SPECIAL REPORT MYANMAR May 25th 2013

A Burmese spring

Myanmar6.indd 1 07/05/2013 14:39 SPECIAL REPORT MYANMAR

A Burmese spring

After 50 years of brutal military rule, Myanmar’s democratic opening has been swift and startling, says Richard Cockett. Now the country needs to move fast to heal its ethnic divisions A WALK AROUND battered, ramshackle Yangon, Myanmar’s biggest city and former capital, quickly makes it clear how far the country has fallen behind the rest of Asia over the past half•century. In large part the place is but a ghostly reminder of former glories. Under British colonial rule, be• fore independence in 1948, Rangoon (as it was then) was a thriving, cos• mopolitan entrepot, the capital of Burma, one of the region’s wealthiest countries. All that came to an abrupt end in 1962 after a junta of army oˆ• cers, led by the brutal General Ne Win, seized power and launched the country on the quasi•Marxist ŒBurmese Way to Socialism. Private for• eign•owned businesses were nationalised, prompting the exodus of hundreds of thousands of people, many of Indian origin. The country’s tenuous attachment to democra• cy was broken. Myanmar, as Bur• ma was later renamed by its rul• ing generals, retreated into itself. Comprehensive Western sanc• tions hit home from the mid•1990s onwards, only slightly CONTENTS alleviated by an injection of Asian money. 3 The story so far Yangon, with its old cars Democracy on prescription and bookshops selling textbooks 4 Politics from the 1950s, attests to this se• Suu Kyi for president? clusion. The colonial•era banks, law courts and department 6 Geopolitical consequences stores, once as imposing as any in Rite of passage Kolkata or Shanghai, have all but 8 Business crumbled away. Except for the The promise‹and the magni†cent Shwedagon Pagoda, pitfalls lovingly regilded to welcome the crowds of pilgrims and tourists, 9 Ethnic strife most of the city seems to have re• The F•word mained untouched for decades. Even youthful rebellion is stuck in a time•warp. Boys are still gamely attempting to ‡out authority by dressing up as punk•rockers. But now the country has seen another about•turn, almost as abrupt as that in 1962. Over the past two years dramatic reforms introduced by a new president, Thein Sein, prompted by the country’s increasingly des• perate economic straits, have started a rapid transition from secretive iso• lation to an open democracy of sorts. The mere fact of such a change tak• ing place has surprised the world; its speed and breadth have caused A CKNOWLEDGMENTS widespread bewilderment. As well as those quoted in the text, Even in careworn Yangon the signs are everywhere. The pavements the author would like to thank the following for their views, time and are cluttered with traders selling an array of newspapers, newly licensed advice in the preparation of this and privately owned, carrying pictures of Aung San Suu Kyi, the leader report: Thet Kay Byin, Iftekhar of the National League for Democracy (NLD). Less than two years ago the Ahmed Chowdhury, Adam Cooper, image of the de†ant Nobel peace•prize laureate was banned; under a Sreeradha Datta, Tom Kramer, Joseph Fisher, Steve Marshall, strict censorship system her name could not even be mentioned in the Binoda Kumar Mishra, Robert Pé, press. Now all censorship before publication has been lifted; any paper, A list of sources is at Ben Rogers, Phyu Phyu Sann, Hla NLD such as the ’s own newspaper D Wave, can apply to publish daily; Economist.com/specialreports Maung Shwe, Tina Singhsacha, and Miss Suu Kyi’s photo festoons T•shirts, mugs and biros for sale on al• Hkalam Samson, Ashley South, An audio interview with Masaki Takahara, Soe Thein, Win Tin, most every street corner. People are still excited about being able to speak the author is at Thant Myint U, Ross Wilson, Hla Hla freely, even about politics, without constantly having to look over their Economist.com/audiovideo/ Win, Wong Yit Fan, Aung Kyaw Zan. shoulders. Some of those interviewed for this special report had never 1 specialreports

The Economist May 25th 2013 1 SPECIAL REPORT MYANMAR

2 before talked to a foreigner, let alone a foreign journalist. 250 km With greater political freedom has come economic change. Population, 2012, m Almost all Western sanctions against the country have been lift• INDIA ed, and the country is swifty reconnecting with the international BHUTAN CHINA †nancial system. Visitors no longer have to wander around with so many wads of dirty old kyat, the local currency, in their pock• 1,223.2 KACHIN ets: the †rst international ATM in Yangon has recently started dis• gorging fresh banknotes. Some outlets are now accepting credit 1,353.8 cards. Real Western brands, rather than pirated versions, are BANGLADESH about to appear in a few shops. An in‡ux of relatively wealthy foreigners and returned natives will need new oˆces and apart• 150.0 SAGAING ments. Prime parts of Yangon are rapidly being ‡attened to cater for the expected demand. MYANMAR Myanmar’s transformation is the most signi†cant event to have taken place in South•East Asia in the past decade, and this S H A N CHIN 63.7 special report will argue that it will have important conse• LAOS quences for the rest of Asia as well. In the space of just a few MANDALAY 6.4 R years almost every aspect of life has been touched by the reform A MAGWE Naypyidaw K I Sittwe r programme. Not only was Miss Suu Kyi released from house ar• H r a I w N rest in November 2010, but the vast majority of the country’s a KAYAH

