Opening up, Myanmar finds itself in a tough balancing act

Half a year before critical elections, tensions are mounting in Myanmar, its borders and great power relations.

Recently, hundreds of Myanmese students protesting a controversial education bill have been locked in a standoff with security forces. Washington has expressed concerns about their arrests.

Meanwhile, thousands of refugees have entered in Yunnan as a result of fights between Myanmar's army and local communists. As a result, China has asked Myanmar to "lower temperature" on the border.

The rising friction in Myanmar heralds the impending elections in October/November 2015.

Rapid growth

In fiscal year 2014-15, real GDP growth is expected to decelerate slightly to 7.8 percent, due to slower growth in the agricultural sector.

Reportedly, FDI in Myanmar is expected to increase by 70 percent in fiscal 2014, jumping by US$7 billion (S$9.7 billion) over the previous year. The largest investors comprise businesses from Singapore, Hong Kong, the UK and China, respectively.

Over the medium-term, the outlook of the Southeast Asia's last tiger economy remains favorable, with long-run growth potential estimated at 7 percent. Thanks to increasing spending and attendant inflation pressures, downside risks for the near term have increased.

The recent kyat depreciation has been driven by the strengthening of the US dollar and a widening external current account deficit.

Washington's game

From the US to EU, Myanmar is seen as a fascinating story of economic growth and human rights. After years of diplomatic isolation, economic and military sanctions, Washington relaxed curbs on foreign aid to Myanmar and the relations were normalized in 2011.

As the EU followed in the footprints, Japan agreed to cancel US$2.7 billion in debt and pledged US$900 million to support a new foreign assistance program. While China was scheduled to upgrade a rail track from Yangon to Mandalay, Tokyo won the contract and is hoping to modernize Yangon's crumbling urban transit system.

Recently, Washington has expressed concern about human rights, intimidation of journalists and violence against the Rohingya Muslims.

In Myanmar's view, the US has not actually walked the talk and invested in the economy, except for Coca Cola and a few other businesses. Despite President Obama's visit in 2012, the administration has not fully lifted sanctions.

Chinese investments

Despite obstacles, Chinese FDI in Myanmar remains substantial. But not all major projects have been smooth.

Before Christmas, protesters were injured and died in the Letpadaung copper mine project of Chinese Myanmar Wanbao Mining Copper Ltd. Afterwards, Aung San Suu Kyi, leader of the National League for Democracy (NLD), slammed the authorities over the deadly protest.

Previous setbacks include the controversial suspension of the major Chinese-led US$3.6 billion Myitsone dam project in 2010 and the proposed Kunming-Kyaukphyu railway; a US$20 billion project to connect China's Yunnan province with Myanmar's Rakhine state.

Yet, China remains vital to Myanmar's economic development. Last November Premier Li Keqiang and his Myanmese counterparts signed deals amounting to $7.8 billion in energy and infrastructure, agriculture, telecoms, and finance.

Pre-election geopolitics

In Washington, the dominant Myanmar narrative is geopolitical. The question is whether Naypyidaw can serve the US-led alignment around China.

In Beijing, the Myanmar narrative builds more on economic realities. The question is to what degree Naypyidaw will participate in the Chinese-led regional integration.

Critical economic and political decisions in and about Myanmar are likely to follow only after elections in late fall. But the early era of reforms and opening-up will end as President Thein Sein is likely to step aside.

His mantle is expected to be taken by Shwe Mann, the speaker of House of Representatives and key leader of the Union Solidarity and Development Party (USDP).

Myanmar's goal is to sustain stability and growth at home, while reaping the economic benefits from China, Asia and the West. It is a precarious balancing act.

Dan Steinbock is research director of international business at the India China and America Institute (US) and a visiting fellow at the Shanghai Institutes for International Studies (China) and the EU Centre (Singapore). See www.differencegroup.net

This article appeared in the South China Morning Post print edition as Opening up, Myanmar finds itself in a tough balancing act (March 11, 2015)