A year from now there will be a new government in Myanmar. Or President Thein Sein’s government will have won a second 5-year term. Or the election scheduled at the beginning of November will have been postponed.
While the nature of the next government is in doubt, one certainty is that the year ahead will be a pivotal one for the 50-plus million people residing in Myanmar who are struggling to emerge from sixty years of conflict and poverty. How Myanmar deals with the challenges that arise during this period will have implications for the rest of the world in resolving longstanding conflicts, building democratic institutions, achieving sustainable economic growth, exploiting natural resource wealth, and mitigating tension between religions. It may also affect the pace and character of Asia’s rise in the 21st century.
Ending sixty years of civil war
Successive governments of Myanmar, democratically elected and military-based alike, have been waging war against insurgents non-stop since the country gained its independence from the United Kingdom in 1948. The communist insurgency was crushed toward the end of the 1980s when China withdrew its support, but the Myanmar army today is still fighting a handful of ethnic armed groups entrenched in the mountainous borders of the country.
The Thein Sein government has made unprecedented efforts to conclude a “National Ceasefire Agreement” and initiate a “Political Dialogue” for the purpose of negotiating constitutional changes that will devolve sufficient power to satisfy the ethnic minorities (40 percent of the country’s population) and provide the basis for a durable peace. After seven rounds of negotiations, a draft ceasefire agreement was reached on March 31. The ethnic minority negotiators have reviewed the draft with their constituencies and have been directed to seek a few improvements. There is some chance that the agreement will be finalized before the end of June.
The core obstacle to achieving a genuine ceasefire and then a formal reconciliation is the Myanmar army’s vision of a monocultural (Buddhist) Myanmar. As in many such conflicts, economic interests on both sides are also powerful obstacles. During fifty years of military rule (1962-1988 under General Ne Win; 1992-2011 under General Than Shwe), two distinct forms of rent-seeking have enabled the military to remain in control of the country. In the conflict areas on the country’s borders, individual military units live off the land by establishing formal businesses (like rubber plantations), engaging in informal businesses (like leasing land to private companies), and pursuing illegal activities (like smuggling timber). In the country’s heartland and through their control of the central government, active and retired senior army officers have obtained foreign trade and domestic business licenses—often in partnership with private sector “cronies”—that conferred monopoly-like commercial advantages. These officers have also acquired large land concessions and concluded highly lucrative resource extraction deals with foreign investors.
On the side of the ethnic minorities, their ability to defend themselves against the Myanmar military also depends directly on a myriad of often competing formal, informal, and illegal rent-seeking activities. In addition, they have been supported financially by outsiders: members of their diaspora around the world (especially in the United Kingdom and the United States), governments of neighboring countries (especially Thailand and China), governments of distant countries (the U.S. government in particular), and a collection of international NGOs. Peace holds the tangible risk that these ethnic minorities will lose access both to their rent-seeking activities and their external support.
It will not be possible for Myanmar to reach East Asian levels of prosperity as long as the civil war and its related rent-seeking activities continue at their current levels. If peace can be achieved in the near term against all odds, Myanmar’s experience may help other countries escape from vicious cycles of conflict and poverty.
Building a democratic political system
Myanmar became independent in 1948 with a parliamentary system modeled on the U.K. system. This system was a failure for a variety of political and economic reasons. In 1958, the Parliament handed power to the military to restore order and prepare for new elections in 1960. When these elections failed to resolve the factionalism that made the government dysfunctional, General Ne Win dismissed the parliament in a coup in 1962.
Ne Win presided over a one-party state and a socialist economy for the next 26 years. The combination was an even greater failure, leading to the popular uprising in 1988 that was suppressed by a military junta calling itself the State Law and Order Restoration Council (SLORC). In the election administered by the SLORC in 1990, the government party was trounced by the National League for Democracy (NLD) led by Aung San Suu Kyi. But the SLORC refused to cede power to the NLD and kept Daw Suu Kyi under house arrest for most of the next twenty years.
In 2003, the junta announced a “seven step roadmap to a discipline-flourishing democracy”. Few took seriously either this roadmap or the new constitution adopted in a rigged referendum in 2008. Few took seriously the election held in November 2010, which the NLD boycotted in large part because Daw Suu Kyi remained under house arrest. And few believed that anything had changed when former general Thein Sein became President of the country on March 30, 2011, even when he delivered an inaugural address full of unprecedented commitments to democratic rule.
But Daw Suu Kyi—freed from house arrest a few days after the 2010 election—had a successful one-on-one meeting with President Thein Sein in August 2011 and perceptions of the political system began to change rapidly. After Daw Suu Kyi became a member of parliament in an April 2012 by-election, these perceptions soared to unrealistic levels.
