BURMA'S BUDGETEERS WAVE MAGIC WAND

UNCLAS SECTION 01 OF 02 RANGOON 000770

SIPDIS

SENSITIVE

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

E.O. 12958: N/A
TAGS: EFIN ECON PGOV BM
SUBJECT: BURMA'S BUDGETEERS WAVE MAGIC WAND

REF: A. RANGOON 764


B. RANGOON 223

C. 03 RANGOON 1316


1. (SBU) SUMMARY: BURMA'S FY 2004-05 STATE BUDGET MAGICALLY
APPEARED IN LATE APRIL, SPORTING FIGURES AND PREDICTIONS FROM
UNKNOWN SOURCES. UNSURPRISINGLY, THE MILITARY GETS A BOOST,
BUT SO DO HEALTH AND EDUCATION. THE INITIAL TAKE CALLS FOR A
REDUCED DEFICIT DUE TO INCREASED TAX RECEIPTS AND AN IMPROVED
STATE-OWNED SECTOR. HOWEVER, THERE IS NO OBVIOUS
JUSTIFICATION FOR THIS OPTIMISM, SO WE EXPECT LITTLE
IMPROVEMENT TO THE GOB'S BOTTOM LINE THIS FISCAL YEAR. END
SUMMARY.

PICK A NUMBER, ANY NUMBER


2. (SBU) AS IF BY MAGIC, THE GOB MADE APPEAR, IN A MUSTY
CORNER OF THE APRIL EDITION OF ITS MONTHLY BURMESE LANGUAGE
GAZETTE, ITS FY 2004-05 (APRIL-MARCH) BUDGET. THE BUDGET HAS
NOT BEEN PUBLISHED IN THE NEWSPAPER OR FOR WIDE PUBLIC
DISTRIBUTION SINCE 2001. THE NUMBERS ARE PURE HYPOTHESIS,
ESTABLISHED IN AN OPAQUE PROCESS INVOLVING THE VARIOUS
MINISTRIES AND THE TOP SPDC BRASS. AS THERE IS NO
PARLIAMENTARY OR OTHER OVERSIGHT OVER GOVERNMENT SPENDING,
THE BUDGET FIGURES ARE ALSO MERELY GUIDELINES, AUGMENTED BY
AN ANNUAL SUPPLEMENTARY BUDGET THAT IS ONLY REVEALED
POST-FACTO AT THE END OF THE FISCAL YEAR. IN FY 2003-04, THE
GOB GRANTED ITSELF A SUPPLEMENTARY BUDGET THAT INCREASED
ADMITTED EXPENDITURES 34 PERCENT AND BALLOONED THE BUDGET
DEFICIT 382 PERCENT FROM INITIAL ESTIMATES.


3. (SBU) THE BUDGET NUMBERS, EVEN INCLUDING THE SUPPLEMENT,
ARE OFTEN UNDERSTATED. MUCH GOVERNMENT SPENDING,
PARTICULARLY ON THE MILITARY SIDE, OCCURS OFF THE BOOKS.
LIKEWISE, SIGNIFICANT NON-TAX GOVERNMENT REVENUE IS NOT
REPORTED BY REGIONAL MILITARY AND CIVIL OFFICIALS WHO PREFER
TO KEEP IT FOR THEMSELVES RATHER THAN TURN IT IN TO THE
CENTRAL FUND. ANOTHER PROBLEM IS THAT THE BUDGET REPORT DOES
NOT INDICATE AT WHAT EXCHANGE RATE THE NUMBERS, IN KYAT, ARE
CALCULATED. WE ASSUME A 6 KYAT/$ RATE (THE OFFICIAL GOB
RATE),THOUGH OTHER RATES ARE POSSIBLE FOR CERTAIN REVENUES
AND EXPENDITURES. FOR EXAMPLE, UNTIL JUNE 15TH, CUSTOMS
REVENUE WAS CONVERTED AT THE 100 KYAT/$ RATE (REF A).


4. (SBU) MORE INTERESTING THAN THE QUESTIONABLE FIGURES,
THEREFORE, ARE THE TRENDS AND BUDGETARY PRIORITIES AND THE
FORECASTED BUDGET DEFICIT OR SURPLUS. IN THE PAST, THIS
LATTER FIGURE HAS BEEN AN IMPORTANT INDICATOR OF INFLATION --
SINCE THE GOB ALMOST ALWAYS PRINTS MONEY TO FINANCE ITS
BUDGET SHORTFALLS.

MAKING SOCIAL SPENDING DISAPPEAR


5. (SBU) OVERALL, THE GOB EXPECTS EXPENDITURES TO DIP 4.3
PERCENT FROM THE TOTAL FY 2003-04 FIGURE (INCLUDING THE
SUPPLEMENTARY APPROPRIATION). THE SINGLE LARGEST LINE ITEM
IN THE FY 2004-05 BUDGET IS FOR THE DEFENSE MINISTRY, WITH
NEARLY 10 PERCENT OF THE PROJECTED EXPENDITURES. DEFENSE'S
BUDGET IS UP 54 PERCENT FROM LAST YEAR'S INITIAL FIGURE AND,
AS MENTIONED, IS LIKELY FAR BELOW THE ACTUAL AMOUNT SPENT ON
MILITARY AFFAIRS. IT IS ALSO LIKELY ONLY A STARTING POINT.
IN FY 2003-04 THE SUPPLEMENTARY BUDGET ADDED A GENEROUS 57
PERCENT TO THE AMOUNT INITIALLY BUDGETED FOR THE MINISTRY.


