Executive Summary:
Myanmar, a small south east Asian country is blessed with abundant natural resources, however its citizens are amongst the poorest in Asia. They lack behind in all aspects of human development. This paper examines how the military rule, coupled with economic mismanagement, lack of transparency and the sanctions by US treasury pushed this country into dark ages. This was followed by its strategic re-alignment with China, which was its only ally between 1960 till 2011, when it finally chose to restore its democratically re-elected government.
The sanctions had forced Myanmar to peg its rate to SDR’s. Following the lifting of these sanctions in March 2012, it moved from pegging its rates to SDR to floating exchange rates, revised policies that gave boost to export and was set on path to development. Myanmar which is now on its path to exploiting its Natural resources faces further challenges associated with change in regime especially those of transparency and policy. Poised for maximum growth in South east Asia, Myanmar faces challenges of skilled Human resources, Labour Productivity and Infrastructure.
This paper concludes with a very pertinent question regarding the growth of Myanmar and geo-political and economic situation. Has changing its political system and finding a new ally in America further alienated it from China, with whom it shared its political Ideology previously? Although small Myanmar, a very nascent country with a stable regime that is only about a yearold country is one to watch out for.
Background:
Republic of the union of Myanmar (myan-MAR), is located in south east Asia and shares its borders with Bangladesh, India, China Laos and Thailand. At 675,578Kms2. it ranks 40th in terms of its size. The population of Myanmar as of 2014 was 51Million, which is a criticised figure since claims in International media mention that minority Muslims are not counted (www.straitstimes.com). A population density of 76/Km2 is in sharp contrast to any of its immediate neighbours (www.cia.gov).
The official currency of Myanmar is Kyat. The exchange rate of the Kyat which has been floating and managed since March 2012 is approximately 1200 MM Kyat to a US dollar(www.xe.com). Myanmar is rich many natural resources such as Oil, Gas, Minerals and Gem Stones (Lynn,T.A. and Oye,M. June 2014) . Despite being rich in natural resources, the income gap in Myanmar is one of the widest in the world. The Human Development Index which ranks countries based on health, education, income/composition of resources, inequality, gender etc. ranks Myanmar at 148 out 158 countries in the world (United Nations Human Development Program,2015). This is primarily due to its post World War II History.
Myanmar became a British colony after three Anglo-Burmese war between 1824 and 1885. There was a strong anti-British sentiment in the colony (Fellowes-Gordon, Ian,1971). In March 1942 months after entering the Second World War Myanmar (Burma) which had become a major battle ground, was devastated and the Japanese Army had advanced to Rangoon, then capital of Burma (Myanmar). Although many Burmese (people of Myanmar) initially fought for the Japanese, many switched allegiance to the Allies in 1945 (Bennett, Will,20 August 1995). On 4th January 1948, the nation became an independent republic, named the Union of Burma, with Sao Shwe Thaik as its first President and U Nu as its first Prime Minister. Unlike most other former British colonies and overseas territories, Burma did not become a member of the Commonwealth. On 2nd March 1962, the military led by General Ne Win took control of Burma through a coup d'état and the government has been under direct or indirect control by the military since then. Between 1962 and 1974, Myanmar was ruled by a revolutionary council headed by the general. Almost all aspects of society (business, media, production) were nationalized or brought under government control under the Burmese Way to Socialism, which combined Soviet-style nationalisation and central planning.In May 1990, the government held free elections for the first time in almost 30 years and the National League for Democracy (NLD), the party of Aung San Suu Kyi, won 392 out of a total 492 seats (i.e., 80% of the seats). However, the military junta refused to cede power and continued to rule the nation as SLORC until 1997, and then as the State Peace and Development Council (SPDC) until its dissolution in March 2011.Thoroughout its military regime and even until as late as 2015, Myanmar has faced various allegations of Fraudulent Elections, Human rights violations, Child Forced labour, Genocide, State Riots, and Freedom of speech. From February 1997 and every year until 2011, the US treasury had imposed sanctions on the government of Myanmar primarily due to its large scale repression and violence against the democratic opposition (Tallentire, M., 28 September 2007).
