite of the power it wields, the Tatmadaw is not a profession much sought after by the youth. The most attractive thing for young men and women, whether educated or not, is to go abroad, earn some dollars and remit them home. And they do not use the official route to repatriate remittances, because the SPDC maintains the exchange rate at 6.0764 Kyats a dollar. Instead, money is remitted through hawala transactions, which yield 1300 Kyats per dollar. Similarly, the official exchange rate for the Indian Rupee is 1.5 Kyats, whereas in the hawala channel it yields 30 Kyats. The hawala network is under the control of Myanmar’s financial barons.

    Rampant corruption and the government’s inability to arrest and moderate inflation have made the profession of arms quite unattractive for the country’s youth. In fact, there are reports that the government recruits ‘Child Soldiers’, some as young as ten, under compulsion or duress or cheating. Though the SPDC vehemently denies this, there seems to be an element of truth in this given that the Deputy Director General of the Information Ministry, Ye Htut, claimed to have dismissed 141 minors between 2004 and August 2007 and returned them to their parents, and that disciplinary action has been taken against nearly 30 military personnel.8 Some observers conclude that in the context of the demand for democratic Government, “any popular uprising against the military regime could only succeed if there were important cleavages in the SPDC or within the rank and file of the armed forces.”9 But this is unlikely to happen in the foreseeable future considering the tight grip of the SPDC on the country through military repression, a manipulated economic system, an all powerful DDSI (Directorate of Defence Intelligence) apparatus and a pervading corrupt system imposed by the ruling junta.

    The domestic vulnerabilities of the SPDC regime are usually enumerated to be democratic opposition; the continuing absence of durable settlements with ethnic insurgents, economic decay and military overstretch in the campaign against various insurgent groups. What is missing in the list is the military’s exploitation of economic resources at different levels: (i) at the level of the Government, (ii) through the privatisation process in the form of enterprises and corporations and (iii) in the lower ranks through corruption and exploitation of the common people.

    The pertinent question, however, is: How far and how long the military Junta would be able to keep a population of nearly 50 million through repressive measures under extreme economic hardship, poverty and backwardness, while at the same time keeping them unaffected from the effects of a fast globalising world? As of now, the likely thing to happen in the foreseeable future, perhaps, is the breakdown of civil society on accounts of extreme economic hardship. The tendency of people to migrate to other countries, and particularly the neighbours, is likely to get intensified in the near future. It is important for India to take note of this, given that the North East is already plagued by insurgencies and illegal immigration from Bangladesh. Any influx from Myanmar would add to the complexity of this region. In fact it has been reported that even a small and backward hilly state like Mizoram has about 40,000 Burmese nationals.10 They are obviously finding it economically easier to survive here than in their own country.

    • 1. International Crisis Group (ICG), Asia Report No.11 Burma/Myanmar: How strong is the military Regime? (December 21, 2000).
    • 2. International Narcotics control strategy report 1998 of US Department, as quoted in Asia Report No.11 Burma/Myanmar: How strong is the military Regime? (December 21, 2000).
    • 3. “Valley of Darkness: Gold mining and Militarization in Burma’s Hugawng Valley,” Report by the Kachin Development Networking Group (2007), p. 44.
    • 4. Ibid, p. 51, cited the minutes of a secret meeting called by the Northern Commander from September 25-27 in Myitkyina wherein it was recorded that as many as 9643 soldiers were currently infected with HIV, out of which 458 were officers.
    • 5. The Indian Express, November 17, 2007.
    • 6. An Army officer is reported to have narrated that if his Unit/Battalion gets deployed for three months to fight the insurgents, the Unit would get one month’s leave/rest. During this period, when there is no scope for blatant exploitation of people in the villages, they have to supplement their income by way of engaging themselves in some illegal activities such as felling of trees/timber from government reserve forests, transporting these by military vehicles, and selling them to financial barons who have all the right connections at the highest levels.
    • 7. Author’s conversation with a refugee whose relative is a Major in the Burmese Army.
    • 8. “Myanmar Recruiting Child Soldiers,”
    • 9. ICG Asia Report No.11, December 21, 2000, p. 40.
    • 10. Nava Thakuria, “North East defies India’s Myanmar Policy,” North East Sun, November 30, 2007, p. 29.