Free Myanmar's Long Road to National Reconciliation by Trevor Wilson Page A

monetization of the budget deficit in Burma is shown in Table 4.4 , as indicated by the Central Bank of Myanmar’s lending to the central government. Not only has this item been consistently growing since a supposedly pro-economic reform regime came to power in Burma, but it also dwarfs the financial resources elsewhere committed by Burma’s financial system (public and private) to the private sector.
    Table 4.5 juxtaposes the government’s “money-printing” with the inflation numbers that are one of its symptoms.
The Importance of Property Rights
     
    In recent decades, the necessity of establishing clearly-defined and enforceable property rights as a central pillar of an economic development strategy has come to be recognized by economists, development specialists, and policy-makers. Property rights have two critical elements. First, they grant to the individual owner exclusive entitlement to use their property as they see fit (subject to the proviso that this does not infringe on the rights of others), and to enjoy the fruits of this use. Second, they grant to the owner the right to dispose of, sell, or otherwise transfer those rights at will. 25 The first element provides the basis of the incentives to work, to produce, to save, to invest, and to conduct all those other activities that collectively provide the motor of the capitalist economy. The second element is just as important, since it provides the
means
through which capital can be created. Clearly-defined property rights — and their expression in formal legal documentation — have been the basis of collateralized lending for investment in the industrial world for two centuries. Hernando de Soto, the Peruvian economist who has done perhaps more than anyone else to underline the importance of this “second element” of property rights, described its capital-creating mechanism in his seminal book,
The Mystery of Capital,
thus:
     

     
In the West ... every parcel of land, every building, every piece of equipment or store of inventories is represented in a property document that is the visible sign of a vast hidden process that connects all these assets to the rest of the economy. Thanks to this representational process, assets can lead an invisible, parallel life alongside their material existence. They can be used as collateral for credit. The single most important source of funds for new businesses in the United States is a mortgage on the entrepreneur’s house. These assets can also provide a link to the owner’s credit history, an accountable address for the collection of debts and taxes, the basis for the creation of reliable and universal public utilities, and a foundation for the creation of securities (such as mortgage-backed bonds) that can then be rediscounted and sold in secondary markets. By this process the West injects life into assets and makes them generate capital. 26
     
    The “representational process” celebrated by de Soto above scarcely functions in Burma. As shall be examined below, it is implicitly undermined by events such as the 2003 banking crisis, during which the relationship between physical property and its abstract representation was severed in significant ways. But the representational process is also
explicitly
undermined in Burma. Various laws, but chiefly the
Land Nationalization Act
of 1945 (as amended 1953), have the effect of prohibiting the pledging of land as collateral. 27 Such laws, of course, negate the ability of entrepreneurs to raise capital in ways commonplace in the United States and elsewhere. Physical property in Burma is left purely in its “material existence” and is assuredly not a device, in conjunction with a properly functioning financial system, for the introduction of “life” into assets, or for self-replication into capital. 28
Property Rights in Burma’s Banking Collapse
     
    An inescapable conclusion from Burma’s banking crisis of 2003 is that the country’s relevant authorities