E d NLD d

thousands of political prisoners have been freed. The , ha• Bay of y

rassed for decades and then declared illegal for refusing to parti• Bengal BAGO cipate in rigged elections in 2010, is legitimate once more. In April 2012 it won 43 out of 44 seats it contested in by•elections, the THAILAND country’s †rst free and fair polls since the 1950s: its MPs, led by YANGON KAREN Miss Suu Kyi, now sit in parliament. special report IRRAWADDY Yangon The blacklists barring former political opponents of the re• will weigh the 64.5 gime and Œhostile journalists have been put away. A new labour pros and cons of law covering private industry has encouraged the formation of rushing into what MON new trade unions. Once a byword for bleak authoritarianism, investors are calling Andaman S e a Myanmar is now doing better than some of its Asian peers on Œthe †nal frontier. T A civil and political rights. N I Don’t cheer too soon N International †nancial institutions such as the World Bank T H

have returned, often after writing o the country’s old debts. The new sense of optimism A

R

Thein Sein now tours the world’s capitals much like any other and con†dence among Myanmar’s Y leader, even if he does not get the rapturous welcome given to own people is still tinged with cau• I Miss Suu Kyi wherever she goes. And this December Myanmar tion. Hopes in the past have been Gulf of celebrates its return to regional respectability by hosting the raised by modesAndamant doses of liberalisa• Thailand South•East Asian Games for the †rst time since the 1960s. tion, only to beIslands das (tohed India) again. It is also Foreign governments and multinationals have converged clear that in easing military control, on a country that occupies a unique geostrategic position be• Myanmar’s reformers have provided an tween the new Asian superpowers of India to the west and Chi• opening for dark forces that authoritarian na to the east. Private companies are jostling to capture a share of rule had kept in check. Since June 2012, starting an almost virginal consumer market of some 60m people. This in the city of Sittwe in western Rakhine state, Buddhist mobs have killed hundreds of Muslims and razed their mosques and homes to the ground. It was not what the reformers had intend• ed, but the e ects of relaxing restrictions can be unpredictable. Regional laggard 1 The †rst two months of 2013 also saw the heaviest †ghting Selected Asian high GDP-growth periods yet between the Myanmar army and the Kachin Independence Average annual rates, % Army (KIA), an armed militia of the Kachin people. Like many of 0 2 4 6 8 10 12 the other ethnic minorities that make up about 40% of Myan•

China (1991-2010) mar’s population, the Kachin, in the far north of the country, have been battling for decades for autonomy and against major• Thailand (1976-90) ity Burman rule. For all the past two years’ economic and politi• Cambodia (1994-2010) cal progress in the Burman heartlands in the centre of the coun•

Vietnam (1994-2010) try, much of the periphery remains largely cut o and in a state of, at best, suspended hostilities. Malaysia (1976-90) Thein Sein’s government has signed cease†re agreements Laos (1994-2010) with most of the armed groups, but a lasting political solution

Indonesia (1976-90) still seems a long way o . It will require proper citizens’ rights to be granted to the country’s entire population, including margin• Myanmar* (2000-10) alised people like the Rohingya Muslims, which all of Myan• Myanmar † (2000-08) RANGE mar’s rulers since independence have neglected to do. This spe• Sources: Asian Development Bank; cial report will argue that the current period of upheaval is the Harvard (Dapice, Vallely & Wilkinson) *IMF estimate †Harvard estimate, 2-4% best possible opportunity to resolve these ethnic disputes. 7

