BURMA: PROSPECTS FOR REFORM OF NE WIN'S "NO WIN" ECONIMIC POLICIES

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP89G01321R000500010005-2
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 9
• Document Creation Date: December 23, 2016
• Document Release Date: August 29, 2012
• Sequence Number: 5
• Publication Date: July 1, 1988
• Content Type: MEMO

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Central Intelll~ence Age~cv
DIRECTORATE OF INTELLIGENCE
01 July 1988
Burma: Prospects for Reform of Ne Win's
"No Win" Economic Policies"
Summary
Rising popular discontent with the Ne Win regime because of
Burma's deteriorating economy is prodding Rangoon to experiment with
market-oriented economic reforms, including decontrol of food marketing.
Like the bulk of Rangoon's past economic policies, however, the reforms
have been poorly planned and executed, and some have done more harm
than good. In our view, Ne Win's government lacks both the will and the
ability to institute changes that would markedly improve Burma's economic
lot. We are not optimistic about the prospects for change a#ter Ne Win
either, because the reformers in the government that we -can. identify are
This memorandum was pre ared by~~Office of East Asian Analysis, with a
contribution from Office of Leadership Analysis. Information available as of 25X1
30 June 1988 was used in its preparation. Comments and queries are welcome and may
be directed to the Chief, Indochina Thailand Malaysia, Southeast Asia Division, OEA; on ?~,,,
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Growing Imperative for Reform
Burma's normally apathetic population is restive because of the government"s
abject mismanagement of the economy and pervasive intrusion into all economic
activities. In June, antigovernment demonstrati ns s v r l h n and
local citizens in Rangoon erupted into riots Similar
public outbursts in Rangoon in March killed as many as 100 people, according to press
reports (see Box).
Burma: Chronology of Rising Discontent
? September 1987--Following demonetization of the currency, some
1,000 penniless students in Rangoon and 3,000 in Mandalay take
to the streets in protest.
? March 1988--A local dispute between Rangoon students and
merchants turns into a major riot and antigovernment protest.
According to press reports, as many as 100 people are killed and
up to 5,000 arrested in the ensuing government crackdown.
? May 1988--Former adviser to Ne Win, retired Brigadier General
Aung Gyi circulates letters criticizing Ne Win's economic policies
and proposing reform.
? June 1988--An estimated 200 people are killed in Rangoon and
five other major cities during two weeks of student-led
demonstrations and rioting, according to a variety of sources.
Heavyhanded economic policies have been the hallmark of Socialist Party
Chairman Ne Win, Burma's authoritarian leader, who for the last 26 years has presided
over the country's economic demise (see Graphic). Per capita GNP is only about $190,
according to World Bank estimates, one of the lowest in the world. The United Nations
has designated the country that was once the "rice bowl of Southeast Asia" as a
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N~ Wln: Still Calling the Shots
Working People's Dally?
Named Shu Maung at birth in 1911, Ne Win adopted his current name, which means
"Brilliant as the Sun, " in 1941. When Burma became independent from Britain in 1948,
he was one of the country's senior generals. In 1949 he was named Supreme Com-
mander; he held that post until 1958, when ethnic minority rebellions and interparty feud-
ing forced then Prime Minister U Nu to ask him to lead a caretaker government to help
restore stability. Although Ne Win voluntarily stepped aside in 1960, he took over perma-
nently in 1962 after political parties again proved incapable of ruling. He retired as
President in 1981 but has kept the top post in the Burma Socialist Program Party and
remains the country's dominant political force.
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Burma: Selected Economic Statistics
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"Least Developed Developing Country," a step below a"'Less Developed Country" and in
the company of Bangladesh and Nepal. Indeed, Rangoon expects to export only 300,000
tons of rice this year, a 60-percent drop from 1983. Export earnings fell by a half
between 1984 and 1987, and Burma's debt-service ratio has risen to over 90 percent,
Steadily declining crude oil output at 14,000 25X1
barrels per day--down more than 50 percent from the peak in 1979--has forced Burma
to begin importing oil after being self-sufficient in petroleum for most of this century.
Dissatisfaction is not confined to the Burmese. Pressure for change is also
mounting from Burma's creditors. The Japanese, who are Burma"s largest aid donor,
providing X70 million in grants annually, have warned Rangoon that they will not
continue to pump money into the inefficient economy unless major changes are
forthcoming cut in Japanese aid would be a blow to
the government, which depends heavily on foreign aid to finance its operations.
International organizations providing critical assistance also are urging Rangoon
to open up its economy and rely more heavily on market signals. In May, the World Bank
pressured Rangoon into increasing the price of gasoline to reflect the cost of production
as a condition for using Bank funds to import oil
Last year brought the first signs that Rangoon may be aware of the degree of
Burma's economic deterioration and might attempt to halt the slide. Ne Win shocked an
emergency meeting of the senior leadership in August 1987 by acknowled ing the
possibility of flaws in his economic policies He
reproached his advisers for not providing him with accurate information. If however his
advisers have insulated him it ma be Ne Win's own fault
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Less than a month after Ne Win's call for reform, Rangoon began implementing
policies to revitalize the agricultural sector and the distribution system, as well as to
strike out against black marketeers. Between September 1987 and June 1988, reforms
were announced that included: ,
? A lifting of the 21-year ban on private trading in rice, maize, and other major
food crops.
? Demonetization of 25- , 35- ,and 75-kyat notes. The move sharply reduced the
money supply by making 80 percent of the country's currency worthless.
