An Economic Firewall Won't Stop This Crisis

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In April this year, Ko Kyi Myint came home. After 18 years working abroad in Malaysian and South Korean factories he returned to Yangon, bought a taxi with his savings and now earns about 25,000 kyats (US$20) a day ferrying passengers across Burma’s dilapidated former capital.

"It’s good to be back," he says, in near-perfect English. "Sometimes it’s hard living here, of course. But it’s also difficult to work in foreign countries. I found my five years in South Korea the most tough because of the cultural differences."

"[But] I think I am one of the lucky ones. When I left in 1990, just before the elections, a passport cost only 10,000 kyats. Now, workers have to sign long contracts and pay thousands of dollars to employment agencies to go abroad, where they’re often treated very badly."

Prep students from Mae La refugee camp on
the Thai Burma border

This conversation took place just a few weeks before the financial crisis rocked the globe, shaking the confidence of the world’s largest lenders and leading to a string of nationalisations, bailouts and collapses.

The global turmoil seems very distant in Yangon. The economic barriers to growth — economic sanctions, no stock exchange and a weak banking sector — have insulated Burma from the present crisis.

Not one institution in Burma’s nascent banking sector has collapsed because of the latest credit crunch. The property market in Yangon is booming, according to the many local news journals. Foreign currency earnings are secured by long-term gas deals with energy-hungry neighbours.

But beneath the surface, there is a different story. The ripples of the financial crisis could still penetrate the Junta’s economic firewall — built by 46 years of near isolation — and hurt the most vulnerable sectors of Burmese society.

A widespread slowdown in South East Asian economies will prove disastrous for the millions of Burmese migrant workers across South East Asia, as well as the families that rely on the money they send back to Burma.

Thailand’s GDP growth is expected to fall to about 3 per cent next year. The slowdown will be felt hardest in the manufacturing industry, which depends on consumers in Europe and the United States buying cheap Thai-made products.

Photo by Alex Lewis

Labour costs in Thai factories are kept low by employing some of the 520,000 registered Burmese workers in Thailand – and the estimated 1.5 million working there illegally.

Dave Mathieson, a consultant on Burma for Human Rights Watch, told The Far East Economic Review last month that Burmese migrant workers have been a contributor to Thailand’s economic growth in the decade since the Asian financial crisis.

"There are various reasons [why migrant workers leave Burma]and one that is often forgotten is that Thailand clearly needs labour. Migrant workers are actually helping to fuel the Thai economy," he said.

The financial crisis fallout is yet to hit but economists expect the crunch to come next year, when Western importers cancel orders and factory output is forced to slow down. This could also be exacerbated by an increase in protectionism, which was a subtle feature of Barack Obama’s presidential campaign.

Sean Turnell, an associate professor of economics at Australia’s Macquarie University and editor of Burma Economic Watch, says that when Thailand’s exports slow down, Burmese migrant workers — many of whom fled persecution in the 1990s — will be hit hardest.

"I think Burmese migrant workers will be very vulnerable. The repercussions are sad to contemplate since, unlike migrant workers elsewhere, many cannot simply return to their homes. So, one can only expect declining living conditions wherever they are, but especially in border areas and camps [along the Thai-Burma border]," Prof Turnell says.

While he doesn’t expect a repeat of the mass repatriations that occurred in November 1997, when Thai authorities sent approximately 300,000 illegal Burmese migrant workers back across the border, it is still a possibility.

Children play soccer at Mae La while parents
work at a border factory

"If Thailand’s political difficulties intensify, on top of a generalised economic downturn, one might expect to see the identification of scapegoats and dramatic measures [such as repatriations]."

The effect will not be limited to Thailand. Employment agencies in Yangon have already reported a reduction in demand from businesses in Singapore and Malaysia, according to local English-language journal The Myanmar Times. Workers are complaining that their salaries and overtime have been slashed by employers trying to cut costs. Three hours of overtime a day can increase a migrant worker’s salary in Malaysia by 50 per cent and without this extra income many have nothing left to send home to their families.

While these migrant workers are usually employed on minimum two-year contracts, Sean Turnell says this is unlikely to save their jobs if economic conditions worsen.

"I am certain, given the power asymmetries involved, that such contracts will not be binding on employers," he says. "I think Burmese workers can expect little legal protection more or less wherever they work – in Asia or the Middle East. Practices in Dubai, involving Indian and Pakistani workers, offer little comfort."

Any mass lay-offs or repatriations of illegal workers, in Thailand or elsewhere, will have repercussions within Burma. Many families, particularly in Mon, Shan and Karen States, rely on remittances sent back by relatives working abroad. A survey by Macquarie University of Burmese workers in Thailand showed 96 per cent of remittances were spent on basic necessities — the money, Turnell says, is "a lifeline that permits the survival of many thousands of families in Burma".

World Bank figures show official, or formal, remittances to Burma totalled $81 million in 2006 but the real figure is much higher. According to a Macquarie University report, approximately $300 million is sent back to Burma each year "informally" — about 5 per cent of the country’s GDP — by expatriate workers in Thailand, Singapore and Malaysia. This is usually done through an elaborate network of agents known as hundi.

Elaborate — but not complicated, at least for the customer, as a colleague of mine explained: "In Singapore you take your money to Peninsula Plaza, where you can buy many items from Myanmar, and the agent will call a colleague in Yangon. They will then give the Myanmar kyat equivalent of the amount you want to transfer to your friend, relative, whoever you want. The system is based almost completely on trust but it works — it’s cheap and quick," he says. "No one would use a bank if they had the choice."

Migrant workers at a tea shop in Mae Sot

Sending money through official channels is possible but it is counted as income and taxed at 10 per cent. Banks also charge 10 to 15 per cent commission, while hundi charges are normally about 2 to 5 per cent of the amount transferred.

Turnell expects there will be a "dent" in remittances back to Burma as the financial crisis hits South East Asia but it will be disproportionate to the drop in workers’ incomes.

"I suspect that [migrant workers]might sacrifice a bit more to better protect their families back home," he says. But workers in Thailand already send back a relatively large share of their disposable income — almost 40 per cent, according to Macquarie University figures.

In a double blow for Burma’s impoverished millions, international aid from developed countries is expected to drop from $104 billion in 2007. Burma already receives less than $3 per person in development aid and the UN’s Cyclone Nargis aid appeal has so far received less than 60 per cent of the funding required to rebuild the country after the May disaster.

Both aid money and remittances help alleviate poverty. But remittance money is particularly important because it allows families to target their exact needs in a way NGOs cannot.

Yangon resident Ma Myint Khine, 24, says she isn’t worried about the economic conditions yet. Her parents work in a restaurant in Singapore and regularly send money back to their four children, which they then spend on basic living costs and education.

"My parents are very good friends with their boss, who used to live in Myanmar, and it is a successful business. I don’t think there will be a problem," she says, adding that she is more worried about foreign exchange rates. The amount being sent back from Singapore has dropped recently because of the US dollar, which has strengthened against most currencies — but not the Myanmar kyat.

"Hopefully the US dollar goes down against the Singapore dollar. I think it’s increased about 15 per cent since they left [for Singapore]. But really we are just grateful for whatever money they can send back to us."

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