Transitions

Burma's workers push back

As I write this, about 2,000 Burmese workers in a town on the outskirts of Rangoon are continuing a strike at the Chinese-owned Tai Yi slipper factory. (The photo above shows a worker at a garment factory in Rangoon.)

"This could be the biggest labor strike since oil workers went on strike and marched in protest against the Burma Oil Company and British colonial rule in 1938," Phoe Phyu, a young lawyer who represents the workers, told me earlier this week. "More than 90 percent of the workers joined the strike."

The walkout started on Feb. 6, when the company refused to pay five days of wages that it had deducted for a holiday to mark the Chinese New Year, which is not officially recognized in Burma.

An industrial worker in Burma earns about $50 to 60 per month. All workers have to work overtime, and draw on hard-to-get performance bonuses to make around 60,000 to 70,000 kyat ($75 to $87.50) a month.

The workers from Tai Yi factory are now demanding a 100 percent hike in their hourly wages from 75 kyat (less than 10 cents) to 150 kyat ($0.18) and an increase in their monthly bonuses from 6,000 kyat ($7.50) to 8,000 kyat ($10). After a series of negotiations between the owner, government officials, and the workers' representatives, the company only agreed to raise the hourly wages by 25 kyat ($0.03). This incredibly low-wage situation for ordinary workers shows that poverty is deepening and inequality is widening in a country where you have to pay a minimum of $625 minimum for mobile phone service. The workers turned down the company's offer.

Meanwhile, the company is trying to get the workers to knuckle under through a variety of threats, including reducing the supply of water to the dormitory where they live. The Tai Yi case was submitted to the government's Trade Dispute Committee late last week for arbitration. But Phoe Phyu has few hopes for a positive outcome.

"As my past experiences have showed, the regime's Labor Ministry has not given any support to the workers," he told me. "The chance that the strikers will win a fair settlement is very slim."

Although there have been some labor protests in Burma's industrial towns over the past few years, the current strike is significant not just because it's the largest one to take place in the country for several decades, but also because it's taking place in the context of a new law introduced last year by the government. The law legalizes labor unions but stipulates that they have to have the approval of the official Labor Union Federation if they want to stage a strike. And since the government has not allowed any labor unions to register under the new law, the individual workers are technically not entitled to stage a strike.

"The law prohibits continuing a strike once the case has been submitted to the Trade Dispute Committee," female strike leader Moe Wai told me on the phone. "Even though the law does not protect us, we've vowed that we'll go on fighting for our basic rights."

So far the government has avoided using force against the workers, since it can't do so without contradicting the rhetoric of reform that it has been using to buff up its image at home and abroad. The workers are also receiving growing support from members of the general public, who have been providing them with water and food. The activists are using that support to push the limits of what is allowed by the powers-that-be. Political scientist Kevin O'Brien has dubbed this approach "rightful resistance," his name for action that "operates near the boundary of authorized channels." This is exactly what we are now seeing in Burma.

Rightful resistance also emboldens activists like Phoe Phyu, who has represented political prisoners, farmers, workers, and the poor in hundreds of legal cases. It helps him to leverage the reform rhetoric of the government for the sake of his causes.

Phoe Phyu, who has been detained three times for his advocacy work (including a year spent in prison starting in 2009), is feeling the wind in his sails. "Earlier, when I was a trouble-making lawyer, I didn't get much help," he says. "Now a growing number of my colleagues in the legal community are supporting me."

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Imagining a post-Chavez economy

Say "macroeconomic adjustment" and Venezuelans immediately think back to 1989. That year, an IMF-inspired shock therapy program pushed through by President Carlos Andrés Pérez set-off serious rioting throughout the country, costing hundreds of lives and undermining governability for years to come. The memory of the traumatic events that followed sharp devaluation, fuel subsidy cuts and the end of price controls still colors policy discussions today.

As this fall's presidential election draws near, Venezuela's opposition is thinking through its macroeconomic approach to transition. At first blush, the parallels are jarring. Just as in 1988, the country faces a fixed, severely overvalued exchange rate, a structural budget deficit fed by a sprawling, loss-making state-owned enterprise sector, rigid price controls, and ruinous gasoline subsidies. It's enough to give any Venezuelan macro-economist the heebie-jeebies. So is the country is on the verge of another massively disruptive adjustment experience?

Not at all, for two reasons: the economic fundamentals of 2012 are nothing like those of1988, and the opposition's presidential candidate this year, Henrique Capriles, is nothing like Carlos Andrés Pérez.

