May 1, 2016

Myanmar - First Public Expenditure Review delves into state-spending

Myanmar's government has published its first ever Public Expenditure Review, which details recent ramp-ups in health and education spending and outlines a range of challenges to improving public spending.

The Ministry of Planning and Finance and World Bank Group presented the report, which analyses spending policies between 2009 and 2013, in Nay Pyi Taw yesterday.

It shows large changes in the Union budget’s composition in recent years. Between 2009 and 2015, general public services spending fell from 45 percent of the budget to 11pc, social services rose from 10pc to 33pc, and defence from 21pc to 33pc, the report said. Military spending still remains high and limits the “expansion of other public services”, according to the analysis.

Data from the Ministry of Defence indicates that military spending of 4.2pc of GDP was planned for 2013-14, which is well above the 2.3pc average for countries at the bottom of the middle-income range, the report said.

Defence also consumed the largest portion of government spending on goods and services between 2010-11 and 2013-14 and its consumption also grew faster than other sectors – although the report notes large gains were also made in health and education.

Government revenue between 2009 and 2014, meanwhile, rose from 6pc of GDP to 11pc – thanks to one-off measures like telecom licence sales and exchange rate devaluation, and a wider tax base. General government expenditure nearly doubled over the same period to 13pc of GDP, the report said.

The period under examination also covers a fundamental shift in government budget policy starting in 2011, as part of an effort to improve essential public services, according to the report, which focused on education and health spending.

U Kyaw Win, minister for planning and finance, told media yesterday that the new government will focus on improving education, health and social infrastructure. “We will try to meet people’s social and economic needs in order to reduce poverty in the country as much as possible,” he said.

Habib Rab, senior country economist for the World Bank in Myanmar said the review, which was finalised in September last year, had already informed budget policies including on health and education, as the World Bank shared chapters of it with the government even before June 2015.

The country has historically spent less on education as a share of GDP than its regional peers. Education spending fell to 0.7pc of GDP in the 2011-12 fiscal year, the report said. Although this rose from 1.6pc in 2012-13 to 2.1pc in 2013-14, the ASEAN ex-Myanmar average is 3.6pc.

Weak education spending has led to poor outcomes – only 460,000 out of 1.2 million students starting in grade 1 eventually make it to grade 11, and over one quarter of children at the end of grade 1 cannot read a single word, the report said.

Another result of low spending is that an unusually high share of total education financing in Myanmar has come from households – around 63pc, according to a one-off Integrated Household Living Conditions Survey carried out in 2009-10 by the United Nations Development Programme.

But public spending on education is rising fast, and quadrupled – from a low base – between 2011-12 and 2013-14, according to the report. As a result, starting in 2012-13 the Union government “has likely replaced” private households as the source of financing for education, although updated information on household spending will only become available as part of household survey data collected in 2015.

Measures to ease the burden on households included abolishing primary school fees in 2013-14 and secondary school fees in 2014-15. The government also started to provide free textbooks in 2014-15, and began improved stipend programs for the poor and disadvantaged in 2015-16, the report said.

Meanwhile, the increase in government spending has helped hire 79,000 more teachers, and the Union government has delegated some spending authority to district and township education officers and school heads through block grants.

But new initiatives will require more spending. Myanmar’s basic education system consists of only 11 years of schooling compared with 12 or 13 in the rest of ASEAN, the report said. Adding an extra year of pre-school would cost an extra K91 billion a year – a 12pc increase in the education budget – to hire the necessary teachers and build new kindergartens. Keeping 322,000 students in high schools for one more year would cost K58 billion a year, according to the review.

The volume of required spending is likely to be even higher if the government focuses on higher-quality education, which in turn is unlikely to be achieved without retraining teachers and equipping them with better textbooks and teacher guides, the report said. The Ministry of Education will have to grapple with delivering more despite a limited administrative budget, limited data to inform spending priorities and fledgling capacity to analyse the links between policy and budget priorities, the review concluded.

