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Asean Affairs    14 April 2012


By Murray Hiebert, Senior Fellow & Deputy Director, and Tracy Quek, Researcher, Southeast Asia Program, CSIS

Despite complaints of voting irregularities, opposition leader Aung San Suu Kyi and her party, the National League for Democracy (NLD), won 43 of the 45 seats contested in Myanmar’s April 1 parliamentary by-elections. The Obama administration, which has pledged a policy of meeting “action for action,” responded quickly to the results by announcing further steps to normalize relations with the country.

Measures announced April 4 by Secretary of State Hillary Clinton include enabling private U.S. organizations to pursue a broad range of nonprofit activities from democracy building to health and education projects and allowing travel to the United States for select Myanmar government officials. Most significantly for American companies, U.S. officials will begin the process of a targeted easing of the bans on the export of U.S. financial services and investment to help overhaul Myanmar’s banking system and encourage the country’s economic modernization and political reform.

Set to go first are restrictions in sectors such as tourism, agriculture, telecommunications, and banking that are most likely to benefit ordinary Burmese. The United States appears likely to retain bans on sectors such as natural resources and precious stones. These industries are perceived to be closely linked to members of the military regime responsible for human rights abuses, especially in ethnic minority areas.

The steps taken by the U.S. government have hit roughly the right pitch at this stage, but it is important that Washington think through what steps it should take next to ensure political reforms do not stall, economic growth is encouraged, and U.S. business is engaged responsibly in the country.

Myanmar has arrived at a critical, albeit fragile, juncture in its tumultuous history. Steps toward political and economic reform taken by the Thein Sein administration, while far from complete or perfect, are raising hopes that the measures are real and sustainable.

If the reforms proceed, the United States should boldly follow up with further fine-tuning of its sanctions regime. Incentives to continue reforms, especially given the gratifying near-term record of accomplishment of Thein Sein to follow through on his commitments, are going to be vital to sustaining momentum for opening the country politically and economically and for consolidating important near-term gains.
Policymakers need to remain strategic while taking into account a spectrum of considerations ranging from governance to human rights to maintaining momentum for reform.

The U.S. business sector has an important role to play now too. It is time for American companies to help articulate a vision of what they could bring to the table in Myanmar and why doing so is in the interests of both the United States and Myanmar. U.S. companies should start to work more proactively with the U.S. government—both the administration and Congress—to seek support for getting engaged, assisting in promoting economic reforms, and ensuring protections that will allow investment, including in innovative sectors, to flow into Myanmar.

The U.S. government should continue to provide Myanmar with clear guidance on what more it has to do to continue toward normalizing relations. That is going to be a long road, but articulating a vision of what normal relations between Myanmar and the United States would look like would be a strong motivating force. The Thein Sein administration knew the conditions it had to fulfil before the April 1 parliamentary by-elections, and it moved on these areas with remarkable alacrity. For instance, Washington has made clear that Myanmar must release the several hundred remaining political prisoners, but it also should spell out in greater detail what steps the government has to take to demonstrate that it has done everything it can to establish peace with its ethnic minorities and end its military ties with North Korea.

As for U.S. economic sanctions, there are legitimate concerns about rent seeking and unintentionally rewarding corrupt elements in the military and government. But U.S. businesses could play an important role in improving the lives of Myanmar’s citizens if the political, legal, and economic environment is right. Judicial reform, a foreign investment law, and other measures that will provide foreign companies with a safe, transparent, and accountable business environment must first be implemented.

The United States should also closely benchmark its efforts with those of other countries that share an interest in seeing reform take hold in Myanmar. Leveraging plans for capacity building, development, and supporting governance and economic reforms is not only practical but important strategically. Working with friendly nations within the East Asia Summit to promote Myanmar’s emergence as a viable and contributing member in the Asia-Pacific community is an opportunity for building trust in and promoting the value of regional institutions.