Introduction of in-kind agricultural land taxes, effectively doubling or tripling
previous tax rates.
? National Assembly passage of the private enterprise law enabling citizens to
register as private traders, but making them, once registered, liable for a
10-percent transactions tax.
? Granting cooperatives responsibility for procuring rice for export; formerly done
by the state Agriculture and Farm Produce Trade Corporation.
? Allowing private traders and cooperatives to export rice.
? Giving private shippers access to coastal shipping to transport decontrolled
further withdrawals of currency have shaken business confidence,
paces would spark inflation and intending to penalize black marketeers, however, the
government almost immediately demonetized the currency, leaving would-be private
traders short of the cash to move agricultural output. In the countryside, financially
strapped farmers looted government and private rice supplies. Subsequent rumors of
We believe subsequent efforts by Rangoon to alter newly established policies
questioned the government's commitment to liberalization. For example, the lifting of
the ban on private trading in agricultural products was intended to boost production by
enabling farmers to sell at higher free-market prices. Apparently fearful that higher grain
of later policies on earlier ones. As a result, reforms often ran at cross purposes.
Like most of Burma's economic policies, however, the reforms were poorly
planned and implemented. The changes were introduced piecemeal, each intended to
attack one or more economic problems, but with apparently little thought to the im act
and sparked rising prices as consumers spent potentially worthless cash on
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We believe the incentive of allowing farmers access to free markets has been
damaged by the imposition of in-kind taxes on agricultural output. The government
apparently had not calculated that deregulation would leave it without the means to
acquire grain for its own use. Moreover, the new transactions tax discouraged
middlemen making it more difficult for farmers to market
their produce and further reduced production incentives. In addition, private traders
maintain that a devaluation of over 2.5 times the official rate of 6 to 7 k ats er US
dollar would be required before they could profitably export ric
So far, Rangoon has given no indication that it is prepared to devalue in order
to encourage rice and other exports.
Although reforms have focused on the domestic economy, Rangoon also has
begun reevaluating its foreign investment policy and considerin measures to attract
much needed Western equipment and technology.
pre iminary
negotiations that Rangoon began with 14 major oil companies last December have
stalled. In our view, the signing of contracts with Western firms to develop Burma's
potentially large onshore oil reserves would be a key indicator of Ne Win's resolve to
reform, because such contracts would require significant concessions by Rangoon.
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Like the foreign investment code, a move to establish Free Trade Zones (FTZs)
apparently has not gone beyond th t Ikin s T istry has indicated
some interest in establishing FTZs probably to attract 25X1
Western firms willing to produce goods exclusively for export. FTZs could offer tax
holidays, tariff-free imports, inexpensive labor, and the supporting infrastructure to
ensure profitability for foreign firms. Rangoon has made progress, however, in attracting
Western involvement in the textile and aviation industries. Under buy-back
arrangements concluded last fall with South Korean and Hong Kong firms, Burma's
state-owned Textile Industries Cor oration will ac uire im orted machinery in return for
profits from exported garment The buy-back concept 25X1
may expand to include the pharmaceutical and pulp and paper industries. In January
1988, Rangoon also agreed to enter a cooperative safety program with the US Federal
Aviation Authority, which has paved the way for reciprocal visits of aviation officials,
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Prospects Dim Under Ne Win....
It is clear, though, that reforms, if properly implemented, could pay off for
Rangoon. With the economy, and especially the agricultural sector, so far from its
capacity, any policy that improves the incentive s stem even. slightly is likely to bring
positive returns. For example, even last year's mismanaged 25X1.
reforms raised agricultural prices to farmers. If Rangoon can avoid instituting policies
that negate the price benefits to farmers, farm income should staow a modest
improvement this year and rice output could exceed 13 million tons, compared with 12.4
million tons in 1987, according to the USDA. 25X1
Ne Win's record on economic policymaking, however, leati=es little room for
optimism concerning Burma's reforms.
Nor do we see a
leadership transition--such as those that preceded serious reform in China and the
Soviet Union--as likely in Burma soon. Ne Win has not actively groomed anyone to 25X1
succeed him and, indeed, over the years he has pushed aside any potential rivals.
Althoug tensions within the leadership and the military 25X1
are greater now than at any time since an aborted coup in 1976. there is no evidence Lin
that Ne Win believes his grip on the government is threatened. He began his annual
extended vacation in Europe less than a month after the March rioting in Rangoon. His
response to the rioting in June was to declare martial law and close the universities. n
We also doubt that Ne Win has the managerial resources necessary to devise a
sound program for economic change. Rangoon has not seriously studied other socialist
experiments with reform or established think tanks that might presage an attempt to
formulate sound economic policies. In fact, many of Ne Win's top advisers lack advanced
training, and probably do not have the expertise to devise a workable reform program.
Although the government contains some Western-trained technocrats--mainly in their
40s and 50s--the next generation is much less able, havin been de rived of education
and exposure to the outside world
caused major rioting in 1974.
some Burmese already think Ne Win has slighted the memory of Aung San by omitting
his portrait from recently issued kyat notes. He may likewise neglect to give Khin Kyi.
the official funeral that many Burmese think she warrants. Such a slight by the
government. in making funeral arrangements for Burmese elder statesman U Thant
widow of Burma's founding father, General Aung San.
our view. Recurrent tension on Rangoon's university campuses shows no signs of
abating. A possible spark could come with the death of the ailing Khin Kyi, who is the
That said, the problems that forced experimentation with reform remain, and we
believe these are likely to worsen. Thus, the potential for further unrest remains high, in
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