Burma Graft Probe a Test of Reforms

A high-level corruption probe in the telecom sector is a gauge of the government's seriousness in adopting reforms.
An analysis by Parameswaran Ponnudurai
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A Burmese woman talks on her mobile phone as she walks past a fashion store in Rangoon, Sept. 25, 2010.

It's no secret that the Ministry of Posts and Telecommunications is one of the most corrupt institutions in Burma. If it weren't, a mobile phone SIM card would not cost around U.S. $250, compared to just U.S $1.50 in some neighboring countries.

So when President Thein Sein sent investigators to look into high-level corruption in the ministry this week and placed the newly-resigned minister Thein Tun under house arrest—the president's first major effort to stem graft since coming to power nearly two years ago—there was little surprise in the telecom sector.

But analysts say Thein Sein's action to flush out the corruption in the lucrative sector will be a key test of an anti-graft campaign that he officially launched in December, calling it the third and vital step of his reform agenda following initial changes on the political and economic fronts.

"It is a great move but he has a very long way to go," said Priscilla Clapp, a former U.S. chargé d'affaires to Burma when it was under military rule. "We'll see whether he starts digging into other areas and I know many other areas where corruption is just endemic."

She said it is encouraging that Thein Sein is giving priority to tackling graft in the telecom sector at the same time as the government is trying to completely reform the industry, including inviting investment proposals from local and foreign companies for nationwide telecommunications services.

Clapp calls the exorbitant cost of SIM cards in Burma a "racket," saying that "cronies in that business are participating in that racket too, so eventually the president needs to investigate them."

Sources say that the high cost of the SIM cards—in fact they used to cost around U.S. $500 a few years ago—stems from the monopoly held by the Ministry of Posts and Telecommunications.

It fuels cronyism and kickbacks that need to be paid at each step of a business deal, jacking up costs that make phone ownership a luxury for the average Burmese citizen, the sources said.

'Crony capitalists'

Burma is one of the world's most corrupt countries, ranking 172nd out of 176 based on a survey by anti-corruption group Transparency International. More than 90 percent of Burma's 60 million people don't own a mobile phone and only 1 percent have fixed telephone lines.

"It is very obvious that the telecom industry in Burma is controlled by the crony capitalists and Chinese investors with the help of the ministry's officials, and that is why prices are unbelievably high," said Aung Din, a U.S.-based Burmese pro-democracy activist and former political prisoner under the military junta's brutal rule.

China is Burma's largest investor and at least two Chinese telecom companies, Huawei and ZTE, have a significant market share of the mobile phone market. Eleven other companies are believed to be working with the ministry to expand access to mobile phones in Burma.

"If President Thein Sein is serious in wanting to weed out corruption, the price for owning cell phones and Internet services should be lowered and be affordable to the man on the street," Aung Din said. "To do that he has to move swiftly against the corrupt in the administration and crony capitalists relying on them."

Aung Din singled out a local telecom company Redlink belonging to Toe Naing Mann, the son of the Speaker of the lower house of parliament Shwe Mann as among those with a big market share and which he felt should be investigated in the anti-graft campaign.

"They control the market which means there is corruption based on the current system," he said.

Toe Naing Mann is also the son-in-law of Khin Shwe, a legislator in the upper house of parliament whose Zaygabar group of companies is still subject to individual U.S. sanctions.

"That's why I don't know whether Thein Sein can take significant action against people such as Thein Tun and also his related business partners like Toe Naing Mann, who is very powerful," Aung Din said.

Stark contrast

The wide publicity revolving around the anti-corruption probe involving Thein Tun and 50 other officials in the Ministry of Posts and Telecommunications is a stark contrast to the purging of officials on charges of corruption under the previous military junta.

"What's new is that it is being done publicly. It was always hush hush, private internal military purgings before, but the fact remains that the old guard of the military leadership was deeply corrupt because they had the most access to the economic means to be corrupt," Clapp said.

Thein Sein will not be able to spur economic growth until he gets corruption under control, she said.

"It is a proven fact around the world that corruption impedes economic development, it creates enormous transaction costs," she said, citing Burma's loss of competitive edge in the global rice market as an example.

Once the world’s top rice exporter, Burma became Southeast Asia's poorest nation after five decades of military dictatorship.

"Corruption is one reason why rice from Burma is not competitive on the international market—because the transaction costs between the farmer who produces the rice and the exporter who exports it are very, very high," Clapp said.

"There are all kinds of government agencies, ministries, and organizations that get involved in moving the rice from the farmer to the market, and they take a cut, and that cut gets added on to the price of rice. It becomes so expensive that it has to be subsidized in the end."


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