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A piece on Burma

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					       KWR Special Report


Analyzing   the  Prospects   for  Change   in  Myanmar:
Interview with David Steinberg of Georgetown University
                   Interview by Keith W. Rabin

                   Thank you David for speaking with us today. It
                   has been awhile since we last talked. Can you
                   tell us about your background and interest in
                   Myanmar?

                   I originally focused on Chinese Studies and began
                   to study how the Chinese treated minorities in the
                   southern regions and after the Korean War studied
                   at the School of Oriental and Asian Studies in
                   London where I began to focus on Burma and
Southeast Asia. I was then based in Myanmar as the Assistant
Representative of The Asia Foundation until the government changed and
we were asked to leave after the coup of 1962. Later on I joined USAID
and came to serve as Director of Philippines, Thailand and Burmese
Affairs, where I was responsible for leading the team that negotiated
the reentry of USAID operations in Burma in 1979. Currently I am a
Professor at Georgetown University where I focus on Myanmar, North
Korea and South Korea, Southeast Asia and US policy in Asia.

In the 1950s Myanmar was perceived by many analysts to be one of
the more promising countries in Asia. Can you tell us about the
country and its underlying potential and -- if political and
structural problems can be resolved -- some of the trade and
investment opportunities there?




                                                                    1
If we were sitting in a hotel bar in 1956 asking ourselves which
countries in Asia would develop most quickly and compared Burma,
Thailand and South Korea -- each with a similar per capita income and
population at the time -- Burma would have been the obvious choice. It
was the world's largest rice exporter, exported oil to India, had
timber, gems, minerals and good supplies of many other natural
resources. It was also under-populated, with a well-educated workforce
and had a parliamentary system. In contrast South Korea was hardly
worth considering at the time yet today possesses a per capita income
that is approximately twenty times that of Myanmar.




                                                                    2
Given the neglect in recent decades, Myanmar is essentially starting
from scratch in terms of building a modern economy. The nation still
has an abundance of natural resources, a strategic location between
China and India and access to the sea and the world’s busiest shipping
lanes. It has a population estimated to be about 55 million people,
and is one of the 10 member countries of the Association of Southeast
Asian   Nations   (ASEAN),   a  rapidly   integrating   market.  ASEAN
collectively possesses a total GDP approaching US$800 billion.




When I used to travel to Myanmar in the 1980s a lot of people would tell
me "When the government changed in the early 60s we thought this would
last a year or two and we are still waiting". Now another twenty years
have passed. What happened and how did we
get to where we are today?

In 1958 the Burmese military assumed power
at the invitation of Prime Minister U Nu
though the military would have done so
without his approval and it ruled with
great effectiveness. Political scientists
of the time viewed this as a positive
development because the military were seen
as a disciplined effective force and a good
alternative to the politicians who were
seen as corrupt. Elections were then held
in 1960 and the military stepped down but
then seized power again in 1962 and things

                                                                      3
changed dramatically. This time their intent was to hold onto power
and the military has remained the dominant force in that society ever
since. That does not mean it cannot reform and treat its people
better. China has a military in power that is not accountable to the
people and it has done many things to raise living standards and
become the world's second largest economy.

Burmese Socialist Programme Party policies, however, were disastrous
for a number of reasons. In colonial days the economy was in foreign
hands, dominated by the British, as well as Indians and Chinese. The
Burmese were relegated to minor industries and petty trading. One of
the most important issues the government faced was how to get the
economy under Burmese control and this remains one of the important
motivations to this day. How was this achieved? On independence, the
government decreed that all land belonged to the state although
communes were never instituted, and put into place a socialist system.
As a result most production was in government hands in a highly
nationalistic environment. To do this successfully, however, you need
a highly competent bureaucracy, such as what exists in Sweden. What
they did though was to purge capable bureaucrats and replace them with
military officers. Most of these people were enthusiastic and meant
well, but managing the economy was beyond their competence. At the
same time you had a highly personal system of power with one man,
General Ne Win, in charge. Since he was head of the military since
1949, he was in control of all significant promotions. His word was
law and all decisions he and subsequent military rulers made could not
be challenged. This may now be changing but it is still early to
judge.

