Public protests have broken out across Burma’s old capital Rangoon after the military government unexpectedly removed fuel-price subsidies, resulting in a 500% spike in rationed fuel prices.
The shock policy is part of the government’s emerging economic and financial reform program and notably coincided with a high-level mission to the country of International Monetary Fund (IMF) and World Bank officials, who have long pressed the junta to reduce or abolish a range of price subsidies.
The move has shocked the country’s already fragile economy and, depending on the eventual scale of the protests and severity of the government’s response, could have grave implications for political stability. Significantly, the spiraling acts of civil disobedience have been led by former political prisoners known as the 88 Generation Students Group, who nearly 20 years ago as student leaders led the pro-democracy demonstrations the junta cracked down on with an iron fist in 1988.
Burma’s ruling junta, known as the State Peace and Development Council (SPDC), has for decades maintained strict social controls - though security forces have loosened their grip in certain areas of Rangoon since abruptly moving the national capital to a newly built city known as Naypyidaw in November 2005. The numbers joining the marches has grown since. More than a hundred people joined the first demonstration on Sunday demanding that the government intervene to lower fast-rising fuel and food prices.
More than 300 people took to the streets to protest on Wednesday, according to witnesses, and news reports indicate the rallies continued on Thursday. The junta has responded through stick-wielding vigilantes, including members of the pro-government Union Solidarity and Development Association. Some protesters have been beaten and whisked away in unmarked cars, according to witnesses who spoke with Asia Times Online.
“The government has raised fuel prices without giving any prior notice, and due to this hike, all the people are suffering,” said one protester at Sunday’s march. “Therefore we, the 88 Generation students, [National League for Democracy] members, university students, high-school students and civilians are protesting and demanding an immediate rollback in the prices of fuel.”
The police have arrested more than a dozen key 88 Generation Student Group leaders in recent days, including renowned activist Min Ko Naing and poet Ko Ko Gyi.
“The junta is not scared of public statements or press releases by opposition groups, but they really do not want the public to come out to the streets, for this type of movement can get out of hand,” Ko Ko Gyi told Asia Times Online before his arrest. The junta has also detained protest organizers from the recently formed Bruma Development Committee.
In a statement released on state-run media, protesters were detained for “undermining stability and the security of the nation”. But the crackdown and arrests, some on-the-ground observers say, have acted to fuel public anger.
“More demonstrations are likely to follow, as [Rangoon’s] residents are already fuming at the increase in fuel prices,” said a Western diplomat based in the country’s capital.
Economic meltdown
There are preliminary indications that the subsidy policy is seizing up the economy. Prices for compressed natural gas, which the government had in recent years promoted for use in commercial vehicles, have increased fivefold, while the price of basic commodities has skyrocketed in line with the higher transportation costs. Bus fares and taxi charges doubled almost immediately in urban centers such as Rangoon, Mandalay and Moulmein, resulting in drastically reduced passenger loads.
According to a Rangoon-based financial analyst who requested anonymity over concerns of possible government reprisals, the increase in bus fares will disproportionately affect the urban poor. Manual workers and day-laborers in the country’ main cities, who earn less than 2,000 kyat (US$2 at the unofficial exchange rate, which is much closer to the real world than the official rate) a day, will, because of higher prices, have to pay more than half their wage in travel costs, he estimated. In certain instances, it may even be as much as three-quarters of their daily income.
Win Min, an independent Burma analyst based at Chiang Mai University in northern Thailand, estimates that inflation was already running at nearly 40% annually, and with the recent removal of fuel-price subsidies that rate could double to 80%. “There will be an increase in layoffs as businesses are forced to close, and we are likely to see a significant rise in the price of food, clothing and basic commodities,” he said.
Indeed, Rangoon food prices have already risen steeply. Since last week, rice has risen by nearly 10%, edible oils by 20%, meat by about 15% and garlic and eggs by 50%, according to aid workers based in the city who monitor local market prices. A standard plate of Burmese noodles has nearly tripled in the past week, one aid worker said.
“These price rises are crippling for most residents in Rangoon,” a Burma economist told Asia Times Online, using the old name for Rangoon (the junta officially renamed both the city and the country, long known as Burma, in 1989). “They could hardly afford food before. Now their weekly budget for essential foodstuffs is going to buy even less - their purchasing power has been reduced by more than 25% virtually overnight.”
