Opening up, Myanmar finds itself in a tough balancing act

Dan Steinbock

11 March, 2015

Dan Steinbock says local needs must be met amid web of foreign interests

Myanmese students protesting against a controversial education bill clashed with police this week, resulting in injuries and arrests. Photo: Reuters

Six months before critical elections, tensions are mounting in Myanmar, at its borders and affecting great power relations. Recently, hundreds of Myanmese students protesting against a controversial education bill have been locked in a stand-off with security forces. Washington has expressed concern about the violence used against protesters.

Meanwhile, thousands of refugees have entered Yunnan following clashes between Myanmar's army and local communists. As a result, China has asked Myanmar to "lower the temperature" on the border.

The friction comes ahead of the general election, scheduled for late October or early November. Economically, Myanmar is experiencing rapid growth even though in the fiscal year 2014-15, growth in gross domestic product is expected to decelerate slightly, to 7.8 per cent, due to slower growth in the agricultural sector.

Meanwhile, foreign direct investment is expected to rise substantially above the US$4.11 billion figure for the previous year. The largest investors are businesses from Singapore, Hong Kong, Britain and China.

Over the medium term, the outlook for Southeast Asia's last tiger economy remains favourable, with long-term growth potential estimated at 7 per cent. Still, with increasing spending and attendant inflation pressures, near-term downside risks have increased.

From the US to the European Union, Myanmar is seen as a fascinating story of economic growth and human rights. After years of diplomatic isolation, economic and military sanctions, Washington relaxed curbs on foreign aid and relations were normalised in 2011. As the EU followed, Japan agreed to cancel US$2.7 billion in debt and pledged millions more in aid. Tokyo has also won the contract to modernise Yangon's crumbling urban transit system.

Of late, Washington has also expressed concern about human rights, intimidation of journalists and violence against the Rohingya Muslims.

In Myanmar's view, the US has not actually walked the talk and invested in the economy, except for Coca-Cola and a few other businesses. And, despite President Barack Obama's visit in 2012, the administration has not fully lifted sanctions.

Despite obstacles, Chinese FDI remains substantial. But not all major projects have gone smoothly. Before Christmas, protesters were injured and one died in the Letpadaung copper mine project of Chinese-backed Myanmar Wanbao.

Previous setbacks include the suspension of the controversial Chinese-led Myitsone dam project in 2011 and the proposed Kunming-Kyaukpyu railway, a US$20 billion project to connect Yunnan province with Myanmar's Rakhine state.

However, China remains vital to Myanmar's economic development. Last November, Premier Li Keqiang and his Myanmese counterparts signed deals amounting to US$7.8 billion in energy and infrastructure, agriculture, telecoms and finance.

In Washington, the dominant Myanmar narrative is geopolitical. The question is whether the government in Naypyidaw can serve the US-led alignment around China.

In Beijing, the Myanmar narrative builds more on economic realities. The question is to what degree Naypyidaw will participate in the Chinese-led regional integration.

Critical economic and political decisions in and about Myanmar will probably only be made after the elections. But the early era of reform and opening up will end as President Thein Sein is likely to step aside. His mantle is expected to be taken by Shwe Mann, the speaker of the House of Representatives and key leader of the Union Solidarity and Development Party.

Myanmar's goal is to sustain stability and growth at home, while reaping the economic benefits from China, Asia and the West. It is a precarious balancing act.

Dr Dan Steinbock is research director of international business at the India China and America Institute (US) and a visiting fellow at the Shanghai Institutes for International Studies (China) and the EU Centre (Singapore). See www.differencegroup.net