America-Myanmar-China the triangle:
The relationship Triangle of America- Myanmar and China, has been consistently dynamic. Prior to 2011, US followed a human rights centred agenda to pursue harsh sanctions policy against the military government of Myanmar. The Transgressions of human rights and the unwillingness of the military government to abide by the 1990’s elections. The sanctions by United States were designed for a regime change. This was viewed by China as a security threat not only to Myanmar but also for China. The collapse of Myanmar’s military government or a US military invasion of Myanmar would inevitably change the security outlook of China’s south-western border.
China’s support of the Myanmar Military Government exposed it to international criticism. In July 2007, ‘Secret’ talks were held between US and Myanmar in China. The main purpose of China in hosting these talks was to reduce US pressure on China to change Myanmar military Government’s behaviour. In 2009 when Obama administration, announced a new strategy towards Myanmar, criticizing its 2010 elections as ‘neither free nor fair’. China assumed that with no change in the Myanmar Government, US sanctions on would continue. China saw this as degree of improvement between its relations with the US, however it was not to the level to jeopardize its existing ties with Myanmar. However, China announced it had no objections towards Myanmar’s improved relations with the west so long as China’s Interest were intact.
With the Myanmar President Thein Sein’s historic meeting with Aung San Suu Kyi in August 2011, The United States lifted it political sanctions, which were followed by visits form the then secretary of state Hillary Clinton, who explicitly cleared that, it (US) was in no competition with China, and would positively welcome constructive ties between China and her neighbours. This was followed by similar statements from US Special representative and Policy co-ordinator for Burma, who clarified further that the US relationship with Myanmar was not aimed at alienating Myanmar from China. External academic thinkers argued that since the sanctions, Myanmar was alienated and in a dependent relationship with China and in order to curb China’s monopoly in south east Asia, The US re-considered its isolation sanctions policy from broader regional perspective.
China, has had extensive political linkages with Myanmar mostly associated with the former military government. With the US facilitating reforms in Myanmar, it has caused significant collateral damage to China. Economically, China sees competition from Japan in Myanmar, a close ally of the US. With Japan focusing on the economic front, by offering aid and investment, cancelling debts of over 5 billion dollars owed by Myanmar and committed to providing a 504Million dollar loan to the country. Japan’s intervention is an attempt to counterbalance China’s influence on Myanmar. Japan’s economic contribution is primarily to offset the negative impact of China’s withdrawal of foreign investment from Myanmar.
Myanmar has pursued a neutralist foreign policy. In case of China, Myanmar is suspicious and fearful and in case of the US, it has suffered two decades of isolation and sanctions and a serious threat to its military government that led to its overdependence with China. In such conditions, Myanmar needs to balance its its policy options and benefits. On one hand, strained relations between the US and China could force Myanmar to choose sides on the other hand great relationship between China and the US could mean secret deals between the allies over Myanmar (Sun, Y. June 2014).
Economy of Myanmar:
After 2011 Myanmar has embarked on a major policy reforms including taxation and foreign investment. Foreign investments increased from 300million US$ in 2009 to 20billion US$ in 2011 (Allchinjoseph,J. 23 September 2011). This has allowed the Burmese central bank to set the reference exchange rate for its currency. The previous exchange rate which was pegged against the SDR (Special Drawing Rights) was unrealistic at 8.51Kyat to 1 US$. As a result, private firms had no choice but to turn the the black market for currency. The Kyat official peg to the SDR had not been adjusted since 1974, while the Kyat had depreciated chronically in the Black market due to Myanmar’s high inflation rate. In September 2007, the Kyat depreciated to 1300Kyat to the US$, whereas the official rate was 5.6303Kyat per US$. In April 2012, the central bank abolished the official peg of the Kyat to the SDR and introduced a managed float. It set a rate of 818Kyat to 1 US$, however the Kyat has depreciated since then to 1200Kyat to 1 US$. Now the Central Bank of Myanmar conducts daily foreign exchange auctions. This has helped check control the black market exchange rate. (Kubo,K. March 2015)
Myanmar’s Natural Resources:
Discussion of Myanmar’s economy is not complete without discussion of its Natural Resources. It is a geologically rich country and mining is as significant as large scale industry. Mining occurs in base metals including gold, silver, copper, zinc, lead etc., Coal, rare earth minerals and gems including Jades and rubies. The state aims to manage and control this sector however illegal industries still exist.