The National Election Commission is now gearing up for elections in November 2015. The prospects for a credible outcome, with the NLD emerging as the largest single party, seem good. Daw Suu Kyi is unlikely to emerge as the next president, however, in particular because of a clause in the 2008 Constitution that makes her ineligible because of having children who are citizens of another country and the military’s opposition to dropping the clause.
One surprise in Myanmar’s fledgling political system is that the parliament has not been the “rubber stamp” that most expected. Its legislative record is mixed, however. It has tended to water down legislation proposed by the government in favor of vested interests. The speaker of the lower house, former general Shwe Mann, could emerge as the next President.
The shape of the political system will undoubtedly evolve under the next government, but the direction and pace are unpredictable. Unlike all other East Asian countries, Myanmar is building a democratic political system before its economy has advanced from low-income to middle-income status. The priority Myanmar is giving to building a democratic political system has the potential of dooming the country to the slow pace of growth seen in India’s first forty years of independence. If Myanmar can defy the odds and do better under a democratic system, then the prospects for other conflict countries may be more optimistic than assumed.
Achieving sustainable economic growth
A case can be made that the Thein Sein government has achieved more progress with economic reform than with conflict resolution or political reform. This progress is all the more remarkable because it has occurred without the benefit of an economy-focused political leader like China’s Zhu Rongji or a group of technocrats like Indonesia’s “Berkeley Mafia.”
The government’s most remarkable move was abandoning the country’s grossly overvalued official exchange rate in April 2012 in favor of a managed float exchange rate system. Key trade monopolies were opened to competition, and the foreign investment regime was liberalized. The central bank was given formal independence.
Myanmar’s economy is still primarily cash based, but the banking system is reforming faster than expected, helped immensely by the lifting of financial sanctions by the United States in 2013. Another big leap in the economy was awarding mobile telephone licenses in 2013 to Ooredoo (Kuwait) and Telenor (Norway) to build out the country’s mobile phone system. Coverage of the population will go from less than 10 percent in 2013 to about 80 percent by 2018, the fastest rollout for any country this size. SIM cards that cost more than $2000 in 2010 can be purchased now for less than $2.
The weakest part of the economy is the agriculture sector. It has been held back by policies that have ignored the experience of all of the middle-income East Asian countries, where rapid economic progress started with rising household incomes in the rural sector.
Another great challenge is infrastructure. Surprisingly, there is not a single highway or railroad connecting Myanmar with any of its five neighboring countries. Electricity consumption is among the lowest in the world despite having above average hydroelectric and natural gas resources.
As a member of the 10-nation ASEAN Community, Myanmar’s economic progress has the potential of contributing materially to economic integration and advancement for the whole community.
Overcoming the resource curse
As much as for any other country, Myanmar’s natural resource wealth has been more of a curse than a blessing. In particular, it has fueled the civil war waged in this country for the past 60-plus years, creating a deeply rooted culture of rent-seeking. The main resources currently being exploited include natural gas, timber, jade, copper, tin, and coal. Hydropower is another key resource mired in controversy. One of the most dramatic moves by President Thein Sein was his suspension of construction on a Chinese dam project in September 2011.
The Thein Sein government took the courageous step of committing to join the Extractive Industries Transparency Initiative (EITI). This is a global effort to show that the revenue generated from resource extraction is fully used for the benefit of the population as a whole rather than being diverted into the pockets of powerful individuals and groups. A key step is submitting a report in January 2016 that will allow Myanmar to graduate from candidate status to EITI compliant status. If—against all odds—the report meets the EITI standards, Myanmar will be a model and inspiration for the dozens of other countries suffering from a resource curse.
Addressing communal tensions
The appalling treatment of the Rohingya community residing in Rakhine State, which borders on Bangladesh, has been a constant media theme for the past three years. Riots that broke out twice in 2012 forced as many as 140,000 members of this Muslim minority to flee their homes and seek safety in hastily constructed, poorly serviced camps.
The majority Buddhist population of Myanmar has been led to believe that the Muslims—who are scattered around the country—represent a threat to their religion and even their existence. The degree of anti-Muslim sentiment in Myanmar is hard for outsiders to believe, but has been sufficient to dissuade Daw Suu Kyi from standing up for them because of the political cost of doing so.
Fear of non-Buddhist minorities among Myanmar’s Buddhist majority may be the country’s most intractable problem. It is hard to imagine any new government or leader achieving a breakthrough in this area in the near term. If tangible progress is made, however, it could inspire reconciliation efforts in other conflict countries.