When the groundwork is laid, foreign involvement in sectors such as manufacturing, agriculture, and tourism will benefit ordinary citizens of Myanmar because they employ large numbers of workers, create opportunities for small and medium-size enterprises, and are less likely to enrich the military families and political cronies who are known to be more involved in the natural resource sector.

There is good reason for Washington to move cautiously on lifting restrictions on investment in Myanmar’s natural resource industry. But planned changes to Myanmar’s foreign investment laws—in particular, the proposal to allow foreigners to make investments without the need for a local partner—might make it more palatable for the U.S. government to begin rolling back the ban.

Keeping Americans out of the bidding for developing energy and natural resources in Myanmar could create a legacy of dangerous and environmentally harmful mines, pipelines, and oil wells in a country that is just beginning to look seriously at developing its industry and engagement in world markets. In addition, inviting foreign competition into these sectors could help chip away at the monopolistic state-owned enterprises and businesses owned by family members and cronies of the military regime.

An alternative to the current approach of singling out certain industries for sanctions would be for the United States not to pick and choose sectors, but instead to introduce broad investment principles that all companies in all sectors would need to follow. The U.S. government might consider setting up a joint U.S. government–business taskforce to draw up guidelines for responsible investment. Efforts should also be made to bring the international community into this endeavor.

These guidelines could include efforts to avoid doing business with those on the Specially Designated Nationals and Blocked Persons List. They could also include agreements to protect the environment and engage in corporate social responsibility projects that help alleviate poverty and improve the lives of ordinary people. Separately, Washington could begin exploring a bilateral investment treaty with Myanmar.

When tackling the tricky issue of import sanctions, Washington may be able to side-step political landmines if it frames the lifting of import bans in the context of supporting the recovery of the country’s devastated economy. A quick way for Myanmar to generate economic growth is to embrace an export-oriented development strategy. In lifting import restrictions, the United States can also take the bluntness out of sanctions by selectively allowing in goods that will help revive Myanmar’s labor-intensive industries such as garment manufacturing and alleviate poverty in its agricultural sector.

As the European Union, Japan, and Australia move to ease their sanctions, U.S. companies may soon be the only ones kept out. Continuing U.S. sanctions will not ensure that corrupt elements in the military and their cronies will not benefit or that the environment and human rights will be protected. In fact, if the United States decides to sideline American companies, it makes investment from other countries that do not prioritize these concerns and are not subject to shareholder oversight or to laws such as the U.S. Foreign Corrupt Practices Act more competitive and reduces the choices for capital- and technology-hungry Myanmar.

Opening the door to well-governed companies will also help draw a highly talented Burmese diaspora back home to help rebuild their country. Many Burmese professionals work in the world’s developed economies and are interested in returning. They will not be attracted by less than excellent organizations or by less than the opportunity to develop governance and innovation models that can be protected by law and aspire to global standards.

Some argue that certain economic sanctions must be kept because the reforms undertaken by President Thein Sein and other reformers in Myanmar’s government are only skin-deep and could be reversed at any time. Others worry that lifting sanctions would deprive opposition leader Aung San Suu Kyi of her leverage with the country’s military rulers.

But now that Suu Kyi has been elected to parliament, lifting economic sanctions will give her, NLD lawmakers, and their allies in government a real shot at improving the lives of ordinary people in Myanmar. Concrete results and progress, no matter how minor or incremental, could bolster public faith in the democratic opposition and convince hardliners that reforms are the better and more constructive way of doing things.

With the April by-elections now history, the United States needs to recalibrate the “action for action” policy against a new timeframe. The next major political milestone in the country will be the elections in 2015 when the transition of power could move from the symbolic to the more formal. It is fair to assume that reformers and hardliners alike are planning—and hedging their bets—against this deadline.

The United States should target its longer-term policies toward this date. “Action for action” will be most effective if Washington figures out what success over the next few years would look like and develops plans to achieve it. Such plans would identify shared interests, clarify expectations, and involve negotiating benchmarks with the government in Myanmar.

Hardin Lang, senior fellow at CSIS focusing on national security, stabilization operations, and the economic dimensions of conflict, also contributed to this commentary.

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