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Reforms open SE Asia’s ‘last frontier’

by Minoru Matsutani

Staff Writer

Newly democratizing Myanmar is a suitable destination for Japanese direct investment as it is Southeast Asia’s “last frontier,” two researchers based in Singapore said at a symposium in Tokyo.

The two agreed that Myanmar has a long way to go before it achieves full democracy but is on the right track. They also agreed that Nobel Prize laureate and Myanmar opposition party leader Aung San Suu Kyi is a democratic icon and the world is closely watching the presidential election slated for 2015.

The two researchers were guest speakers at the symposium, “Myanmar now; Myanmar’s recent moves and its relationship with Japan viewed from Southeast Asia,” organized by the Keizai Koho Center in Tokyo on Dec. 9.

Opportunities, obstacles

Myanmar is re-emerging in the international arena as its democratization process is ongoing, said the first speaker, Moe Thuzar, a fellow of the Myanmar Studies Program and the lead researcher in sociocultural affairs of the ASEAN Studies Centre at the Institute of Southeast Asian Studies, Singapore.

“Myanmar is re-emerging. It will chair ASEAN summit meetings next year, which is a positive in terms of its international image,” Moe said in her presentation, “Myanmar in transition: Expectations and realities, opportunities and obstacles.”

She first explained the current situation in Myanmar, where democratization began after the military dictatorship ended in 2011 following a general election in 2010.

“An opposition party is back in the political process,” she said as the first important point in Myanmar’s current situation. “The president held a meeting with opposition leader Aung San Suu Kyi, which was unthinkable before.”

Myanmar is tackling human rights issues. It is releasing political prisoners and helping establish cease-fires in many ethnic conflicts. Major armed groups have come together in peace negotiations with the government, she said.

Politically, freedom of speech is secured. Opposition party members, media and ordinary people can talk freely about critical issues without fear of being arrested, she said. There are laws allowing workers to unionize and giving them the right to strike. Another law legalizes peaceful protests.

In 2011, the government acknowledged the country was below the poverty line for the first time. It worked on poverty reduction, starting with raising pensions. To secure funds for welfare, the government reviewed spending plans and suspended the $3.6 billion Myitsone Dam project, which the country was working on with China.

The government also banned mining along four major rivers to protect the environment after protests by residents.

In another economic reform, Myanmar began letting its currency float against other currencies in April 2012. Meanwhile, the central bank is regulating currency markets so that there are no black markets with “black” exchange rates.

Myanmar now has new laws on foreign direct investment and land ownership, which are meant to deregulate and stimulate the economy.

Myanmar’s economy is dependent on natural resources. In a breakdown of FDI by sector, oil and gas accounted for 40 percent, power 39 percent, mining 7 percent and manufacturing 7 percent as of October, Moe said, citing Myanmar’s Ministry of National Planning and Economic Development.

China is by far the largest investor in Myanmar. In FDI of existing enterprises, China, excluding Hong Kong, marked $14.1 billion as of October, more than double that of Hong Kong, the second biggest with $6.37 billion. The third-largest investor, South Korea, pumped in $2.97 billion. Japan was 11th, with $190 million, also according to the Ministry of National Planning and Economic Development.

Moe is hopeful Japan will climb the ranking in the near future as more Japanese companies identify business opportunities in Myanmar.

She then expressed her optimism that Myanmar will prosper in the future.

These political and economic reforms would be successful only if President Thein Sein and Suu Kyi have able successors to continue the trajectory of change; parliament, the military and politicians will be supportive, and play their expected roles; and all sanctions, imposed by the U.S., the European Union and other countries, will be lifted relatively soon, she opined. Developed countries introduced embargoes, visa bans, froze assets and imposed other types of sanctions on Myanmar for what they perceived as its undemocratic junta dictatorship and violations of human rights.

Things have changed. There are international movements mitigating sanctions.

In April, the 20th ASEAN Summit called for the “immediate” lifting of sanctions on Myanmar and Australia was among the first to ease visa restrictions. The EU lifted sanctions in May, although an arms embargo remains in place, she said. The U.S. mitigated the sanctions as well.

Despite such positive news, Myanmar has a long way to go before it can even think of economic prosperity.

In a reality check, Moe said Myanmar ranks 173 out of 179 in the Economic Freedom Index; 180 out of 183 on Transparency International’s corruption perception index; and 182 out of 189 on the World Bank’s ease of doing business index.

In order to further improve the situation, political and economic reforms need to be accelerated, and spread from urban areas to rural areas.

Moe cited the World Bank’s governance indicators comparing Myanmar with other ASEAN countries on items such as “political stability,” “government effectiveness” and “rule of law.” Myanmar scores low in many areas while Singapore, Malaysia and Brunei enjoy relatively high scores.

She cited other World Bank statistics showing Myanmar ranks low in terms of infrastructure, international shipments, telephone usage and other points.

Still, because Myanmar is underdeveloped and has lots of room to grow, the country offers many opportunities.

“Myanmar is very rich in natural resources, but they do not know how to extract them,” she said.

The population is relatively big, young and largely literate, providing a strong labor force and potentially a big market, she said.

On the political front, a groundswell is building to amend the constitution to enable Suu Kyi to run for the presidency in 2015. The constitution contains clauses preventing a person whose spouse or children are foreign citizens from leading the country. Suu Kyi has two British sons with her late British husband and thus is disqualified.

Also, Suu Kyi’s National League for Democracy party regards another clause of the constitution as unfair because it stipulates the military have the privilege of a mandatory allocation of 25 percent of parliamentary seats.

Changes to the constitution require the approval of 75 percent of parliament members and a national referendum, she said.

