robert looney teaches economics at the Naval Postgraduate School in California.
Published May 11, 2020
Myanmar, with its abundant natural resources and culture of work, should have been a prosperous nation by now. But since achieving independence from Britain in 1948, it has suffered a dismaying history of ethnic insurgencies along with authoritarian military regimes that have turned the country into a pariah state. Through it all, neighboring China has loomed as patron and lender of last resort, creating a quasi-colonial relationship that has proved a mixed blessing for Myanmar’s economy — and that increasingly threatens to devolve into a dangerous dependency.
In the Beginning …
This frenemy relationship began right after Myanmar’s (then called Burma) independence from the failing British empire. In 1950, it became the first non-communist bloc country to recognize the People’s Republic of China, with a treaty of friendship and the resolution of border disputes as its reward. However, mutual distrust remained deep on both sides.
Even after a junta led by General Ne Win seized power in 1962 and introduced the Burmese Way to Socialism, China continued to fund Myanmar’s Communist insurgents. Ne Win, in turn, accepted assistance from China’s Cold War adversaries. Despite this pragmatically motivated anti-Chinese aid, corruption, government incompetence and flat-footed state intervention resulted in a 1962-89 per capita GDP growth rate of just 0.9 percent, among the lowest in Asia.
It wasn’t until 1988 that China finally withdrew support for the insurgency and brokered a cease fire. Almost simultaneously, nationwide protests unseated Ne Win, marking the start of protracted and sometimes violence-scarred reforms. Political reforms faltered in 1990 after the military — having lost the first free election in 25 years — rounded up its opponents and sentenced the charismatic opposition leader, Aung San Suu Kyi, to indefinite house arrest.
Thereafter, economic reforms modeled after those of its ally, China, fared considerably better in transforming Myanmar’s economy into a more market-based system. Despite Western sanctions imposed on the brutal regime, average per capita GDP growth rose to a semi-respectable (by East Asian standards) 4.8 percent in the 1990s and an entirely respectable 11.5 percent in the 2000s.
But unlike in China and Vietnam, the government did not achieve political legitimacy through economic success. In 2007, a sudden spike in fuel prices sparked anti-government protests that developed into the Saffron Revolution, a nationwide campaign of non-violent resistance led by Myanmar’s Buddhist monks. The protests captured international attention and grew in strength despite a series of fierce crackdowns, forcing the military to enter into negotiations with Aung San Suu Kyi. The result was a 2008 constitution laying the foundation for freer elections and civilian rule (sort of).
The first constitutional government, headed by retired General Thein Sein, was elected in 2010. Aung San Suu Kyi was released from house arrest, and a human rights commission was established. In an effort to rebuild relations with the West, the Thein Sein government relaxed press censorship, liberalized the telecom sector, increased central bank autonomy, improved the tax and budgetary systems and eased the cost of doing business to encourage foreign investment. At the same time, the government was forced to suspend work on the China-funded Myitsone Hydropower Project in response to growing public protests against the dam’s planned displacement of 10,000 villages and destruction of downstream farmlands and fisheries.
Optimists got a shot of adrenalin in 2015, when Aung San Suu Kyi’s National League for Democracy won a landslide victory. With greater political freedom, ongoing economic reforms, and the release of political prisoners came the lifting of most sanctions that had been imposed by the Western democracies in the early 1990s.
Aung San Suu Kyi’s government, which had no illusions about where the power lay in East Asia, also renewed its openness policy toward China, signing a memorandum of understanding for a Chinese-built deep-sea port on the Indian Ocean at Kyaukphyu in Rakhine province. With 2010-16 per capita GDP growth averaging a still healthy 6.5 percent, the stage appeared set for a gradual transition to democratic capitalism.
