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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?

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.

 

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 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 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.

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.

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.

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 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 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 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.

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.

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?

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 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?

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, 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?

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.

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.

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.

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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 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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KWR International Advisor

Editor: Dr. Scott B. MacDonald, Sr. Consultant

Deputy Editors: Dr. Jonathan Lemco, Director and Sr. Consultant and Robert Windorf, Senior Consultant

Publisher: Keith W. Rabin, President

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