The report tells a similar story for health spending, which was only $1.6 per person in 2012, when out-of-pocket expenses accounted for almost 80pc of total health spending. This has resulted in some of the lowest health outcomes among ASEAN countries, but as with education, government spending has risen sharply.

Government spending in the health sector increased nine-fold in the five years between 2009-10 and 2013-14, the review said. Ministry of Health spending on programs with “public good” characteristics like nutrition, water and sanitation have risen.

Beginning in 2012-13, essential drugs and selected healthcare services were provided free of charge to children, pregnant mothers and patients needing emergency surgery under “certain circumstances in some facilities”.

The early signs are that these steps are reducing prohibitive out-of-pocket payments by households, said the review. The share of out-of-pocket payments fell from 82pc to an estimated 60pc over the same period as the nine-fold rise in government spending, the report said.

But a lack of data still makes policy making and monitoring difficult, and inefficient spending remains an issue, the review said. Even with the sharp increase in spending, the country is failing to meet health targets.

The fact that Myanmar is unlikely to hit Millennium Development Goals on child and maternal mortality suggests that it “may want to consider increasing significantly public funding of programs aimed at improving maternal and child health”, the report said.

U Maung Maung Win, permanent secretary at the planning and finance ministry, said the report will support the government’s efforts to distribute the budget for the benefit of the people.

“It will help us to make systematic reforms where necessary and to budget efficiently,” he told media at the report’s launch yesterday.

Mr Rab said Myanmar would not produce a public expenditure review every year, but that the Bank was due to start on a second review in July.

“We hope it [the inaugural review] triggers more regular analysis of spending policies,” he said, adding that the World Bank is encouraging the Ministry of Finance to make public a database of fiscal spending that it built specially for the review.

“You see a huge shift in the culture of budgeting and public finance management,” said Mr Rab.

“The budget changed from being an administrative tool to an instrument to prioritise and implement development policy.”

Htoo Thant and Steve Gilmore

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Apr 22, 2016

Singapore - Singapore taking action against companies responsible for haze, says Masagos Zulkifli

TEL AVIV - Singapore is taking action under the Transboundary Haze Pollution Act to go after companies that started fires or let their concessions burn, and contributed to last year's haze, Environment and Water Resources Minister Masagos Zulkifli has said.

It has issued notices to six of these Indonesia-based companies, asking them to explain what steps they are taking to put out and prevent fires on their land.

Two of them have replied. A director of one of the four firms that have yet to respond has also been served with a notice to provide information on what his company is doing to mitigate fires on its land and prevent a repeat.

"He has left, but he is required to return," Mr Masagos told reporters.

"Should he not return, he would have violated our laws and therefore, among others, we can arrest him upon entry later than the notice on which he is supposed to return," he added.

Mr Masagos declined to reveal the name of the director or his company, but said he can also be detained in Singapore if he does not give the information required.

"We must not let companies, corporations get away with their most egregious acts," he said.

Mr Masagos made these points when asked by Singapore reporters about comments by his Indonesian counterpart questioning what Singapore had done to combat forest fires.

Indonesia's Environment and Forestry Minister Siti Nurbaya Bakar had told environmental news site last week that her country had been attempting to prevent the recurrence of land and forest fires, and consistently enforcing the law.

"My question is - what has the Singaporean Government done? I feel that they should focus on their own role," she was cited saying.

Mr Masagos noted that Singapore has a good relationship with Indonesia on many fronts because both countries are working together.

But he said the haze was a complex issue that had to be tackled not just bilaterally, but also at the Asean and regional level.

For instance, Singapore led an Asean peatland management programme to raise awareness of what people can do to manage and restore peatland, on which most forest fires take place.

The National Environment Agency had served notice to Asia Pulp and Paper last year, asking for information on steps its subsidiaries and Indonesian suppliers are taking to put out fires in their concessions.

"We are now looking at them to see how we are going to move forward," Mr Masagos said.

But he would not be drawn into commenting on what actions could be taken against the companies, saying investigations are still ongoing.

