Tuesday, June 28, 2016

Myanmar - Suu Kyi faces tough test in Myanmar's privatization push

YANGON -- As Myanmar's fledgling democratic government starts tackling the sticky issue of privatization, Aung San Suu Kyi will have to deal skillfully with expected resistance from the military and other vested interests to achieve this crucial step in revitalizing the country.

The government created a committee on privatization of state-run enterprises May 4 to examine measures such as using public-private partnerships to develop and operate infrastructure as well as selling inefficient state-owned factories.

Those privatization steps are essential for the government's efforts to deliver on Suu Kyi's election promise that her party will boost administrative and fiscal transparency and build a healthy market economy. The committee's members include Suu Kyi, who serves as state counselor and foreign minister, as well as 13 other ministerial-level officials such as the minister for electric power and energy and the minister for industry.

Dilapidated economy

All industries in Myanmar were nationalized upon the establishment of a socialist regime in 1962. The military junta that seized power in 1988 gradually privatized the economy, but state-owned enterprises still dominate in areas such as natural resources and heavy industries.

While precise numbers are hard to come by, the country is believed to have roughly 50 public corporations and over 500 state-owned factories belonging to various ministries and agencies. Many are in poor shape due to the lack of capital investment amid the economic stagnation under military rule.
"Factories that belong to another era are continuing to churn out subpar products nobody wants," a person familiar with the matter said.

Factories controlled by the Industry Ministry are said to be particularly bad, with most of them running losses and relying on the government to plug the hole. This is why privatization of inefficient state enterprises is a major goal of the committee as it seeks to boost the competitiveness of domestic industries.

Hotbed of collusion

But a lack of transparency at state-owned enterprises is an even bigger problem than inefficiency. Myanmar's government already was poor at disclosing fiscal information, but assessing the government's fiscal health became even tougher after state-owned enterprises were allowed to manage their surplus funds in their own bank accounts in fiscal 2012.

Myanmar Oil and Gas Enterprise, which falls under the Electric Power and Energy Ministry, has hit a jackpot through offshore gas field joint ventures with foreign companies in the Andaman Sea and elsewhere that began in the 1990s. Some nongovernmental organizations say MOGE transferred $14 billion to its own bank accounts, which are outside the scope of government audits, in fiscal 2013 alone.

Jade mining in the northern states of Kachin and Shan is estimated to generate over $30 billion in trade a year. This lucrative industry has been monopolized by a joint venture between a public enterprise belonging to the Natural Resources and Environmental Conservation Ministry and a business closely linked to the old junta. It is believed that the joint venture places much of its earnings out of the government's reach, accumulated as internal reserves in the venture's bank accounts.

Facing a powerful opponent

Cutting into such vested interests via privatization and channeling some resource-related profits into government coffers likely are at least part of the motive in creating the privatization committee. But such moves are certain to encounter fierce resistance. The military, which continues to meddle in politics, and its auxiliary organizations are deeply involved in mining of jade and other mineral resources.

When a lawmaker noted the murky world of mineral resources development in parliament in February, military representatives, who occupy a quarter of the parliamentary seats, stood up and objected to the comment. If the government led by Suu Kyi continues to push privatization, it eventually will clash with military interests.

The selection of Myint Swe, a former high-ranking military officer now serving as Myanmar's vice president, as the committee's chairman suggests Suu Kyi wishes to avoid a conflict with the military. But a failure to cut into vested interests likely will disappoint government supporters. Suu Kyi, as the de facto head of the democratic Myanmar, must make the most of her leadership and political skills to gain ground in this challenge.

Motokazu Matsui

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