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TO RUEHC/SECSTATE WASHDC IMMEDIATE 6487
INFO RUCNASE/ASEAN MEMBER COLLECTIVE
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RUEATRS/DEPT OF TREASURY WASHDC
RUEHGV/USMISSION GENEVA 3274
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RUEKJCS/SECDEF WASHDC
RUEKJCS/JOINT STAFF WASHDC
RUCNDT/USMISSION USUN NEW YORK 0929
RUEHBS/USEU BRUSSELS

C O N F I D E N T I A L SECTION 01 OF 03 RANGOON 000859 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EAP/MLS; 
PACOM FOR FPA 
TREASURY FOR OASIA:SCHUN 
 
E.O. 12958: DECL: 09/21/2016 
TAGS: EFIN ECON PGOV IMF BM
SUBJECT: BURMESE PRIVATE SECTOR VIEWS OF THE ECONOMY 
 
REF: RANGOON 838 
 
RANGOON 00000859  001.2 OF 003 
 
 
Classified By: Economic Officer Samantha A. Carl-Yoder for Reasons 1.4 
(b,d) 
 
¶1.  (C) Summary:  The Charge on September 4 hosted a 
roundtable discussion for the IMF Article IV Consultation 
team with Burmese private sector business and economic 
observers.  The Burmese roundtable participants discussed 
problems in the banking industry, the rampant problem of 
illegal border trade, the viability of special economic 
zones, and lack of access to financial data.  The IMF team 
agreed that Burma had fallen behind its neighbors due to 
mismanagement and serious political issues.  End Summary. 
 
¶2. (C) The Charge on September 4 hosted a lively roundtable 
discussion for the IMF team with local bankers and private 
economic observers.  The roundtable began with the IMF team, 
led by Leslie Teo, providing a broad overview of their 
findings.  Teo concluded that the Burmese economy is not 
performing at the level it should given Burma's economic 
potential and resource abundance.  Teo and his team 
emphasized that the GOB has achieved some positive results, 
including higher revenues due to increased tax collections, 
improved balance of payments, and liberalization of the 
agriculture and oil and gas sectors.  However, problems 
remain: multiple exchange rates, high expenditures that 
outpace revenues, high inflation, and poor resource 
allocation (Reftel). 
 
Trade and the Border Areas 
-------------------------- 
 
¶3.  (C) After the overview, business participants had a 
vigorous discussion of the trade sector.  Although the IMF 
affirmed that the GOB streamlined the import/export license 
process and liberalized the trade of agriculture and oil and 
gas products, Burmese participants commented that Burma's 
trade situation has not really improved.  Businesses must 
obtain export earnings before they can legally import, and 
while some companies obtain import licenses within 7 days, 
the majority still wait up to 21 days for approval.  Although 
the government claims that it allows rice exports, the GOB 
has yet to approve export licenses for commercial companies. 
Trade consultant U Kyaw Win noted that rice production in 
2007 had decreased due to higher production costs, and 
questioned the government's prediction of a two million 
metric ton surplus of rice.  Legal rice exports do not occur, 
he noted, and most exports of rice are illegally sent over 
the border to Thailand and Bangladesh. 
 
¶4.  (C)  Winston Set Aung explained that based on his survey 
of Burma-Thai border trade, he found that 60 percent of 
border trade is illegal, and much of this trade enters Burma 
through 15 illegal border points.  While the Burmese do not 
keep good records, Thai officials are aware of what enters 
and exits Thailand.  Most of the trade, Winston noted, flows 
into Burma rather than into Thailand.  The majority of 
illegal exports to Thailand consist of rice and timber 
products.  The GOB is unable to control this trade, and 
Winston suspects that even more illegal trade occurs on the 
Burma-China border.  The fact that most trade does not go 
through legal channels also means that it does not get 
recorded, which explains why reconciling national accounts is 
so difficult, IMF economist Lisbeth Rivas added. 
 
Financial Sector Difficulties Abound 
------------------------------------ 
 
¶5.  (C) Several Burmese bankers complained to the IMF about 
the current financial sector, specifically the highly 
segmented financial market and restrictions on private bank 
 
RANGOON 00000859  002.2 OF 003 
 
 
activity.  Since 2003, private banks cannot open bank 
branches, must restrict deposits, and so do little lending. 
The Central Bank, KBZ Bank Consultant U Than Lwin noted, 
lacks operational independence and the technical capacity to 
make financial sector recommendations to the government.  U 
Sein Maung, Chairman of First Private Bank, requested that 
the IMF make strong recommendations regarding the need to 
improve financial operations, level the playing field between 
state and private banks, and allow private banks to act like 
banks. 
 