"The message to everybody is: whether you are Singaporean, whether you are a foreigner, if you violate our laws, we will take the law to its full extent."

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Laos - Communist Laos appoints new president, prime minister

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Laos's National Assembly on Wednesday appointed Communist Party chief Bounnhang Vorachit as the country's new president and named foreign minister Thongloun Sisoulith as prime minister.

The picks are seen by many analysts as a continuation of the status quo in secretive Laos, where the communists have ruled since the end of the Vietnam War.

State television broadcast a meeting of the single-chamber National Assembly, at which lawmakers listed the virtues of Bounnhang, who was appointed Communist Party leader in January.

"The National Assembly has approved Bounnhang Vorachit as president, with more than two-thirds of the votes," said assembly chairwoman Pany Yathotou.

The 149-member assembly completed the process of nomination and voting for both candidates in around an hour.

In his acceptance speech, Bounnhang said he would strive for "peaceful international policies, unity, friendship and cooperation".

One of the fastest-growing economies in East Asia, landlocked Laos has averaged GDP growth of 7 percent over the past decade, with increasing use of natural resources contributing a third of output growth, the World Bank says.

This has boosted incomes and access to electricity, telecoms and healthcare for its mostly rural population of 6.7 million.

Laos has close political ties to communist Vietnam and mirrors its political system.

Communist neighbor China has been vying aggressively for influence in Laos, however, providing loans, aid and infrastructure investment.

Laos is still struggling to rid itself of the painful legacy of the Vietnam War, when it became the most heavily bombed country in history after the U.S. and its allies dropped about two million tons of ordnance from 1964 to 1973.

More than four decades on, the country grapples with millions of cluster munitions and other unexploded ordnance devices that kill and maim dozens each year.

(Writing by Amy Sawitta Lefevre; Editing by Clarence Fernandez)

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Apr 19, 2016

Cambodia - Commentary: Cambodia Goes for Governance Reform, Diplomatic Rebalancing

Jakarta. When Cambodia's Prime Minister Hun Sen carried out a sweeping reshuffle of his cabinet recently, he actually sent out two messages, one to his countrymen, the other to the world.

Look, he was telling his countrymen, I'm going after corruption in the bureaucracy with a hammer and tongs. For this I'm axing the ministers of agriculture, land management, rural affairs, transport, commerce, religion and foreign affairs.

Significantly the ministries of education and environment, led by reputed reformists, were untouched. Education Minister Hang Chuon Naron has cracked down on sleazy practices in schools, such as cheating in exams and the jacking up of grades. He has raised teachers' salaries so they have less reason for bilking pupils. Reform has a long way to go in the education sector but Naron has made a robust beginning.

For his part, Environment Minister Say Samal has done the unthinkable: the transfer of a large part of his ministry's powers to another ministry. Prime Minister Hun Sen has acceded to his proposal to shift control of the country's economic land concessions from the Ministry of Environment to the Ministry of Agriculture. Samal's ministry can now focus exclusively on conservation and the protection of what is left of Cambodia's forests.

Meanwhile a notable reformist, Chea Sophara, has taken over the corruption-riddled land management ministry. Cambodia today is in a maelstrom of disputes over land titles involving not only farmers but also members of rich families fighting over inheritances. Chea Sophara will have his hands full tidying up the mess.

The spur for reform is obvious: the government painfully needs to recover political ground lost to the opposition Cambodia National Rescue Party (CNRP). In the 2013 elections Hun Sen's Cambodian People's Party squeaked through to victory by the skin of its teeth. That was a rude awakening: the people were at the end of their patience with rife and rampant corruption and a widening gap between rich and poor.

Hun Sen must have also felt the people's displeasure with a foreign policy that was too China-oriented, to the detriment of Cambodia's ties with such powers as the United States, Japan and the European Union as well as with Association of Southeast Asian Nations (Asean) neighbors.

