Regime rides above sanctions

Asia Times Online
http://www.atimes.com

Southeast Asia
Aug 18, 2009

By Simon Roughneen

BANGKOK - Despite some buffeting by the global economic downturn, revenues from gas, oil, hardwood and gemstones continue to flow into Myanmar's coffers, helping junta leader Senior General Than Shwe to maintain Southeast Asia's largest standing army. An estimated 50% of the state's revenues go towards maintaining the country's 400,000-strong military.

While Western countries impose economic sanctions against the junta, including new measures imposed last week by the European Union against members of Myanmar's judiciary and 58 other enterprises, Asian states are fiercely competing for oil and gas concessions. That promises even greater wealth for the ruling military junta, even as its international reputation plummets in the wake of last week's sentencing of pro-democracy leader Aung San Suu Kyi to three years in jail, later reduced to 18 months of house arrest.

Thailand and China were estimated to have provided US$850 million of the $980 million total that was invested in the country last year, in everything from oil and gas, to roads, along with gems and timber extraction. As of 2007, both countries accounted for over half of Myanmar's exports and imports. Those figures should rise as new hydroelectric projects and a port-pipeline facility linking the Myanmar coast to western China get underway later this year.

When Myanmar has faced intense international criticism, including in reaction to its slow response last year to the Cyclone Nargis disaster, China, its main ally, has provided the regime with political cover through its seat on the United Nations Security Council. This was replicated in China's public response to the Suu Kyi verdict, saying that the international community should respect Myanmar's "judicial sovereignty" and that it would not support any United Nations-sponsored sanctions linked to the verdict.

With China, India , South Korea and the Association of Southeast Asian Nations (ASEAN) averse to any form of sanctions on the junta, there is a case to be made that Western restrictions merely drive business elsewhere.

"Chinese investment is imperative for [Myanmar] amid the US and European Union sanctions," said Arpitha Bykere, Asia Analyst at the Roubini Global Economy (RGE) Monitor, a US-based research center. "Economic ties with Asia help [Myanmar] show to the world that despite sanctions, it can attract trade and investment from several countries. This boosts [Myanmar's] political leverage to resist global calls for political reform."

Little of the largesse from recent foreign investments has gone towards much-needed health, education, and agriculture sector spending. A 2006 estimate of the child mortality rate in eastern Myanmar was 221 per 1,000, higher than the 205 recorded in the war-ravaged Democratic Republic of the Congo. The World Health Organization (WHO) ranks the nation's health system as the second worst on the planet, while according to UNICEF, the United Nations Children's Fun, more than 25% of the population lacks access to potable water.

These abysmal statistics figure largely in the debate over whether Western countries should maintain their sanctions or move towards more engagement with Myanmar's rights abusing regime. Engagement advocates note that Myanmar received 20 times less per-capita from donor countries than other countries with similar poverty levels. According to the US Central Intelligence Agency yearbook, 32.7% of Myanmar's people lived under the poverty line in 2007 while the population endured inflation of 27.3% in 2008.

The junta's foreign minister, Nyan Win, described economic sanctions as "immoral" in a September 2008 address to the UN General Assembly, adding that they "are counter-productive and deprive countries of their right to development". Prime Minister Thein Sein made much the same argument in presentations in February to UN envoy Ibrahim Gambari.

There were earlier indications of a possible policy rethink in Washington. In the run-up to the Suu Kyi verdict, US Secretary of State Hillary Clinton offered to consider renewed US investment in exchange for the release of Suu Kyi and other political prisoners and her National League for Democracy (NLD) party being allowed to participate in elections scheduled for next year.

The State Department had earlier said it would consider a review of US policy towards Myanmar, an acknowledgement that past policies and sanctions had failed to influence the junta. That debate was expected to stall after the junta spurned US and UN calls against extending Suu Kyi's detention. However, Than Shwe's meeting over the weekend with US Democratic senator Jim Webb, which also allowed the Amercian an hour-long meeting with Suu Kyi, has raised new questions about diplomatic next steps.