                                       Not only were these policies
                                       badly conceived, but they were
                                       arbitrarily enforced. It was
                                       not a communist system, there
                                       were no collective farms and
                                       it was not like North Korea or
                                       China,     but    they     did
                                       nationalize most industries.
                                       The costs of imports and spare
                                       parts rose and the value of
                                       exports went down and in 1987


                                                                    4
they had a major crisis. Foreign exchange reserves were as low as $30
million, which amounts to a couple of week's imports. Then in a
colossal mistake the government decided to demonetize larger notes,
which represented about 2/3s of the currency with no compensation.
People then lost all faith in the currency believing this would happen
again. They held rice or whatever would hold value. Burmese industry
declined, and the economy virtually collapsed.

Since the borders with China were opening Chinese goods came in, in
what proved to be the start of expanded influence in the country; the
Burmese could not compete further, which further depressed the
economy. The government has since acknowledged this error and the 2008
constitution has an article against demonetization.




In March 1988, the Government of Japan -- who provided about half of
all foreign aid to Myanmar at the time -- told the nation it needed to
reform their economic policies or Japan would reconsider their aid
program. As a result, Myanmar decided they would not continue down the
socialist road. Just before the coup of September 18, 1988, the
government modified the system and after the coup enacted an investor-
friendly investment law and invited companies to do onshore oil
resource exploration. Eventually an off-shore gas pipeline was
developed to supply energy to Thailand; Total and Chevron are major
investors. Today, the Government has about $5 billion in foreign
exchange reserves.




                                                                    5
Recent developments have raised hope about the prospect for
change, yet there have been several periods in the past where
this also looked likely. Should we be more optimistic at the
present time?

We certainly should be, but these changes are fragile, and our
optimism should be heavily tempered. Since the inauguration of the new
government, we have witnessed an amazing set of decisions and
statements. In his inaugural address, the President announced that the
nation's health and education systems were in bad shape and had to be
reformed. He also noted the need to treat minorities better, and to
eliminate corruption. The Burmese are forming the Myanmar Development
Resources Institute with presidential approval to help with future
planning.




                                                                    6
In October 2011, the IMF sent a delegation to Myanmar and one of the
main issues to be discussed is how they can achieve a unified exchange
rate. That is a major development given the official rate today is
about 6.3 as opposed to about 850 on the grey market. We have also
seen the formation of a Human Rights Commission and the development of
a new labor law with ILO approval concerning labor standards and the
formation of unions, while granting workers the right to strike. The
President has also invited all Burmese who have not committed serious
crimes such as murder to come back to build the country. Critical has
been the stoppage of construction of a major $3.6 billion Chinese dam
on the Irrawaddy that was much hated by the people; the president said
he was listening to the people's will.




                                                                    7
All of these things are very significant and the environment for
business is changing very quickly. There is opposition however,
including from within the military and the transformation will be
gradual -- though this is far beyond what anyone what would be
imagined even months ago.

I've always looked at Myanmar as something of a Southeast Asian
Yugoslavia inhabited by the Burmese people and a diverse range
of minority groups. What are the prospects for a successful
democratization in an environment of that kind? Can we see real
national cohesion in a democratic environment or will we see a
fracturing such as that which occurred in Yugoslavia?

The days of minority groups spinning
off along the lines of a Yugoslav
model are over, but I believe the
minority issue is the most serious
issue facing Myanmar today -- even
more serious than democracy itself.
Recent   actions  though  have  been
positive.    This   government   has
established seven minority and seven
Burman local legislatures under a

                                                                8
national legislature. This is a first, and something that has never
been seen before. We don't know how it will work but there is a spirit
of hope for some sort of pluralism there. Civil society is also
active. Such pluralism won't go too far or too fast, and over time it
may not be what we have or want in government for ourselves, but if we
allow it time, it can develop into something the Burmese peoples feel
comfortable with.




From 1997 to 2008, the US enacted several laws and presidential
executive orders that imposed sanctions on Myanmar. You have
described these as in some ways being more severe than those
imposed on North Korea. What led to these actions and what are
                             the    effectiveness   of    these
                             measures?

                                After the coup of September 1988
                                sanctions    were    imposed    as   an
                                emotional   reaction   to    events  in
                                Burma. At first they were not called
                                sanctions. US policy requires that we
                                stop   economic   assistance    in  any
                                country that has had a coup, and we

                                                                     9
did this in Burma in 1988, and we have done this in the past with
Thailand as well. Then the Government denied the results of the May
1990 elections, which entrenched the military. Aung San Suu Kyi (ASSK)
has also had a large influence. While she does not make US policy, no
administration has chosen to disagree with her. That may change and I
think it will over time.

