Army-owned Conglomerates Slowly Loosening Grip on Economy: Report

By Saw Yan Naing 25 April 2014

RANGOON — The Burma Army is in the process of a carefully planned retreat from its monopolistic hold over the economy, but while the revenues of its commercial conglomerates fell the military has retained the same government budget figure in real terms, an International Crisis Group (ICG) report said this week.

In its report “Myanmar’s Military Back to the Barracks” ICG sets out an analysis of the reasons for military’s move to cede political and economic control over Burma as part of its long-planned democratic transition, which started in 2011 when President Thein Sein’s nominally civilian government took office and will lead to supposedly free and fair elections in 2015.

The ICG is largely positive about speed and scope of the changes initiated by the generals, many of who have now shed their uniforms in order to take up civilian positions in the ruling party and Thein Sein’s government. The army, or Tatmadaw, still retains sweeping political powers under 2008 Constitution that it drafted, including control of a quarter of Parliament, immunity from past crimes under the junta and a veto on constitutional changes.

ICG notes the military “is not yet ready to give up constitutional prerogatives … Those guarantees, far from entrenching stasis, are what have given the Tatmadaw the confidence to allow—and in many cases support—a major liberalization of politics and the economy, even when many of the changes impact on its interests.

“Its proportion of the government budget has been significantly reduced, the huge military-owned conglomerates have lost lucrative monopolies and other economic privileges… Many observers have assumed that the Tatmadaw would be a spoiler on issues of key interest such as the peace process and economic reform. Yet, this has generally not been the case.”

ICG said the losses incurred through the slow loosing of the economic grip of the sprawling Union of Myanmar Economic Holdings (UMEHL) and Myanmar Economic Corp (MEC) are acceptable to the military as it most of these revenues go to its shareholders, who are retired officers. Mismanagement of the conglomerates in an increasingly open and competitive economy could also become a financial drag on the military, it added.

Meanwhile, the government budget received by Commander-in-Chief Min Aung Hlaing’s army continues to be the same in real terms (i.e. absolute amount of dollars received) even though the relative share of defense in the overall budget has fallen from about 20 percent several years ago and stabilized at 12-13 percent this year, according ICG.

Burma’s overall government budget stood at around US $19 billion last year, meaning the military officially received about $2.3 billion.

“The Tatmadaw’s budget has been declining as a proportion of the budget, but the total government budget, and hence the real-terms military allocation can be expected to increase,” the group said, adding, “The military conglomerates risk becoming a lossmaking burden in a new economic environment, and the commander-in-chief may prefer the predictability of national budget allocations.”

Burma experts and a defense analyst agreed with the ICG that the military had retained a largely similar size defense budget in real terms compared to previous years, but some disagreed with the group’s assertion that the military’s off-budget income was in sharp decline.

Noting the Tatmadaw’s renowned ability to keep its objectives, weapons systems and budgets secret, veteran journalist Bertil Lintner said, “The fact is that we know very little about Burma’s military budget and the businesses the Burmese army controls because most of it is shrouded in secrecy.”

Lintner, the author of several books on Burma, said it is hard to square the loss of the army’s income as reported by the ICG, with a “military that has been able to expand its forces, buy new sophisticated equipment from abroad, and develop more and bigger indigenous arms factories than any other country in Southeast Asia.”

Anthony Davis, a Bangkok-based security analyst for HIS Jane’s Defence, a UK publication, said the ICG also failed to take into account secret government budgets for the army “which the Tatmadaw—like other militaries in the region—almost certainly has access to.”

He said that the economic reforms that have seen military-owned conglomerates lose market monopolies do not indicate how much money the military earns because “none of this information is in the public domain.”

Speaking on the issue of the military’s declining relative share of the official budget, Davis said, “As the [ICG] report points out, the budget itself is growing significantly so the military allocation today could actually be little different or even larger in real terms than might have been the case two or three years ago.”

Sean Turnell, an Australian economist who has long studied Burma’s economic policies, echoed the conclusion of Davis, saying, “Most important of all is that military spending in aggregate kyat terms has not really fallen at all. The confusion here comes from the fact that the government budget itself is so much larger than it used to be, since now Myanmar’s gas earnings are recorded at the market exchange rate, and outlays in the same manner.”

He said Burma’s defense budget remains high compared to other nations and is still greater than health and education spending combined.

“Military spending continues to distort Myanmar’s economy in significant ways, not least since such expenditure comes at the cost of more socially-constructive outlays. Military spending is destructive, in more ways beyond the obvious,” said Turnell.

Despite the decline of the relative share of defense spending in the overall government budget, reports also continue to emerge of procurement of foreign-produced, sophisticated arms or equipment by the Burmese government army.

In January 2013, the London-based Campaign Against Arms Trade said that Britain approved sales of US$5.3 million worth of “inertial equipment,” most likely technology that aids radar navigation systems, to Burma.

Additional reporting by Paul Vrieze.