Monday, May 11, 2009

Burma’s rural economy on verge of collapse: economist

by Mungpi

New Delhi (Mizzima) - Unless Burma’s military rulers inject cash into the rural credit system, the country’s rural economy will likely collapse as farmers in rural areas face a “chronic shortage of credit”, an economist told Mizzima.

Sean Turnell, an Economics Professor at Macquarie University in Australia, said that because of a lack of a proper economic policy to uplift Burma’s rural economy, the rural credit system is “completely dried up” and in desperate need of cash assistance. [JEG's: there is an airport in nappytown wanting more attention at the moment...:-( ]

“I am getting report after report that there is a chronic shortage of credit in cash,” said Turnell, adding the rural economy is suffering despite the ruling junta having significant foreign reserves derived from the sale of natural gas.

Turnell said the estimate of the junta’s foreign reserves from the sale of natural gas during fiscal year of 2007-08 is about US $5 billion. However, these reserves are not spent on developing the rural economy, which is on the verge of collapsing with the credit system “completely drying up”.

Meanwhile, a report by the Financial Times, citing a new International Monetary Fund report on Burma, said natural gas exports have swollen the country’s foreign exchange reserves to a record high of US $3.6 billion – despite investment into social welfare remaining minimal.

The as of yet unpublished IMF report, which the Financial Times cited, said unless the Burmese government makes improvements in its business climate, the future of the country is “bleak”.

The IMF argued Burma's economy was hit hard by the global economic slowdown and the devastating cyclone of May 2008, which killed 140,000 people and caused the growth in gross domestic product to slow to about 4.5 percent last year, down from 5.5 percent a year earlier.

The country’s ruling military generals, however, do not include all of its gas revenue in the annual public account, instead reporting only a portion of the foreign revenues, which are calculated at the 30-year-old official exchange rate of six kyat to a dollar, according to the report. Currently, a US dollar on the black market fetches approximately 1,050 kyat.

Turnell, agreeing with the report’s calculation, said the Burmese junta’s practice of accounting for foreign exchange revenue at the old and obsolete exchange rate in effect captures less than one per cent of the total budget revenue from the sale of gas for fiscal year 2007-08, as opposed to the 57 percent it would account for if valued at the market rate.

He estimates that Burma’s generals will earn between US $3-3.5 billion from the sale of gas for fiscal year 2008-09.

But, at the same time, farmers are facing an acute shortage of investment funds, he said. Many farmers are forced to sell their products immediately after harvest and to buy the same food that they are selling for consumption.

Turnell, who has closely followed Burma’s economy for several years, said the global economic slowdown has indirectly impacted Burma’s agriculture sector, which largely depends on exports to neighboring countries.

With the declining price of rice, farmers, particularly in the Cyclone Nargis-hit Irrawaddy delta, will find it extremely difficult to plant paddy in the upcoming monsoon, as they are heavily indebted and will try to reduce cost, he maintained.

In the absence of a rural credit system being implemented by the government, farmers will again be dependent on local money lenders, who usually demand high interest rates, up to 20 percent, leaving farmers with an insurmountable debt obligation.

Turnell said that to come out of this crisis, in the short term the Burmese government could inject some of its gas revenue into a rural credit system through the Myanmar Agriculture Development Bank (MADB) or another existing institution.

Alternatively, he said the junta could simply remove restrictions that forbid commercial banks from lending to farmers.

“It’s so bizarre. I can never understand this particular law, which actually outlaws the commercial banks from lending to the farmers,” he added.

He also warned that unless the government comes in to help the farmers in the rural areas, “food shortages could be on the card in later the year.”

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