¶6.  (C)  Ake Lonnberg, IMF Senior Financial Expert, agreed 
with the banker's criticisms of the current system.  The IMF 
recommended that the GOB improve banking supervision to 
support the growth and development of private banks.  The 
Burmese banking sector, he stressed, must be allowed to take 
on and manage risks.  He also noted that the GOB must also 
clearly define the role of state-owned banks, ensure fair 
competition between private and state-owned banks, and allow 
foreign banks to operate in Burma.  Inflation will continue 
to be a problem until the Central Bank stops funding the 
large budget deficit by printing money, he added. 
 
¶7.  (C) The IMF also discussed with the GOB the wide 
variation between the official exchange rate (6 kyat/$1) and 
the market rate (1350 kyat/$1).  Teo confirmed that the 
Burmese officials continue to be reluctant to make any 
adjustments in the exchange rate system.  The Burmese 
participants said almost all Burmese used the market rate 
anyway, and concluded that the official rate distorts Burma's 
national income accounts.  Teo acknowledged that the team had 
also been unable to resolve differences about Burma's 
national accounts and GDP, but indicated some GOB receptivity 
to technical assistance in this area. 
 
Special Economic Zones: Way of the Future? 
------------------------------------------ 
 
¶8.  (C) Cyrus Talati, a World Bank Economist, informed us 
that although the GOB plans to establish five special 
economic zones (SEZs) by 2015, officials have little 
understanding about how the SEZs would function.  He believes 
that the GOB's interest in SEZs stems from China's success 
with these zones, and that ASEAN will help the government 
establish them.  The GOB has yet to approve a long-pending 
SEZ draft law, which provides investment incentives, 
including a five-year tax holiday, exceptions for high tech 
industries, and favorable land leases.  Talati noted that the 
government wants foreign banks to provide financial services 
in the SEZs, although it remains unclear how these foreign 
banks would be regulated. 
 
¶9.  (C) Winston Set Aung, who advised the GOB on the SEZ law, 
described the financial incentives as necessary to attract 
foreign companies and banks.  Local entrepreneurs then 
pressured the government to extend those same investment 
incentives to them.  Winston pointed out that the draft law 
fails to create a level playing field for foreign investors, 
who under current law pay higher taxes and are penalized by 
the exchange rate system.  (Note: Foreign companies must pay 
all bills in foreign exchange at the official exchange rate, 
while local companies pay in kyat at the market rate.  End 
Note.)  Another participant noted GOB plans for an SEZ along 
the Thai border that will do contract farming.  The GOB, he 
explained, sees the SEZs as industrial zones that will 
produce for domestic consumption rather than as export zones. 
 The Charge cited the Thai Ambassador as interested in the 
SEZs to keep the Burmese working in Burma rather than 
Thailand while receiving Thai-level wages.  However, he could 
never get any go-ahead from the GOB. 
 
Little Access to Data 
 
RANGOON 00000859  003.2 OF 003 
 
 
--------------------- 
 
¶10.  (C) At the end of the discussion, the businessmen 
praised the IMF as one of the few organizations that can 
obtain information from the GOB.  One of the participants 
observed that while selected economic data is available on 
the internet, the GOB closely controls all fiscal data. 
Budget information, which is printed annually, is not widely 
distributed and many Burmese doubt the quality of the 
statistics.   Teo said that officials had been very 
forthcoming with statistics, but acknowledged that many of 
the categories of statistics they received from the GOB were 
marked N/A.  The participants requested that the IMF share 
the information collected, but Teo explained that the IMF 
cannot print or distribute the information without GOB 
permission.  Teo pointed out that some of the financial data 
is available in the International Financial Statistics, but 
that not all of the information is current. 
 
¶11.  (C)  Even though the Burmese participants have 
repeatedly made the same points that the IMF is making, 
senior levels of the government are not willing to listen. 
Teo allowed that the technocrats are interested, but admitted 
that the IMF did not have the high-level meetings that they 
had last year and are unsure that their recommendations will 
be read at the senior levels.  One participant suggested that 
next year, the IMF should bring an astrologer if they want to 
attract the attention of the senior generals. 
 
Comment 
------- 
 
¶12.  (C) While the IMF is aware of the Burma's economic 
problems, it does not fully understand how the economic 
system works.  Businessmen constantly complain to us about 
how difficult it is to do business here -- one must be 
connected, willing to pay bribes, or tolerant of the nebulous 
regulations regarding investment.  The roundtable event 
provided the IMF with the opportunity to hear from those 
affected by the GOB's poor economic policies.   The IMF 
appreciated the real world insights they received last year 
at the roundtable we hosted, and specifically asked if we 
would organize another this year. 
 
VILLAROSA