Monday, June 16, 2008

Strange world of post-Nargis numbers

At the ASEAN-UN International Pledging Conference in Rangoon on 25/5/08, the regime presented this assessment of damages and reconstruction costs:

which has, apparently, been accepted at face value by ASEAN.

This is strange as there are a number of peculiar aspects to this report, not least of which the astonishing accuracy with which it was possible to count lamp posts, chickens etc while not being able to provide relief for the cyclone victims.

Specifically, consider the following:

This shows a breakdown of the claimed damage to buildings in the State and 'private' industrial sectors (where categories overlap). The first tables show the raw numbers extracted from the report, with percentages of total buildings affected in the margins. The extra numbers next to the 'private table' show the ratios of private shares to State shares (e.g. the 9.17 is the 17.6% of private buildings collapsed divided by the 1.9% for State buildings and so on). The second set of tables show the breakdown of damage type by building type. The set of numbers next to the private table here is the set of ratios of private/State cell values. The final set of tables shows the breakdown of building type by damage type. The set of numbers next to the private table has the same interpretation as above.

What is immediately obvious is the extreme non-uniformity of the pattern of destruction. Apparently Nature is no respecter of persons, but she is a respecter of ownership status. Although affected 'private' factories outnumber State-owned factories by around 4:1, over 50 times as many private factories were destroyed by cyclone Nargis as were state-owned ones! For workshops the numbers show around 10:1 private:State-owned, but the private destruction factor is a whopping 124 times the size - the private workshop numbers are somewhat strange as around 80% of those damaged fall into the 'other' category, which means not destroyed, generically damaged or 'roof-toppled'. Any guidance on what that actually means/could mean would be welcome! In the case of warehouses, despite there being less private warehouses affected, the collapsed ratio is still of the order of 12:1. State-owned factories and workshops appear to have been disproportionately affected by generic 'damage' compared to private equivalents, but State-owned warehouses escaped that fate, being much more susceptible to roof-toppling, but to the same extent as State-owned workshops.

Overall it is hard to recognise this as the effect of a large-scale destructive force. Certainly some natural disasters such as fires can be almost bizarrely selective on a small (e.g. street by street) scale, but it is reasonable to expect that a catastrophe on the scale of Nargis would produce an approximately uniform pattern of destruction with respect to building types. A wildly disproportionate pattern like the one reported (with regard to an essentially irrelevant dimension such as ownership status) is as surprising on the surface as would be the finding that the flu epidemic of 1918 was disproportionately lethal to left-handed people, or redheads, or people born in the Year of the Monkey. In other words, it's the kind of thing that doesn't appear to make sense.

Perhaps the explanation is geographical. Perhaps somehow the State-owned buildings just happened to be concentrated on the periphery of the affect area (whatever that means in relation to Nargis) while the private buildings bore the brunt. That is prima facie less than credible, and in any case does not explain the other patterns of non-collapse damage. Perhaps the State has in the past appropriated the best materials when constructing buildings, thus leading to inherently superior structural characteristics (except for roofs in some cases). Perhaps the numbers have been cooked, with the numbers inflated on the private side to avoid the impression that the world was being asked to pay directly for the SPDC to rebuild its own structures. And perhaps the numbers were made up, with little attention paid to details like internal consistency or whether they could withstand even basic comparisons with commonsense. After all, their primary purpose is to get the rest of the world to get their chequebooks out, and ASEAN for one is quite used to putting their telescope to its blind eye when the crimes of the SPDC hove into view.

Turning to another curious aspect of the claim, consider this:

This sheet compares the kyat values attributed to various components of the overall damage (and thus the amount of reconstruction aid claimed) to the equivalent $US amounts according to the report. The table shows all instances in tables and text where two currency values are quoted (there several instances in which only values in one currency are quoted, for no apparent reason). This allows us to see the exchange rate employed, which is shown in the 4th column, labelled 'er'.

Two things are apparent. First, the regime appears to be willing to abandon its own official kyat/$US exchange rate nad stand before an international audience and present conversions based on what are, in effect, black market exchange rates. The exchange rate premium is usually an indicator of the degree of economic malaise and not flaunted so openly (one wonders how many delegates to the pledging conference got 1100 kyat per $US on their way in?). Second, the authors of the report did not use a common exchange rate for conversions. In fact, it is more correct to say that they used unique rates case-by-case! There does not seem to be any reasonable explanation for this, consistent that is with this report having any credibility whatever.

The outliers are the health and education sectors, where the implied exchange rates are 1/4 to 1/5 of what was typically used elsewhere. The drastic inflation of the $US value of reconstruction requirements here could reflect two things. One, an overall attempt to fleece donors that is concentrated on two items in the whole package. Or that the value in kyat was the value in situ and the value in $US represents replacement costs, which happen to be substantially higher. Now if Burma were a market economy, and the sectors in question part of the private sphere, the fact that the market values of the assets destroyed fell way below their replacement cost would be an indicator that the sectors were economically very sick indeed. But Burma is not a market economy, and since the assets involved are predominantly State-owned (according to the report) the reported kyat values could not have been market values. It is usual practice to value such public assets at replacement cost. But this would mean (using the exchange rates used elsewhere) that the $US amounts should be as little as 1/5 of what is actually claimed. So either the regime is trying to misappropriate reconstruction funds via exchange rate manipulation, or by simply asking for 5 times what is actually needed based on the stated kyat values of degraded and lost assets.

The overall effect of the exchange rate shenanigans is shown in the final column. The average exchange rate used is 1100.31 kyat/$US (excluding the extremely low figures for health and education, and the low figure for public religious buildings). If all kyat figures are converted at this rate, we can determine the difference in $US between what was claimed (given the myriad of rates) and what is consistent with the use of a single rate. The final column shows this for each case - the sum of this column shows that the net effect of using varying rates is that the regime claims an extra $US152+ million from the international community. The primary drivers of this outcome are the anomalies associated with health and education.

Would you give these people $US10 billion based on this report?

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