6. (SBU) SOCIAL SPENDING DOES NOT FARE AS WELL. THOUGH THE
GOB IS EARMARKING NEARLY 6 PERCENT OF THE BUDGET FOR THE
MINISTRY OF EDUCATION, THE MINISTRY OF HEALTH WILL ONLY GET
1.5 PERCENT OF EXPENDITURES -- THOUGH THIS IS UP 108 PERCENT
FROM ITS FY 2003-04 INITIAL ALLOTMENT. THE HEALTH NUMBER IS
ALSO UNDERSTATED AS SEVERAL OTHER MINISTRIES CONTRIBUTE TO
THE OVERALL HEALTH SPENDING PICTURE.


7. (SBU) OTHER PRIORITIES FOR 2004-05 ARE: FINANCE AND
REVENUE (5.5 PERCENT OF THE BUDGET),CONSTRUCTION (4.6
PERCENT),AND AGRICULTURE AND IRRIGATION (3.8 PERCENT).

STATE-OWNED FIRMS: FROGS TO PRINCES?


8. (SBU) OPTIMISTICALLY, THE GOB HAS PROJECTED FY 2004-05
REVENUES TO JUMP 31.5 PERCENT, LED BY AN EXPECTED 73 PERCENT
INCREASE IN TOTAL TAX RECEIPTS AND 31.5 PERCENT INCREASE IN
REVENUES FROM DOZENS OF ANTIQUATED STATE-OWNED ENTERPRISES
(SOES). THE BUDGET ALSO CALLS FOR A 9.5 PERCENT DECLINE IN
EXPENDITURES FOR THE SOES. HOWEVER, THESE PROJECTED DECLINES
OFTEN TURN INTO INCREASES OVER THE COURSE OF THE YEAR AS THE
COMPANIES CONTINUE TO HEMORRHAGE MONEY. IN FY 2003-04 THE
SOES RECEIVED A 44 PERCENT BONUS IN THE SUPPLEMENTARY
APPROPRIATION PROCESS. LIKEWISE WE ARE DUBIOUS THAT THE GOB
WILL BE ABLE TO MILK ANOTHER 73 PERCENT FROM A ESSENTIALLY
NON-EXISTENT TAX COLLECTION SYSTEM.

9. (SBU) THE BUDGET ENVISIONS AN ANNUAL DEFICIT THAT IS 52
PERCENT DOWN FROM LAST YEAR'S POST-SUPPLEMENT DEFICIT.
HOWEVER, THE PROJECTED DEFICIT IS 132 PERCENT LARGER THAN THE
INITIAL FY 2003-04 PROJECTED DEFICIT. THE ROSY 2004-05
PREDICTION IS BASED ON THE HUGE REVENUE ENHANCEMENTS
MENTIONED ABOVE PLUS A PROJECTED 67 PERCENT DECLINE IN THE
SOES OVERALL OPERATING DEFICIT -- WHICH MADE UP 58 PERCENT OF
THE '03-'04 TOTAL DEFICIT POST SUPPLEMENT.


10. (SBU) LIKE THE EXPECTED REVENUE INCREASES, IF PAST IS
PROLOGUE WE THINK THE EXPECTED SOE IMPROVEMENTS ARE ALSO
WISHFUL THINKING. IF THE COMPANIES GET THE SAME 44 PERCENT
BOOST FROM THE FY 2004-05 SUPPLEMENTARY APPROPRIATION THAT
THEY DID FROM THE FY 2003-04 ONE, THE SOES' DEFICIT WOULD
RISE 29 PERCENT COMPARED THE FY 2003-04 DEFICIT.

COMMENT: BUDGETARY PRESTIDIGITATION


11. (SBU) BECAUSE THERE IS NO COMMENTARY PRESENTED ALONG WITH
THE BUDGET NUMBERS, AND THE FIGURES GIVEN ARE SO FLEXIBLE, IT
IS HARD TO MAKE FIRM PREDICTIONS ABOUT THE FUTURE OF BURMA'S
DOMESTIC FINANCES. HOWEVER, WE WOULD BE SURPRISED IF THE
BUDGETARY SITUATION IMPROVED MUCH THIS YEAR. THERE IS NO
SIGN THAT THE REGIME INTENDS TO REFORM ITS TAXATION SYSTEM
AND ITS HALF-HEARTED REVENUE ENHANCEMENT PLANS TO DATE ARE
EASILY DEFEATED BY THE HUGE UNTAXED INFORMAL ECONOMY
(REFTELS). LIKEWISE, WE'VE SEEN NO EVIDENCE OF ANY
PRIVATIZATION OR OTHER RATIONALIZATION OF THE STATE-OWNED
SECTOR THAT WOULD ACCOUNT FOR THE EXPECTED IMPROVEMENT IN ITS
COLLECTIVE BOTTOM LINE. END COMMENT.
MARTINEZ