2 The Economist May 25th 2013 SPECIAL REPORT MYANMAR

The story so far end to Western sanctions. It had become dangerously depen• dent on resource•hungry China, which had stepped into the breach as the West shunned Myanmar. Chinese companies built Democracy on dams, roads and pipelines there, often for the sole bene†t of con• sumers back home. prescription Having long enjoyed a free hand, China was shocked when in September 2011Thein Sein suddenly called a halt to its biggest Why Myanmar’s military rulers are giving power to construction project, the $3.6 billion Myitsone dam in Kachin state. The 68•year•old president, slightly stooping and studiously the people uncharismatic, may seem an unlikely free•thinker, but his deci• MYANMAR’S TRANSITION HAS been a top•down a air. sion on the Myitsone dam marked him out as quite di erent This, more than anything, distinguishes it from other recent from his predecessor, Than Shwe (who now keeps a low pro†le upheavals such as the Œpeople power revolutions of the Arab and is rarely seen in public). Thein Sein wanted to end the coun• spring, the fall of communism in Europe and the toppling of In• try’s over•dependence on China, and he had begun to listen to donesia’s President Suharto. At crucial moments the threat of the Kachin, who were vehemently opposed to the dam. mass protests hurried the process along. Government advisers Zhu Feng, a professor of international studies at Peking Uni• concede that in 2011 they were afraid of an Arab spring on the versity, says the change of mind over Myitsone Œset alarm bells streets of Yangon. The army had mercilessly oppressed protests ringing in China’s government. Myanmar was turning awk• such as the aborted Œsa ron revolution in 2007, led by monks, ward, and it was America that stood to gain most from China’s and the pro•democracy uprising in 1988 that had †rst propelled discomfort as a then fairly new American government appeared Miss Suu Kyi to national prominence. Those 1988 protests led to more willing to re•engage with the rogue state. elections in 1990 which were won by the NLD but annulled by the government. For the main part, though, Myanmar now We unclench, you unclench stands as a rare example of an authoritarian regime changing it• Previous American administrations had branded Myan• self from within. mar a danger to world peace. But when Barack Obama became By the start of the 2000s it had become clear that a couple president, he promised to Œunclench America’s †st if the of decades of Ne Win’s ŒBurmese Way to Socialism, followed world’s most recalcitrant regimes did the same‹a strategy that by a couple more of Than Shwe’s crony capitalism, had reduced got nowhere with Iran and North Korea but worked wonders a once prosperous country to penury. In 2003 the government with Myanmar. Soon after the Obama administration was in• outlined its Œseven•step road map to democracy. A national stalled in early 2009 it ordered a review of America’s policy to• convention was held to draft a new constitution, duly approved wards Myanmar. It attempted some cautious re•engagement, re• in a referendum in 2008. The elections it provided for took place taining the sanctions but opening up a dialogue. At †rst this did in 2010 and by all accounts were rigged. The new president who not seem to do any good. But from the moment that Thein Sein was installed in March 2011, Thein Sein, had been hand•picked took over, says Derek Mitchell, now America’s ambassador to by his predecessor, Than Shwe, probably the most pitiless of Myanmar, Œwe noted that this guy was di erent, that he was Myanmar’s military strongmen. Léon de Riedmatten, a Swiss someone the Americans could speak to. citizen who worked in Myanmar for several international orga• Since then a succession of American envoys has promised nisations throughout the 2000s, says there Œwas nothing very to ease sanctions and reduce the country’s isolation in exchange surprising, it all went to plan. There is no doubt that Than Shwe is for political reform, notably the release of political prisoners. the architect of the existing democracy. Thein Sein did everything that was asked of him. In November However, the sort of democracy that Than Shwe and his sa• last year he received the ultimate endorsement of his country’s traps had in mind was rather di erent from what Westerners reform e orts when Mr Obama visited Yangon. might understand by the term. The military rulers called their Some argue that the West’s re•engagement with the former version Œdisciplined democracy‹a version in which the army pariah state has been too hasty. Perhaps so, but it has also given 1 would retain a lot of power whatever happened in any elec• tions. The idea was to o er just enough of a say to the people to win support from the army’s opponents at home and abroad for rebuilding the country’s shattered economy. Poor showing 2 Thein Sein, to his great credit, realised that strictly rationed Selected ASEAN countries’ GDP per person, $’000 at PPP* freedom would not persuade America and Europe to lift sanc• 2000 2010 tions, nor would it gain Miss Suu Kyi’s support; so once in power 0 3 6 9 12 15 he pushed the democratic reforms much further than Than Shwe had envisaged. The need was urgent. Back in 1962 Myan• Malaysia mar, with its abundance of minerals, teak, rice, oil and gas, had Thailand been one of the wealthiest countries in the region, with an in• come per head of about $670, more than three times Indonesia’s Indonesia and twice Thailand’s. By 2010 the IMF estimated that Myanmar Philippines had the lowest GDP per person in South•East Asia (see chart 2). The country had achieved a great leap backward just as the Vietnam rest of Asia was enjoying record growth. The contrast between Laos Myanmar and its neighbours had become too great to obfuscate either at home or abroad. Thein Sein eventually acknowledged Cambodia publicly that Œthere are still too many people whose life is a bat• Myanmar tle against poverty, a hand•to•mouth existence. But in order to rebuild its economy, the country needed an Source: Asian Development Bank *Purchasing-power parity

