Myanmar - Defense Spending

The ability of the Tatmadaw to draw upon alternative sources of revenue, outside the official military budget, contributes towards it operating without civilian oversight. Under the 2008 constitution, which is still in force, the military maintained its control over the country’s mining, oil and gas industries, thus ensuring a continuous flow of resources. This arrangement gave the Tatmadaw complete financial independence, and allowed it to easily resist any international and domestic calls for reform for years. A report by Amnesty International in 2020 revealed that Myanmar Economic Holdings Limited (MEHL) had netted $18bn between 1990 and 2010 through military-controlled businesses, which invested the majority of revenue back into the military’s budget. The Burmese military is associated with the Union of Myanmar Economic Holdings, Ltd. (UMEHL) and the Myanmar Economic Corporation (MEC), two large conglomerates with many commercial interests. By 2017, as government policies continued to allow for greater private sector involvement in the economy, the market shares of these conglomerates decreased.

Much of the funds generated through MEC and MEHL bypasses formal government channels, with indications that billions of USD in government revenue from the oil and gas, copper, jade, rubies, amber and forestry sectors remain unaccounted for.123 In the jade sector, in which MEHL and MEC are major players, investigations and analyses have found that jade worth tens of billions of USD is smuggled each year into China, while only a small fraction of jade is officially sold through the government-run Myanmar Gems Emporium and taxed.

Thanks to the report "Economic interests of the Myanmar military" issued 16 September 2019 by the United Nations’ Independent International Fact-Finding Mission, the international community now has a comprehensive list of the military’s businesses to consider for sanctions. The entities on the list—including two major holding companies: Myanmar Economic Holdings Limited (MEHL) and Myanmar Economic Corporation (MEC)—are owned or influenced by Burma’s military and use the ill-gotten gains from their business ventures to commit human rights violations.

Myanmar Economic Holding Limited (MEHL), formerly known as the Union of Myanmar Economic Holding Limited (UMEHL), was the first private company established in Myanmar following the 1988 military coup, during the rule of the military junta, first known as the State Law and Order Restoration Council (SLORC) and later the State Peace and Development Council (SPDC). MEHL has at least four declared objectives: the welfare of military personnel and their dependents, the welfare of war veterans and their dependents,99 the welfare of the general public, and contributing to the economic development of Myanmar.100 Since its establishment, MEHL has also served to secure control and generate profit for the Tatmadaw and its senior leadership. Today, MEHL is a holding company with businesses in various industries, including gem production, banking, tourism and transport. MEHL owns the Myawaddy Bank. Although little is known about MEHL’s corporate governance, the company’s Patron Group includes seven of the most senior members of the Tatmadaw.

Myanmar Economic Corporation (MEC) was established in 1997, with the declared objectives of contributing to Myanmar’s economy, fulfilling the needs of the Tatmadaw, reducing defence spending and ensuring the welfare of military personnel. Today, MEC is a holding company with businesses in the mining, manufacturing, and telecommunications sectors, as well as companies that supply natural resources to the Tatmadaw, and operate factories producing goods for use by the Tatmadaw. The MEC owns the Innwa Bank. MEC is reportedly fully owned and controlled by the Ministry of Defence and, as such, is a direct source of revenue for the military. According to reports, MEC is controlled by the Tatmadaw’s Quartermaster General’s Office. MEC also has a wholly owned private subsidiary, Myanmar Economic Corporation Limited (MEC Ltd).

The degree to which business revenues fund Tatmadaw institutions, military operations or enrich its leadership, is not disclosed. However, credible analysis indicates that the Tatmadaw and its officials have a vested interest in armed conflict and violence as a way of maintaining their ability to capitalize on the conflict driven resource economy.

The Tatmadaw’s ability to supplement its budget with alternative sources of revenue, outside the official military budget, is a clear vehicle for bypassing civilian oversight. The Tatmadaw’s official budget, which is subject to legislative approval and contributes to Tatmadaw salaries and procurement133, has been gradually reduced since 2015.134 While the amount of revenue that the Tatmadaw accrues from its economic activities remains unclear, it is indisputable that its holding companies and their subsidiaries and its relationships with State-owned enterprises and private businesses contribute to funding the Tatmadaw’s leadership and operations.

