Sustaining change in Myanmar: Concluding part

[This article formed the basis for Col Hariharan's presentation "Political and economic change in Myanmar" at the Federation of Indian Export Organisation (FIEO) seminar "Doing Business with Myanmar" at Chennai on March 16, 2013.] In the previous part, the author had spoken on the strategic context of change in Myanmar [See Parts 1 and 2]

Potential game changers

Myanmar's ability to sustain economic and political reforms as planned could be dislocated by two game changers - army and ethnic insurgencies - which had been having antithetical relationship in the history of the country.

Ethnic insurgencies plaguing the country since independence provided a valid reason for army taking over power when political instability troubled the government. The army seized power in 1962 when there was political chaos as a number of parties clamoured for power, and Karen and Communist insurgencies threatened the existence of the nation.

According to Wikipedia, the army has doubled its strength to 500,000 since 1988. With progressive modernisation the army has become a powerful one in the region. Such a powerful army with a constitutional role conferred on it to intervene in the democratic system makes an incendiary combination. Any dilution of its role can be carried out only through constitutional amendment. With the political scene in a flux, it is probably too premature for any party to even think about amending the constitution to curb military's role. In any case it will provoke immediate army reaction.

A second aspect is army's unfettered control over national security. Thus in any ethnic reconciliation process, the army will be the final arbiter of peace and war. There are about 17 ethnic insurgency groups in the country. They have a long history of fighting the army to preserve their identity, areas of habitation while seeking autonomy. Of these, 14 have signed ceasefire agreements with the government after it came to power. However, the Kachin Independence Army (KIA) in the North bordering India and China, the Shan, and Karen insurgent armies have been involved in sporadic clashes with the army after they refused to accept the terms of the under the 2008 constitution.

As per the constitution their armed cadres were required to come under the Myanmar army. The insurgent groups have refused to surrender their weapons in the absence of a political solution to their demands for autonomy in terms of the Panglong Agreement signed at the time of independence. This may not be forthcoming in the present unstable political environment. As the economy opens up, rich natural resources abundantly available in ethnic states would add an economic rider to the issue as it happened in Kachin state triggering conflict with KIA. Unless a permanent solution is found the possibility of resurgence of insurgency will always loom in the horizon. Such a conflict would definitely put the clock back on democratic reforms and provide space for the military to step in to rule.

Economic and structural reforms

Ever since General Ne Win, the architect of military dictatorship, introduced the Burmese way to socialism, the country's economy became a disaster. After the global economic liberalisation became a fact of life, in 2008 the junta started carrying out economic and fiscal reforms. This process picked up momentum after democratic reforms. The government on coming to power in 2011 introduced two-stage reform process in which structural and economic reforms to facilitate less bureaucratic and more accountable process and bring stability to Kyat are important components. The key economic indicators based on the last 5 years' performance compiled by the Asian Development Bank are given in the Table below:

Evidently the government has achieved success in managing inflation and in stabilising the monetary value of Kyat. However, as the economy opens up managing them will become even more complex and a lot of foresight and planning would be required from the government.

However, even with all the goodwill in the world, today doing business in Myanmar is not easy. There are no foreign banks in Myanmar as their operation is not codified. Nineteen foreign banks, including 5 Chinese and one Indian entity have been permitted to open only representative offices. They cannot do banking transactions. Any Myanmar citizen can open a dollar account to deposit dollars but he cannot transact in dollars! And there is only one Myanmar bank - with a single office in Yangon for channelizing foreign currency transactions! So the foreign investor's option as of now is limited to bring in foreign currency without the facility to directly remit profits in the currency and bank of his choice. At present the correspondent bankers facilitate this by reciprocal arrangement with the authorized Myanmar bank.

However, all these are set to change. With large number of American businesses visiting Yangon, the U.S. is relaxing its strong financial curbs on transacting with Myanmar. So it is a matter of time, structural frame work with legal oversights would emerge in Myanmar.

The international community appears to be favourably disposed towards the structured economic reforms process. In this context Myanmar Govt. Letter of Intent to International Monetary Fund of Dec., 28, 2012 is of interest. The government claims: "Myanmar ....after substantial progress in the first stage of reforms, which aimed at achieving peace and national unity....has embarked on second stage reforms to comprehensively modernize the economy and integrate it with the global economy, including through regularization of financial relations with the international community. We recognize that to successfully meet these challenges, lasting macroeconomic stability is critical.

Therefore, government has developed a program of economic policies and institutional reforms for the period through December 2013."

However, according to both IMF and ADB, Myanmar has limited capacity to handle macroeconomic management and establishing and managing sound economic policies and structures. The government seems to be aware of this. At present the IMF is helping it to overcome these limitations, monitor and assess the progress.

Conclusion

During the last two years of democratic experiment despite its military patronage, appears to have progressed well in ushering political and economic reforms. This is mainly due to the positive approach of President Thein as well as Suu Kyi, the opposition leader, to work together to progress. All the external powers including China and the U.S., are vying for a piece of action in the country now opening up for global business and they are unlikely to allow the nation to revert to become the failed state it was. This augurs well for democratic and economic reforms sorely needed to enhance the quality of life of the people.

The US has been suitably impressed and despite the economic recession U.S. business is making a beeline to Myanmar. China which was the cock of the walk in Myanmar during the days of military rule is worried over the U.S. political and economic foray. India not to be left behind in this race for a share in the economic pie, has unrolled its red carpet of aid - $ 500 million package - to Myanmar.

Myanmar could become the newest tiger to join the pack in ASEAN in the next decade if the reforms progress smoothly. That still remains a big question mark because the future of Myanmar is paved with landmines of political, economic and ethnic relational uncertainties that could explode and halt the progress of reforms.

It will depend upon how two historic game changers of Myanmar - the army and the ethnic powerful freedom-minded ethnic entities - conduct themselves to keep the reform process on track. As of now the future of Myanmar depends upon Thein Sein's ability to manage the army as much as the national government.

Even if the political and ethnic environments remain peaceful and army extends full cooperation, it is too early to say the reforms would make an easy passage. Army rule has created huge voids in public services, banking, civil society and political institutions. A culture of cronyism and corruption permeates the system. Myanmar simply lacks the capacity to bounce back unless capacity building across the board is sustained during the next decade. As peoples' expectations have been kindled now, sustaining change in this complex scene is going to be a big leadership challenge not only for Thein but for other leaders of the country.

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(Col R Hariharan, a retired Military Intelligence specialist on South Asia and its neighbourhood, is associated with the Chennai Centre for China Studies and the South Asia Analysis Group. His email address:[email protected])