BURMA'S ECONOMIC PROSPECTS: HOW LOW CAN THEY GO?

UNCLAS RANGOON 001589

SIPDIS

SENSITIVE

STATE FOR EAP/BCLTV, EB
COMMERCE FOR ITA JEAN KELLY
TREASURY FOR OASIA JEFF NEIL
CINCPAC FOR FPA

E.O. 12958: N/A
TAGS: ETRD ECON BM
SUBJECT: BURMA'S ECONOMIC PROSPECTS: HOW LOW CAN THEY GO?

REF: A. RANGON 1468


B. RANGOON 1248


1. (U) The full text of the Burma Country Commercial Guide is
available on the internet or via email from
wohlauerbv@state.gov. The following is a summary.


2. (U) The U.S. Government has an official policy to neither
encourage nor discourage trade with Burma. Since May 1997,
the U.S. Government has prohibited new investment by U.S.
persons or entities. A number of U.S. companies exited the
Burma market even prior to the imposition of these sanctions,
however, due to the increasingly poor business climate, and
mounting criticism in the United States from human rights
groups, consumers, and some shareholders because of the
Burmese government's serious human rights abuses and lack of
progress toward democracy. No new sanctions were applied
during FY 2001-02, although President Bush has continued the
national emergency in place regarding the situation in Burma.
The U.S. Congress has been deliberating a bill that would
impose additional sanctions on the import of Burmese textiles.


3. (U) Burma's economy remains over 60 percent dependent on
agriculture and extraction of natural resources. The
manufacturing sector makes up only 8 percent of GDP. Burma's
principal exports are natural gas, garments, beans and
pulses, teak, and prawns and seafood. Burma is also one of
the world's leading producers of opiates. U.S.-Burma trade
is heavily skewed in favor of Burma. Burmese garment exports
to the United States, which more than doubled in 2000 to $415
million, fell slightly in 2001 and are headed for a sharper
decline in 2002. U.S. exports to Burma, mostly machinery,
totaled only $11.3 million in 2001 and are also off in 2002.


4. (SBU) Most of the population is located in rural areas and
survives at subsistence levels. Nearly half the children
suffers from malnutrition, and many children never enter
primary school. Drug use and HIV/AIDS are problems that are
growing unchecked. UN agencies and several international
NGOs are in Burma, but their effectiveness is limited by lack
of government cooperation and the restrictions many countries
have on the provision of humanitarian assistance to Burma.
The country's infrastructure, including the telephone
network, is in a terrible state of disrepair. Likewise, the
educational infrastructure is in ruins as the government has
kept universities closed for much of the past fifteen years.
As a result, human resources have been severely damaged, with
potentially serious long-term consequences.


5. (SBU) Economic information is very difficult to obtain, as
the government does not publish reliable data -- or in some
cases, any data. The economy suffers from serious economic
distortions, including an official exchange rate that
overvalues the Burmese kyat about 200 times. Expansionary
monetary policies and state deficit spending have contributed
to inflation, which rose to over 60 percent for FY 2001-02.
Foreign exchange is likewise in very short supply, with an
average of only two or two and one half months of import
cover throughout FY 2001-02. The government has responded to
this foreign exchange shortage by squeezing importers.


6. (SBU) As reported in reftels, we see no sign that the
government is moving toward improving its investment climate
or reforming its economic policies. In the year ahead, this
ongoing mismanagement will only intensify the impact of
forthcoming economic blows due to low levels of new foreign
investment, and probable declines in key exports. As usual
the people, some of whom are already relying on government
rice rations for survival, will bear the brunt of this
further economic disintegration.
Martinez