Politics & Policy

Burma: Risk in The Golden Land

Successful political and economic reform mean great opportunities — can the risks be averted?

Two years ago this month, Burma’s current government took office amid broad international condemnation for the rigged election — replete with fraud and intimidation — that put it there. Despite this inauspicious start, Burma politics have opened in the last year and a half, and the country’s economy has liberalized more quickly than any other on earth.

In many respects, it’s as though the global economy has discovered a new planet, one that is geostrategically located, not to mention rich with natural resources, a young labor force, and a population of roughly 60 million consumers. Uncovering and developing Burma’s vast potential will be expensive and dangerous, requiring an appetite for risk, though structural advantages do set Burma apart from its smaller Southeast Asian neighbors such as Laos and Cambodia. The International Monetary Fund optimistically calls Burma Asia’s “final frontier.”

Burmese president Thein Sein’s government deserves credit for the country’s ambitious political and economic liberalization program, but there is still a non-negligible risk that Burma’s reform process will fall apart, or serious risk that it will stall. Last week, the Paris Club of donor nations wrote down $6 billion of the $11 billion owed by Burma for development projects dating back to the 1980s, and the multilateral financial institutions and regional development banks received payment from Japan to clear arrears, a prerequisite to new lending. As a result, there will be plenty of opportunities for businesses to capitalize on projects funded by lending programs from international institutions, bilateral subsidized loans, and foreign aid. While the risks from endemic corruption and an erratic, unskilled bureaucracy are real, Burma faces even greater risks from three longstanding tensions. Ethnic conflict, the military’s remaining influence, and the country’s strategic position between spheres of influence could threaten to constrain growth, disrupt stability, and shut the door on political freedom.

LONG WINTER

Most of the memorable moments in Burmese politics have been tragedies. Nationwide uprisings led by students in 1974 and 1988 and monks in 2007 were violently crushed by the military. Special Branch Police and the notorious Military Intelligence division had eyes everywhere; no social space was safe. Hushed conversations about politics or the economy became too risky for public spaces, and for private spaces with friends or even family who might not be trustworthy. If Burma had a national character at this time, it was paranoia. Inadvertently, however, this repression has helped to consolidate the ethnically, geographically, and socioeconomically diverse opposition under a single pro-democracy mantle.

“The movement,” as it is known among sympathizers, refers to a group of political dissidents, underground civil-society organizations, and ethnic militias that has been informally led by Aung San Suu Kyi and the National League for Democracy (NLD). The alliance includes ethnic leaders, student organizers, monks, and even former officers of the Tatmadaw, Burma’s armed forces, who felt the military had betrayed its mandate. The movement’s survival has relied first and foremost on cooperation, with ethnic groups’ semi-sovereign territories providing a safe place from which to stage nonviolent resistance.

Authoritarian rule also suffocated the economy. Ne Win’s Burmese Socialist Program Party (BSPP) undertook a sweeping nationalization program in the 1970s. Careless money printing under the state-controlled Central Bank of Myanmar led to skyrocketing inflation and rendered the currency valueless on multiple occasions between 1962 and the managed float of the Burmese kyat last year. The BSPP, which was trumpeted as the Buddhist interpretation of socialism, also introduced centrally planned agricultural policies that told farmers what to plant and when, ignoring local expertise about planting cycles and destroying the land. Over the last two decades, in an equally brash move, Than Shwe’s military junta “privatized” most industries, or rather, gifted them to friends, creating a class of overnight millionaires out of military officers, drug traffickers, arms dealers, and other unsavory types. Five decades of autocracy transformed the leading Southeast Asian economy in 1948 into an 18th-century subsistence-farming wasteland.

Further, the business communities of the world’s advanced industrial economies were frustrated by lack of access and wasted opportunity. Sealed off by sanctions and aware of reputational risks following the revelation that international companies had benefited from forced labor in Burma, most of the developed world abstained from investing.

Meanwhile, by the late 1990s, Chinese military and business leaders had aggressively moved into Burma’s markets to satisfy their domestic industrial needs. Building roads into resource-rich regions, pipelines for oil and gas, and dams to provide electricity, Chinese fortune-builders became a commanding presence, and their dominance began competing with local Burmese military commercial interests.