The cost of maintaining internal order in the face of endemic insurgencies has been very high, both in terms of the portion of the total central government expenditures that had to be devoted to national defense and in terms of national resources diverted from government control or left unexploited altogether. Certainly in human terms the expense of physical injury or loss of life and the psychological damage that fear and uncertainty have inflicted have been incalculable, producing especially heavy burdens for those living or fighting in disputed areas.

With the military's powerful voice in parliament, as of 2014 Myanmar spent 23.2 percent of its national budget on military spending, the highest in the region, in part to wage war against groups that reject the government's authority. The National Defense and Security Council, effectively governed by the army, sets the budget.

The government's firm commitment to a nonaligned foreign policy and its persistent refusal after the early 1950s to accept anything it construed as foreign military aid meant that qualitative equipment upgrading for the nascent forces had to be financed almost exclusively from the nation's own scarce national resources. This placed severe constraints on the armed forces development, for although the nearly constant anti-insurgency campaigns caused defense expenditures to account for over 30 percent of the total government budget in the 1950s and the 1960s, almost all defense outlays were taken up by current expenditures, leaving very little with which to make major, and sometimes even minor, equipment purchases.

Under these straitened circumstances, the armed forces were required to become very self-reliant, able to operate with little logistical support and under very spartan conditions. The ground forces, equipped mainly with light arms, developed into a smallunit, light infantry force, well suited to counter-insurgency campaigns. The navy and air force, by virtue of their small equipment inventories, functioned essentially as support elements for the army.

There was occasional relief from the stringent financial constraints that allowed for modest equipment upgrading, though not for a substantial improvement in overall capability. After the government reached agreement with a West German manufacturer in the late 1950s to establish a licensed production facility in Burma, scarce foreign currency no longer had tobe spent on light arms and ammunition, and these items were less frequently in short supply. In the same period, military hardware was purchased from Yugoslavia, Israel, and the United States, the last with foreign military sales credits.

Funds allocated to defense averaged 30 percent of government expenditures in many years, and in fiscal 1956 defense funds accounted for 35 percent of the total budget. The morale and prestige of the army improved over the years largely because of operational successes which reflected greater degree of combat effectiveness. However, poor training and lack of equipment continue to handicap the army. It had the capability gradually to reduce the insurgent menace, but could offer no serious resistance to a Chinese Communist invasion. The Burmese navy, with 29 miscellaneous small ships, was capable only of support operations in coastal and inland waters. The airforce of 86 aircraft (including 33 old piston fighters, 16 transports, and 8 jet trainers) provided fairly effective support to the ground forces in operations against insurgents. Despite the armed forces' leading role in the nation after 1962, conditions in the services continued to be straitened. They were eased only slightly by the nation's improved economic performance in the 1970s, which allowed for small increases to be allotted to defense, particularly for aircraft purchases. The air force also benefited from the government's 1974 bilateral cooperation agreement with the United States, under which helicopters and light transport planes were delivered to the Burmese government for use in narcotics control activities. Notwithstanding these limited improvements, the armed forces were still badly undercapitalized as of early 1983, and any change in that situation would probably necessitate a substantive shift in the government's attitude toward accepting foreign military assistance.

Although perennial insurgencies kept the military in the forefront of the national life since independence, the defense establishment had grown only slowly, and equipment had remained in very short supply -- even after active-duty and retired military officers assumed the dominant role in national decisionmaking. Defense expenditures accounted for over 30 percent of the total national budget from the mid-1950s until the early 1970s, and military spending grew steadily, but Burma was a very poor nation. Even so high a portion was generally sufficient to fund only current expenditures - if they were kept low - and very little was left over for equipment replacement or spares, not to mention modernization.

The situation changed little after the national budget began to expand significantly during the mid-1970s. Military expenditures continued to grow steadily in absolute terms-nearly doubling in size from K722 million in fiscal year 1974 to over KI.4 billion in FY 1981. When inflation was factored in, however, defense spending actually decreased in real terms in FY 1975 and FY 1976, then grew at a very uneven rate thereafter. Total government expenditures, on the other hand, increased at a much faster rate over the same period, causing the ratio of military spending to the total to fall from 27 percent in FY 1974 to 19.5 percent in FY 1981. While even the latter figure was a significant one, representing a sizable diversion of sorely needed resources from national development projects, it did not translate into significant sums compared with other nations of the world.

