Communiqué: In the Fields of Myanmar

January 8, 2013
Communiqué: In the Fields of Myanmar
Rice field in Myanmar

Ash Scholars Generate Policy Research to Build a Nation from the Ground Up

By Kate Hoagland – Communiqué: Fall 2012, Volume 11

On a hot summer evening, Ash Center Economist David Dapice sits cross-legged surrounded by a dozen poor farmers. They are in a soy bean field off of a dirt road in the north of Naypyidaw, Myanmar’s capital city. Except for the light from four small candles, it is pitch black, typical for many rural areas when only 25 percent of the country’s residents have access to electricity.

This site visit was one of many that Dapice and the academic team led by Vietnam Program Director Thomas Vallely have made over the last two years as part of the Center’s Myanmar Program.

“Since there is no real reliable data on Myanmar, we are trying to bring together a collaborative research team that includes Ash faculty and people from the government, civil society, and rural communities to try to truly understand the problems we are seeing on the ground,” said Vallely.

The Myanmar Program team has visited with countless farmers, often right in their fields, to discuss diminishing crop prices, challenges to the harvest, and the arduous conditions of such work. Such direct engagement is a result of the Program’s partnership with Proximity Designs, a Myanmar-based nonprofit and social enterprise, whose local knowledge and widespread respect among Burmese—spanning from those in traditionally disadvantaged ethnic minority states to more elite military and government officials—has been integral to establishing relationships with diverse populations across the country.

“We have to know the reality of the situation to speak knowledgably about policy options,” said Dapice. “You can’t give the best policy advice if you are just flying over the country.”

Myanmar: A Path to Democratization?
Myanmar’s steps towards a more open society are receiving international attention: in July of this year, the Obama administration eased economic sanctions on the country and appointed Derek Mitchell as the country’s first US ambassador in 20 years. In addition, the country has become attractive as a potential area for investment. According to the International Monetary Fund, Myanmar is expected to welcome an unprecedented 40 percent increase in direct foreign investment this year alone.

Yet, critics call for cautious optimism as Myanmar seemingly makes efforts to become a more open country. Democratization can be reversed, and according to the Myanmar Program, years of poor management and insufficient infrastructure have left the country inadequately prepared to fully comprehend the massive amount of challenges it faces, let alone plan for economic growth and development. The country also struggles with years of tension along its resource-rich borders. Nearly a third of the population is composed of ethnic groups living along these borders, and they have been in conflict with the military for years. In January 2012, the Burmese army announced a cease fire to the six-year conflicts with the militias of the Karen state. The conflict had forced an estimated half a million people from their homes.

Health, Migration, and Corruption
According to the World Bank’s 2011 World Development Indicators report, Myanmar has a 6.24 percent under-5 mortality rate. While the rate is dropping (it was estimated at 7.95 percent in 2002) it is still well above its neighboring countries of Cambodia (4.25 percent in 2011) and Bangladesh (4.78 percent in 2010). Experts point to malnutrition and inadequate health care spending as factors contributing to this high rate. The World Bank estimates that the country’s public per capita health spending was $3 per capita in 2010 by comparison to $17 in Bangladesh. An estimated 22.6 percent of children under the age of 5 in Myanmar are considered malnourished based on weight.

When conditions are intolerable, people leave and Myanmar is no exception. There are an estimated four to six million workers who have left, accounting for 15 to 20 percent of the labor force. “A nation that has trouble keeping its own people is not succeeding,” writes Dapice in the May 2012 report “Myanmar: Negotiating Nation Building.” Attracting both skilled and unskilled Burmese back to the country is crucial to driving up GDP growth, argues Dwight Perkins, Harold Hitchings Burbank Research Professor of Political Economy at Harvard University. In his April 2012 report “Industrial Policy Reform in Myanmar,” Perkins suggests looking to South Korea’s successful model. In the 1960s and 1970s South Korea created several notable research institutes and attracted a host of scientists, engineers, and economists back to their native country.

Beyond the social challenges of its population, President U Thein Sein comes to power amidst a legacy of cronyism and corruption. Experts of the Myanmar Program contend that the country is plagued by excessive regulation that hinders business growth and the provision of social services. With the exception of rice milling, the majority of all industry is still controlled by the military or the government; critics argue that many of these state-run enterprises are inefficient and often unprofitable. A lack of checks and balances within the government as well as toothless legal institutions have enabled rather than curbed corruption. Myanmar currently ranks 180 (tying with Afghanistan, North Korea, and Somalia) out of 182 for perceived corruption on the Transparency International Perception Index. Moreover, at 25 out of 600, Myanmar’s World Governance Score in 2011 was among the worst in the world for its voice and accountability, political stability and absence of violence, government effectiveness, regulatory quality, and control of corruption.

Current Areas of Research
Considering the harsh economic and governmental challenges that lie ahead, the Myanmar Program is designed to increase the breadth and depth of knowledge and analysis on Myanmar’s current state and provide educated policy guidance on different paths available to the nation’s leadership. The Program’s latest research explores the agriculture, industry, energy, governance, and economic development issues.

Land Rights & the Impact of an Overvalued Exchange Rate on Farming
Prior to the new government, land rights varied by region, and land seizing practices remain prevalent to this day. Elite groups were favored and small, rural farmers were often forced off their lands. Critics argue that the government has typically viewed the mineral-rich border states, primarily populated by ethnic minorities, as unoccupied land and reports of village and farm displacement in this region are common. Moreover, during the period of military rule, local generals dictated what crops farmers grew to ensure adequate provisions for soldiers moving around the country. Despite the known benefits of crop diversity during different planting cycles, farmers were and sometimes still are coerced to grow rice, “which often put them into a cycle of debt and caused them to eventually lose their land.” In “Negotiating Nation Building,” Dapice argues the dearth of land rights “favors the influential and displaces the ordinary farmer. A modern economy cannot work when only a tiny minority has the capital and legal right to invest with some confidence while others struggle to live.”

