Education,  Geopolitics,  Growth Challenges

Myanmar: Between Powers

 

Myanmar is one of just four countries in the world to share a border with both of the world’s most populous countries, the others being Bhutan, Nepal and Pakistan. It is also a land passage through which the Indian Ocean is accessible to China without passing the choppy waters of the South China Seas or the Straits of Malacca.

Domestic political change in Myanmar meantime is afoot. In late 2010 the country’s most famous citizen, Nobel Peace Prize winning Opposition Leader, Daw Aung San Suu Kyi, was set free after having spent 15 of the last 21 years under house arrest. The abrupt dissolution of the military regime of the State Peace and Development Council (SPDC) followed. In March 2011, and a new reform-minded government headed by ex-General Thein Sein took office. From 1962 until that point the country had been run as a reclusive one-party state by the Burma Socialist Programme Party.

 

The subsequent lifting of sanctions imposed by mainly Western governments against Myanmar’s former regime together with intense media interest has stirred investors and analysts to re-examine this frontier market up close. On the ground however, despite considerable optimism and buoyancy in and beyond the country, uncertainty dominates the political, economic, business and social discourse. While some analysts are going as far as to refer to the transforming nation as the ‘nexus of the 21st century’[1], the geopolitics around Myanmar are in fact just as multifaceted and complex as the internal politics, with close neighbours (China, India, the Association of South East Asian Nations (ASEAN)) and interested superpowers (US, Europe, Japan) jockeying for influence and likely to affect Myanmar’s reform path.  

 

Alongside ASEAN, China has major geopolitical stakes in Myanmar. China is the country’s most important long-time political, economic and defence strategic ally. The earlier regime relied heavily on China as its political-economic lifeline during Western sanctions. China’s stance over this period was rather mainly driven by economic and security considerations, and a policy of ‘non-interference’ in the domestic affairs of other countries. Regardless, the relationship between China and Myanmar is appropriately characterised the evident asymmetry. In recent times Myanmar had far more to lose should the relationship sour: China was a protector in the Security Council, support from a large neighbour amid international isolation, and a key economic partner and a source of investment. While China noted major problems with the status quo, particularly with regards to Myanmar’s economic policy and ethnic relations, its preferred solution was gradual adjustment led by a strong central government, rather than federalism or liberal democracy, and certainly not ‘regime change’.

 

With regard to China’s energy diplomacy, Myanmar arguably draws strategic parallels to the energy transit paths play by countries like Panama and Egypt. The construction of a 800km-long gas-and oil pipeline from the Bay of Bengal through Myanmar to China will be completed this year, opening up the Shwe Natural Gas Project and the Burma-China oil transport project. These are collectively referred to as the “Burma-China pipelines” and will transport gas from Burma and oil from the Middle East and Africa across Burma to industry and consumers primarily in Yunnan and other western provinces in China. They are expected to generate some $30 billion in revenue for Myanmar over the next 30 years.

 

Similarly, a prospective land bridge to the Bay of Bengal would offer a path around the more complicated route through the Straits of Malacca, known as the ‘Malacca Dilemma’. At present 80% of China’s imports pass these straits – one of the busiest and most dangerous shipping lanes in the world. The pipelines will radically change the route that brings Middle Eastern oil into China and eventually some 10% of China’s current annual oil imports are planned to travel through the corridor.

 

Post-election politics in Myanmar is all the while breaking from the politics of the past. Internationally, under newly re-inaugurated President Obama’s ‘Asia pivot’ of 2010, Myanmar received an invitation to send observers to the annual 2013 Cobra Gold exercise – a major U.S. and Thai-led multinational military exercise involving thousands of American and Thai military personnel, as well as participants from other Asian countries. This powerful symbolic gesture was quickly followed up by the visits of Secretary of State Hillary Clinton and then by President Obama himself in November 2012 – his first trip abroad having been re-elected just a week earlier.

 

India too, though a latecomer in wanting access to the eastern side of the Bay of Bengal, has been making steady progress of its own. India is involved in a deep-water port in Sittwe, the capital of Rakhine state in Myanmar, which is merely 500km from Kolkata. India touts the Sittwe port as a “trade gateway” for its own landlocked north-eastern states, and no doubt with both China’s and ASEAN markets in mind thereafter.