The Economist May 25th 2013 3 SPECIAL REPORT MYANMAR

2 enormous leverage to Miss Suu Kyi, the opposition leader, since the Americans never moved a step before obtaining her approval. In August 2011 Thein Sein invit• ed her to the presidential palace in the capital, Naypyidaw, knowing that he would need her approval if the Ameri• cans were to support his reforms. That is how it turned out. At a time when America is generally turning towards Asia, the re•engagement with Myanmar has been the most striking external aspect of the country’s transi• tion. Hawks in Beijing see this as more evi• The Kachins’ way of saying no dence of America’s aggressive attempts to contain China’s rise. Enlisting Myanmar even partly in the Western camp has certainly been a coup for Mr hand, says that so far the army has accepted the changes like Obama, but it does not automatically lead to a new Œgreat game everybody else. It has not resisted the demand for the UMEHL in Myanmar between the two rivals. Mr Mitchell argues that and the MEC to pay taxes, for instance, and the two holding com• Œthere is a competition [in Asia] in terms of values and rules, but panies have lost their monopolies on lucrative imports of cars, it’s not necessarily anti•China. edible oils, cigarettes and beer. ŒThese are massive changes, says Mr Horsey. Can old soldiers just fade away? Even bigger changes could come out of a review of the con• The economic, domestic and strategic explanations for stitution, considered unthinkable even a year ago but now pro• Myanmar’s transition all suggest that it can become a normal posed by the USDP itself. That could shake up the very founda• democratic country, but much will depend on the army. Over the tions of the army’s political power‹and might even allow Aung decades this 350,000•strong institution has come to dominate all San Suu Kyi to become president. 7 aspects of life in Myanmar. If there is to be real change, the army must not only stop †ghting the Kachin and other ethnic groups, it must release its stranglehold on parliament and on the economy. Politics This is where the limitations of the top•down process be• come obvious. The constitution of 2008 was drafted by the army and gave it a wholly undemocratic lock on power to ensure that Suu Kyi for president? it retained control of the transition. Most egregiously, the army awarded itself an unelected block of a quarter of all seats in the new national and state parliaments so the constitution could not be changed without its consent. It also assumed sovereign pow• ers over its own a airs as well as a big say in some of the civilian Possibly, though many twists and turns still lie ahead ministries. All the current ministers, including Thein Sein, are former army oˆcers. THE NEW PARLIAMENT in Naypyidaw is proof that Thein In its modern incarnation, the army was formed by Aung Sein’s reforms have already far outrun his predecessor’s San, Miss Suu Kyi’s father and the man who led Myanmar to in• limited ambitions for Œdisciplined democracy. When it †rst met dependence from Britain. It regards itself as the only institution in January 2011, stu ed with the pliant USDP victors of the rigged that can hold †ssile Myanmar together in a Œunion, as the coun• 2010 election and the 25% army block, the parliament did look try is oˆcially called. This would suggest that the army will halt like the rubber•stamping institution it was intended to be. But any moves towards a more federal organisation and more de• under the energetic leadership of the Speaker of the lower mocracy, both of which would involve devolving power to the house, Shwe Mann, a former general and a member of the ruling ethnic Karen, Kachin and others, and, to the military mind, the military junta, it has become feisty, unpredictable and unafraid dissolution of Œthe union. Such changes would also reduce the to challenge the president. army’s importance, and thus its budget. Like many other opposition MPs from the minority ethnic It is also widely thought that the army and its proxy party in parties, Oo Hla Saw, the head of the Rakhine Nationalities Devel• parliament, the Union Solidarity and Development Party opment Party (RNDP), says that whereas in the early days of the (USDP), have a vested interest in resisting further economic liber• parliament his questions on subjects like federalism and wealth• alisation because that would undermine the business monopo• sharing in the states were banned, now Œwe can discuss these lies enjoyed by former army oˆcers. In particular, two vast mil• openlyðit’s very positive and we are very happy about this. itary holding companies, the Union of Myanmar Economic Win Htein, a senior NLD MP elected in the by•elections of April Holdings Limited (UMEHL) and the Myanmar Economic Corpo• 2012, says that parliament is now Œvery lively. Even the USDP ration (MEC), have tentacles everywhere, from hotels to airlines, members are taking part more as regular lawmakers than as from chicken farms to jade mines. placemen for the army, judging proposals on their merits. At every turn people have braced themselves for a backlash Shwe Mann is an astute political operator and probably from army hardliners with the biggest institutional and eco• hopes to make a bid for the presidency in 2015, when the next nomic stakes in the status quo, but it hasn’t come, at least not yet. general election is due. He is using parliament as a vehicle to ad• Moreover, when reforms are debated in parliament and in the vance his own agenda at the expense of Thein Sein, whose executive, the hardliners have tended to lose arguments, and wings have been clipped by parliament on several occasions. In votes. Richard Horsey, a consultant who is an old Myanmar Myanmar’s system the MPs elect the president. Shwe Mann has 1

4 The Economist May 25th 2013 SPECIAL REPORT MYANMAR

2 formed an e ective alliance with his most famous MP, Miss Suu them in parliament. He says that as a Bud• Kyi, and has earned the respect of other opposition MPs for his dhist he tries to banish feelings of anger willingness to listen and negotiate. He could be a compromise from his heart and thoughts of revenge presidential candidate, bridging the di erences between the from his mind. ŒAnger is like †re, he says, army and the opposition parties, especially if the most popular Œand the †re will consume you so you will choice for the top job is ruled out. su er more. Always a disciplined party, the NLD Lady in waiting now has to transform itself from an under• The people’s choice would undoubtedly be Miss Suu Kyi. ground protest movement into a potential She and her party, the NLD, have been the most obvious bene†• party of government. Under Myanmar’s ciaries of Myanmar’s democratic opening. Her good personal The people’s †rst•past•the•post electoral system the rapport with Thein Sein, and more recently with Shwe Mann, NLD would romp home in 2015 if it were has been crucial to moving the reforms along quickly. In return choice would to repeat its by•election victories at the na• for Miss Suu Kyi’s help, Thein Sein has legalised the NLD and undoubtedly tional level. The USDP probably would mostly called o the spooks and thugs. He also ensured that the not win a single seat. by•elections of April 2012, the †rst elections since 1990 in which be Miss The NLD held its †rst ever national the NLD was allowed to take part, were free and fair. Suu Kyi congress in March to marshal its strength Those by•elections proved that the iconic democracy advo• and streamline the way it picks its leaders cate has lost none of her allure, even after decades of oˆcial at• and parliamentary candidates. The meet• tempts to discredit her. The NLD won 43 of the 44 seats it con• ing was not an unquali†ed success. There was unprecedented tested, often by huge margins. The USDP was trounced. It even criticism of Miss Suu Kyi for her autocratic style of leadership failed to win any of the four seats in Naypyidaw, where many and unwillingness to accept new blood and new ideas. One crit• constituents work for the USDP•dominated government. ic, Khin Lay, who used to work closely with Miss Suu Kyi, com• Those who supported the NLD were voting for democracy plains that Œthe Lady says something, and that is policy. There is in general but also for Œthe Lady in particular, to reward her for little scope for real debates about ideas, she says: ŒSometimes if the sacri†ces they feel she has made by giving up her family and we criticise ASSK we are called disloyal. It will be a test of Miss her freedom for her country. She is also revered, even by many of Suu Kyi’s leadership to see if the NLD can now evolve into a her military opponents, as the daughter of Myanmar’s founding broad•based party that is able to formulate sound policies on the father, General Aung San. Politics in Asia tends to be dynastic, so economy, foreign policy and everything else without breaking her parentage gives her an overwhelming advantage over her ri• apart. It has two years to get its act together. vals. Images of Miss Suu Kyi are often displayed alongside a fa• Yet even if the NLD wins the election in 2015 it does not nec• vourite photo of her father in an outsize military overcoat. It was essarily follow that Miss Suu Kyi will become president. As the taken in 1947 when he was about to go to London to negotiate in• constitution now stands she is barred from that oˆce, thanks to a dependence with the British government. Miss Suu Kyi was just clause the army inserted speci†cally to rule her out, to the e ect two years old at the time. He was shot dead by political rivals lat• that anyone with a foreign spouse or children is ineligible. Miss er that year. Suu Kyi was married to an Englishman, Michael Aris (who died What made the NLD’s sweeping victory in the 2012 by•elec• in 1999), and her two sons hold British passports. tions all the more extraordinary was that during military rule the The NLD is campaigning to change the 2008 constitution, party had been barely allowed to function. Almost all its leaders which it never endorsed. The army was always thought likely to were imprisoned, some for decades, including long stretches in veto any constitutional changes, but intriguingly it may have solitary con†nement. Many of them have been remarkably for• changed its mind. Its minions in the USDP, led by Shwe Mann, re• giving of their former enemies. Win Htein, who spent over 20 alise that the only way to head o the NLD juggernaut in 2015 is to years in jail, is now an MP and frequently has to mingle with change the electoral system and introduce proportional repre• 1