Cyclone Nargis in 2008 seemed to offer the closing chapter in the book on Burma’s economic ruin, devastating millions of acres of the country’s most fertile farmland. Nargis had claimed 135,000 lives when Than Shwe ordered the government to stop keeping statistics.

The military junta’s stranglehold on political and economic power might have continued indefinitely but for the confluence of the economic issues described above, followed by global condemnation over the 2007 Saffron Revolution. Combined, they brought sufficient pressure to change Burma’s path.

IN FROM THE COLD

Today, President Thein Sein and his political opponents in the NLD recognize that Burma is well positioned between China and India, the world’s largest emerging markets, and within ASEAN, the world’s fastest-growing economic community. Resource wealth and eager, cheap labor, as well as the prospect of large-scale development loans, position Burma at the bottom of an impressively large arc. It is partly because the floor is so low that the potential for growth seems so high.

But its abject position means that responsible engagement by both the business and development communities is necessary. Aid and advocacy groups, along with development banks, can and will provide critical relief and advice at a time when the country is still among the world’s poorest. The first wave of funding for infrastructure projects can create conditions that are conducive to private investment. Burma’s civil-society leaders and government officials — some of whom recently admitted to educating themselves about the democratic process by watching The West Wing — will need training programs to ready them to be responsible stewards of Burma’s immense wealth.

International and domestic business investment, for its part, can provide job opportunities, generate revenue for local and national economies, and deliver desperately needed capital to Burmese entrepreneurs who understand where market opportunities exist.

The events of the past two decades have opened Burma to such opportunities, but maintaining access and progress will depend on Thein Sein’s navigation of three risks: a resurgent military, continuing ethnic conflicts, and the country’s role on the front line in the regional contest among global powers.

THE RISKS AHEAD

Military intervention in the reform process presents the most dangerous of the three issues Burma faces. In the past two years, Thein Sein has advanced the reform agenda while largely avoiding confrontation with the military, which, by law, continues to control the majority of seats in parliament. As the public’s demand for reforms accelerates, however, it is unclear just how far the generals will allow Thein Sein, Aung San Suu Kyi, and their democracy partners to go.

There are some good indications that President Thein Sein is consolidating the civilian government’s control. He has freed hundreds of political prisoners and facilitated free and fair elections in 43 districts, even going so far as to allow several former political prisoners to represent the NLD in competing for office. He has allowed free media to gain a foothold and relaxed many restrictions on civil liberties. Cabinet member Aung Min has brokered nearly a dozen ceasefires between the central government and embattled ethnic governments. Some say it wasn’t fast enough, but in less than two years the president has pushed a relatively business-friendly foreign-investment framework through parliament, and replaced cabinet members who had been stubborn opponents of reform with thoughtful policymakers deferential to the rule of law.

However, it is far less clear that Thein Sein can or will be able to assert control in areas where the military has vested security and economic interests.

The surge in the bloody campaign being waged against ethnic rebels in Kachin State has continued in spite of two orders from Thein Sein and a legislative motion to suspend offensive maneuvers. The Tatmadaw appears unwilling to suspend operations until it has crushed the Kachin Independence Army and terrorized its civilian sympathizers — and regained control of the region’s large mining sites.

In addition to pursuing military campaigns to gain access to mineral wealth, the Tatmadaw’s pension funds are tied up in large military holding corporations, with investments across the national economy. These inefficient military corporations won’t be eager to compete with outsiders.

Thein Sein has steered his policies clear of these interests (though he’s believed not to have reaped their rewards, either — even in his former military career), but the civilians in parliament have started to believe in their own power as legislators, and have formed investigative committees and passed motions critical of the Tatmadaw’s investments. As these confrontations escalate, depending on the perceived stakes, the military may comply, it may simply ignore the parliament (which has limited enforcement capabilities), or it may eventually feel sufficiently threatened and push back, perhaps by exercising authority through the existing National Defense and Security Council (NDSC). The NDSC is a secretive council of senior cabinet ministers, the president, and military leaders that offers the military policy influence over civilian leaders behind closed doors, as an alternative and complement to the 25 percent of seats apportioned to the military in the parliament.