Myanmar’s energy ministry lists proven crude oil reserve estimates of $3.2 billion barrels and gas reserves of 11.8 trillion cubic feet (placing it about eight in the world), yet the numbers are open to debate. The recent FDI (foreign direct investment), which occurred primarily after lifting of US sanctions in 2011, has been concentrated on oil/gas and hydropower sectors. The main investor countries in this sector include China, Thailand, South Korea and Singapore. The largest income of Myanmar comes from the gas and Semi precious industries. The industry earning for 2011-12 in auction sales for gas were approximately 3.6BillionUS$ and 3.4 Billion US$ in precious stones and gems. However, the estimates of informal revenue from this sector are much higher. (www.boell.de). Because of this, the resource governance index report provides very poor ranking Myanmar in these terms. It received a failing score of 4 ranking last out of 58 countries. It preformed extremely poor on all components. Its natural resource legislation does not define the licensing process, the role of government or the fiscal system of extractive revenues. It publishes very limited industry data. Myanmar’s Auditor general has the authority to scrutinize the extractive revenues, but the audit procedures are not known, reports are not made public. Myanmar also ranks very low on global measurements of corruption, government effectiveness, democratic accountability and the rule of law. (Revenue Watch Institute,2013)
Myanmar Growth:
Despite the problems, Myanmar is expected to grow at 7.8%. According to the world bank, rapid growth rates, exceeding 7%, are expected to be found in CLM countries (Cambodia, Lao PDR and Myanmar) in 2015 and 2016. Myanmar will experience the highest growth in the region (7.9% in both years), buoyed by foreign direct investment (World Bank Group, 2016). Recent structural reforms are improving the business environment in Myanmar and its integration with neighbouring economies is progressing, supporting this growth. With completion of the Dawei Seaport, Myanmar is expected to be the trade hub in South east Asia connecting the South China Sea, via the Bay of Bengal to the Indian Ocean. (www.bloomberg.com). Between January and November 2014 the country has approved 4.4USbillion US$ wroth of investment. The 30th May 2013 McKinsey Global Institute report expects Myanmar’s economy poised to grow four times its current size by 2030, if internal problems of drug trade and government problems with specific ethnic groups do not interfere.
The report further mentions specific challenges in achieving this include
1.
The average productivity of labour in Myanmar today is 1500$ that is 70% below that of benchmark Asian Countries.
2. As per UN Development Programme, human development report of 2013, the average schooling in Myanmar is 4 years.
3. The cities of Myanmar will have to additionally absorb 10 million people by 2030
4. Out of the 650billionUS$ that need to be invested by 2030, approximately 320Billion $ are required for the infrastructure alone.
Overcoming these challenges, Myanmar will be able to achieve a GDP growth from 50Billion US$ to 200+Billion US$. The consuming class of 2.5million will grow to 19 million. There is a potential for 10 million non-agriculture jobs and Myanmar can target a market of 500million in its closest neighbours. (McKinsey Global Institute, June 2013)
Conclusion:
Myanmar, has come a long way since its independence in 1948. Unlike most developing countries, Myanmar remains unique in its disposition. Some of the critical problems that face the developing countries like rapid population growth, and high proportion of agriculture in GDP and employment do not face this country. The political instability of 1960 pushed this country into dark ages by isolating it through sanctions. With no development in any sector, Myanmar rich in Natural resources remained un-exploited for a long time. The resources of Myanmar, along with its strategic location in the Indian Ocean, became a point of contest between America and China. With sanctions being lifted in 2011, and a change in American stance, Myanmar seems to have stepped from the fire into the frying pan.
Myanmar struggles to come out of its dark ages. Myanmar’s extractive sector seems to be its best and most lucrative bet to coming out. In order to exploit the full potential of its extractive sector, Myanmar amid oppositions and concerns regarding retaining its revenues, it has still gone ahead with FDI’s in this sector. As many articles and reports mentioned before in this paper suggest that, there is no clear understanding and policy in this regard within the country.
Poised for maximum growth in south east Asia in the coming years, Myanmar is a country to watch for. Has its political alignment with America helped it to come out of the dark ages or was it better off with a single ally of China who has now become a power to recon with in the Global economy.
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