Yangon and on

1962-1988 1992-2011 THEIN : RULED BY MILITARY DICTATOR, NE WIN : RULED BY JUNTA AND GENERAL THAN SHWE SEIN OFFICIAL FLAG

1948 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2013

Independence from Britain Military coup ends democratic government Aung San Suu Kyi returns to Burma, founds National League for Democracy (NLD) Name changed from Burma to Myanmar Overwhelming win for NLD in free elections, but the results are annulled by the military regime. Many NLD leaders are jailed or go into exile Myanmar joins Association of South-East Asian Nations (ASEAN) “Saffron revolution” protests led by monks violently suppressed by the army Miss Suu Kyi released from house arrest Thein Sein becomes president and meets Miss Suu Kyi. Release of political prisoners begins NLD wins 43 out of 44 by-elections. Visit of President Barack Obama. Violence between Buddhist Rakhine and Muslim Rohingya results in over 150 deaths

Source: The Economist Army assault on the Kachin; more violence between Buddhists and Muslims

The Economist May 25th 2013 5 SPECIAL REPORT MYANMAR

2 sentation (PR). This way they could at least avoid being com• pletely wiped out: minority parties always do better under PR. The constitution does not specify any particular electoral system, but it does say that the lower house should be made up of single•member constituencies, so the introduction of a PR sys• tem would require constitutional amendments. In March the USDP asked to set up a parliamentary commission to review the constitution, though without saying why. Clearly the best time for the party to change the constitution is when it still has a mas• sive majority. The ethnic parties, the parliamentary representatives of the Karen, Chin, Shan and other minorities also back a PR system. Many of them fear a landslide victory for the NLD almost as Putting the Irrawaddy to work much as the USDP does because they view it largely as a party of Burman ethnic interests and do not trust it. There is talk of them combining to form an entirely new party, a sort of Federalist clothes from politicians in Naypyidaw. Party, to challenge both the NLD and the USDP. That would be Famoso has the full backing of the Japanese government. much easier to achieve under a PR system. The new prime minister, Shinzo Abe, has identi†ed South•East It would be a gamble, but if the constitution were revised Asia, and in particular Myanmar, as places where goods can be the NLD might concede a PR system in exchange for dropping the assembled cheaply but also as new markets to help revive the clauses barring Miss Suu Kyi from the presidency. Clearly much Japanese economy. Japan has written o billions of dollars• horse•trading in Naypyidaw lies ahead. 7 worth of Myanmar’s debts to it and is now investing heavily in the country. Among other things it is building a large new river port, part of the Thilawa Special Economic Zone just south of Geopolitical consequences Yangon, to replace the former capital’s old, silted•up facility. This will cost about ¥20 billion ($200m) in the †rst instance, which will come out of its overseas aid budget. And if that sounds very Rite of passage Chinese, Japan is spending another ¥14 billion to help †x the dodgy electricity supply in Yangon and a further ¥20 billion on other infrastructure projects throughout the country. The mix of low wages, a plentiful supply of labour and access to American The opening up of Myanmar could transform the rest and European markets should mean that many more Famosos will be set up in Myanmar. of Asia Japan’s move to take swift advantage of a reforming Myan• ON THE NORTHERN outskirts of Yangon lie the sprawling mar does not come as a surprise. Its relations with the country industrial estates that used to provide Myanmar’s eco• had been much better than Europe’s and America’s, though it nomic muscle, such as it was. Now, after decades of sanctions had maintained some sanctions. Other Asian countries had sim• and economic mismanagement, many of the factories have ply continued to invest there and are now reaping the bene†ts. been demolished and the ones left standing are mostly derelict. Up and down littoral Myanmar all of Asia’s big economies are But amid the rubble are signs of new life, not only for Myanmar opening up new trade routes to reach neglected parts of the but for the rest of Asia. Near the gates of the Mingaladon Indus• Asian land mass. The results could transform large swathes of trial Park two new Japanese•owned factories have sprung up out the continent. Myanmar’s geographical position, hugging the of the debris. One of them, Famoso Clothing, o ers a glimpse of Bay of Bengal between the two Asian superpowers, India and a better future for Myanmar‹and for Asia. China, has become its prime asset. Owned by Daiei Ready Made Clothes Corporation, based in Japan’s Nagoya, Famoso was set up in Yangon in 2002 as a Geography is destiny small operation to make men’s suits exclusively for the Japanese Thailand, for instance, the second biggest investor in Myan• market. The parent company did most of its business in China, mar after China, is forging ahead with a bigger version of Thi• where it employed thousands of local workers in three factories. lawa at Dawei, on Myanmar’s Tenasserim coast. The deep•water But three years ago two of the factories in China were closed and port, associated industrial zone and roads connecting them with the plant in Yangon was rebuilt at a cost of $7m to become the Bangkok 300km away will cost about $8.5 billion. Thai rulers company’s new Asia hub, explains Famoso’s managing director, had for centuries been toying with the idea of building a canal Kazuto Yamazaki. The company’s last Chinese factory will close across the Kra Isthmus, linking the Gulf of Thailand directly to within a year and the Yangon operation will triple its output, the Andaman Sea and the Indian Ocean to avoid the journey from 170,000 suits a year to half a million. round peninsular Malaysia through the Strait of Malacca (see The reason for the switch is simple, says Mr Kazuto: the high map, next page). Dawei will at last give Thailand that link. cost of labour in present•day China. In Myanmar he pays work• Grand plans to improve roads all the way from Bangkok to ers around $100 a month, a quarter of the going rate in China. Cambodia and Vietnam are also in hand to spare those countries Moreover, Famoso is well placed to take advantage of the most the tedious rounding of Malaysia and allow them to ship their important economic consequence of Myanmar’s political re• goods from Dawei directly to Europe. This could profoundly alter forms: the ending of Western sanctions, and in particular the ban the economic geography of South•East Asia, much reducing the on imports from Myanmar. Famoso is making its †rst suits for importance of Singapore’s and Malaysia’s container terminals Britain’s Marks & Spencer, ready for shipping in July. Famoso has as trans•shipment points. Thilawa will also provide companies even applied for a licence to sell its suits in Myanmar itself for the like Famoso with more direct access to European markets. †rst time. Mr Kazuto says there is growing demand for Western To the west, the Indian government also has big plans that 1

