Western Sanctions Aren't Working


If Kevin Rudd had looked eastward out of the window of his embassy car on the morning of 1 July, before his meeting with Burma’s President Thein Sein, he might have been able to make out Naypyidaw International Airport in the distance.

Designed to eventually handle 10.5 million passengers — about 35 times the number of tourists who visited Burma last year — it is an instructive example of how Western influence is being rendered increasingly irrelevant in Burma.

In May 2009, online analysis site Asia Sentinel revealed that the Singapore-based firm that designed the airport, CPG, was a wholly owned subsidiary of Australian engineering company Downer EDI. Within days, Downer announced it was pulling out of the project under pressure from activists.

What appeared to be a blow for the prestige of Burma’s military rulers and their purpose-built capital was nothing of the sort.

Construction of the airport has continued pretty well seamlessly — to CPG’s original design — and phase one is due to open by the end of this year. Under a deal signed in January, China’s Export-Import Bank will provide the government with a loan to undertake phase two of the project.

This is not to say that Downer should have been partnered with a firm like Asia World, which has a less than savoury reputation and whose owner is targeted under Australia’s financial sanctions. Australian companies should not be allowed to abandon their moral or legal obligations so they can compete more easily with their Asian counterparts.

However, it has become increasingly clear that unilateral sanctions have been rendered largely ineffective — indeed, little more than symbolic — by the rise of Burma’s Asian neighbours. In the 2010-11 financial year beginning 1 April and ending 31 March, Burma recorded nearly US$20 billion in foreign direct investment, of which almost $14 billion came from mainland China and Hong Kong, with Thailand and South Korea the next largest investors. The figure for the past financial year was higher than in the previous two decades combined and the majority went into the energy sector, including natural gas pipelines, offshore rigs and hydro projects.

China is now also Burma’s largest trade partner, closely followed by Thailand, which imports about $2.5 billion in natural gas each year. When an oil and gas pipeline is completed in 2013 linking China with the Bay of Bengal, the Burmese government will earn billions more each year.

There are many more examples. When Canadian company Ivanhoe recently sold its stake in a Burma copper mine, after years of criticism from lobby groups, it was snapped up by China North Industries Corporation — an arms manufacturer better known as Norinco. On a visit to Beijing in late May, President Thein Sein agreed to back China over Burma’s partners in the Association of Southeast Asian Nations in the South China Sea dispute. In return, China agreed to support Burma’s quest for the ASEAN chair in 2014.

Much of this has taken place in the nine years since Alexander Downer flew into Burma in 2002. Until last week, that was the most recent visit by an Australian foreign minister to Burma. Despite privately describing his meetings with the military regime as the most pointless in his ministerial career, Downer wisely refused to follow the path of the United States and impose a blanket ban on trade and investment with Burma. Few Western companies would brave Burma’s economic environment anyway, and in that sense sanctions are counter intuitive in that they act to remove the incentive to introduce economic reforms.

Despite China’s apparent dominance, there are avenues through which Australia can look to build its influence. In early 2010, then-foreign minister Stephen Smith announced a significant increase in funding for aid projects in Burma and Australia is now the second-largest donor here. AusAID had been quite active in Burma prior to the announcement; in 2006 it helped established the Three Diseases Fund, a multi-donor trust that supports HIV, tuberculosis and malaria projects. The fund was instrumental in showing aid could be delivered accountably and effectively, without benefiting the regime. Australia has also taken the important step of not just alleviating immediate humanitarian needs but also participating in longer term solutions to the country’s endemic poverty.

It should also be acknowledged that the Burmese government enjoys dealing with the Chinese no more than the West, and is clearly uncomfortable with the extent of its dependence on China. The two countries share a long border and squashed in between are several heavily armed ethnic rebel armies. China demands stability to both protect its economic interests in Burma and prevent refugees spilling over the border, which reduces the Burmese government’s independence in dealing with the insurgent armies.

The extent of Chinese influence in a city like Mandalay is also a ticking racial time bomb. Race-based riots are not particularly unusual in Burma and for a brief period last month it looked as though a brawl between Chinese and Burmese traders in a gem market would provide the spark for further bloodshed.

For Australia, quietly assisting Burma’s new leaders to act on promised reforms that would open up the economy to more external actors would be a good place to start, and it would be a move that would tie in nicely with its aim to assist the Burmese people escape poverty. As noted scholar Thant Myint-U said in his keynote speech at the recent conference on Burma held at the Australian National University, years of isolation from Western training institutes have severely diminished the capacity of Burma’s civil service. There is the distinct possibility that those who seek reform do not have the ability to implement it. The window of opportunity for moderates in the government to make talk of reform a reality could also be fleeting before vested interests win out.

The new Burmese government also faces a significant problem in balancing its budget. In one of its last actions before it was dissolved, the military regime, known as the State Peace and Development Council, unveiled a massive increase in the national budget for the 2011-12 financial year, from US$3.3 billion to US$7.8 billion, despite revenues of just US$1.5 billion. A further shock will come when Burma enters the ASEAN Free Trade Area, exposing its underdeveloped private sector to regional competition.

Burma’s seemingly desperate desire to chair ASEAN in 2014 and affirm its legitimacy also represents an opportunity for Australia to quietly coerce the Burmese government toward political and economic reform, by making it conditional on firm targets. In a context where the West has seemingly little leverage, this could be a golden opportunity.

When it came to Rudd’s visit, however, for the Australian media these issues were mere background noise to the main event: Daw Aung San Suu Kyi, who Kevin Rudd called "a truly inspirational woman … a person of enormous will, determination and, I would say, just plain political guts".

Held under house arrest for much of the past 20 years, she has developed a legion of followers around the world as the figurehead of a people tragically oppressed by their own military rulers. As evidenced by her "holiday" last week in the ancient city of Bagan, Suu Kyi still commands enormous respect here, even if many disagreed with her stance to boycott the 2010 election. (Incidentally, the fixation was not only Australian media; at his press conference in Singapore, the first four of six questions put to Rudd were about Suu Kyi.)

However, as Greg Sheridan noted in The Australian, the meeting with Suu Kyi was "only one small part of [Rudd’s] agenda in Burma". He was the first Western official of note to meet the new president, and also held discussions with the aid community in Rangoon. Yet the singular focus of the media would have worried Rudd little; indeed, the less media scrutiny the better. Efforts by the United States and United Kingdom are made that much harder by stronger domestic lobby groups and a rabidly anti-regime press.

As Dr Nicholas Farrelly from the ANU told me recently, the visit was not only a photo opportunity but also a chance for Rudd "to take the pulse of the country, and of Aung San Suu Kyi’s democrats … to get some flavour of life outside the bubble that surrounds him".

He would also relish the possibility of Australia — and its foreign minister — playing a greater role here, particularly given his post-ministerial ambitions, says Farrelly. "Myanmar remains a dilemma for the international community," he said. "If, during Rudd’s period as Foreign Minister, Australia can become enmeshed in helping resolve Myanmar’s long-running political and social conflicts then he will be a happy man."

As will tens of millions of people in Burma.


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