Today I (TP) attended a talk that you could not easily find in the U.S.: a presentation on Burma’s macroeconomy and how it works, by an economist at Macquarie University. Poor Burma has a horrible economy. But for me, the striking thing about any research on Burma is always how hard it is to find good information about the country, even for people who speak Burmese and who do research there. Today, the presentation highlighted the fact that Burma’s government produces national statistics that are obviously false.
Now, it is common to complain about the statistics produced by all countries’ governments. But examples of out-and-out fabrication of national economic statistics are comparatively rare. In most cases, people who complain about fabricated economic data either (a) do not understand what the statistics mean, (b) don’t understand how the statistics are calculated, and or (c) disagree with the conclusions that the data suggest. To take one case, it is fairly common now for certain types of people to complain that someone in the U.S. government is cooking the core inflation data. The reasons are probably that they want there to be high inflation (so they can blame it on the president) and they don’t understand that inflation is not the same as loose monetary policy or high gas prices.
In Burma, though, economic data are transparently false. For example, the Burmese government reports that Burma’s economy has grown by about 12% per year on average (in real terms) for the past decade. If that were true then Burma, not China, would be the world’s fastest growing economy. In reality, the economy has probably grown about 3% per year, which is OK for a rich country but extra bad for a poor country like Burma.
The question that interests me is not why the Burmese government lies with statistics, but how it lies. When you think about it, it’s not hard at all to tell that the figures are false. Data on the components of GDP seem accurate, but there’s no way that a country that reports that 50% of its GDP is in agriculture and that it has no noticeable increase in energy use has been growing so rapidly for so long. But the problem is, since it’s not hard to figure this out, how could they be cooking the books?
One possibility is that they are just making up numbers. It’s possible, but this raises the question (to me at least) of why bother fabricated data that everyone knows is fabricated. Remember, no one is fooled by the government’s figures. An interesting alternative is that it comes down to inflation rates. When you calculate GDP, you calculate it in nominal terms and then apply a correction to adjust for yearly inflation. If you are the Burmese government, though, you persistently underestimate inflation. They do this because inflation is a signal of some pretty rotten stuff going on in terms of the government using the printing presses to finance its own consumption. So you claim that inflation (which is hard to measure anyway) is a lot lower than it is. The consequence is that Burma has nominal GDP growth, but is unwilling to correct properly for price changes. That will mean that its official figures will dramatically overstate real GDP growth.
Exchange rates are also interesting. The Burmese government officially says that you trade 6 kyat to the U.S. dollar (more or less). But in reality, the market says that the rate is around 900 kyat to the dollar. This means that when government-owned enterprises report their profits (much of which are in U.S. dollars for things like natural gas exports), they are only required to submit 6/900 = .67% (less than a penny on the dollar) of it to the government’s accounts. The rest can be used as slush money.
If this all sounds pretty close to money laundering, it is. But it’s always more interesting to me to figure out how one launders money than simply to observe that it’s being laundered.