July 16, 2012

Why U.S. should be all in with Myanmar

Myanmar’s nascent liberalization is at a critical juncture. In the next few months we will know whether or not President Thein Sein’s attempt to transform his country from pariah state ruled by a junta to a normal, functioning state of almost 60 million people will succeed.

The record so far is impressive. Since assuming power early last year after what admittedly appeared to be rigged elections, Thein Sein has surprised observers. He has reached out to Aung San Suu Kyi, now free from house arrest and seated in parliament, and restored multiparty politics. He's determined to achieve a comprehensive ceasefire, putting at least a pause if not an end to the almost ethnic conflicts that have bedeviled the country for decades. And his team is trying to design a strategic framework for replacing a kleptocratic economy long mismanaged by generals. However imperfect Thein Sein’s administration, it nonetheless represents Myanmar’s best chance for a better future. 

But he’s working against the odds. The sheer scale of transformation and remaining challenges (including his frail health) heighten fears that Myanmar will fall back into the clutches of the armed forces. The military seized power by coup d’état in 1962 and have refused to relinquish it. The Constitution still guarantees the military 25% of the legislature, and he is believed to face considerable opposition within his own ranks. Protests over recent electricity shortages in the old capital of Yangon (formerly Rangoon) and the northern city of Mandalay show the people’s impatience:  popular support for his reforms could be extinguished as suddenly as lights in a blackout.  And Myanmar’s crackdown onstateless Muslim Rohingyas in Rakhine State may sap international support.

Thein Sein’s Cabinet shakeup this past week should thus be seen as an effort to breathe new life into the flagging momentum behind his reform agenda.

Some believe that reform has been set back by the replacement of one hard-line vice president with another. While many welcomed the departure of Tin Aung Myint Oo, seen as an obstacle to major policy reform, they are portraying his successor, Myint Swe, as insufficiently committed to change. Yet this view is overdrawn.  Swapping one hard-line vice president for another isn’t good news, but it’s premature to sound the death knell for reform.  While Myint Swe has indeed been a top enforcer for erstwhile dictator Than Shwe, his elevation is a reminder that the military has been and remains the most likely spoiler unless it is brought into the reform process.

When considering the role of the military, we would do well to remember that there has never been a guarantee that the armed forces will keep to their barracks. Provided the armed forces see the country advancing toward greater peace and prosperity, and provided their core interests aren’t suddenly put at risk, they are likely to remain at bay.  What Washington should draw from this latest appointment is this: the military are stakeholders, too.  Engaging the gradual rise of professional security forces (including police) needs to be a major part of comprehensive engagement with Myanmar. Indeed, encouraging liberalization from a junta can hardly avoid constructively working with the remnants of the old, distasteful regime. There’s no viable alternative.

Myanmar’s military status quo raises the stakes for Thein Sein’s inner circle of reformers, including his top Cabinet allies – Industry Minister U Soe Thein and Rail Transportation Minister U Aung Min – each of whom are poised to assume more critical positions. Soe Thein is taking control of the powerful Finance Ministry and Aung Min is assuming a new post within the Office of the President, presumably increasing his authority to implement a national peace-making roadmap. Both are reform enthusiasts.

Meanwhile, in recent months, country after country has announced the suspension of sanctions against Myanmar. In May, weeks after the previously outlawed National League for Democracy won 43 of 44 seats contested parliamentary seats, U.S. Secretary of State Hillary Clinton announced that the United States would also suspend sanctions.  After some prolonged interagency debate, the administration is following through on this pledge, paving the way for U.S. investment, including in the nation’s vitally important extractive industries.

In doing so, the administration is neither being gulled into romantic notions about Myanmar, nor caving into a powerful energy lobby.  Rather, it is a matter of pragmatism and priority. Most of Myanmar’s wealth is tied up in extractive industries, from oil and gas to timber, gems and gold.  In the oil and gas sector, there’s no alternative to dealing with the state-owned Myanmar Oil and Gas Enterprise. Avoiding engagement in one of Myanmar’s most significant sectors would not only put U.S. business at a disadvantage, but, far more importantly, would provide a free pass to less-accountable foreign companies.  Ultimately, it’s a question about how seriously the United States wants to try to help Myanmar’s reforms succeed, which will depend in part on America’s ability to help Myanmar to develop economically

The rest of the world is already investing in Myanmar, starting with its extractive industries. American standards, laws, and institutions for overcoming corruption, while far from perfect, are among the best in the world for helping to shape Myanmar’s new governance and economy. As one Irish investment banker told me during my recent trip to Myanmar, “You Americans will never make it here, not with your Foreign Corrupt Practices Act!”  Well it’s precisely because the United States has a Foreign Corrupt Practice Act that the United States should be “all in” rather than attempt to straddle the fence with respect to Thein Sein’s efforts.

The tradeoff for engaging in a sector prone to rampant corruption should be far greater reporting requirements as the U.S. administration has called for. It can meet human rights groups half way by going even further, however. Moving forward, both the U.S. government and private sector should press Thein Sein to abide by the Extractive Industries Transparency Initiative as part of the price of doing business with the United States. Companies can immediately start providing capacity-building support to prepare Myanmar becoming a signatory to this international sunshine policy. Strenuous and transparent reporting in the oil and gas sector could thus reinforce better governance in Myanmar, whereas ignoring this lucrative sector would likely predetermine the failure of reform.

While Aung San Suu Kyi irked her government over criticisms about investment in Myanmar, the United States will be better off choosing partners in joint ventures on the ground in the country rather than relegating itself to the sidelines of a rapidly changing Myanmar. Thein Sein has taken remarkable steps, and now it’s up to the United States not to equivocate but reciprocate and support a reforming, if flawed government, and a largely forgotten people.

Washington can only have leverage in Myanmar if it’s fully committed and vested.  Consider, after all, that Myanmar’s neighbors are transforming the country and will exert far greater impact. China and India’s massive infrastructure projects alone are redrawing the map of Asia and assuring China unprecedented overland access to the Bay of Bengal and Indian Ocean and India unparalleled access to its remote northeastern states.

Despite widespread desire for an irreversible trend, the odds are stacked against transformation, at least one not marred by serious setbacks.  But for the United States, which has shifted from the leader of sanctions to principled engagement, there should be only one bold policy: full speed ahead to support reform, preempt spoilers, and remain steadfast in support of a long-term gradual transformation.  Such a policy requires suspending all sanctions in exchange for tightening reporting requirements and greater transparency.  It also requires comprehensive engagement, including direct and indirect means of engaging the armed forces (including the largely untainted middle-officer corps) and the police.  Engagement on the security sector should make long-term reform the top priority.

Removed from its isolation, energized by a more free market and democratic system, Myanmar can over the next decade become a new center of gravity in Asia. As others have pointed out, it is geographically at the crossroads of Southeast, South and East Asia, and it remains rich in natural resources. But with weak institutions and limited capacity, Myanmar has the very real potential for either succumbing to corruption and the proverbial resource curse or lapsing back into military oppression.  The steps taken to help Myanmar over the next few months won’t guarantee successful reform; but failure by the United States to fully embrace reform-minded actors in Myanmar will surely doom the country’s chances of breaking out of its half-century-long vicious circle.