February 20, 1995

CONSUMER STIRRINGS VISIBLE IN BURMA, FOREIGNERS ARE FLOCKING IN

Eric Ellis, Rangoon

The coffee and samosas are improving at the Rangoon People's Patisserie. In most other countries that would not be particularly remarkable. But in Burma it means that times are changing, that modest relaxations in the military government's rule have produced competition, and that the Patisserie has been forced to improve its fare.

As a low-rent version of Vietnam, impoverished Burma has ambitions to become Asia's next tiger economy-in-waiting. While their neighbors export their way to the OECD's front door, the Burmese are starting to break out of economic stagnation and starting to spend the money they have literally stored in matresses awaiting better times.

Burma, with 43 million people, is controlled by a government that seized power in 1988 and has a record of human rights abuses. The leader of the main opposition party, the Nobel Peace Prize laureate Aung San Suu Kyi, is under house arrest.

The opposition party in exile, saying foreign investment props up the regime, has called for a trade boycott. And several American companies, including Pepsico Inc. and Unocal Corp., have received shareholder resolutions asking them to end their operations in Burma, citing human rights violations.

But recently, the government began a dialogue with Ms. Suu Kyi and some Western governments and prospective aid donors have responded by toning down their disapproval of the ruling State Law and Order Restoration Council.

"They are at last making the right noises," says a diplomat from one of the four embassies - the United States, Australia, India and Britain - that the ruling council considers hostile.

Just as they flocked to Vietnam two years ago, foreign business executives are packing the few flights to Rangoon seeking ground-floor positions in a former British colony where a day's labor still costs just $1.

Rangoon is being transformed by the jackhammers of at least 20 construction projects, most of them new hotels funded by developers from Southeast Asia, such as the Malaysian-Chinese tycoon Robert Kuok. The Hong Kong-based investment bank Peregine, recently negotiated rights to develop Burma's fisheries and its Hong Kong office is being allowed to issue official visas to Burma - a remarkable status for an investment bank.

Burma is already festooned with messages from the consumer culture that characterize much of developing Asia. Advertising signs for Sony, Pepsi, Evian, Daewoo, Kodak, Benson & Hedges, Carlsberg and Tiger beer dot the Rangoon skyline.

Denied the most basic consumer items for decades, Burmese are flocking to local stores - lean-tos given a face- lift with handouts from the British cigarette company State Express, whose popular "555" brand used to pass as foreign currency before Burma's doors swung ajar.

With the hotels full of foreign businessmen paying $250 or more for state-owned rooms, Rangoon gives the impression that it is is a boom town.

But diplomats say it is a superficial boom. "This economy has been so run down and so denied of the most basic of consumer items that there is much slack in the system," says one.

"Once that slack is taken up - and we are almost there - it will just keep on hitting the roof until there is serious structural change from the old socialist systems."

Burma's problems begin with its currency, the kyat.

The contempt for the kyat is evident from the speed in which large sums of money are converted near immediately on receipt into gold, U.S. dollars and diamonds.

Burmese have bitter memories of the government's past monetary policies. On one occasion, citizens had just a few hours to dispose of one high- denomination note before possession of it was made illegal, punishable by jail sentence. Family fortunes were wiped out before the end of the day.

Currently, the official rate is six kyats to the dollar but on the black market a greenback will fetch anything from 100 to 160. The result is that the black economy is enormous - perhaps 10 times the size of the official economy.

The military and state companies import goods at the official rate, paying low kyats for goods and filtering them into the market at prices closer to the unofficial rate. The profit potential is obvious.

For example, a can of imported Seven-Up costs about 50 kyats in a shop, a cheap 40- odd cents at the black market rate but a stagerring $8 at the official rate.

Private traders get around the inequities by smuggling.

A small amount of product is brought in with an official import license at official dollar-kyat rates and is allowed to be distributed to shops.

The trader will then arrange for much larger amounts to be smuggled in, either across the Thai border from Bangkok or from fishing boats plying the unpoliced islands south of Rangoon.

It too goes on sale, impossible to distinguish from the legitimate item.

For instance, unbeknown to the Australian brewers, Foster's has reputedly become Rangoon's most popular beer, according to competitors trying to shift to another brew.

Despite the problems, people doing business here are confident that their investment will pay off, particularly if Mrs. Suu Kyi is released. Once that happens, says Neil Bird, an importer-exporter in Rangoon, "this place will take off. I am absolutely convinced of it."