6 The Economist May 25th 2013 SPECIAL REPORT MYANMAR

2 will advance its long•standing Œlook east Some worry that so many big powers rushing into a rela• policy. It is well into a $100m upgrade of tively small and underdeveloped country could spell trouble. the old port at Sittwe, at the mouth of the Think•tankers in Beijing fret about America’s ambitions in Kaladan river in Rakhine state. Big con• Myanmar and the inroads that Japan is making into the country. tainer ships will dock here and o‰oad Strategists in Delhi wonder whether the new Chinese facilities their cargoes onto smaller barges which on the Myanmar coast might lead to India’s encirclement. India will then travel 225km up the Kaladan be• is already blaming China for arming and sheltering some of the fore transferring onto trucks and into In• dozens of insurgent groups that have been †ghting for decades dia. The Indians hope that this project will for autonomy in India’s north•east. These con‡icts have contrib• help open up the seven states of their uted to the region’s poverty and marginalisation and might yet landlocked north•east that are home to frustrate attempts to open it up. General John Mukherjee, a for• about 40m people. They are among the mer chief•of•sta to India’s Eastern Command, says openly that poorest regions in India, partly because of the many Indian divisions stationed in the north•east are Œde• restricted access to the main body of the voted primarily to watching China and training for operations country through the narrow corridor be• against China. tween Bangladesh and Bhutan known as Œthe chicken’s neck. The improvements will make it much easier to ship goods on the Let’s be friends new Kaladan route from Kolkata to Mizoram than it was to travel On the ground, however, these worries look overblown. overland through India around the top of Bangladesh. Indeed, many of the projects now taking shape across Myanmar The Indian government is also working on the road link have been gestating for years in rather obscure pan•Asian net• through Manipur to Myanmar, opening up new overland con• works of joint Indian and Chinese provenance. BCIM (short for nections to China and Thailand. The Thai part of this is an ambi• Bangladesh, China, India and Myanmar), for instance, a group tious project called the ŒTrilateral Highway, which will take traf• set up mainly on China’s initiative in 1999, organises seminars †c from Imphal down to Thailand’s Mae Sot border crossing and and conferences and has been pushing the idea of an integrated to Dawei. The Indians are planning to upgrade the present old economic zone spanning Yunnan, the Indian north•east, Myan• and inadequate customs post on Manipur’s border with Myan• mar and Bangladesh. Now that Myanmar has emerged from its mar, Moreh, to a new ŒGateway to South•East Asia. The Indians isolation, such ideas no longer look far•fetched. Earlier this year themselves have already rebuilt 148km of road inside Myanmar BCIM organised a 3,000km car rally from Kolkata to Kunming, as part of this project and are set to do more. D.S. Poonia, chief passing through Dhaka, Imphal and Myanmar along the way in secretary to the state government of Manipur in parched, dirt• an e ort to stimulate interest in a new trans•Asian highway. poor Imphal, looks forward to the investment and jobs that All told, the opening of Myanmar is just as likely to bring might ‡ow along these new commercial arteries. Neighbouring Asia’s great powers together as it is to divide them. Myanmar’s Bangladesh is also eyeing up the possibilities of Sittwe’s port. Its government, for its part, will be glad to co•operate with as many consul in Sittwe, Mahbubur Rahman, says Bangladeshi compa• countries as possible in order to spread its risks and end its over• nies want to take advantage of cheap labour and land to set up reliance on China. 7 textile and pharmaceutical factories. China, long the biggest investor in Myanmar,