That's why Hor Namhong, the country's long-serving foreign minister had to go. It was he who infamously refused to issue a chairman's statement at the Asean Ministerial Meeting in Phnom Penh in July 2012 — all because Vietnam and the Philippines had insisted that the statement should reflect their concerns in the South China Sea.

Soon after that debacle I wrote a column comparing that meeting to a situation where ten foreign ministers sat in a room with two elephants. Nine of the 10 wanted to comment on the pachyderms but one, the chairman, wouldn't even glance at them.

One elephant in the room was the discussion of the foreign ministers on the standoff over the Scarborough Shoal — which the Philippines wanted reflected in the paragraph on the South China Sea. Weeks earlier there had been a standoff between Chinese and Philippine ships near that shoal, which both countries claim. It's not the standoff that the Philippines wanted mentioned, but the discussion.

The other elephant in the room was a reference to exclusive economic zones and continental shelves, proposed by Vietnam. Earlier, Vietnam had a spat with China over an area claimed by Vietnam by virtue of the Law of the Sea (Unclos) and by China by virtue of its nine-dash line.

The then-Indonesian foreign minister, Marty Natalegawa, supported by his Singaporean and Malaysian counterparts, tried heroically to cobble a paragraph that would be acceptable to all, but finally Hor Namhong decided to issue no statement at all. He argued that these issues, being bilateral, had no place in an Asean statement — never mind the long-established consensus that bilateral issues with regional repercussions, like the border dispute between Thailand and Cambodia itself, could be addressed at the regional level.

According to historian Donald E. Weatherbee, Chinese diplomats advised Hor Namhong behind the scenes. All observers deemed the washout a diplomatic coup by China at the expense of Asean. Prime Minister Hun Sen stoically shared the blame with his foreign minister.

Valiantly, then-foreign minister Marty Natalegawa launched a 36-hour shuttle and phone diplomacy that produced a joint statement on six basic principles — non-controversial and already long agreed upon — advocating peace in the South China Sea. But the harm had been done. Asean solidarity suffered a huge dent that neither Asean, nor Cambodia has been able to live down.

With the recent departure of Hor Namhong, however, and with the ascendancy of Prak Sodhon as foreign minister, a new era of a more enlightened diplomacy should dawn on Cambodia.

Prak Sodhon's foreign policy views are well known: under his guidance the country is expected to revert to a strong non-aligned stance. These early, Cambodian diplomats have borrowed former Indonesian foreign minister Marty Natalegawa's pet concept, "dynamic equilibrium," to depict the country's new foreign policy. This means that Cambodian diplomacy will "rebalance" so that it strengthens relations with the United States, Japan and the European Union, while maintaining a stable partnership with China. Since Cambodia isn't a South China Sea claimant, it will probably adopt Indonesia's neutralist, pro-Asean inclination.

Everything about that cabinet reshuffle augurs well for both Cambodia and Asean. Let's hope that Cambodia will sustain the spirit of reform and political pragmatism that triggered the shakeout. And that the "rebalancing" of its foreign policy will endure.

Jamil Maidan Flores

Jamil Maidan Flores is a Jakarta-based literary writer whose interests include philosophy and foreign policy. The views expressed here are his own. He may be contacted at

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ASEAN - Defaults, Autocrats No Barrier to $12 Billion Asean Bond Splurge

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A military regime delaying elections, haircuts for foreign investors using local courts and a prime minister fighting a financial scandal are among risks funds are looking past as they pile into Southeast Asian debt.

Foreigners have pumped $12 billion into Thai, Indonesian and Malaysian notes this year, more than twice as much as in 2015.

Thailand, where Prime Minister Prayuth Chan-Ocha hasn’t set a date for a vote two years after taking power in a coup, has lured the most inflows. Indonesia has reaped rewards from easing inflation, despite losses for foreign investors in two high-profile defaults. In Malaysia, a rebound in oil has offset concern over global probes into an investment company whose chief adviser is Prime Minister Najib Razak.

