Wednesday, September 14, 2011

Burma's Neighbors Can Help It Escape Past

During the late 1950s early 1960s, Rangoon, the capital of the young Socialist Republic of the Union of Burma, was one of the most important commercial and cultural centers in Southeast Asia.

During those years Rangoon was a thriving city generating a relatively large number of university graduates ranging from doctors to engineers, some of whom still work across Asia today. In 1961, Burma’s Maha Thray Sithu U Thant became secretary general of the United Nations as well as the first non-Westerner ever to head a large international organization.

The advent of military rule in 1962 set Burma on a path of political and social experimentation that created both economic instability as well as structural rigidity. These features continue to characterize the economy of present-day Burma.

The political objectives of the “Burmese way to socialism” were not that different from what most countries in developing Asia aspired toward: freedom from the colonial rule and colonial enterprises that dominated their economies; non-alliance in the polarized cold war politics of the 1950s and 1960s; social equality and justice; national unity; and a larger say in international institutions and in international trading arrangements.

However, like Burma, they were to learn much from both from their own history as well as the combined development experience of their Asian neighbors. The socialist-military experiment of the 1960s came at a high price. Burma changed from being one of Asia’s most prosperous growing countries to one of the worst performing economies of the region.

Although Burma is the largest country in Indochina and a country rich in natural resources, from this moment onward the nation showed signs of a dangerous downward spiral, visible through more widespread poverty, ossified structures of production dependent on tiny, low-technology agriculture and other, equally backward, industries.

Nationalization of large segments of the economy such as land and trade led to both a decline in agricultural exports and the departure of business-savvy Indian and Chinese entrepreneurs.

Economic decline robbed the state of the ability to keep ethnic tensions in check through economic development and social assistance. Military solutions rather than campaigns to win hearts and minds continued to characterize the governance of sub-national regions.

As a result of antigovernment demonstrations in the late 1980s and the failure of Burmese socialism, the country embarked on a process of market reforms that led to the creation of new private businesses.

The reforms included liberalizing foreign direct investment, tax incentives to attract foreign funds, mostly in oil and gas, mining and tourism, all sectors that still today represent the nation’s main source of income.

Despite this, however, the overall distribution of wealth did not change much, and the majority of people remained employed in low-skilled and low-paid agricultural jobs.

Moreover, the government’s ability to provide social protection and support for its lower-income families is limited by the fact that government revenue constitutes just 6 percent of estimated gross domestic product.

Although many today still see Burma as isolated politically, economically and geographically, the country’s prospects should not be underestimated either in the wider framework of emerging Asia or in the context of political changes under way in Burma today.

Unavoidably the country remains a place where China meets with India, a region that — as The Economist reports — within an 1,100-kilometer radius is home to more than 600 million people stretching from Thailand and Laos in the east to India, China, Bangladesh and Bhutan in the west.

This fact on its own poses a series of important questions for Burma, given that the country is in the midst of a fast-growing region, surrounded by neighbors that are rapidly transforming the structure of their economies by making concrete efforts to improve the quality of their growth.

Never before has the country attracted as much international attention as it does today. This has been partially due to internal changes occurring within the country and partially due to developments in the region.

The rise of China and India as major economic players in the region, combined with the desire by Asean countries to implement greater regional connectivity, has been redefining the international relationships among countries in East Asia.

Nobody has ever doubted the economic potential of Burma, mostly due to its historical and geographic importance in Southeast Asia. Yet as the country slowly opens up, the most fundamental question remains: Can the country flourish and realize its potential, implementing sound economic development strategies that combine poverty eradication and sustainability?

Although this might seem difficult, it is not impossible, and the development experience of emerging Asia demonstrates success stories in India, China, South Korea and even Indonesia. Emerging economies of Asia, in fact, have not always been prosperous, and several of them have experienced similar development paths that include civil wars, ethnic strife, economic failures and unsustainable economic policies.

In this context, what is most important is that various Asian countries have, sooner of later, eventually looked at where they stood in their development and examined how to take advantage of evolving political and economic environments. This stock taking, combined with various cooperation strategies, has made Asia what it is today: one of the fastest growing regions in the world.

These developments are occurring across the Burmese border and are becoming questions that the country cannot continue to ignore. Clearly, the end of the cold war, the Asian financial crisis of 1997 and the 2008 global financial crisis have created global changes and provided much experience on how reform can lead to sustained economic gains.

One of the main issues for Burma today is understanding how to benefit from these changes and take advantage of the changing policy environment while adapting to the economic and institutional reforms of Asia. It also needs to build on the experience of other neighbors in implementing reforms for sustaining wealth in the long run.

There are signs the new government in Burma is looking at new development options for economic growth. This is seen in several high-profile consultations with experts and government departments conducted in recent months, beginning with a discussion on rural development and poverty reduction.

Informed observers talk of the government’s desire to normalize relations with international financial institutions and the donor community, and to end economic sanctions. This process of loosening military control, learning from neighboring countries and moving forward with Asean integration might provide the trigger that will enable Burma to undertake structural reforms.

It is time to give Burma the benefit of the doubt. Who would have thought that India could shed its Hindu rate of growth, or China its predilection for worrying about the color of cats catching mice? But they did, and Burma surely can too.

By Akira Moretto deputy head of research at Strategic Asia Indonesia, a consultancy promoting cooperation among Asian countries

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