Down memory lane

The recent events in Myanmar reminded me of my first visit to that country some twenty years ago.

In the summer of 1989, I was asked to lead a team to develop an energy sector study for Burma, or Myanmar, as its new rulers choose to call it.  Burma had been closed to foreigners for a number of years as the strongman, General Ne Win, began developing a weird form of socialist government. The country was run by a junta and was in a pitiable economic state. Not many in the Bank staff wanted to stake their career on working on a country that seemed unlikely to attract any international funding in the near future. In the Bank, careers were built on the back of strong lending programs, and Burma had few prospects. I put together a team of consultants and Bank staff to visit Burma. As we met in Bangkok to prepare for the assignment, the directions to visitors were as if preparing a visit to Alice’s Wonderland. We were to bring in torches, insect repellents, 60-watt bulbs and a bottle of Johnny Walker, (the latter was for the travel agent who would, in lieu of this bottle, provide transportation to the hotel). Landing at Rangoon airport, renamed Yangon by the junta, it was like returning to a small provincial airport housed in sheds. We were met at the airport by our travel agent and guide. The first shock came when we changed dollars into the local currency. The official exchange rate was five kyats to the dollar, whilst the real market value was closer to a hundred. We were soon to discover the impact of this distorted exchange rate– a $2 chicken dinner cost 200 kyats for the locals but we ended up paying $40 for it. We now understood the importance of the two Johnny Walker bottles each of us had brought in, as it was to pay for many of our meals in the city. Not only was the currency ridiculously overpriced, it was divided into 90 cents, not 100 cents – the general felt that nine was his lucky number.

We were housed in the Inya Lake Hotel, a nice old villa surrounded by gardens and the Inya Lake. The hotel, which had seen better days, was on the edge of the lake, but no window faced the lake since the general lived on the other side of the lake and any windows overlooking his residence was considered to be a security risk. The rooms were large but poorly lit; now we understood the admonition to bring 60-watt bulbs if we wanted to read or work at night. My room was infested with rats and some of our rooms were flooded each time we took a bath.

We started work the next day with a meeting with Mr. Kitatani, the Japanese ambassador, who was the doyen of the diplomatic corps in Myanmar. He advised us to be careful in our discussions as this was a very secretive government, and information would be hard to obtain. He told us of the US seismic consulting company staff who had had the temerity to criticize the work in the country and hold an opinion regarding the geological reserves of the country, which was less than the official figures. Their passports were not returned till they agreed to change their findings and that too only on intervention from the Bank, which had employed them in the first place, and their own embassy. It was not a very propitious note on which to begin the mission.

A state law and order restoration committee, or SLORC, then ruled Myanmar, but the man pulling the strings was General Ne Win, who had seized power in 1962. He had announced that henceforth Burma would follow the “the Burmese Road to Socialism’. Unfortunately, this was to be a steadily downhill path for the country. In 1966, nationalization policies were extended right down to the retail shops. The retail price of rice had increased nine times in the 1980’s. The maximum government salary was fixed at $15 per month and most Burmese citizens spent almost two thirds of their salary on food, barely eking out an existence. The black market had started to play a big role in the market and most civil servants held two or three jobs in order to subsist. Yet Burma had a literacy rate of over 80% with a population of about 46 million. The largest banknotes were demonetized and Burma’s economy slowly stagnated, leading to massive demonstrations in 1987-88.

Ne Win voluntarily retired in July 1988, but organized a coup in September of that year to install the infamously named SLORC. The government also announced that it was abandoning socialism in favor of a capitalist economy in all but a few industries. In May 1990, confident that it had full control, SLORC organized the country’s first free elections in thirty years. Unfortunately for them, the National League for Democracy (NLD), led by Aung San Suu Kyi, won 392 of the 485 contested seats. But in October 1990, the military raided the NLD offices, arrested key leaders and put San Suu Kyi behind bars.

The Tatamdaw (armed forces) and their political junta, SLORC, ruled Myanmar with an iron fist, but the behind the scenes, real control remained in the hands of the postal clerk turned dictator Ne Win, commonly known as the “Old Man”. Ne Win was obsessed with astrology and numerology to the extent that virtually every major tactical decision at the national level was based on consultations with horoscopes and obscure number charts. In the late 1980’s K45 and K90 notes were introduced since Ne Win revered the number nine; both are factors of nine and the digits of both add up to nine. Red and white billboards all over Yangon carried communist style slogans. The only attraction in town was a floating restaurant, the Karaweik. This was a concrete replica of an old Burmese floating palace built in the lake. The Strand Hotel where George Orwell and Somerset Maugham had stayed, was another attraction, though it was then rundown and seedy.

