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Myanmar: The day after tomorrow

Myanmar: The day after tomorrow

Myanmar

Two elections, two landslide National League for Democracy (NLD) victories and, so far, two very different results.

 

The largest country in mainland Southeast Asia went to the polls this past weekend and voted into office the very party whose last sweeping victory in 1990 went ignored by the ruling military junta. Its leaders were subsequently jailed, turning future Nobel laureate Aung San Suu Kyi into an international martyr for democracy, while repression stymied growth for another two decades.

But change has now come to Myanmar. Ms Suu Kyi will be President in all but name, the army will largely return to the barracks, and the country formerly known as Burma can finally get on with catching up on fifty years of lost economic potential.

That's the most optimistic view, at least.

The reality is much more complicated and will quickly become apparent once the military removes all doubt that it will honour the election results - which currently predict a crushing defeat for the military-backed USDP, who may only hold around 5% of freely elected seats once results are released, if that.

The day after tomorrow will bring a host of sobering challenges to address, most of which threaten to derail any prospect of long-term stability and development.

Complicated governance

Military control over a quarter of seats in parliament as well as key ministries, including Defence and Home Affairs, is enshrined in a flawed 2008 constitution designed to ensure the military retains significant power, even if defeated at the polls. This includes a ban on presidents with foreign-born children, effectively barring Ms Suu Kyi from her nation's highest office.

Control over Home Affairs brings control over the General Administration Department, the “backbone” of local administration in Myanmar’s vast centralised bureaucracy.

An NLD majority in both houses of parliament, as seems increasingly likely, will allow the incoming administration control over both the legislative and executive branches of government. But no matter the eventual outcome, the military will retain direct control over the police, internal security services, armed forces and large parts of the country’s bureaucracy.

Any civilian government will therefore require an effective working relationship with the old guard to ensure stability, as these MPs will surely fight as a bloc to protect the military's remaining power and sizeable economic interests.

A diverse land

Myanmar is land of plenty. Resource blessed, the country is home to 135 distinct ethnic groups cobbled together in a single state as a holdover from British colonialism - rarely a recipe for national cohesion. The plight of the Muslim Rohingya people in the Buddhist-majority country has become well known, but is just one of several ethnic conflicts that threaten to boil over at any time.

Loyalties are first and foremost local in the ethnic regions along the country's vast borderlands, some of which are politically autonomous and self-administering. Nevertheless, early results suggest the NLD has made inroads over local candidates in these areas, a positive development.

Placating and managing the immediate and longer-term demands of Myanmar's diverse people will be at the top of the new government's to-do list.

Bagan

An improving but still very needy economy

The USDP government leaves behind an economy in sore need of reform, even at the most basic level.

Aside from a hastily-constructed highway linking first and second cities Yangon and Mandalay, through the purpose-built capital Naypyidaw, as well as a pleasantly surprisingly international airport at Mingaladon, infrastructure is in rough shape - where it exists at all.

A combination of neglect and economic isolation has left charming Yangon as one of the best-preserved examples of colonial architecture anywhere in the world. A boon for tourism, but unfit for the needs of a bustling metropolis in fast-growing Southeast Asia.

The prospect of foreign competition threatens the military-linked monopolies and vested interests that have accumulated over decades of central planning, especially in the country’s most lucrative industries. Excising rot and decay will be a challenge that is both politically complicated by military influence in parliament, and economically compounded by outdated regulation and a judicial system with a long way to go before it reaches international standards.

Myanmar is already one of the hardest countries in the world in which to do business, and despite some improvement in areas like starting a company, it has actually regressed when it comes to access to credit and paying taxes, according to the World Bank. These two are prerequisites for a healthy private sector and healthy government revenues - revenues that will be needed to improve the woefully underfunded government services the Burmese people are currently provided.

It goes without saying that corruption is a major issue in the economy, with no quick fix in sight. Lacking control over police, the new administration will need the cooperation and compliance of the military in order to crack down - a tall order considering local police forces are often a focal point of corruption themselves.

Nevertheless, the economic potential is there and positive steps have been taken over the last few years in a number of areas.

Myanmar’s central bank scrapped a 35-year-old fixed exchange rate in favour of a managed float in 2012. A free press is beginning to flourish. Lifting car import restrictions has rejuvenated - but also clogged - the once Havana-like streets of Myanmar’s biggest cities. Structural reforms like new land and banking policies have stimulated investment and domestic demand. This has all underpinned “robust” economic growth, with over 8% annual GDP growth projected by Asian Development Bank for both 2015 and 2016.

Map Myanmar

The Lady on her throne

Finally, there is Ms Suu Kyi herself, who has spent the last few years since her release from house arrest as an opposition MP in the military-run parliament. This has tarnished her democratic and idealistic image for some, as has her silence on the suffering of the Rohingya in the face of strong anti-Muslim sentiment in the country.

Whether these are the moves of a pragmatic politician merely playing the military's game, or whether this reveals more about Myanmar's pending decision-maker-in-chief than we have previously assumed remains to be seen.

Pragmatism, perhaps of the ruthless sort, will be required to navigate the treacherous waters ahead for this still-flawed, but today seemingly more democratic, country. Her seemingly pragmatic recent record shows Ms Suu Kyi may therefore be just the leader Myanmar needs in these changing times.

She is but one lady, however, and will need the assistance of competent legislators and local leaders from her own party, as well as a compliant presidential candidate to sit in her place in Naypyidaw. Once a “team” is established, she will then need to manage this multi-headed leadership hydra that includes a bruised but still-powerful military, who no doubt will be protective of its own interests and wary of too much change too soon.

This is an unenviable throne from which to lead, and from which to placate the now sky-high expectations of her own people.

Looking toward a brighter but still overcast future

A new president isn’t expected to be selected until March, after the new parliament convenes early in the new year.

Despite the free-if-not-fair elections, the incoming administration will essentially be forced into a power sharing arrangement with the vestiges of Myanmar’s military bureaucracy - especially in the short and medium terms.

Parts of the NLD’s eventual legislative agenda will therefore be hamstrung, but some essential economic reform initiatives should move forward as the foundations of modernisation were already being set by the old regime before these elections.

Foreign investors will be encouraged by the fact that the elections were allowed to proceed at all, and that the military appears to be acquiescing to the results. If nothing else, this is a big symbolic step forward in what is considered by many as the last frontier economy in Asia.

The material effect for Myanmar’s economy and foreign business remains to be seen, however. This largely depends on deft politicking by NLD legislators, as well as Ms Suu Kyi herself, and the military’s willingness to cede further elements of its political and economic stranglehold on this beautiful and potential-rich country.

These elections were a welcome, surprising and long-overdue symbolic step toward the better future Myanmar deserves. For the economy and foreign businesses eyeing the market, what happens the day after tomorrow will determine whether or not Myanmar’s full potential can be achieved.

About Niels Strazdins

Niels is an Associate at Dearin & Associates and Head Research Manager at the Export Council of Australia. He researches international market opportunity and helps business access it. He is a keen observer of international events, lectures intermittently, writes on political risk and is involved in a number of public and private sector initiatives to boost engagement with and between emerging markets.

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