While these practices are slowing down with the January 2012 cease fire, farmers are now faced with another threat: the country’s overvalued exchange rate. In “Myanmar Agriculture in 2011” Myanmar Program authors call for a stabilization of the exchange rate. While it has strengthened during a period of high inflation from 1200 kyat/$1 to 800 kyat/$1, the rate is now too strong according to the Program. Farmers are dealing with lessening profitability of rice and other crops because wages, transport, and fertilizer costs continue to rise as a dollar’s worth of rice yields fewer kyat. Because of this, many of the country’s poorer farmers are cutting back on costly fertilizers and intensive planting techniques that could increase plant yields of upwards of 20 percent. Such diminishing production is unique to Myanmar; other neighboring countries are actually reporting increased yields over the last couple years. Through conversations with a number of stakeholders and farmers, Dapice and others have concluded that the currency must be adjusted by at least 20 to 30 percent more so that farmers can escape this cycle of severe crop price depression.

Getting the Lights On
Myanmar’s Ministry of Electric Power estimates that 2.22 million households or 22 percent of the population has access to electricity, one of the lowest connectivity rates in Asia. By comparison, 70 percent of Indonesia’s population has electricity access despite being spread across a large number of islands. Over the last three years, production of electricity has jumped by nearly 50 percent, yet current supply only meets half of projected demand. The country has made no plans to build out costly new infrastructure to accommodate such capacity. As a result, black outs are common and expected to increase in frequency.

“Hardly anyone gets electricity, and no one gets very much of it,” said Dapice. “We have been in villages where the village paid for a connection to the electricity lines, and they only had electricity for four hours each week.”

Part of the challenge lies in the cost of the electricity. According to the Myanmar Program, the country is undercutting the true price of electricity. Instead of charging the actual cost of 10 cents per kilowatt, the average cost is 6.5 cents. Such discounted rates increase the demand to levels the country cannot accommodate with its already taxed grid. Undercutting also prevents outside private enterprises from viewing electricity production and delivery as a money-making business opportunity.

Hydro Powers Peace
The Myanmar Program’s research and analysis call for diversifying the country’s portfolio of energy sources beyond electricity and hydroelectricity to its abundant natural gas resources. Yet, Myanmar’s current strategy only expands hydroelectric power plants to provide year-round base load power. Critics argue that this strategy is problematic because the country oscillates between a wet season and a very dry season when production can be much reduced at best, and nothing at worst.

Despite these concerns, hydroelectric power might be the key to forging a more lasting peace with the country’s ethnic minority states. The Myanmar Program has developed a proposal to revisit previous plans to build dams within the Kachin state located in Myanmar’s ethnic border region. In the past, the process had been closed, and no residents of Kachin had a say in how their region was to be used. Building was eventually halted on a controversial Chinese-backed, $3.6 billion mega-dam project, but the region’s people and villages continue to be displaced as developers take advantage not only of hydropower but also extract jade, timber, and gold.

Instead of mirroring the dam building process of the past, the Myanmar Program has suggested a more inclusive process to establish a new Sino-Kachin Hydro Power Company which would potentially provide lasting benefits to the Chinese, Myanmar government, and residents of the Kachin state. In the past, plans were to deliver free power to the Myanmar government; in this new iteration, the Company would monetize the value of the generated hydro power. The Myanmar Program suggests kicking off dam building plans with a full review of all potential dam sites by environmentalists and local residents and giving them veto power over sites deemed inappropriate both for ecological and historical reasons. Once a dam is built, the established Sino-Kachin Hydro Power Company would sell electricity to the Chinese at a price cheaper than current wholesale rates, and pay a 25 percent sales tax to the Myanmar government and the Kachin state.

According to Dapice, for this to work, the Kachin state must have a degree of autonomy. “The central government needs to allow the state some amount of control to have budgetary authority to spend the tax revenues and their share of Company profits.” In addition to state autonomy and the Chinese return on investment, the Myanmar government would benefit from both peace and positive relations with the Chinese. It would also be able to purchase large amounts of much-needed power at the same prices as the Chinese.

A Coalition of Reformers
Experts of the Myanmar Program contend that the country’s success is dependent on brokering a lasting peace among the nation’s ethnic minority states, because massive military spending in times of conflict does not create conditions ripe for reform or attract outside investment. “Peace in the ‘periphery’ of Myanmar is needed to create conditions so that the center can develop,” said Dapice. The Sino-Kachin Hydro Power Company plan is just one aspect of the Myanmar Program’s broader recommendations encouraging Myanmar to form a coalition of reformers, if it is truly to go down a path of economic and social transformation.

Drawing upon the lessons from Why Nations Fail by Daron Acemoglu and James Robinson, the Myanmar Program’s scholars argue that rather than regressing back into its previous practices of cronyism and governing by a narrow, political elite, the country’s leadership must build even broader, inclusive coalitions, educate the nation’s people, expand access to public services and goods, solidify property rights, and encourage political participation among citizens.

According to Thomas Vallely, such coalition building is already under way, and President U Thein Sein has started championing the formation and participation of diverse political groups.

“There seems to be an important coalition developing that includes Aung San Suu Kyi and the National League for Democracy, a growing number of leaders from ethnic states, and government officials who are trying to move the country in a direction towards serious economic and political reform.”

“There have been tremendous changes, but there is still a long way to go,” remarked Dapice. “Even so, compared to two years ago, the possible improvements now are much greater.”