Barring an unexpected collapse in oil prices, Venezuela will face next year's adjustment from a far stronger position than it enjoyed twenty-three years ago. It's one thing for an oil exporter to undertake structural adjustment with oil trading at $16.60 a barrel (as it did back then), and quite another to do it with a barrel selling for $110 today, with masses of petrodollars flowing into state coffers daily. While the incoming government in 1989 found the cupboard almost completely bare, Venezuela's net foreign asset position is now estimated at $72 billion. And Venezuelan economist Miguel Angel Santos stresses another key difference between then and now: private sector firms had been accumulating dollar-denominated debt fast in the years leading up to 1989, which amplified the impact of adjustment on the real economy. In recent years, by contrast, Venezuelan private firms have been deleveraging abroad.

Starting conditions are different, then, but so is the approach of adjustment advocates. Opposition Unity candidate Henrique Capriles rejects shock therapy and is committed to a gradual approach that could make 2012's experience -- dare one say it? -- nearly painless.

Here's how:

The first order of business will be unwinding Chávez's foreign exchange controls, fixed at a massively over-valued 4.30 bolivars per dollar, a rate available only for priority imports of food, medicine, and public procurement goods, all under tight bureaucratic supervision. In practice, the supply of dollars at this lower rate has been contracting for years, pushing more and more importers into higher rate (or openly illegal) ways of obtaining hard currency.

One way to cut this Gordian knot would be to combine a more transparent and prudent approach to public spending with a switch from the current pegged (i.e. fixed) exchange rate to what economists call a "crawling peg. This would allow the government to gradually devalue the bolivar on the official market. At the same time, though, the government would make it legal for those without priority needs to buy foreign currency on a second, more open market, to allow market forces some scope to settle the bolivar's value.

This "dual exchange rate strategy" is Alejandro Grisanti's preferred approach. The Barclays Capital economist and key advisor to opposition candidate Henrique Capriles foresees an initial spike in the parallel market rate, as some of the demand for foreign exchange that has built up over the last decade is met. If this initial spike threatens to cause serious economic dislocation as Venezuelans' resort to panic-buying, however, the new government could compromise, putting a floor on how far the free-market bolivar could fall. The downside, of course, is that it would, at least at first, leave part of the pent-up demand for dollars unmet.

Eventually, one would expect the free rate to stabilize, rising slowly in response to market forces. Indeed, this parallel market rate would likely face the same pressures towards appreciation that now face so many countries that depend on commodity exports (in this case, oil) to earn foreign exchange. The likely tendency, in the medium term, would be towards convergence between the depreciating official rate and an appreciating free market rate. In time, the two would meet, spelling the end for exchange controls -- imaginably in the not-too-distant future.

This wouldn't necessarily mean an end of government intervention in the currency market, however. "In a country where the government supplies 95 percent of the dollars in the currency market," Grisanti says, "there's no such thing as a clean float."

The challenge -- again, assuming oil prices hold up -- would rather be the opposite: ensuring the competitiveness of the exchange rate by keeping a portion of petrodollars outside the bolivar economy. For Grisanti, that old bugbear of petro-exporters -- Dutch Disease -- is a much bigger threat to Venezuela's economy in the medium term than the sharp, adjustment-induced devaluation Venezuelans fear so much.

This is not, it should be stressed, a consensus view. Economist Omar Zambrano sees appreciation as an inevitable outcome of normal exchange market operations in a natural resource rich Latin American economy, whether it's Venezuela or Chile or Peru. In his view, appreciation need not prevent the growth of other export-oriented industries, provided the business climate was improved through deregulation.

Zambrano focuses instead on the political attractions of currency appreciation. By transferring purchasing power directly into consumers' pockets, an appreciated currency could be a powerful force for maintaining political stability in what is sure to be a politically dicey transition. Moreover, Venezuela's tradable goods sector, which would normally rise up to oppose such a policy, has been so decimated by 13 years of Bolivarian socialism that what little remains of it could hardly mount a strong political challenge to such a policy.

For a Capriles administration coming into power with a strong focus on job creation, allowing runaway appreciation to ensure short-term governability would look short-sighted. By gradually -- but preferably quickly -- phasing out currency controls and then seeking to balance exchange rate competitiveness with an effort to bring inflation under control through fiscal discipline, an incoming Capriles government could begin to clear the mass of economic imbalances of the Chávez era in an orderly manner.

If anything, the lessons of 1989 have been over-learned, building a strong bias against exchange-rate reforms into Venezuela's policy debate. But 2012 is not 1988, and together with favorable external circumstances (triple-digit oil prices), Capriles's commitment to gradualism should be able to accomplish adjustment without the costly dislocations that accompanied an earlier vintage of reform.

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