The economy of Myanmar in the second half of the 1980s was in a very grim state. The growth rate of its gross domestic product (GDP) declined steadily from 5.5 per cent in the first half of the 1980s to –4.0 per cent in 1987/88. This is a result of the decline in the momentum of growth in the agricultural sector as well as the fall in production and productivity in State Economic Enterprises (SEEs). This slow GDP growth together with a shortage of foreign exchange forced Myanmar to apply to the United Nations for the least developed country (LLDC) status in December 1986, a status it was granted in December 1987. As an LLDC, Myanmar was entitled to concessional foreign aid and a rescheduling of its external debt payments. The growth rate declined further to –11.4 per cent in 1988/89 mostly due to political upheavals in the country.

The factors contributing to the decline in all production sectors are shortages in foreign exchange, raw materials, spare parts for machinery, and fuel oil. Fuel shortages severely affected not only production but also transportation and the distribution of goods, which gave rise to shortages in commodity goods, and this in turn led to a considerable increase in commodity prices. The shortage of foreign exchange may be attributed to a steady decline in exports. According to U Aye Ko, Party General Secretary of the now abolished Burma Socialist Programme Party (BSPP), the only ruling party in Myanmar until 18 September 1988, when the present military regime took over power: