Economy Key to Burma's Democracy
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Economy Key to Burma's Democracy

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Nearly a year since his government took office in Burma last March, President Thein Sein’s program of political reforms continues to surprise and win over critics. In January alone, the government concluded a ceasefire with the Karen National Union, one of the country’s main ethnic insurgent groups, released a second batch of political prisoners, and agreed to the full normalization of relations with the United States. In a press conference in Bangkok ahead of his visit to Burma, U.S. Senator John McCain even let slip the regime’s preferred “Myanmar” rather than “Burma” – a subtle signal of just how far things have shifted.

Amid the optimism about this “Burmese Spring,” investors have turned their eyes towards the potential of the Burmese economy – Southeast Asia’s slumbering giant. As others in these pages have noted, interest is gathering in this untapped market of 50 million, stunted for decades by colossal mismanagement and Soviet-style central planning. Recent visits by U.S. Secretary of State Hillary Clinton and British Foreign Secretary William Hague have raised the prospect that economic sanctions banning Western trade with Burma will soon be scaled back or removed. In the meantime, Asian investors are already making moves into the market, and a Japanese business delegation led by Economy, Trade and Industry Minister Yukio Edano traveled to the country this month.

The country offers massive potential in just about every imaginable sector, from banking, telecommunications, and power generation to agriculture, natural resources, and construction. Douglas Clayton, founder and CEO of Leopard Capital, which operates in emerging markets, wrote recently that “an epic economic catch up marathon seems set to start, and could morph into a sprint if Burma creates the right investment framework.”

Of course, there’s still a long way to go before that framework is firmly in place. As many have pointed out, the country still lacks the foreign investment rules and predictable governing apparatus necessary to attract investors. The banking system is in disarray – most of the country’s overwhelmingly rural population lacks any access to credit – and the local currency, the kyat, is still set artificially at a value more than a hundred times higher than that available on the black market. Import restrictions mean that buying a car – even a battered 1980s Toyota – can still cost tens of thousands of dollars.

Ultimately, however, the health of the Burmese economy should be of interest not just to investors and economists; it could also have a crucial bearing on the country’s political reforms and the long-term sustainability of the “Burmese Spring.” Historically, economic hardship and political unrest have been closely linked in Burma: in September 1987, the government’s decision to demonetize 25-, 35- and 75-kyat notes wiped out the savings of thousands, providing ready kindling for the following year’s seismic anti-government protests. The “Saffron Revolution” of 2007 was similarly sparked, at least in part, by hikes in the price of gas and diesel fuel.

Assuming the government can negotiate the thickets of currency reform and other basic structural changes, the longer-term economic challenges are thorny. Much of the country’s economic dysfunction is a result of the massive fiscal distortions created by the Burmese military, an institutional behemoth that consumes just under a quarter of the national budget, according to official figures. David Scott Mathieson, a Burma researcher for Human Rights Watch, says that while the current political changes have so far been more or less frictionless, few people are willing to discuss this “ultimate reform.”

Military personnel, according to some, are still embedded throughout the country’s governing apparatus.“In the most fundamental way, the state bureaucracy has been thoroughly militarized, that is, run by military officers and ex-officers,” says Maung Zarni, a visiting fellow in the Department of International Development at the London School of Economics. “Honest, capable technocrats and bureaucrats don’t survive in this militarized system of governance.”

Decadesof military rule also mean there are relatively few officials with the necessary education and experience to manage such a complex transition. “It’s a mindset problem. These are people who are used to taking orders, used to being part of a command economy,” Turnell says.

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