I met with Bill Richardson in 1992 before one of his trips to Myanmar
and he told me sanctions would be passed as some people in Congress
wanted them and no one would vote in favor of the prior regime. The
first sanctions were in 1997. Further sanctions were taken in 2003
after ASSK was roughed up during a trip to central Myanmar, and again
in 2008 after the Saffron revolution of 2007. Now there are people who
want still more sanctions even though these measures have not proven
to be effective in influencing change within Myanmar.




People who advocate for sanctions do have the moral high ground, but
once implemented, sanctions are exceedingly difficult to eliminate.
One can always say -- no matter how far efforts are made to address
underlying problems -- they have not made enough progress. These
people have certainly done very bad things but the question is: what


                                                                    10
are US interests there? We certainly have an interest in people and
human rights, but we also have strategic and other interests including
environmental, disaster relief, regional and commercial.




What that means is our policy in a country like Myanmar needs to be
complex, and nuanced. As far as I know, the first mention of China as
a concern within our Myanmar policy was in September 2009 when Senator
Jim Webb raised the issue of their involvement in Myanmar at a Senate
Asian Subcommittee hearing. It seems obvious to me that this has been
carefully analyzed in the classified literature, to which I do not
have access. The problem, however, is that in a democracy such as
ours, if you are to develop a more multifaceted foreign approach, you
have to bring the people along and educate them as to why this is
important. The inability of our governments under both the Clinton and
Bush administrations to make this a concern and explain it to people
is reprehensible. I think we should have a dialogue. This did not
exist before Obama came in and we are now just beginning to
acknowledge that the past twenty years of sanctions have been a
failure -- but a weakened Obama administration is not likely to waste
any of their political ammunition and capital on fighting for changes
in policy with members of both parties in the Congress.



                                                                    11
So at the moment if we have more releases of political prisoners we
may get some amelioration of the sanctions but I do not expect a total
relaxation.

Recently we have seen a number of changes in Myanmar, including
the election of a non-military government, the release of ASSK
as well as the release of some 6,000 prisoners, of whom some 200
or so are said to be political prisoners. What is motivating
these changes and how do you see them progressing moving
forward?

The motivation in part is the
government's     interest    in
ensuring      more     balanced
relations between Myanmar and
the outside world. They don't
want to be so reliant on China
though on the other hand they
do not want to be reliant on
the US either. They fear us
but do understand the need to
be balanced. The government perhaps is pre-empting popular discontent
by promising changes, hope for additional legitimacy, is looking to
ensure that it will be given the Chair of ASEAN in 2014, and does want
to develop its economy. Whatever the motivations, these are positive
developments.




                                                                    12
One of the most interesting developments is the canceling of the
Chinese-financed Myitsone Dam, Myanmar's largest hydropower
project, in a move, which the Chinese were reported to learn
about through the media and have since expressed concern. Given
that China has been Myanmar's major benefactor in recent
decades, what would prompt the authorities in Myanmar to take
such a drastic action and what do you think of the implications
of this development?




                                                              13
Construction of the dam was not cancelled, but postponed until at
least 2015, after which the new Burmese government will decide what to
                                  do. I believe the popular view that
                                  Myanmar is a client state of China
                                  is inaccurate. While it is true they
                                  have   been   dependent   on   China,
                                  Myanmar is highly nationalistic and
                                  they do not wish to be seen as
                                  subservient.   That   has    been   a
                                  constant theme in Myanmar politics
                                  throughout the post-colonial era.

                                  The decision on the dam was due to
                                  popular concern that went beyond the
                                  Kachins   and   was  influenced   by
                                  growing anti-Chinese sentiment. This
                                  is due to the growing presence of
                                  Chinese products against which local
                                  producers find it hard to compete,
                                  as well as illegal immigration and
                                  the Sinification of cities such as
                                  Mandalay, where they are coming to

                                                                    14
have a dominant influence. The Chinese have come into Myanmar but have
not displayed enough sensitivity coming from a comparatively wealthy
to a poor country. I've asked a scholar to do a paper on attitudes of
people in Myanmar toward China as expressed in the Myanmar media, and
this should prove extremely interesting.




According to media reports the head of the Chinese company in charge
of the dam said he was not informed in advance, but I have been told
the Chinese government was informed about Burmese concerns, though
perhaps the corporation may not have been. From what I have heard,
this Burmese concern was not sudden. Finally, one should note the
construction was halted and not reversed. The Prime Minister said it
would not be completed during his term. So depending upon what evolved
in the interim, we might see a resumption of activity in 2015.

