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Viewing cable 04RANGOON770, BURMA'S BUDGETEERS WAVE MAGIC WAND

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Reference ID Created Released Classification Origin
04RANGOON770 2004-06-21 04:00 2011-08-25 00:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Rangoon
This record is a partial extract of the original cable. The full text of the original cable is not available.
UNCLAS SECTION 01 OF 02 RANGOON 000770 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR EAP/BCLTV, EB 
COMMERCE FOR ITA JEAN KELLY 
TREASURY FOR OASIA JEFF NEIL 
USPACOM FOR FPA 
 
E.O. 12958: N/A 
TAGS: EFIN ECON PGOV BM
SUBJECT: BURMA'S BUDGETEERS WAVE MAGIC WAND 
 
REF: A. RANGOON 764 
 
     B. RANGOON 223 
     C. 03 RANGOON 1316 
 
1. (SBU) SUMMARY: BURMA'S FY 2004-05 STATE BUDGET MAGICALLY 
APPEARED IN LATE APRIL, SPORTING FIGURES AND PREDICTIONS FROM 
UNKNOWN SOURCES.  UNSURPRISINGLY, THE MILITARY GETS A BOOST, 
BUT SO DO HEALTH AND EDUCATION.  THE INITIAL TAKE CALLS FOR A 
REDUCED DEFICIT DUE TO INCREASED TAX RECEIPTS AND AN IMPROVED 
STATE-OWNED SECTOR.  HOWEVER, THERE IS NO OBVIOUS 
JUSTIFICATION FOR THIS OPTIMISM, SO WE EXPECT LITTLE 
IMPROVEMENT TO THE GOB'S BOTTOM LINE THIS FISCAL YEAR.  END 
SUMMARY. 
 
PICK A NUMBER, ANY NUMBER 
 
2. (SBU) AS IF BY MAGIC, THE GOB MADE APPEAR, IN A MUSTY 
CORNER OF THE APRIL EDITION OF ITS MONTHLY BURMESE LANGUAGE 
GAZETTE, ITS FY 2004-05 (APRIL-MARCH) BUDGET.  THE BUDGET HAS 
NOT BEEN PUBLISHED IN THE NEWSPAPER OR FOR WIDE PUBLIC 
DISTRIBUTION SINCE 2001.  THE NUMBERS ARE PURE HYPOTHESIS, 
ESTABLISHED IN AN OPAQUE PROCESS INVOLVING THE VARIOUS 
MINISTRIES AND THE TOP SPDC BRASS.  AS THERE IS NO 
PARLIAMENTARY OR OTHER OVERSIGHT OVER GOVERNMENT SPENDING, 
THE BUDGET FIGURES ARE ALSO MERELY GUIDELINES, AUGMENTED BY 
AN ANNUAL SUPPLEMENTARY BUDGET THAT IS ONLY REVEALED 
POST-FACTO AT THE END OF THE FISCAL YEAR.  IN FY 2003-04, THE 
GOB GRANTED ITSELF A SUPPLEMENTARY BUDGET THAT INCREASED 
ADMITTED EXPENDITURES 34 PERCENT AND BALLOONED THE BUDGET 
DEFICIT 382 PERCENT FROM INITIAL ESTIMATES. 
 
3. (SBU) THE BUDGET NUMBERS, EVEN INCLUDING THE SUPPLEMENT, 
ARE OFTEN UNDERSTATED.  MUCH GOVERNMENT SPENDING, 
PARTICULARLY ON THE MILITARY SIDE, OCCURS OFF THE BOOKS. 
LIKEWISE, SIGNIFICANT NON-TAX GOVERNMENT REVENUE IS NOT 
REPORTED BY REGIONAL MILITARY AND CIVIL OFFICIALS WHO PREFER 
TO KEEP IT FOR THEMSELVES RATHER THAN TURN IT IN TO THE 
CENTRAL FUND.  ANOTHER PROBLEM IS THAT THE BUDGET REPORT DOES 
NOT INDICATE AT WHAT EXCHANGE RATE THE NUMBERS, IN KYAT, ARE 
CALCULATED.  WE ASSUME A 6 KYAT/$ RATE (THE OFFICIAL GOB 
RATE), THOUGH OTHER RATES ARE POSSIBLE FOR CERTAIN REVENUES 
AND EXPENDITURES.  FOR EXAMPLE, UNTIL JUNE 15TH, CUSTOMS 
REVENUE WAS CONVERTED AT THE 100 KYAT/$ RATE (REF A). 
 
4. (SBU) MORE INTERESTING THAN THE QUESTIONABLE FIGURES, 
THEREFORE, ARE THE TRENDS AND BUDGETARY PRIORITIES AND THE 
FORECASTED BUDGET DEFICIT OR SURPLUS.  IN THE PAST, THIS 
LATTER FIGURE HAS BEEN AN IMPORTANT INDICATOR OF INFLATION -- 
SINCE THE GOB ALMOST ALWAYS PRINTS MONEY TO FINANCE ITS 
BUDGET SHORTFALLS. 
 
MAKING SOCIAL SPENDING DISAPPEAR 
 
5. (SBU) OVERALL, THE GOB EXPECTS EXPENDITURES TO DIP 4.3 
PERCENT FROM THE TOTAL FY 2003-04 FIGURE (INCLUDING THE 
SUPPLEMENTARY APPROPRIATION).  THE SINGLE LARGEST LINE ITEM 
IN THE FY 2004-05 BUDGET IS FOR THE DEFENSE MINISTRY, WITH 
NEARLY 10 PERCENT OF THE PROJECTED EXPENDITURES.  DEFENSE'S 
BUDGET IS UP 54 PERCENT FROM LAST YEAR'S INITIAL FIGURE AND, 
AS MENTIONED, IS LIKELY FAR BELOW THE ACTUAL AMOUNT SPENT ON 
MILITARY AFFAIRS.  IT IS ALSO LIKELY ONLY A STARTING POINT. 
IN FY 2003-04 THE SUPPLEMENTARY BUDGET ADDED A GENEROUS 57 
PERCENT TO THE AMOUNT INITIALLY BUDGETED FOR THE MINISTRY. 
 
