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Don’t forget Burma – Burma and economic Freedom ?



2010 Index of economic Freedom


Burma’s economic freedom score is 36.7, making its economy the 5th worst in the 2010 Index. Its score is one point lower than last year as a result of worsened investment freedom. Burma is ranked 40th out of 41 countries in the Asia–Pacific region, and its overall score is much lower than the regional average.

Long-standing structural problems include a wide fiscal deficit due to poor public finance management, continuing losses by state-owned enterprises, and underdeveloped legal and regulatory frameworks. Repressive governance interferes heavily with economic activity. The efficiency and overall quality of government services remain very poor. The junta’s woeful response in the aftermath of the May 2008 cyclone—the country’s worst-ever humanitarian crisis—showed callous disregard for the welfare of the country’s people.

Historically scoring far below the world average, Burma’s economic freedom has deteriorated even more in recent years. Investment freedom, financial freedom, property rights, and freedom from corruption are extraordinarily weak. Monetary stability remains fragile, and inflation is very high, largely reflecting excessive money creation to fund fiscal deficits.

Burma has been ruled by a military junta since 1962. After the opposition National League for Democracy won a large majority in the 1990 legislative elections, the junta redoubled its efforts to crack down on dissent. Political instability continues, and the United Nations estimates that the violent government response to pro-democracy demonstrations in September 2007 resulted in over 30 fatalities. A new constitution approved by referendum in 2008 is regarded by international observers as deeply flawed. Burma is richly endowed with natural resources, but government intervention in the economy has made it one of the world’s poorest countries. An estimated one million Burmese have sought refuge in neighboring countries, and Cyclone Nargis, which struck in May 2008, is estimated to have killed well over 100,000 people.


Entrepreneurial activity is restricted by a lack of legal and regulatory transparency. Inconsistent enforcement of laws and bureaucratic red tape severely hinder the development of a critically needed private sector.


Burma’s weighted average tariff rate was 3.9 percent in 2007. Import and export bans and restrictions, high import and export taxes and fees, non-transparent import and export permit and licensing rules, arbitrary policy changes, non-transparent and outdated regulations and standards, customs corruption, state trading, poor intellectual property rights protection, and inefficient regulatory and customs bureaucracy add to the cost of trade. Twenty points were deducted from Burma’s trade freedom score to account for non-tariff barriers.


Burma has moderately high tax rates. The top income and corporate tax rates are 30 percent. In the most recent year, overall tax revenue as a percentage of GDP was 3.0 percent.


Total government expenditures, including consumption and transfer payments, are low. In the most recent year, government spending equaled only 7.2 percent of GDP, but the resulting high score reflects a lack of government capacity rather than policy restraint. The government is relying primarily on international donors to rebuild the transportation, energy, and health infrastructures damaged by the May 2008 cyclone. Soaring deficits are driven by military spending.


Inflation continues to be extremely high, averaging 26 percent between 2006 and 2008, although it slowed somewhat in 2009 due to falling fuel and food prices and continuing recovery from the May 2008 cyclone. The state is heavily engaged in mining and power, and state-owned firms are prominent in transport, trade, and manufacturing. The government uses price controls and subsidies to maintain below-market prices for such staples as gasoline, cooking oil, propane, and soap. Such products are strictly rationed, so retailers often sell on the black market. Twenty points were deducted from Burma’s monetary freedom score to adjust for measures that distort domestic prices.


Foreign and domestic private investment is approved case by case. Many sectors are reserved for domestic and government-controlled activity. Once permission is granted, foreign investors need business licenses, which are rarely granted. Investment is severely limited by government design, corruption, cronyism, political intervention, complex and capricious regulation, no rule of law, and poor infrastructure. All official trade in goods, extractive industries, sources of capital, movement of labor, and access to information are government-controlled. Manufacturing and services remain undeveloped. Access to capital is very limited, and the government favors state-owned banks over the few private banks. The government restricts foreign exchange accounts and current transfers and controls all capital transactions. Multiple exchange rates make conversion and repatriation of foreign exchange complex and prone to corruption. Foreign firms may not own land but may lease it from the government.


The government directs loans to government projects, and entrepreneurs’ access to credit is highly constrained. Banking is dominated by five state-owned banks, but there are several private banks and 13 foreign banks. Opaque regulatory and legal institutions add to a fairly hostile financial climate. The government tightly controls banking. Money laundering continues to grow. Conversion and repatriation of foreign exchange are ripe for corruption due to the multiple exchange rate system. Only three state banks are permitted to deal with foreign exchange transactions.


Private real property and intellectual property are not protected. Private and foreign companies are at a disadvantage in disputes with governmental and quasi-governmental organizations. Foreign investors who have conflicts with the local government or whose businesses are illegally expropriated have little success in obtaining compensation.


Corruption is perceived as pervasive. Burma ranks 178th out of 179 countries in Transparency International’s Corruption Perceptions Index for 2008. Burma is a major source of opium, and most Burmese view corruption as necessary for survival. Investors complain of official corruption in taxation, investment permission, import and export licenses, and land and real estate lease approvals.


Burma’s formal labor market remains distorted by state intervention. Regulations regarding wage rates and maximum work hours are not uniformly observed. The government sets public-sector wages and influences wage-setting in the private sector. The state uses forced labor to construct military buildings and commercial enterprises.

Source www.heritage.org

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