i has been toiling away at its own grands projets. The z Oil/gas pipeline g (under construction) n most important of these are the new oil and gas a

ra Y NEPAL ut Selected roads: pipelines that crisscross the country, starting from a BHUTAN ap Brahm Myitsone Trilateral highway new terminus at Kyaukphyu, just below Sittwe, up dam C H I N A Kunming Trans-Asia highway Ganges to Mandalay and on to the Chinese border town of MANIPUR KACHIN Ruili and then Kunming, the capital of Yunnan prov• BANGLADESH Imphal Y U N N A N ince (see map). This will save China having to funnel Moreh Ruili I N D I A Dhaka MYANMAR oil from Africa and the Middle East through theI N D I A Hanoi S Kolkata a K l bottleneck around Singapore. w a

Bagan e l Mandalay a

e Gulf of

The Chinese have also been using Myanmar to d n L A O S Hainan MIZORAM a

n I Tonkin open up their own Yunnan province. The booming r Naypyidaw r Sittwe a

w border town of Ruili has become a mecca for Chi• a V d M e Kyaukphyu d k I y o E nese buyers of Myanmar jade, considered to be the n T Vientiane g RAKHINE N best in the world (and highly auspicious). Thou• Mae Sot A sands of shops sell the luminescent deep green gem• B a y Yangon THAILAND M stone, fashioned into lucky charms and jewellery of o f Moulmein all sizes and shapes. Most of the jade mines in Ka• Bengal Qui chin state are owned by the Burmese generals and Bangkok CAMBODIA Nhon Dawei their crony companies, who sell large quantities of T

e

n the stone to the Chinese. The badly paid Kachin a 300 km s MYANMAR s Phnom

e

r workers at the mines feel left out. s Penh i Gulf of m u Ho Chi m c China wants to turn Yunnan into the country’s h o Thailand t Minh City a Bay of s

s I biggest domestic tourist destination and has built a t Bengal South a r big airport at Kunming. Many Chinese tourists do China Andaman K S e a Sea not want to go to Myanmar because they consider it Strait of Y S Malacca L A I A S o u t h dangerous and dirty, but they can safely visit a sur• A M real plastic recreation of the country’s principal INDIAN C h i n a sights on the Ruili side of the border. OCEAN SINGAPORE S e a

