Myanmar-China

Myanmar begins transition, Opens up to investment

For the West, which is keen to do up one –up on China in Myanmar, economic interaction with Yangon is contingent upon the political reform. This in turn meant a role for the democracy icon, Aung San Suu Kyi. Now she is an honoured law maker, who was duly elected in a by-election, which was facilitated by President Thein Sein. The world may like to see Myanmar make rapid stride on the democracy highway but there can be no denying that any long march must be at the pace that the marchers can afford, says the author.

Myanmar President Thein Sein appears to usher in a second wave of pro-market reforms in the country now that his primary aim of attracting foreign capital has been met with the US and EU lifting the sanctions regime. More FDI inflows will lessen Yangon’s dependence on China for support.

Beijing has not endeared itself with the regime since its primary focus is on resource extraction. And Chinese investment of $US10 billion (2011data) led to an appreciation of the kyat, which in turn impacted local agriculture and manufacturing sectors. Chinese penchant to ‘import labour’ from home country resulted in niggardly growth in job opportunities for the locals, who are mostly dependent on agriculture for their jobs and livelihood. Hardly seven percent of the work force is engaged in industry.

Thein Sein’s government has refurbished its liberal image by showing the door to hardliner Vice President Tin Aung Myint Oo on July 11.  It has also promised a slew of measures that are designed to ensure hassle free working environment for foreign companies

One of these steps is a guarantee against nationalisation. Fully foreign-owned companies and joint ventures with at least 35 percent foreign capital will be allowed. . Local currency, Kyat has been subjected to massive devaluation. Today around 800 kyats fetch one dollar which was some thing unthinkable  four months ago when Myanmar had fixed exchange rate of six kyat to the US dollar..

Thailand has already shown interesting setting up an economic zone and port signalling that Myanmar is the next destination for investors from Asean countries, South Korea and Japan, besides the United States. Thai Prime Minister Yingluck Shinawatra signed a deal with President Thein Sein on July 23 to facilitate setting up of Dawai Economic Zone by Italian-Thai Development Corporation. When fully built, the economic zone will have a steel mill, oil refinery and petrochemical complex.

American MNC, General Electric has also lined up big plans. It has already signed a deal to supply x-ray machines to two private hospitals. Next on its agenda is opening of its office.

Myanmar’s dependence on China has been so great and broad based that there are doubts at the outset whether the regime would be able to shake off the Chinese yoke. It proved the sceptics wrong last September itself.   That followed President Thein Sein’s decision to suspend work on the Myitsone Dam hydroelectric project, which was a Chinese show piece.

For the West, which is keen to do up one –up on China in Myanmar, economic interaction with Yangon is contingent upon the political reform. This in turn meant a role for the democracy icon, Aung San Suu Kyi.   Now she is an honoured law maker, who was duly elected in a by-election, which was facilitated by President Thein Sein.  The world may like to see Myanmar make rapid stride on the democracy highway but there can be no denying that any long march must be at the pace that the marchers can afford.  

As the Brussels based International Crisis Group (ICG) says its report, ‘Myanmar: The Politics of Economic Reform (July 27, 2012), Myanmar has embarked on an ambitious program of sweeping reforms to end its isolation and integrate its economy with the global system.

“If done with reasonable equity and some care, there could be many winners from these economic reforms. Any successful reform package must ensure that the bulk of the population recognises it is better off as a result. That means including quick-impact measures that produce a tangible effect on their lives, such as improved access to electricity, land law reform, better public transport, cheaper telecommunications and lower informal fees of the kind that block access to health and education services. The three main losers would be the business cronies of the last regime, the military and politicians linked to the establishment Union Solidarity and Development Party (USDP).

“The military is aware that its sprawling business interests, if not competitive, may become a drain on its budget rather than a supplement to it. With support for opening up the economy building across the country, previously favoured businessmen and rich politicians appear to recognise that the political risks of challenging economic reform could outweigh the likely benefits. With limited options, the cronies are trying to distance themselves from their murky past and rebrand themselves as valuable contributors to the new economy.

The ICG report says the obvious when it remarks that the economic reform process will not necessarily be without friction, and success is not guaranteed. “The enormity of the task threatens to overwhelm the government’s limited policymaking capacity. Decision-making is ad hoc, not yet based on a carefully-devised master plan. It will be a challenge to maintain a balance between the speed of the reforms and their effectiveness, as decades of isolation have created a political urgency that will be hard to resist. Myanmar’s political transition and economic reconstruction are intimately entwined. Achieving either depends on achieving both. Myanmar should not be hesitant. It sits in the middle of a vibrant region and in integrating with it has the opportunity to catch-up to its neighbours, as well as learn from their successes and failures”.


– M Rama Rao

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