“Investors are taking the view that unless an event will completely derail a country’s reform process and undermine the economic growth outlook, it is not justified to reverse a long-term investment decision,” said Anders Faergemann, a London-based senior portfolio manager at PineBridge Investments, which oversees more than $84 billion. “This shows a new sophistication and understanding of domestic issues by foreign investors.”

Southeast Asia has benefited from the Federal Reserve’s go-slow approach to raising interest rates, a stabilization of China’s economy and a recovery in commodity prices. The International Monetary Fund last week maintained its growth forecasts for the big five Asean economies, while cutting global projections. The Asian Development Bank says the region’s expansion prospects and 600-million plus population make it the next “growth play.”

Thailand, Indonesia

Thai Prime Minister Prayuth had targeted holding an election in late 2015 but pushed that back to mid-2017. Thailand will hold a referendum on a new constitution in August after the junta rejected a draft charter in September. Many investors viewed the military coup as necessary to restore stability after a “precarious political situation,” said Faergemann.

Overseas investors bought a net $5.2 billion of baht sovereign and corporate securities this year, according to data from the Thai Bond Market Association. While the Bank of Thailand cut its benchmark rate twice last year, to 1.5 percent, economic growth hasn’t exceeded 3 percent, supporting the debt market as lenders park excess cash there.

Foreign funds have pumped a net $4.7 billion into Indonesian government securities in 2016, Finance Ministry figures show, as inflation below 5 percent allowed three interest-rate cuts in 2016. While flow data for company notes aren’t available, a JPMorgan Chase & Co. index of dollar-denominated corporate paper show the average yield has fallen 38 basis points this year to 5.5 percent.

Some bondholders of PT Trikomsel Oke said they were disappointed with an Indonesia court decision that rejected their claims after the phone retailer’s 2015 default. This month, a Jakarta judge excluded Standard Chartered Plc from a creditor list and raised questions about the validity of its claims to recoup a $1 billion loan made to coal miner PT Borneo Lumbung Energi & Metal, according to a Reuters report.

IMDB, Najib

Overseas investors bought a net $2.3 billion of Malaysian government and corporate notes in the first three months of this year, official data show. While local authorities cleared Prime Minister Najib this year over what they said was a $681 million donation from the Saudi Arabian royal family, regulators from Switzerland to Singapore are investigating allegations state-owned investment company 1Malaysia Development Bhd. was used to funnel money to individuals including the premier. Najib and IMDB have denied any wrongdoing.

1MDB’s dollar bond prices slumped on Monday to the lowest since November after an Abu Dhabi sovereign wealth fund said the company and the Malaysian finance ministry have defaulted on terms of a binding agreement including a payment of more than $1 billion. The notes traded at 83 cents on the dollar on Tuesday to yield 7.62 percent, compared with less than 6 percent last week, according to Bloomberg-compiled prices.

The dispute with the Abu Dhabi fund puts the progress of the state investment company’s debt restructuring efforts in doubt, Christian de Guzman, a Singapore-based senior analyst at Moody’s Investors Service, said on Tuesday in response to questions from Bloomberg.

1MDB sees an “amicable resolution” to the dispute, President Arul Kanda said Tuesday in an interview with Bloomberg Television. The Malaysian fund is in a ‘‘very stable position,” he said.

Around a fifth of Malaysian government revenue comes from sources related to oil, which has rebounded from a 12-year low. Demand has also been bolstered by 1MDB selling assets.

Supportive Environment

“The risk premia has reduced in 2016 as 1MDB monetized assets and risk sentiment turned for the better supported by a stabilization in the oil price,” said Jens Nystedt, a New York-based managing director at Morgan Stanley Investment Management, which oversees $406 billion.

Regional political considerations for Southeast Asian bonds have been factored in and the global environment is supportive, said Valentina Chen, a Zurich-based senior portfolio manager at Vontobel Asset Management, which oversaw $95.7 billion as of December 2015.

“As long as the Fed stays dovish and we don’t see any deterioration in emerging-market Asia fundamentals, we expect the inflows to continue,” she said.

Y-Sing Liau

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