The EU's tightened sanctions added members of Myanmar's judiciary responsible for the Suu Kyi verdict to a list of some 500 Myanmar government officials whose assets in the EU are frozen and who are banned from travel to the EU's 27-member bloc. In contrast, China, Russia, Vietnam and Libya watered-down a US-drafted UN Security Council statement on the Suu Kyi verdict to express "concern" rather than outright condemnation.

The counter-sanctions argument promoted by many Asian nations suggests that restrictions fail to influence the junta and only keep the nation's poor downtrodden. Given that the majority of Myanmar's population - 70% of the people - are employed in the agriculture sector and benefit neither from the regime's resource extraction activities nor its trade and investment links with neighboring countries, the sanctions debate is something of a red herring.

Myanmar economy expert and Macquarie University economist Sean Turnell told Asia Times Online that the majority of Myanmar's people "might never have seen a bank, much less have anything to do with the type of institutions and links targeted by sanctions". Moreover, upgrading the amount of donor aid sent to Myanmar would amount to a free pass for the junta on development-related spending it should be undertaking itself.

The junta's concern about the impact of sanctions suggests either one of two things: Myanmar's military rulers have turned a new leaf and want to help their people, or they do in fact feel the pinch of sanctions and are worried that if replicated closer to home, the impact on the elites would be devastating. If the former is indeed true, it is not reflected in junta policy.

On May 11, the Financial Times quoted an unreleased annual International Monetary Fund report that said Myanmar's foreign exchange reserves are at a record $3.6 billion, but that the ruling junta has not used them to help the impoverished population and that the country's economic prospects remain "bleak". Vigorous rolling of the monetary presses has contributed to an inflation rate of around 30%, the report said.

The junta has boasted that its international isolation would help it weather the global economic downturn, at least compared with its more export-oriented counterparts in ASEAN, such as Singapore, Malaysia and Thailand. Other members are Brunei, Cambodia, Indonesia, Laos, Malaysia, Vietnam and Myanmar. This hasn't been the case, however. RGE Monitor's Bykere said that "Myanmar has taken a hit due to a global commodity [price] correction. Production and export of natural gas, mining products, food products and several other commodities have been severely affected."

Although the junta's official statistics claim that the economy is growing at around 10% annually, Turnell said that various indicators, including weak domestic energy consumption, suggest that the economy is actually contracting. According to the Economist Intelligence Unit's latest report on Myanmar, the country's real gross domestic product (GDP) growth for 2009 is projected to be only 1%.

According to Turnell, Burma's problems can be traced to the state's commanding control of the economy, which squeezes the life out of private-sector activities. Disproportionate budgetary allocations to the military means that no rural credit is available, even though 70% of the national workforce are subsistence farmers. Meanwhile, foreign revenues are understated on the national accounts because of exchange rate manipulations. For instance, revenue from gas exports is added to the budget at the fixed official exchange of six kyat to the dollar rather than the 1,000-kyat to the greenback floating black market rate.

Recorded at the official rate, Myanmar's gas earnings represent less than 1% of overall budget receipts; if the same gas earnings were recorded at the market exchange rate, their contribution would be more than double total official state receipts.

Turnell says the rationale behind the dual exchange rates "is probably to 'quarantine' [Myanmar's] foreign exchange from the country's public accounts, thereby making them available to the regime and its cronies. This accounting is facilitated by [Myanmar's] state-owned Foreign Trade Bank and some willing offshore banks."

These complicit offshore banks are known to be in neighboring states, implying that a broader Western sanctions regime that hit certain Asian banks might have a greater impact on the junta's finances. The Asian states most critical of the ineffectiveness of Western sanctions are often the same ones that undermine them by offering Myanmar's junta alternative financial, trade and investment options.

If Myanmar were a democratic state, the Myanmar people would be the rightful sovereign owners of the country's resources and revenues and would have some say in how they were spent. But as the country gears up for democratic elections next year, all indications - including Suu Kyi's continued detention - are that the military intends to extend its political and economic dominance via a civilian veneer.

Simon Roughneen is a roving freelance journalist. He has reported from over 20 countries and is currently based in Southeast Asia.