US embassy cable - 04RANGOON34

UNCLAS SECTION 01 OF 02 RANGOON 000034 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR EAP/BCLTV, EB 
BANGKOK FOR FAS 
COMMERCE FOR ITA JEAN KELLY 
TREASURY FOR OASIA JEFF NEIL 
USPACOM FOR FPA 
 
E.O. 12958: N/A 
TAGS: EAGR, ETRD, ECON, PGOV, BM, Economy 
SUBJECT: BURMA: LIBERALIZED RICE EXPORTS AREN'T SO LIBERAL 
 
REF: 03 RANGOON 563 AND PREVIOUS 
 
1. (SBU) Summary: The GOB's sudden decision to "suspend" 
exports of rice was the latest foible in the move toward 
allowing the private sector to export rice for the first time 
in 40 years.  Aside from further underlining the regime's 
ambivalence about giving up control of Burma's most important 
political-economic commodity, the move also emphasizes its 
priorities for appeasement: the urban masses first, then 
everyone else.  End summary. 
 
Stop the Exporting! 
 
2. (SBU) Much to everyone's surprise, on January 2nd the 
government announced an abrupt "suspension" of all exports of 
rice, sesame, garlic, onion, chili, and corn.  This 
suspension applies to everyone, even if an export license or 
signed contract is in hand, the only exception being a single 
ship that was being loaded in the Port of Rangoon.  The 
announcement was disappointing considering the private sector 
was only beginning to take greater advantage of the rice 
market liberalizations offered by the GOB in April 2003. 
 
3. (SBU) The April policy change removes the government from 
all stages of the rice pipeline and allows all private sector 
comers to buy directly from farmers and export freely.  Of 
course "freely" is a relative term in Burma, but by all 
accounts in recent months some private entrepreneurs -- 
mostly those affiliated with the quasi-governmental Union of 
Myanmar Federation of Chambers of Commerce and Industry 
(UMFCCI) -- were buying rice, having it milled, and selling 
it to foreign buyers independently of government 
interference.  One source told us that after a very slow 
start (only about 10,000 tons actually shipped by the private 
sector since April), export contracts of 16,000 tons and 
18,000 tons had been inked for shipment in January.  By 
contrast, in 2002 -- when the agricultural trading parastatal 
exported about 900,000 tons -- Burma shipped out a minimum of 
40,000 tons per month. 
 
4. (SBU) Though the government did not publicly announce the 
suspension, a business journal affiliated with Military 
Intelligence ran a short article saying there would be a 
temporary freeze on exports to ensure the retail price of 
domestic rice did not rise.  The fear is that hundreds of 
thousands of government workers, who on January 4th lost 
their monthly rice ration in exchange for a 5,000 kyat (about 
US$5.50) monthly stipend, would rush out into the Rangoon 
market, buying up rice and pushing up prices -- potentially 
sparking instability.  The article stated that this 
suspension would last only a "short time," though the meaning 
of this is not clear. 
 
Stumbling Toward Controlled Liberalization 
 
5. (SBU) The government's justification is not logical -- 
though not necessarily false.  With exports way down from 
2002, this season's harvest (November-December) quite good, 
domestic paddy and retail rice prices falling steadily over 
the last few months, and the government no longer purchasing 
rice in the marketplace, there seems little reason to fear a 
price spike.  It's possible, therefore, that the suspension 
has a more sinister motive.  Perhaps the government, always 
starved for foreign exchange, wants to get back into the rice 
exporting game while the gap between domestic retail prices 
(now about US$90 per ton) and higher world prices is quite 
wide. 
 
6. (SBU) In either case, the move is indicative of the 
regime's half-hearted support of liberalization.  Following 
its April 2003 announcement, the government was silent for 
five months before finally issuing lengthy and convoluted 
guidelines that set unreasonably high price floors for the 
exported rice and required prospective exporters to seek 
approvals and clearances by several government agencies 
before shipping.  The guidelines also outlined how exporters 
would only be able to keep 50 percent of net foreign exchange 
earnings, the balance to be kept by the GOB in exchange for 
the equivalent in kyat -- converted at a rate favorable to 
the GOB of course. 
 
7. (SBU) In addition to issuing overly bureaucratic rules, 
the government has not approached the rice reforms 
holistically, instead just waving a wand and making the rice 
markets "free."  Systemic problems remain, and there has been 
no effort since April to fix any of them.  For instance, the 
government's skittishness on supply and prices is worsened by 
a complete lack of reliable statistics on rice production and 
consumption.  The Burmese regime remains unwilling to reach 
out for advice on rice market liberalization despite lessons 
available locally in India, Thailand, and Vietnam. 
 
Comment: Stability is Paramount 
 
8. (SBU) Even if the export restrictions on rice are lifted 
soon, we wonder if the already cautious private exporters 
will risk being burned twice.  This episode also illustrates 
two important points about the GOB's philosophy of control. 
First, it's clear that the sanctity of contracts and the 
rights of the private sector, even if it is operating at the 
request of the government, come second to political 
considerations.  Second, if we are to believe the 
government's explanation for the moratorium then the regime 
clearly fears pushing the urban masses too far -- even if the 
resulting policies damage the regime's credibility, and the 
bottom lines of traders, farmers, millers, and potentially 
the economy as a whole.  End comment. 
McMullen