Engaging with neighbors and friends
Myanmar’s most important bilateral relationship is with China, but it is not an easy one. In particular, China supported the Communist Party of Burma in the first 30 years of Myanmar’s independence. When Western sanctions against the ruling junta were tightened toward the end of the 1990s, the junta turned to China for support. Most forms of support were problematical, however, because they involved natural resource extraction on terms that were not necessarily favorable to Myanmar.
China’s role in Myanmar’s economy since President Thein Sein suspended construction of the Myitsone Dam has been largely frozen, with two exceptions. First, the smuggling to China of timber, jade, and other resources continues. Second, China has constructed dual natural gas and crude oil pipelines from an Indian Ocean port across the center of Myanmar to Yunnan Province. In its political relations, a major concern of the Chinese government is the thousands of refugees who have fled into China to escape attacks by the Myanmar army. Clearly China is uncomfortable with Myanmar’s drift toward democratic rule, but it has not yet found a way of capitalizing on the opening up of Myanmar’s economy.
India’s relations with Myanmar are equally complicated and also unlikely to advance under the next government. India was sharply critical of the military junta’s treatment of Daw Suu Kyi after 1988. It began to warm up to the junta in 1991 as part of its “Look East” policy, but history has been an obstacle to closer relations. When Myanmar was a British colony, thousands of Indians moved in as administrators, merchants, moneylenders, etc., and came to be resented by the local population.
Myanmar’s relationship with Thailand has four major dimensions. Historically, centuries-old animosities remain a source of zero-sum rivalry. Politically, the military coup in Thailand in May 2014 could be viewed by the Myanmar military as a model for regaining control of their country. Economically, about one quarter of all electricity consumed by Thailand is imported from Myanmar, creating a vital dependency. Socially, an estimated 2 to 3 million Myanmar citizens are living in Thailand and providing low-cost labor to many sectors of the Thai economy. Despite the underlying tensions, relations between the two countries are likely to remain businesslike under the next government.
Japan is arguably Myanmar’s best friend today. Japan played a key role in the mammoth debt reduction operation at the beginning of 2013 that opened the door to new financing from the World Bank and the Asian Development Bank. Japanese experts are providing technical assistance in most sectors of the Myanmar economy. Japan’s engagement is likely to remain at a high level regardless of the shape of Myanmar’s next government.
The United States’ relationship with Myanmar is as complex as China’s, but for different reasons. The relationship remains centered on Daw Suu Kyi and her “rightful” role as the country’s leader. The U.S. Congress seems incapable of understanding the challenges of Myanmar’s ongoing transition. If Daw Suu Kyi fails to end up with a position in the next government that satisfies her, the odds seem high that the United States will re-impose some sanctions on Myanmar. This would be unfortunate because the general population will be hurt more than the powerful people who emerge on top. Furthermore, it is unlikely that other countries will join the United States in “punishing” Myanmar, thereby weakening the credibility of U.S. policy toward Asia.
Political and economic cross currents make it hard to know whether Myanmar’s 4-year old transition to a more peaceful, prosperous, and democratic society will remain on track a year from now. Most likely, Myanmar will muddle through with a mix of good news and bad news. Compared to the Arab Springs that have gone sour in fewer than five years, Myanmar’s military-led transition is impressive. Myanmar’s best friends will understand that being impatient and pressing for politically infeasible reforms is counterproductive.
 Ceasefire agreements with more than a dozen ethnic armed groups are being reasonably well respected.
 Notable among these are natural gas being sold to Thailand and China, hydroelectric dams exporting power to Thailand and China, and a large copper mine.
 “Daw” is an honorific roughly equivalent to “Madam.”
 Representatives in the assemblies of Myanmar’s seven “regions” and seven “states” will be elected as well as members of the national parliament.
 After graduating from Oxford University and working at the United Nations in New York City, Daw Suu Kyi married a British scholar. Their two sons were born in the U.K. Her husband died of cancer in the U.K. while she was under house arrest in Myanmar.
 Myanmar’s president is not elected directly. Instead the upper and lower houses of parliament meet together as an Electoral College to elect the President and two Vice Presidents.
 In 2014, nine foreign banks were awarded licenses to begin offering a limited range of financial services.
 Seventy percent of Myanmar’s population lives in rural areas.
 While the Myanmar government has granted citizenship to few Rohingya, most of them are “stateless.” Thousands of Rohingya have fled Myanmar by sea in the past year, often lured by human traffickers. Hundreds have perished in the process.
 Another big obstacle is geography. The land connection through India’s seven Northeastern States to its population centers is a high cost route because of the distance and the mountainous terrain.