According to one researcher, Burma ranked 114 out of 141 world nations in terms of public expenditures per capita devoted to the military, and 129 out of 141 in terms of public expenditure: per soldier. The armed forces budget was divided into two categories: current expenditures for routine matters, such as pay and allowances, maintenance, and travel; and capital expenditures, generally used to purchase new equipment. Over the FY 1974-81 period, current expenditures accounted for between 85 and 92 percent of the total. Of the small amount left over, most was used to acquire spare parts for imported equipment.

Until 1988 Burma's defense equipment requirements were very modest. The government's emphasis on strategic independence and economic self-reliance, the poor performance of the economy after 1962, and the relatively modest demands of its counter-insurgency strategy all helped limit arms imports. When the SLORC assumed power, however, it immediately undertook a massive arms procurement program, raising defense capital equipment outlays to unprecedented heights. Increased emphasis was also given to indigenous arms production.

After 1988, when the military opened fire on pro-democracy protestors, the tatmadaw grew dramatically, turning the country into the formidable military state it is today. Most sources suggest that the regime spent at least 40% of its budget on the military.

In 1997, the Burmese military regime was in a financial crisis. Then the Yadana Project came online, and everything changed. By 2001, Thailand was importing about 570 million cubic feet of Yadana gas per day, at over $550 million for the year. Burmese army battalions are assigned the task of pipeline security. EarthRights International [ERI] has documented at least fourteen different infantry battalions that had regularly performed pipeline security duties: battalion nos. 25, 104, 273, 282, 401, 402, 403, 404, 405, 406, 407, 408, 409, and 410.

In 2006, the SPDC' s total budget was estimated at around $2.3 billion, making the military's share around $900 million. The Yadana Project, taking natural gas from the Andaman Sea through a pipeline in southern Burma to Thailand, is the single largest source of revenue for the junta. Between 1995 and 2005, the time period when profits from Yadana began flowing, Burma's estimated annual military expenditures increased dramatically.

Official publications reveal that almost one-quarter of Myanmar's national budget was allocated to defense. The Government Gazette reported that 1.8 trillion kyat (about $2 billion at free market rates of exchange), or 23.6% of the 2011 budget will go to the military.

The number of personnel in three branches of military (Army, Navy, and Air Force) increased from 190,000 in 1988 to 429,000 in 2001. Intelligence sources estimated that Burma spent between US$1.5 billion and US$2 billion to purchase arms from China alone in 1990s.

Adding to the hardships faced by Burma's ethnic minorities, the government's 1997 policy of making army units live off the land gaven soldiers free reign to extort money from villagers and force them to provide food and building materials, according to the U.S. State Department and Amnesty International. Burmese soldiers often extort money or seize food by levying arbitrary fees or taxes. Refugees from Mon State told Amnesty International in February 2001 that soldiers made them pay an unofficial "paddy tax" of a certain amount of their rice harvest. The refugees also told Amnesty's investigators that a local militia called the Pyi Thu Set, or People's Army, forced them to pay taxes, and, in some cases, provide labor. The militia is made up of civilians recruited and armed by local SPDC officials. The Burmese military has a large presence even in ethnic minority areas where no rebel groups are active, such as the large Karen areas of Irrawaddy Division in southern Burma, according to the State Department human rights report. Villagers in these areas face more military checkpoints, closer monitoring by military intelligence, and more demands for informal taxes than do residents in majority Burman areas also free of insurgency.

The SLORC's ambitious program to expand and modernize the armed forces resulted in a massive influx of arms and equipment from abroad. In theory at least, it also significantly improved the military's ability to conduct counter-insurgency campaigns and perform more conventional defense roles. This rapid expansion placed the armed forces under considerable strain, however, and emphasized the importance of greatly improved command, control and intelligence capabilities. The SLORC also needed to improve the military's training programs and its ability to support and maintain the new weapons systems. Given these deficiencies, it remained to be seen whether Burma's greatly expanded order of battle has been matched by a commensurate increase in its military capabilities.

In March 2013 Myanmar's military was granted a $2.4 billion annual budget, just over 12 percent of total government spending in the poverty-stricken country. They will invest about $1.25 billion buying aircraft, weapons, etc.. The total $2.4 billion approved by parliament was $100 million less than the previous year. Under the former military junta which ruled Myanmar for decades, the state budget was neither released publicly nor put up for scrutiny and oversight.