U Tin Tun was the undersecretary of energy, but was the de facto Minister. He had been trained in the provincial services by the British and was among a handful of civil servants still left in the country that had any professional training in management. He was amiable and agreed to meet with us and his own team, and to provide the information we needed for our study. Periodically, he would get up from his seat and unravel his lungi (the sarong worn by Burmese men) to air it, retie it and sit down to continue the discussions without missing a beat, much to our consternation. As we visited other ministries, it became apparent that this was a country in considerable trouble. Electricity was provided only to the front row of houses on major roads. Every civil servant was given a quota of gasoline, which he was expected to sell in the black market to maintain his family. No dissent was tolerated.

The energy sector in Myanmar was at a critical juncture. Even accounting for the low per capita income, modern energy consumption level was one of the lowest in the world. There was significant unmet demand because of severe supply constraints. Industrial production was severely handicapped by a shortage of energy. At the same time, the existing sources of supply were deteriorating rapidly for a number of reasons including the use of inadequate and obsolete technology, inappropriate policies and lack of autonomy in sector management. Modern energy consumption had stagnated over the last decade: petroleum products consumption had been squeezed down from 7.6 mmb/yr in 1984 to 4.4 mmb/yr in 1989 and even the use of kerosene had declined from 68.7 million gallons in 1975 to about 2 million gallons in 1990. Electricity growth rate had decreased to only 3.5% per year from the earlier rates of 8%, while the potential demand was far higher than present sales. The number of villages electrified rose from 709 in 1979 to only 751 in 1989.

Yet Myanmar had considerable indigenous sources of primary energy potential, which could in the long term meet these demands.  ....

The heart of the problem was the grossly overvalued exchange rate. The Myanmar government had not changed the grossly overvalued exchange rate for more than a decade, despite a widening gap between the official and parallel market rate. In 1990, the parallel market rate was about 100 kyats to the dollar while the official rate was only 5.88 kyats. Maintaining such an overvalued exchange rate had led to inefficiencies in its use; adversely effecting incentives to produce reduced government revenues, and resulted in scarcities. Even assuming an exchange rate of 50 kyats /US $, official energy prices in Myanmar were extremely low with consequent excess demand and lack of supply....

It was clear to our team that establishing a stable macroeconomic environment had to be a top priority: prudent fiscal and monetary policies were essential for restoring domestic price stability, establishing confidence in the domestic currency and building trust in the government's commitment to the reform program. Without building up this confidence, market liberalization and measures to improve their operation would be undermined. Restructuring and privatization of inefficient state enterprises could proceed more effectively once the legal and institutional reforms were in place and the markets functioning. But in Myanmar, partial liberalization of markets had proceeded till now within an unstable and distorted macroeconomic environment, and it was evident that full-scale reforms were essential to move forward rapidly. The talents of Myanmar's people and the bounty of its natural resources required both capital and technology to produce large income gains. Both could be attracted by the right sets of policies. It was, however, entirely up to Myanmar authorities to decide to adopt such policies so that a comprehensive reform process could begin. This was the message we were prepared to give.

But as we prepared for our final meeting, I was mindful of what Kitatani-san had told us. All the team members were told to have their passports in readiness and air ticket reservation confirmed. As it was, the meeting proceeded smoothly and we were allowed to leave without any fuss. We prepared a blueprint for developing the energy sector in Myanmar. The country had the resources, both physical and human, to achieve it. And it could have become the foundation for its economic revival. But that was not to be. And of course, the team was never called back to Myanmar and the next time we visited Yangon as visitors, we were to see the roads barred with daily strikes.

We left Myanmar with a profound sadness. Here was a country that had the resources, both physical and of manpower, which with better management and prudent investment could easily have become one of the tigers of the Asian economy. But a group of ill trained colonels basically held the country to ransom with undigested and dated socialist theology. If any country could progress rapidly by the removal of 500 colonels, we felt it was Myanmar. Myanmar, unfortunately, was a sad country that the world seemed to have forgotten.