Close relationship with Japan

The second speaker, Lam Peng Er, senior research fellow of the East Asian Institute, National University of Singapore, urged Japan to invest more in Myanmar as the two countries have a close relationship in his presentation, “Japan-Myanmar relationship: View from Southeast Asia.”

Lam began by explaining Japan’s low level of direct investment in Myanmar.

Even though Japan is the third-largest economy in the world, it is ranked only 11th in terms of FDI in Myanmar.

“Even the tiny island country Singapore has invested over $2 billion,” Lam said. Singapore was the sixth-largest investor with $2.25 billion as of October while Japan had invested only $190 million, less than 10 percent of Singapore, according to Myanmar’s Ministry of National Planning and Economic Development.

“The reason Japan’s cumulative FDI is so low is because Japan followed the sanctions policy of the U.S. and EU. Not because Japan has no money, interest or technology,” he opined. The U.S. and European countries imposed severe sanctions on Myanmar for the country’s undemocratic military regime.

On the other hand, China, by far the largest investor in Myanmar, has a very different approach.

“China has never been concerned about Myanmar’s domestic problems; it is more interested in growth potential,” he said. “For China, Myanmar is very rich in resources and provides a lot of hydropower to China.”

Also, having an amicable relationship with Myanmar is geopolitically very important to China because the world’s most populous country wants access to the Indian Ocean in order to reduce its reliance on the Strait of Malacca, he said. Other ASEAN members do not impose sanctions on Myanmar, which is an ASEAN member, he added.

“ASEAN’s approach is engagement and acceptance, rather than sanctions. Japan’s position falls between the U.S. and ASEAN,” he said.

However, with the ongoing democratization and international moves to reduce sanctions, Lam is optimistic that Japan will increase investment in Myanmar and play a major role in Myanmar’s economic development because Japan’s political parties, businesses and nongovernmental organizations are all eager to play a role in Myanmar.

Japan’s active role in Myanmar would be welcomed by ASEAN members as well because they do not want Myanmar to be overdependent on one particular country, he said.

The bilateral relations between Japan and Myanmar look promising as dialogue between the politicians of the two countries has been active.

Lam quoted Mikio Numata, Japan’s ambassador to Myanmar, as telling him that leaders of the ruling and largest opposition parties, Union Solidarity and Development Party Chairman Shwe Mann and Aung San Suu Kyi, the chairperson of the National League of Democracy party, visited him in May to request Japan’s assistance in agricultural development.

“It is interesting that it was a meeting with ruling and opposition party leaders. This implies that much is expected of Japan,” Lam said.

Also, Japan’s Deputy Prime Minister Taro Aso picked Myanmar as his first foreign destination after Prime Minister Shinzo Abe’s administration was formed in December 2012.

Then Abe went to Myanmar in May with a delegation that included businessmen from 40 companies, a sign of the Japanese business community’s interest in the Southeast Asian country. Abe met President Thein Sein, Suu Kyi and other politicians during the first visit to the country by a Japanese leader in 36 years.

“After (the late former South African leader) Nelson Mandela, Suu Kyi is the international democratic icon. Myanmar’s future leaders can take advantage of the democratic image of Suu Kyi,” Lam said.

The two countries also have mutual economic interests as Myanmar needs infrastructure such as roads and water supply systems, and Japanese companies can benefit from such projects, he said.

Some argue that it is difficult for Japanese companies to invest in Myanmar because of corruption and the unrest stemming from ethnic conflicts. But currently, business interests surpass such risks and thus Japanese companies will increase investment, he said.

Also, Japanese companies should take a “China-plus-one” business strategy, meaning avoiding overreliance on China. For that, Myanmar, as the new Asian frontier, is a suitable candidate for such a strategy, he said.

An informal pipeline between the two countries also implies close ties between them.

Lam mentioned Hideo Watanabe, chairman of the Japan-Myanmar Association. Watanabe was a personal secretary of former Prime Minister Yasuhiro Nakasone. Nakasone asked Watanabe to keep an informal pipeline open with Myanmar when Japan lost interest in the country. Thanks to Watanabe’s continuing contacts with Myanmar, he befriended Thein Sein in 1996, Lam said.

He also mentioned Yohei Sasakawa, chairman of the Nippon Foundation, who in February was appointed Japan’s special representative to help achieve ethnic reconciliation in Myanmar.

While Lam focused on the close ties between the two countries in his presentation, he also pointed out that Myanmar will continue to suffer political instability and ethnic conflict. But Myanmar still has promising potential economically, he added.

Is reform sustainable?

After the two presentations, Ikuko Okamoto, senior research fellow at the Institute of Developing Economies, moderated a Q&A session.

Okamoto praised Myanmar’s various reforms, which are about two and a half years old, and said it is unlikely that the repression that once characterized the country will return.

But she also said the reforms may seem to have come too suddenly, considering the military junta had been in power for 20 years. She asked the two how it was possible.

Moe said it was the realization among the people of Myanmar that their country had become one of the world’s most backward nations under the military junta. Amid the development of Laos and Vietnam, the junta also knew that it would have to hand over power but did not know when to do it, she said.

Lam said ASEAN members played a part in encouraging Myanmar to reform. As Cambodia, Vietnam and Laos were developing, ASEAN members were urging Myanmar’s government to introduce reforms and have sanctions lifted in order to make ASEAN stronger.

Okamoto’s second question was why Suu Kyi has said very little about the issues of ethnic minorities, and communal conflicts between Muslims and Buddhists.

Moe admitted her silence was difficult to understand. “I think this puzzles many people. There has been disappointment” that Suu Kyi has not raised her voice about the human rights issues of ethnic minorities, he said.

Lam said it would be hypocritical for ASEAN members to blame Suu Kyi because their ethnic minority governance is not good.

“The truth is that many ASEAN countries have different ways of dealing with ethnic minorities,” he said.