Consistent growth may prove to military leaders that rising tides will lift all boats, allowing Thein Sein to mitigate these issues.

That growth depends on development dollars and investment, which will both require continued political reform. But the reforms the donors see as a prerequisite to their engagement, the generals view with misgivings.

Ethnic reconciliation is the second significant risk to progress. The central government’s various battles with the ethnic non-state armed groups (NSAGs) — there have been wars with groups of Karen, Kachin, Shan, Mon, Chin, Karenni, Kokang, Pa-O, Palaung, Naga, and Lahu origin, to name a few — involve different motives and distinct cultural histories, but all the groups share an interest in some measure of political autonomy and control over their economic resources, especially when it comes to profit-sharing agreements for natural resources. Today, most of these groups have signed ceasefires, leaving the Tatmadaw to retrain its crosshairs on the Kachin Independence Army (KIA), headquartered in a region rich in jade and minerals.

The battle for control of Kachin territories is characteristic of Tatmadaw campaigns in ethnic states over the last six decades. The Tatmadaw has targeted civilians, raped women, burned churches (the Kachin are predominantly Baptist and Catholic), killed livestock, and mortared villages with chemical agents.

While President Thein Sein talks about peace like he is open to the idea of compromise with the Kachin, the Tatmadaw wants to vanquish its enemy to make a clear statement about its dominance. This scorched-earth strategy risks unraveling the fragile ceasefires with other groups.

In the coming weeks and months, the Kachin war should reveal some key signals. The Tatmadaw has surrounded the KIA headquarters in Laiza but is unlikely to attack this border city because the only spoils of war would be the displacement of tens of thousands of people currently supported by the KIA’s political arm. Other ethnic groups are uneasy about the tactics used in this conflict and will want to see some kind of guarantee from Thein Sein’s government that a replay of the horrific Kachin campaign isn’t coming to their region next.

The last eleven attempts by the KIA and Tatmadaw to discuss a ceasefire have gone nowhere, with the latter frequently disrespecting their counterparts by sending junior officers to the negotiating table, and rejecting outright the KIA’s calls for third-party moderators or observers. If Thein Sein can convince the Tatmadaw to stomach a neutral moderator and observers from the media, it would earn important political capital among other ethnic groups, are otherwise considering their respective withdrawals from the increased engagement of the last two years.

Another way to build goodwill with the ethnic groups would be for the military to allow humanitarian aid through roadblocks into rebel-controlled territory, providing welcome relief and affording all parties the political space and interlocutors necessary for negotiated resolution.

However, a ceasefire agreement is just a piece of paper, so signals about whether the conflict has an end in sight can come only from the Tatmadaw itself. High-level delegates authorized to make decisions would be a good place to start.

Ethnic conflict presents possibly Thein Sein’s most difficult challenge: It compromises both internal and external perceptions of his ability to lead, but it’s not clear he would survive direct confrontation with the military.

Spheres of influence present the third main risk to Burma. The U.S.’s “pivot” toward Asia has drawn considerable attention to the region; President Obama’s and Secretary of State Clinton’s visits to Southeast Asia, including Burma, have only intensified this. The most likely result of deepening U.S. interest will be an increasingly agitated China, along with a more active India.

In that context, Chinese state-owned enterprises will certainly continue to expand investment in Burma, notwithstanding the grumblings of marginalized local merchants. Despite questions about the transparency and rectitude of Chinese business practices, the country’s investment does not inherently pose a threat to political reforms and economic progress. The risk arises if investment is the harbinger of expanded ties between the People’s Liberation Army and the Tatmadaw that might embolden the latter, shaping not just the security landscape but Burma’s political conditions too.

In order to take advantage of Burma’s promising moment, President Thein Sein and Aung San Suu Kyi must balance the inclusion of democracy proponents in a national dialogue, the resolution of longstanding ethnic conflicts, the emerging Chinese and U.S. regional competition for influence, and the Tatmadaw’s commercial and security priorities. The management of these risks will determine whether Burma proves to be the Golden Land, as it was once known, or slips back into its darker recent history.

— Christian Lewis is the Southeast Asia researcher at Eurasia Group, a political-risk advisory firm. Follow him on Twitter @cwclewis.

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