BURMA: LIBERALIZED RICE EXPORTS AREN'T SO LIBERAL

UNCLAS SECTION 01 OF 02 RANGOON 000034

SIPDIS

SENSITIVE

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

E.O. 12958: N/A
TAGS: EAGR ETRD ECON PGOV BM
SUBJECT: BURMA: LIBERALIZED RICE EXPORTS AREN'T SO LIBERAL

REF: 03 RANGOON 563 AND PREVIOUS


1. (SBU) Summary: The GOB's sudden decision to "suspend"
exports of rice was the latest foible in the move toward
allowing the private sector to export rice for the first time
in 40 years. Aside from further underlining the regime's
ambivalence about giving up control of Burma's most important
political-economic commodity, the move also emphasizes its
priorities for appeasement: the urban masses first, then
everyone else. End summary.

Stop the Exporting!


2. (SBU) Much to everyone's surprise, on January 2nd the
government announced an abrupt "suspension" of all exports of
rice, sesame, garlic, onion, chili, and corn. This
suspension applies to everyone, even if an export license or
signed contract is in hand, the only exception being a single
ship that was being loaded in the Port of Rangoon. The
announcement was disappointing considering the private sector
was only beginning to take greater advantage of the rice
market liberalizations offered by the GOB in April 2003.


3. (SBU) The April policy change removes the government from
all stages of the rice pipeline and allows all private sector
comers to buy directly from farmers and export freely. Of
course "freely" is a relative term in Burma, but by all
accounts in recent months some private entrepreneurs --
mostly those affiliated with the quasi-governmental Union of
Myanmar Federation of Chambers of Commerce and Industry
(UMFCCI) -- were buying rice, having it milled, and selling
it to foreign buyers independently of government
interference. One source told us that after a very slow
start (only about 10,000 tons actually shipped by the private
sector since April),export contracts of 16,000 tons and
18,000 tons had been inked for shipment in January. By
contrast, in 2002 -- when the agricultural trading parastatal
exported about 900,000 tons -- Burma shipped out a minimum of
40,000 tons per month.


4. (SBU) Though the government did not publicly announce the
suspension, a business journal affiliated with Military
Intelligence ran a short article saying there would be a
temporary freeze on exports to ensure the retail price of
domestic rice did not rise. The fear is that hundreds of
thousands of government workers, who on January 4th lost
their monthly rice ration in exchange for a 5,000 kyat (about
US$5.50) monthly stipend, would rush out into the Rangoon
market, buying up rice and pushing up prices -- potentially
sparking instability. The article stated that this
suspension would last only a "short time," though the meaning
of this is not clear.

Stumbling Toward Controlled Liberalization


5. (SBU) The government's justification is not logical --
though not necessarily false. With exports way down from
2002, this season's harvest (November-December) quite good,
domestic paddy and retail rice prices falling steadily over
the last few months, and the government no longer purchasing
rice in the marketplace, there seems little reason to fear a
price spike. It's possible, therefore, that the suspension
has a more sinister motive. Perhaps the government, always
starved for foreign exchange, wants to get back into the rice
exporting game while the gap between domestic retail prices
(now about US$90 per ton) and higher world prices is quite
wide.


6. (SBU) In either case, the move is indicative of the
regime's half-hearted support of liberalization. Following
its April 2003 announcement, the government was silent for
five months before finally issuing lengthy and convoluted
guidelines that set unreasonably high price floors for the
exported rice and required prospective exporters to seek
approvals and clearances by several government agencies
before shipping. The guidelines also outlined how exporters
would only be able to keep 50 percent of net foreign exchange
earnings, the balance to be kept by the GOB in exchange for
the equivalent in kyat -- converted at a rate favorable to
the GOB of course.


7. (SBU) In addition to issuing overly bureaucratic rules,
the government has not approached the rice reforms
holistically, instead just waving a wand and making the rice
markets "free." Systemic problems remain, and there has been
no effort since April to fix any of them. For instance, the
government's skittishness on supply and prices is worsened by
a complete lack of reliable statistics on rice production and
consumption. The Burmese regime remains unwilling to reach
out for advice on rice market liberalization despite lessons
available locally in India, Thailand, and Vietnam.

Comment: Stability is Paramount


8. (SBU) Even if the export restrictions on rice are lifted
soon, we wonder if the already cautious private exporters
will risk being burned twice. This episode also illustrates
two important points about the GOB's philosophy of control.
First, it's clear that the sanctity of contracts and the
rights of the private sector, even if it is operating at the
request of the government, come second to political
considerations. Second, if we are to believe the
government's explanation for the moratorium then the regime
clearly fears pushing the urban masses too far -- even if the
resulting policies damage the regime's credibility, and the
bottom lines of traders, farmers, millers, and potentially
the economy as a whole. End comment.
McMullen