Back to the Future
Reenter those rapacious generals, stage left. The 2008 constitution had exempted the military from civilian oversight and allowed it to retain sweeping emergency powers as well as control of a flock of monopolistic state enterprises whose proceeds helped to line the generals’ pockets. In August 2017, a group of these enterprises “donated” $6.5 million in exchange for the forcible removal of the Muslim Rohingya minority from gem-rich areas of the Rakhine, Kachin and Shan provinces. In the resulting ethnic cleansing (abetted by Aung San Suu Kyi’s silence), tens of thousands Rohingya were killed, raped and tortured, and some 700,000 were forced to flee to neighboring Bangladesh. In December 2017, the U.S. re-imposed sanctions.
Myanmar’s government needs strong economic growth to maintain political legitimacy and to head off the popular unrest that brought down past regimes. But there is already a growing public outcry against Chinese influence, the rising external debt burden and the China-Mayanmar Economic Corridor’s socioeconomic and environmental impacts.
Myanmar once again turned to China for economic and diplomatic support. But this time, concern about the Chinese debt trap into which countries like Sri Lanka had fallen prompted Aung San Suu Kyi to adopt a more cautious approach. In August 2018, the government negotiated a cost reduction in the Kyaukphyu port deal from $7 billion to $1.3 billion. The following month, it signed a conditional agreement to cooperate on the China-Myanmar Economic Corridor (CMEC), a critical extension of China’s Belt and Road Initiative.
By creating transportation infrastructure and trade zones that would link Yunnan Province in China with Kyaukphyu, the CMEC would allow Chinese goods to bypass sea-lane chokepoints in the Straits of Malacca and the South China Sea. Theoretically, the CMEC’s projects would also benefit Myanmar by stimulating trade and helping to address the country’s massive infrastructure shortfall — assuming that project costs to be borne by Myanmar could be contained. Concern over the $9 billion in Chinese loans required to finance a single railway prompted Aung San Suu Kyi’s government to seek a reduction in the scale in 2019, even as Myanmar's military chief expressed his support for the project.
The Western-sanctioned country has begun to backslide on the governance reforms that had been primarily designed to attract Western investment. Control of corruption, never very robust, is plainly slipping, as are the rule of law and government effectiveness. No surprise, then, that the World Bank’s Ease of Doing Business index ranked Myanmar 165th out of 190 countries in 2019, just ahead of Burundi, Gabon and Sudan.
Foreign direct investment, which dropped sharply as the genocide raged in 2018, recovered only slightly in 2019. At around 2 percent of GDP, FDI in Myanmar lags eons behind Vietnam (14 percent), the Philippines (9 percent) and Thailand (8 percent). Aung San Suu Kyi’s government effectively closed the door on reattracting Western FDI by rejecting a January 2020 ruling by the International Court of Justice ordering Myanmar to protect the surviving Rohingya.
The mess Myanmar has made for itself makes market-based, export-led development a non-starter, leaving infrastructure-led development as the alternative — albeit a temporary one. During a state visit to Myanmar by Chinese President Xi Jinping just weeks after the ICJ ruling, Aung San Suu Kyi signed an agreement approving 33 CMEC projects (many of which, perhaps not coincidentally, are in Rohingya territory).
Myanmar’s government needs strong economic growth to maintain political legitimacy and to head off the popular unrest that brought down past regimes. But there is already a growing public outcry against Chinese influence, the rising external debt burden and the CMEC’s socioeconomic and environmental impacts. The CMEC’s renegotiated cost is still unknown, but the civilian government recently announced it would compensate locals who forfeited land to the Kyaukphyu port project — showing it’s at least aware of the blowback. Soon after, the generals blocked constitutional reforms that would have limited their political power, adding yet another complication to this volatile mix.
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A decade ago, Myanmar seemed to be on its way out of the nightmare rule of the generals, and the prospects for another East Asian economic miracle seemed bright. But the poison of ethnic hatred and the realpolitik of its gigantic, aggressive neighbor have left Myanmar in an unenviable place. Climbing out of the trap will not be easy.