Ending Isolation – Part I

The West uses sanctions to encourage authoritarian governments to meet global norms. In this two-part YaleGlobal series on the efficacy of sanctions, authors examine the experiences of two countries. In the first of the series, Hong Kong-based journalist Philip Bowring argues that sanctions can have diminishing impacts, if not lifted once reform has begun. Since a 1988 coup by army generals in Burma and brutal crackdowns on the opposition, the United States and Europe imposed a mix of sanctions, hurting tourist and garment industries, but doing little to harm elite interests and mining industries. President Thein Sein, a former general, seeks to develop the country’s stunted economy and check China’s influence by improving ties with the US and allowing limited elections. The party of longtime opposition leader and democracy advocate Aung San Suu Kyi swept the polls. Popular expectations for improvements are running high, reports Bowring, who warns that disappointment could reinforce hardline conservative forces. He urges a swift end to punitive sanctions to encourage reform’s momentum. – YaleGlobal

Ending Isolation – Part I

To speed political reforms in Burma, the West can’t end sanctions soon enough
Philip Bowring
Monday, April 23, 2012

RANGOON: The US is to ease its economic sanctions against Burma, the UK has announced a suspension, and other EU countries are likely to follow suit soon. But all are still an inadequate response to the opportunities for real change at all levels opening up in that long afflicted country. If the western nations truly believed that sanctions were intended to help the Burmese people, rather than simply  show displeasure at the generals’ brutality, they would move swiftly to provide momentum for the changes now underway. They must take President Thein Sein’s commitment to reform at face value if only because the alternative is not his replacement by democracy icon Aung San Suu Kyi but by old-guard military men and their civilian party supporters.

Popular expectations for improvements in peoples’ livelihood are running high, as though the spirit of Aung San Su Kyi could deliver material benefits in the way it has helped deliver a degree of liberty and democracy. Disappointment could lead to reaction by conservative forces in the military and among the elites who have prospered under Burma’s crony capitalism. In their own interests as well as those of the nation’s 60 million people, countries that imposed sanctions owe it to the Burmese to get to the forefront of efforts to raise Myanmar’s social and economic conditions after  half a century of decline. This issue is more important than using sanctions to extract more political gains for Aung San Suu Kyi.

Years of economic sanctions backing Aung San Suu Kyi’s fight for democracy may, to some at least, seem justified by recent steps under President Sein to a more open society with rational economic policies. But years of sanctions have made the economic situation far worse. They also promoted a tiny, military-linked moneyed class profiting from those sectors which were largely immune from sanctions – extractive industries like the oil and gas, gems, drugs, timber and cross-border deals of all kinds with China and Thailand. Meanwhile the activities that benefited significant numbers of people – garment and other labor-intensive export industries, tourism and agriculture suffered most. The nations whose policies damaged those sectors must now get their priorities straight and focus on immediate steps to revive those industries.

There is far to go before sanctions cease to matter. The US has lifted some, but the complex US mix of executive orders and laws promise a long process for the rest. The actual impact of those said to be lifted has yet to be clarified – an important issue given that US financial sanctions have global impact, continuing, for example, to inhibit the use of mundane items such as credit cards. UK sanctions are merely being suspended as though Myanmar must be treated as if “on probation” and expected to live up to much higher standards of liberty than applied to China, Vietnam and dozens of other countries.

Yet Burma has begun steps to rationalize its economic system and badly needs help to sustain the process. Following International Monetary Fund advice, Burma now has an exchange rate that reflects actual supply and demand in place of various artificially manipulated rates which delivered benefits to a select few. It is planning to reduce and rationalize the array of import controls and export taxes that inhibit or distort trade. It is aiming to rebuild a mainly private banking system to generate savings and provide credit. But sanctions remain an impediment to transactions with the outside world, let alone the entry of western bank capital and expertise into the system.

Potential investors are flocking to Burma to look for opportunities, especially in natural resources. But what the nation first needs is a better commercial infrastructure which can only come when sanctions are gone. Next it needs more physical infrastructure, power in particular, without which, no industry can grow. The World Bank and Asian Development Bank are eager to help – but their hands remain tied by US sanctions.

Burma needs the garment and other labor-intensive industries that can provide the cities with jobs. Manufacturers and logistics companies from Hong Kong have visited and like the prospects: Wages are low, there is basic literacy and ready access to other Asian centers. But so long as trade sanctions remain in place, opportunities are minimal. If Vietnam and Cambodia could be given privileged access to the EU market for various labor-intensive industries, why not Burma?

Much is written about Burma’s oil and gas potential. Exports are rising, and western groups are looking to compete with Chinese, Indian and Southeast Asian companies to explore and develop new fields. But the reality is that Burma’s hydrocarbon export prospects appear big because its domestic power supply is so small. Not only is there very little manufacturing industry, but electrification has yet to reach most rural areas. Only about 20 percent of the population of 60 million has access to electricity – Rangoon’s  power supply is so unreliable, that downtown streets other than in the smartest residential districts are thick with the fumes of roadside generators.

Gas will be useful, but the revival of the economy must be based, as it was in Vietnam, on revival of agricultural exports and low-wage manufactures. The potential is there. The will also appears to be there. However, implementation is a huge problem. Technical expertise is in short supply; educational standards, once the highest in the region, have fallen drastically over the years of isolation; and the bureaucracy is a master at creating rules from which only its officials benefit. Corruption runs deep, and there is no over-arching power like the Communist Party in China and Vietnam. So delivering change could be doubly difficult. The situation cries out for a massive program of educational support which English-speaking countries are particularly well-positioned to deliver given the British colonial legacy.

The scope for foreign direct investment will be limited initially by the economy’s small size and the competition in manufacturing from neighbors China and Vietnam. Investors will also have to be willing to do joint-venture deals with existing local conglomerates, of which about a dozen are identifiable. They have prospered mainly because of their connections, but are mostly run by opportunists who can probably adapt to change and an end to monopolies. Such conglomerates  also need capital as they seek to expand from simply being big fish in a small pond to being seen as on equal terms with similar groups in Malaysia, Thailand and elsewhere.

The bottom line for these business people, as for most others in Burma, is that in their hearts they want their country to become normal again, not to be a pariah or laughingstock. For that, they need the country to be open to all, but particularly with the West, which long shunned them while China and to a lesser degree other Asian countries, developed links. Indeed, if  Burma’s nationalism was once driven by opposition to foreigners – British colonialism and Indian, Chinese and other foreign traders – nationalists now look to reviving links with the West, India and elsewhere as counterbalance to the power of China’s money and the dominance of Thai and Chinese trade. The West would do well to stop preaching and start helping.


Philip Bowring is a Hong Kong–based columnist and a former editor of the Far Eastern Economic Review.

Copyright © 2012 Yale Center for the Study of Globalization