 

Finally, ASEAN itself, which Myanmar joined in 1997, is also rapidly evolving its ties with Myanmar. Where in the past Myanmar was somewhat seen by the group as a source of political problems and reputational risk, this has changed dramatically. Myanmar will be Chair of ASEAN in 2014 – a rotational role it was forced to forego in 2006. Myanmar is committed to the economic integration process that will lead to the establishment of an ASEAN Economic Community in 2015.

 

The internal situation of Myanmar is evolving equally fast and is just as complex and multi-faceted as the country’s international geopolitics. Especially the history of ethnic conflict in Burma is particularly long and bloody…the civil war between the government and the Karen National Liberation Army (KNLA) – to cite just one of the many ongoing ethnic conflicts, which holds the sad record of being the longest ongoing war (it started in February 1949) in the world (see Map 1). Over the decades the successive military governments of Burma have mostly focused on “managing” conflict rather than resolving it. The aim was never to eliminate armed opposition and insurgent groups, but rather to contain and divide them. Hence, the army adopted and applied a “divide-and-rule” policy that has multiplied the number of armed groups and thereby militarised the country continuously. Since 1989, however, the military government has reached ceasefire agreements with 15 of the major armed opposition groups, and these agreements are still more or less in place today.

 

But many of the ceasefires remain very fragile – as we speak, a 17-year ceasefire between the Kachin Independence Army (KIA) and the government has broken down. Hostilities are escalating, with tens of thousands of people displaced across Kachin state. Perhaps even more disturbing in the longer run are the repeated demands for the creation of an independent Wa state along the eastern border with Thailand. The region of about 600,000 people, mostly ethnic Wa, is occupied by the United Wa State Army (UWSA) with its 30,000 armed troops and an additional 20,000 reservists on call. Arguably reflective of Rwanda’s linguistic and ethnic divisions over recent decades and along porous African borders, the majority of the UWSA leaders were born in China and the lingua franca of the region is mandarin whilst the common currency in the region is the yuan. The Wa run television station transmits in mandarin language. The UWSA has its own foreign policy, makes direct deals with the Chinese and businessmen from China bypass the Myanmar government with their investments, operating tin mines, reportedly without informing the central government.[2]

 

There is in fact ongoing contention over the very nature of the State of Myanmar as well as about how the State is going to be governed in future. In the past, this power operated in a highly centralized mode, but future models could include more decentralized forms of government – perhaps even a federation although this has not been officially debated yet. Concomitantly there is a struggle over how the State is going to be governed and how power will be distributed between the future military, executive, legislative and judicial institutions.

 

The country’s ethnic diversity complicates decision-making. Myanmar is a country of extreme ethnic diversity with minorities comprising about 40% of its estimated 56 million population. The military government officially recognises 135 different ethnic groups divided into eight major “national ethnic races”. The seven ethnic states, in turn, comprise 57% of Burma’s land area, which are rich in resources including gem and mineral wealth, forest products (especially teak) and enormous hydropower potential.

 

Looking ahead, one may distinguish between two phases: the short-term phase leading up to the general elections (foreseen for 2015) which will largely be dominated by the speed and depth of reforms, and the period following elections, likely to be dominated by the political future of Aung San Suu Kyi and the overall capacity (or absence of it) of the National League for Democracy (NLD) to govern.

 

In the run-up to the 2015 elections, the frantic pace of political reforms is expected to continue unabated. Critical and politically sensitive reforms will include those related to land, taxes and minority rights among many others, and potential derailment factors at any given time include the role of hardliners in the government, as well as their ‘cronies’, whom are benefiting from the past and present system, the role of politicized monks (see Box 2), and the ubiquitous potential resurgence of ethnic conflicts across the country.

 

Another potential derailment factor of the reform process concerns the future role of the so-called ‘cronies’ of the regime. Though typically referred to as cronies, it is perhaps more accurate to regard them as proxies of the military regime. They have received privileges because they were useful rather than because they wielded any particular influence over it. Together, these fifteen to twenty individuals controlled a major part of the national economy, and are in fact likely to continue to control it for some time to come.