Crucially, the policy could cause a backlash among one of the junta’s key political support groups: the civil service. One elderly retired office worker who spoke by telephone with Asia Times Online complained that her pension now barely covers the taxi fare she pays to retrieve it from government offices. Inflationary
pressures will also inevitably lead to demands for salary and wage increases among government and private-sector workers.
Economic analysts say it is highly unlikely that the government will any time soon increase wages, having shouldered a major wage increase for government employees last year. The private sector, already suffering from slack domestic demand, will also likely find it hard to meet employees’ demands to increase wages. Some private businesses have already closed down, at least Some economic analysts have speculated that the SPDC rolled back fuel-price subsidies because it is strapped for cash. In particular, the analysts believe the massive expenditure associated with building the new capital at Naypyidaw, some 400 kilometers north of Rangoon, has depleted the national coffers. The government is also reportedly building a massive new Internet and communications-technology center known as Yadanapon Cyber City near the newly built capital.
“The cost of building Naypyidaw was bleeding the government’s coffers dry,” said Sean Turnell, a specialist on Burma’s economy at Macquarie University in Australia.
“The government is acutely short of revenue. Naypyidaw is itself absorbing more than the increase in income from gas revenues. On top that, there are the dramatic [increases] in government salaries of last year, as well as now the potentially large expenditure needed for the planned nuclear reactor,” he said.
Neo-liberal prescriptions
Ironically, perhaps, the junta had recently attempted to improve the national finances through better tax collection. The IMF and World Bank had warned the regime this time last year that if it did not reduce its high budget deficits - which it has traditionally covered by rolling the monetary presses, sparking inflation - the economy would suffer.
“Living standards are low and inflation is increasing. The prospects for sustained growth in real incomes are constrained by inflation, structural rigidities, weak economic policies and low investment,” the IMF team warned after its mission to the country last year.
The government has recently moved to implement some of the IMF’s less stringent reform recommendations, including a campaign to collect more taxes from private businesses. This year, the authorities mounted a major investigation into businesses suspected of tax evasion. Some of the country’s biggest companies, including Max Burma, AA Pharmacy, the Peace Burma Group and International Beverage Trading, were targeted by the investigation and several leading business people were arrested on tax-evasion charges.
Last year, the IMF reported that Burma’s revenue collection had risen slightly, and the budget deficit had dropped to about 4% of gross domestic product. “The tax-revenue increases are real, but they’re from such a low base they’re more a ‘promise’ of a better fiscal future than [achieving] one now,” argued academic Turnell.
What is more critical, according to economists, is that the junta move to reduce spending - something the military regime appears loath to do. The SPDC has shown no signs of reducing military spending, expenditures related to finishing the new capital and cyber-city, and big-ticket energy projects, including new dams and the country’s first nuclear reactor, economic analysts say. Hence the only fiscal card it had left to play was reducing fuel subsidies.
The IMF has long advised the SPDC to reduce government subsidies, particularly on fuel prices. It’s unclear whether the IMF and World Bank pressured the junta into making the policy or whether they recommended a more phased approach to removing the subsidies.
Now, the more pressing question is whether the already impoverished population can absorb the sudden shock therapy. “More than 90% of the country’s population already lives in dire poverty,” said an economist based in Yangon. “It is not so much a case of food shortages as families’ incomes being insufficient to purchase their daily needs.”
Recent United Nations country surveys for Myanmar reveal a trend toward increasing poverty and a growing income gap between rich and poor.
“More than 90% of the population live on less than 300,000 kyat [about $300] a year,” a senior UN official who spoke on condition of anonymity told Asia Times Online. “Food security has become a significant issue in many parts of the country, especially in the remote and border areas.”
Meanwhile, the street protests in Yangon showed no signs of abating. Some Rangoon-based economic analysts have even started to draw political parallels with the period leading up to the junta’s bloody crackdown on the pro-democracy demonstrations in 1988, which then were sparked by an abrupt government decision to demonetize the local currency.
“The military learned its lesson last time and will try to nip [demonstrations] in the bud this time before they get out of hand,” said a local analyst.
If so, expect more repression and revolt in Myanmar in the weeks ahead.
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