Why It's Time To Deal With Burma

It’s an indication of the extent of political change in Burma over the past year that the head of ANZ recently felt comfortable publicly discussing his company’s ambitions to expand into the country also known as Myanmar.

"We can’t do anything until the Australian government lifts its restrictions (on doing business in Burma) but hopefully that will be a positive. I would like to have a presence there too," ANZ chief executive officer Mike Smith told The Australian.

With democracy icon Aung San Suu Kyi and 42 of her colleagues from the National League for Democracy winning seats in relatively free and fair by-elections on April 1, sanctions are unlikely to pose a problem for business much longer. The elections were considered a major test of the Burmese government’s reformist credentials and it passed with flying colours. Just as in 1990, when Aung San Suu Kyi’s party won in a landslide, any unsavoury events in the lead up and on polling day were essentially forgotten after the results became clear.

Australia sent five people to Burma to monitor the elections — including three journalists — and foreign minister Bob Carr indicated that a smooth poll would result in sanctions being "eased".

After the release of official results on April 3 and 4, he declared the by-elections "the most recent development in the winding back of authoritarian rule in Burma".

"President Thein Sein has shown personal courage in leading Burma down its reform path. He should be congratulated and given every encouragement to continue.

"Australia is committed to providing tangible rewards for progress in Burma, including by easing our sanctions.

"We will do this in a way that is proportionate with democratisation on the ground. That is, enough to encourage further reform, but not enough to remove pressure for reform.

"The Australian government has made clear we stand ready to support Burma through our aid program and by advocating greater assistance to Burma by the IMF, World Bank, UNDP and others," Senator Carr said.

Listening to Bob Carr, it’s easy to forget that just two and a half years ago Australian clothing retailer Specialty Fashion Group, owner of Katies and Millers, was pressured into cancelling contracts with Burmese suppliers as part of lobby group Burma Campaign Australia’s "Don’t deal with Burma" push. From deterring job-creating garment orders to exploring investment opportunities with Burma’s banking sector — dominated by sanctions-listed cronies — in just 30 months; that’s a rapid transformation.

It’s all the more remarkable for the fact Burma’s military has taken steps towards reform essentially of its own accord. Even the most optimistic pundits — and I would probably include myself in this category — didn’t expect change to come this fast. Yes, there are still many major issues that need to be resolved, but it’s important to recognise that these wouldn’t simply disappear if Aung San Suu Kyi became the president of Burma tomorrow.

The Nobel laureate may argue otherwise but there is little evidence to suggest that economic sanctions, or any kind of international pressure, have played much of a role in encouraging what is happening in Burma today. This is also the case with Australia’s sanctions, which have always been little more than symbolic and never stopped trade and investment. Admittedly, it has always been difficult to assess the effectiveness of sanctions because the countries that imposed them have always been reluctant to conduct a publicly available analysis.

Nevertheless, Western governments are right to have taken steps to dismantle their sanctions regimes, if only to send a positive message to the Burmese government. There are also a host of punitive measures that never hurt the generals and cronies that prospered over the past two decades but continue to have a serious impact on Burma’s development, such as the withholding of development aid and restrictions on United Nations programs.

UK-based not-for-profit Network Myanmar noted last week that despite the progress made by Thein Sein’s government, changes to sanctions so far have been modest. It proposed that all sanctions with "human rights implications" be immediately lifted.

"Whatever the original intention, there are many sanctions which primarily and some exclusively affect the population," the organisation said in a statement.

These short-sighted measures have only left the West in a weaker position as it endeavours to support the government’s plans for reform. The managed float of the exchange rate on April 2, widely acknowledged as an essential step forward, would have been almost impossible without International Monetary Fund assistance that was until recently blocked by the United States.

The upshot for Australia is that it will find it easier to increase its engagement than the United States and to a lesser extent Canada, which both have blanket bans on trade and investment. Indeed, as early as March 2010 Australia began recalibrating its Burma strategy with a significant increase in aid, including capacity building measures like scholarships for postgraduate students.

In the case of the United States removing sanctions will be particularly difficult, as its special envoy to Burma, Derek Mitchell, acknowledged at a press conference in Rangoon on 15 March.

"We spent a lot of time over the past 20 years putting sanctions on for various reasons but there wasn’t a lot of thought as to how to unpeel them and work back," he said.

"If there’s reform occurring then we want to be working with the people here in that direction."

On 4 April the US Government said it would ease bans on investment in some sectors and financial transactions and appoint an ambassador in response to the by-elections and other recent reforms. Congress-imposed sanctions, such as a ban on trade, will remain in place, but the lifting of some restrictions on financial transactions will have a significant positive impact for Burma’s middle class and exporters and could result in credit cards making their first appearance here.

"The purpose is to send a clear signal of support for the reform process and reformers. At the same time, we have no illusions about the difficult road ahead in Burma and that there remain severe challenges down the road," a State Department official said when announcing the changes.

But even if — or rather when — sanctions are lifted, don’t expect too many Western multinationals to rush into Burma straight away. Considered one of the last frontier markets in Asia, Burma has a large population, geostrategical importance and abundant natural resources. It’s an enticing prospect, but while the government has taken some steps to improve the business environment, such as exchange rate reform and amendments to the Foreign Investment Law, Burma remains an extremely tough place to do business, particularly as a foreigner.

Last year, Australian publisher Ross Dunkley found this out the hard way when he spent 47 days in a Rangoon jail following a business dispute with his partner in The Myanmar Times, a weekly newspaper. And while it appears to be opening up, Burma has burned plenty of investors before during similar periods of optimism.

Transparency International continues to rank it as one of the most corrupt countries in the world and efforts to fight graft and streamline the bureaucracy are still in their initial stages.

When even the thought of doing a due diligence check on a prospective business partner is enough to give you a migraine, you know you’re not working in a normal economic environment. It’s probably no surprise then that risk analysts make up a large proportion of the suits filling up Rangoon’s business hotels, busily trying to work out the connections that make the Burmese economy tick.

And in a stark reminder of the ramshackle state of the country’s infrastructure, residents of Rangoon woke on 2 April to find that, not only had the NLD won at least 40 of the seats it contested the previous day, but that all areas of the city were now facing daily power outages ranging from six to 12 hours. (However, in rural areas, where the NLD won the majority of its seats, six hours of electricity would be considered a good result.) Internet connectivity has been similarly erratic.

"Burma’s economic problems don’t come from sanctions. The fact that the country never attracted much in the way of foreign investment except in extractive industries before wasn’t because of sanctions," Sean Turnell, an expert on the Burmese economy, told AFP last week.

"The Thais, the Chinese, the Singaporeans could have been investing in more productive activities, and the fact that they didn’t had everything to do with the economic mismanagement that successive regimes had put in place."

Fixing these economic problems — like national reconciliation and human rights issues — will take years, not months, even with the necessary political will. But with a historic détente between the military and democratic opposition in place, Burma now has the best opportunity in living memory to make a clean break with the conflicts of the past — and that’s something that the international community should do its utmost to support.