 

The extent to which these dominant businessmen will be successful in the new economy depends on a number of factors. Even if they may now face strong competition, their dominant position in many markets gives them an early bird advantage. Their accumulated wealth provides access to otherwise scarce working capital. To date, they have also been able to attract the best human capital from a very limited pool of skilled professionals in the country. Given their resulting and accumulated competitive advantages, it is likely they will hold sway for some time to come.

 

While the intention is clearly to open the economy and shift away from restrictive licencing and permit controls, the necessary reforms to achieve this in practice have not yet been instituted. In the meantime, much business activity still requires political approval. Personal connections remain indispensible to ensure the timely approval of requests and to circumvent the stifling layers of bureaucracy in ministries. Conducting successful business is said still to be very much about whom you know.

 

Government ‘hardliners’ are meantime lying low, and hold a thus far latent derailment potential that should not be underestimated. It is important to distinguish between “hardline” and “conservative” views: the former view seeks to preserve the old system of politics, now widely regarded as untenable due to the nature and extent of the reforms and the momentum they have generated. The “conservative” view, on the other hand, seeks to preserve the old economic system that provided considerable economic rents and monopolistic advantages to a small group. This group is associated with the departing vice president, Tin Aung Myint Oo, and some of his colleagues in cabinet. The Vice President was widely seen as being very close to and a promoter of the interests of some key business conglomerates, particularly the large Asia World conglomerate, but also the infamous military-controlled holding companies Union of Myanmar Economic Holdings Limited (UMEHL) and Myanmar Economic Corporation (MEC). With his departure, the government has been able to move more decisively away from the old ways of doing business.

 

It is clear there still are many powerful individuals from the earlier regime, first and foremost many key member of the military junta and their affiliated profiteers of the previous system. Despite how much they stand to lose politically or economically from the reforms, there is no evidence any cohesive group of “hard-liners” has emerged that could alter the country’s overall momentum. At the same time, as in most power structures, there are certainly strong personal rivalries and if not managed carefully, such rivalries have the potential to be problematic in the early stages of a transition. The most significant seems to be between President Thein Sein and lower house Speaker Shwe Mann (see Box 1) who appear to be competition over who is seen as the key decision maker on individual reforms and who can claim credit for being the key driver of the process.

 

Box 1:  Who is Shwe Mann?

 

Shwe Mann was the third-ranking general in the SPDC, the secretive military council that ruled Burma. A protégé of senior general Than Shwe, who had risen rapidly after a successful career as a combat officer, he was open to the concerns of the international community in a way that most of his colleagues were not. Today, as speaker of the new parliament in Naypyitaw, he is one of the architects of Burma’s reform drive, a double-act and rival to President Thein Sein. Many observers see him as the most likely replacement for Thein Sein when his term of office ends which he does not aim to renew for health reasons (he is know to have a pacemaker). The most recent case of the rivalry between Shwe Mann and the President, and one that could potentially have far-reaching consequences was over a ruling by the Constitutional Tribunal. This disagreement reached a level where there was even talk by some legislators of impeaching the president.

 

Box 2: The role of monks in Burmese politics

 

Historically, Burmese monks have not only played a spiritual role, but also have a long history of political activism, having served the interests of kings and the nation as far back as the 10th century. More recently they have been at the forefront of protests against unpopular authorities, from the British colonial power in the 1930s to the last pro-democracy campaign in 1988. It is indeed no coincidence that the Burmese word for boycott is thabeik hmauk, which literally means to turn the monk’s alms bowl upside down – declining to accept any alms in protest.

Indeed, many outside the region are under the mistaken impression that Buddhist monks and their religion are inherently non-violent, whereas in South East Asia violence has been regularly led by monks and perpetrated by Buddhists. An estimated 80-90% of Myanmar’s population is Buddhist, and even those who do not choose to become “career monks” usually enter the orders for short periods of their lives, giving the monasteries a prominent role in society. There are between 400,000-500,000 ‘professional monks’, but many more laymen worship alongside the monks for a few weeks at a time throughout their lives in order to earn spiritual credit.