One US senior official has talked about the "winds of change" in
Myanmar and in the last three years, there have been four
separate high-level bilateral meetings between the two countries
on U.S. soil, including a visit by the Myanmar Foreign Minister
Wunna Maung Lwin with Special Representative and Policy
Coordinator for Burma Ambassador Derek Mitchell, Democracy,
Human Rights and Labor Assistant Secretary Michael Posner and
East Asian and Pacific Affairs Assistant Secretary Kurt Campbell
at the State Department last month. What do you make of these
meetings and the relationship between Myanmar and the US moving
forward?




                                                                    15
There were at least two meetings in New York in addition to those in
Washington and I think the purpose of those meetings were to show they
were serious about reform. I don't know if the dam was part of those
discussions.

The test was, and always
has been, the release of
political   prisoners,     not
the   dam,    and    that   is
unresolved.      There     are
rumors there may be another
release before the Bali
meeting of the East Asia
Summit,    which    President
Obama will attend, but I
don't know. And while there
was an announcement for the
release    of     over    6000
prisoners, only a couple
hundred have been released to date, and we don't know the total number
of political prisoners-whether 2,100 or 500 or any other number.




What the promoters of sanctions are trying to do is say: this
government is illegitimate, based on a bad constitution passed in a
manipulated referendum, and elected in a flawed manner, so we should
not deal with them no matter what they do. So, they might argue,

                                                                    16
unless and until ASSK's National League for Democracy assumes power,
the sanctions should remain in place. The question for the US is
whether we will go along with these critics in a coming election year.




The administration seems to want to do something and are hoping the
Myanmar government will give them enough political room to do
something positive, but we will see. I think the US could say if these
economic reforms are serious and the IMF says they will go ahead, we
would not object if the Asian Development Bank and World Bank explore
assistance   if  the   Burmese   government   meets  the   multilateral
institutional standards of transparency and good governance. This
would not cost the US anything in terms of funding. Perhaps there
would be some political and some congress disapproval, but it could
serve as an initial step to test the waters toward greater engagement.

Other countries such as India, Japan and its Southeast Asian
neighbors also factor into any discussion of Myanmar, and
Myanmar is being considered to be the chair of ASEAN as early as
2014. How are these relationships evolving and are there any
major developments we should be aware of moving forward?




                                                                    17
The European Union has modified their sanctions policy on the basis of
the new government coming in. They are split, however, and the UK is
taking a hard line. Many counties in the EU do not like the common
position. Australia already has things going and Canada does have
sanctions. Japan would like to restart its economic development
program and now provides "humanitarian assistance" in a very broadly
defined manner. ASEAN will probably approve Myanmar chairing ASEAN in
2014, and the question will be whether the US will attend and if so,
under what conditions.




                                                                    18
In recent decades Myanmar has done little to develop its
physical and economic infrastructure, so even if sanctions are
overturned there will be a major obstacles before the nation can
fully open itself up for trade and investment. Can you talk a
bit about some of the issues that will be faced?




Actually, the military have built more infrastructure than any
previous government. Whether that was wise in terms of priorities,
whether they printed more money to do so and increased inflation, and
whether they employed forced labor are all legitimate questions. More
is needed without question, but the social sector has suffered and
health, education and agricultural credit are just a few of the issues
that need to be addressed. Change may be slow. While progress is
likely to be achieved, this is not going to be a complete turnaround
by any measure.




                                                                    19
I have been against sanctions but once they were implemented they can
only be removed and the situation resolved in a well thought out
manner. This is necessary to allow a successful transition to a new
relationship that advances US policy interests as well as the
aspirations of the people of Myanmar. As a former Burmese foreign
minister noted that when the West talks about carrot and sticks, they
should remember that the Burmese are not donkeys.

Thank you David for your time and attention. Look forward to
talking again soon.



This interview is part of an ongoing series highlighting Asia-
related business, trade and investment opportunities and issues.

Keith W. Rabin serves as President at KWR International, Inc., a
consulting firm specializing in the delivery of Asia-focused
trade, business and investment development, research and public



                                                                   20
relations/public affairs services for corporate and government
clients.

Earlier in his career he served as Executive Director of a
global trading company, which focused on business development in
Myanmar and Southeast Asia. For more information, please visit
http://www.kwrintl.com



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