6. (SBU) SOCIAL SPENDING DOES NOT FARE AS WELL.  THOUGH THE 
GOB IS EARMARKING NEARLY 6 PERCENT OF THE BUDGET FOR THE 
MINISTRY OF EDUCATION, THE MINISTRY OF HEALTH WILL ONLY GET 
1.5 PERCENT OF EXPENDITURES -- THOUGH THIS IS UP 108 PERCENT 
FROM ITS FY 2003-04 INITIAL ALLOTMENT.  THE HEALTH NUMBER IS 
ALSO UNDERSTATED AS SEVERAL OTHER MINISTRIES CONTRIBUTE TO 
THE OVERALL HEALTH SPENDING PICTURE. 
 
7. (SBU) OTHER PRIORITIES FOR 2004-05 ARE: FINANCE AND 
REVENUE (5.5 PERCENT OF THE BUDGET), CONSTRUCTION (4.6 
PERCENT), AND AGRICULTURE AND IRRIGATION (3.8 PERCENT). 
 
STATE-OWNED FIRMS: FROGS TO PRINCES? 
 
8. (SBU) OPTIMISTICALLY, THE GOB HAS PROJECTED FY 2004-05 
REVENUES TO JUMP 31.5 PERCENT, LED BY AN EXPECTED 73 PERCENT 
INCREASE IN TOTAL TAX RECEIPTS AND 31.5 PERCENT INCREASE IN 
REVENUES FROM DOZENS OF ANTIQUATED STATE-OWNED ENTERPRISES 
(SOES).  THE BUDGET ALSO CALLS FOR A 9.5 PERCENT DECLINE IN 
EXPENDITURES FOR THE SOES.  HOWEVER, THESE PROJECTED DECLINES 
OFTEN TURN INTO INCREASES OVER THE COURSE OF THE YEAR AS THE 
COMPANIES CONTINUE TO HEMORRHAGE MONEY.  IN FY 2003-04 THE 
SOES RECEIVED A 44 PERCENT BONUS IN THE SUPPLEMENTARY 
APPROPRIATION PROCESS.  LIKEWISE WE ARE DUBIOUS THAT THE GOB 
WILL BE ABLE TO MILK ANOTHER 73 PERCENT FROM A ESSENTIALLY 
NON-EXISTENT TAX COLLECTION SYSTEM. 
9. (SBU) THE BUDGET ENVISIONS AN ANNUAL DEFICIT THAT IS 52 
PERCENT DOWN FROM LAST YEAR'S POST-SUPPLEMENT DEFICIT. 
HOWEVER, THE PROJECTED DEFICIT IS 132 PERCENT LARGER THAN THE 
INITIAL FY 2003-04 PROJECTED DEFICIT.  THE ROSY 2004-05 
PREDICTION IS BASED ON THE HUGE REVENUE ENHANCEMENTS 
MENTIONED ABOVE PLUS A PROJECTED 67 PERCENT DECLINE IN THE 
SOES OVERALL OPERATING DEFICIT -- WHICH MADE UP 58 PERCENT OF 
THE '03-'04 TOTAL DEFICIT POST SUPPLEMENT. 
 
10. (SBU) LIKE THE EXPECTED REVENUE INCREASES, IF PAST IS 
PROLOGUE WE THINK THE EXPECTED SOE IMPROVEMENTS ARE ALSO 
WISHFUL THINKING.  IF THE COMPANIES GET THE SAME 44 PERCENT 
BOOST FROM THE FY 2004-05 SUPPLEMENTARY APPROPRIATION THAT 
THEY DID FROM THE FY 2003-04 ONE, THE SOES' DEFICIT WOULD 
RISE 29 PERCENT COMPARED THE FY 2003-04 DEFICIT. 
 
COMMENT: BUDGETARY PRESTIDIGITATION 
 
11. (SBU) BECAUSE THERE IS NO COMMENTARY PRESENTED ALONG WITH 
THE BUDGET NUMBERS, AND THE FIGURES GIVEN ARE SO FLEXIBLE, IT 
IS HARD TO MAKE FIRM PREDICTIONS ABOUT THE FUTURE OF BURMA'S 
DOMESTIC FINANCES.  HOWEVER, WE WOULD BE SURPRISED IF THE 
BUDGETARY SITUATION IMPROVED MUCH THIS YEAR.  THERE IS NO 
SIGN THAT THE REGIME INTENDS TO REFORM ITS TAXATION SYSTEM 
AND ITS HALF-HEARTED REVENUE ENHANCEMENT PLANS TO DATE ARE 
EASILY DEFEATED BY THE HUGE UNTAXED INFORMAL ECONOMY 
(REFTELS).  LIKEWISE, WE'VE SEEN NO EVIDENCE OF ANY 
PRIVATIZATION OR OTHER RATIONALIZATION OF THE STATE-OWNED 
SECTOR THAT WOULD ACCOUNT FOR THE EXPECTED IMPROVEMENT IN ITS 
COLLECTIVE BOTTOM LINE.  END COMMENT. 
MARTINEZ