The vast majority of monks have kept silent about the military government’s abuse of monks, due to fear of losing their positions and status in society. Moreover, the current military junta has appointed local and national representatives of the monks, who oversee the daily business of the monks and temples. In other words, the ruling military has managed to co-opt these senior monks who have moral authority in Burmese society. These monks have access to the senior military leaders and top leaders within the National League for Democracy.   

Probably about 10% of Burma’s monks are politicised, and many of the monasteries may be unaware of the scale of the agitation currently under way in the country. If fully mobilised, however, the monks would pose a major challenge to the military, and their moral position in society could embolden many more people to join the protests.

 

 

In terms of future goal posts and challenges one expects the new government will do whatever it takes to avoid any major confrontation in the coming 2-3 years so as to sustain the image of stability and progress. Major upcoming high points include Myanmar hosting the World Economic Forum East Asia Summit in 2013 and also the South East Asia Games, and then being ASEAN Chair in 2014. Last but not least, 2015 will mark the year when the ASEAN Economic Community will come into effect, at which point Myanmar will be subject to fierce economic competition from the entire region.

 

Beyond the 2015 elections, and assuming that the NLD will win an overwhelming majority of seats, it is the infighting and serious lack of institutional and technical capacity of the NLD that are likely to pose a serious threat to progress. Reversing the political direction of the country while simultaneously reforming the economy and pursuing a peace process with over a dozen separate armed groups is an enormous challenge. Inevitably, much decision-making is ad hoc and rushed, informed not by reference to any master plan – policymakers have had no time to prepare such a blueprint – but rather by the exigencies of the moment.

 

The main challenge the NLD faces is not to win the election, but to promote inclusiveness and reconciliation. A probable NLD landslide risks marginalising three important constituencies: the old political elite, the ethnic political parties and the non-NLD democratic forces. If the post-2015 legislatures fail to represent the true political and ethnic diversity of the country, tensions are likely to increase and fuel instability. It has a number of options to achieve this. It could support a more proportional election system that would create more representative legislatures, by removing the current “winner- takes-all” distortion. Alternatively, it could form an alliance with other parties, particularly ethnic parties, agreeing not to compete against them in certain constituencies.

 

Decisions made during this period of Myanmar’s political transition will also determine the economic landscape for decades to come. Economic reforms are lagging behind the political ones, which is a key risk as the general population tends to equate democracy with better living standards. The key question is what kind of economic development model the country will follow, who will benefit from this and who will be the losers.

 

Myanmar’s political transition and economic reconstruction are intimately entwined. Achieving either depends on achieving both. The ethnic peace processes are also closely bound up with the political economies of those border regions. Disastrous economic policies have left Myanmar mostly disconnected from the world economy and exporting only $1 worth of products for every $25 sent abroad by its similarly-sized neighbour Thailand[3].

 

One of the major distortions in the economy has been the multiple exchange rate regime, which is now being dismantled. The kyat’s official rate was used for external public sector transactions (such as imports and exports) and for accounting purposes. It was long pegged to the International Monetary Fund (IMF) “special drawing rights” (SDR) basket of currencies, giving an official rate of between five and six kyat to the U.S. dollar. In recent years, this was some 150 times stronger than the market rate of between 800 and 1,000 to the dollar.

 

The experience of the region as a whole has generally been of economic reform in the absence of democratisation (such as China and Vietnam), or of economic reform followed by democratisation (such as South Korea and Thailand). This different application of political institutions produces different economic paths and similarly different distribution of fruits. In an extraordinary period transition between powers – both within and outside of the country –  it remains to be seen which path Myanmar will take, as well as how it will navigate the challenging steps toward greater prosperity and stability for its people.

 

 

 


[1] Where China Meets India, Thant Myint-U 

[2] Dr. Than Htut Aung, special Op-ed to The Nation, Bangkok, 17.12.2012

[3] Ronald Findlay, “Export or die”, in “16 Ways to Fix Burma”, Foreign Policy (online), 30 March 2012

Lauren has worked in economic policy and research at the World Bank, World Economic Forum, EIU and for the governments of Sierra Leone and Guyana. She has learned Chinese since 1995, and lived in Beijing for almost six years, on and off since 1997. Lauren has a PhD in Economics from Peking University, an MSc in Development Economics from the School of Oriental and African Studies (SOAS) and a B.A/B.Com from the University of Melbourne.

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