S The Economist May 25th 2013 tr 7 SPECIAL REPORT MYANMAR

Business tors as Thailand, which is currently getting about 21m a year. That would signi†cantly boost its economy and provide hundreds of thousands of new jobs. The promise‹and the Thein Sein’s government is trying hard to get the right regu• latory framework in place to absorb the wall of money heading pitfalls Myanmar’s way. So far the legions of foreign consultants and lawyers now swarming all over the country have been im• pressed by the results. Most importantly, the government is fully Why investors still need to proceed with caution aware that after decades in seclusion it has a lot to learn. Minis• ters and oˆcials are soaking up all the advice they can get, wher• MANY OUTSIDERS SEE Myanmar’s opening up as an un• ever they can †nd it. missable economic opportunity. It is the last large Asian country to become connected to the world economy, leaving Help wanted only North Korea, which is both smaller and in†nitely less pro• In the very early days, this meant ordering in episodes of mising. Myanmar, with about 60m people, is closer to Thailand ŒThe West Wing, a television series about the White House, to (70m) or Vietnam (88m). Indeed, its rapid development recalls see how democracy works in practice. Now the learning process Vietnam’s opening up, the doi moi, in the late 1980s, after decades has become more targeted. The Japanese are helping to draft a of war and isolation. stockmarket law; the Asian Development Bank is working on a The opportunities for foreign investors are plain. As well as new company law; the IMF, among others, is helping to reform o ering a large potential domestic consumer market, Myanmar the central bank; and the British have ‡own Shwe Mann, the is rich in gas, oil and minerals. It has about 50m barrels of proven Speaker of the lower house of parliament, to London to see de• oil reserves and 280 billion cubic metres of gas. China is only one mocracy in action at Westminster. of many contenders for exploiting this wealth. On April 11th The reforming ministries have already passed or drafted Myanmar’s government opened an auction of 30 blocks of o • many of the laws needed to tilt the economy towards openness shore oil and gas. Big international oil companies such as Chev• and liberalism, probably to the point of irreversibility. Early suc• ron, Total and Royal Dutch Shell will be interested, as will the cesses included the swift abandonment of the old oˆcial ex• Thai, Malaysian, South Korean and other Asian companies that change rate of the kyat in favour of a managed exchange rate stuck with Myanmar during sanctions. The government is put• close to the old unoˆcial level, which gives the buyer about 100 ting a further 18 onshore blocks up for bids. times as many kyat for his dollars. A new law to legalise trade un• Myanmar has oil and gas in abundance, but investors are ions in the private sector was passed in 2011. And a new invest• equally interested in what it does not have, which is pretty well ment law took e ect towards the end of last year, giving inves• everything else. After decades of state control and economic iso• tors most of what they wanted. More recently the government lation, Myanmar is almost devoid of any functioning †nancial also pledged to sign up to the New York Arbitration Convention. services; one bank estimates that only about 10% of the popula• Simon Makinson, managing partner in Myanmar of Allen and tion have any sort of bank account. Spotting the opportunity, 28 Overy, a law †rm, says this is a good thing because no big multi• foreign banks have set up representative oˆces in the country. national company would have wanted to see its commercial dis• Under existing legislation all they are allowed to do is conduct re• putes settled under Myanmar’s own archaic legal system. The †• search, but the potential for full retail banking is clear. Micro†• nance industry has been cheered by a proposal currently being nance companies are already permitted to operate. Cambodia’s debated in parliament that the central bank be split o from the very successful ACLEDA bank, which has a strong presence in government and manage monetary policy on its own. micro†nance throughout the region, has just opened in Myan• But much more remains to be done. Thousands of busi• mar and should do well. nessmen now ‡y to Naypyidaw on the new air•shuttle service The telecoms sector was heavily restricted by the old mili• from Yangon to be ‡attered by ministers, quiz oˆcials and look tary regime, mainly for political reasons, but now the govern• at opportunities, but so far relatively few are biting. Even the Jap• ment is auctioning o the nationwide network to a mix of local anese, keener than most, are being ultra•cautious. The generals jokingly tell their guests from Japan that their home country has joined NATO: ŒNo Even the Japanese, keener than most, are being Action, Talking Only. ultra•cautious. The generals jokingly tell their guests The Japanese are right to be prudent. Myanmar may have a lot of potential, but from Japan that their home country has joined it remains a Œfrontier investment destina• NATO‹ŒNo Action, Talking Only tion. The obvious drawbacks, as the man• ager of Japan’s Famoso factory has and international †rms. This auction attracted as many as 91 ini• learned, include an intermittent electricity supply; internet con• tial bids, with the world’s biggest †rms all putting their hat in the nections that are poor in the cities and almost non•existent out• ring. Twelve companies have been shortlisted. side them; dreadful roads that often become impassable in the Tourism is another industry desperately in need of invest• monsoon season; and scarce and extremely pricey oˆce space. ment. Tourist numbers have risen to about 1m a year, causing ho• Most of these physical problems can probably be †xed rela• tel prices to rocket. But supply is now beginning to catch up. Ac• tively quickly. Myriad other shortcomings will take much longer cor, a French hotel group, recently announced that it was to remedy. The country’s once excellent education system was building big new hotels in Yangon and Mandalay, as well as the all but destroyed by the generals, leaving generations of Bur• †rst ever international hotel in Naypyidaw. With its natural mese with poor language and numerical skills and no higher beauty and its wealth of Buddhist monuments and pagodas (no• education worth the name. Labour might be cheap, but all those tably in the ancient city of Bagan, to many the equal of Cambo• new employers will soon run into severe skills shortages. Qual• dia’s Angkor Wat), Myanmar might eventually see as many visi• i†ed professionals of almost all kinds, from lawyers to doctors to 1

8 The Economist May 25th 2013 SPECIAL REPORT MYANMAR

2 teachers, are in short supply. Myanmar’s main ethnic groups Beneath a thin veneer of expertise and dedication at the very top, much of the bureaucracy consists of former military of• Burman Kachin Shan Chin †cers who have been provided with sinecures. They constitute Rakhine Mon Karen Other what is known as the Œgreen ceiling, which means that getting anything done can take a long time. According to Romain Cail• Myitkyina laud, a Yangon•based consultant for Hans Vriens & Partners, a um•poppy production consultancy, Œthere are still very few multinationals making has ‡ourished in the money in Myanmarðtenders require a lot of work to be com• areas of ethnic con‡ict. pleted, it takes a lot of e ort and makes the process unpro†table. The army is often in ca• Corruption is a big problem, with many of the quasi•military bu• hoots with the drug•pro• reaucrats expecting bribes and kickbacks. And although most ducers, and armed militias sanctions have been lifted, those that remain in place will force recruited to protect the many (particularly foreign banks) to tread warily for a while yet. poppy †elds make peace Sittwe America, for instance, maintains restrictions on dealing with the even harder to achieve. Naypyidaw 100 or so most prominent Œcronies of the old military regime. The government is try• But the most important legacy of Myanmar’s recent past is ing its best to end the con‡icts. Source: Martin Smith; the unresolved ethnic strife that has been tearing the country It has already done better than Burma-Insurgency apart for decades. The government knows that investors crave its predecessors, having signed and the Politics of Ethnicity stability and peace more than anything else. Can it move the 13 cease†re agreements since the country towards a more representative, more federal system that end of 2011. Some of these are Yangon would o er the best hope of providing it? 7 merely rehashes of older ones from the 1990s, but negotiators say the new ones are better because they Ethnic strife have been formally endorsed. On the government’s side much of the credit for this goes to Aung Min, a former rail• The F•word ways minister, who is now leading negoti• ations with the ethnic groups from within the president’s oˆce. Like Shwe Mann in the parliament, he commands respect even from erstwhile opponents. Ngun Cung Lian, who ne• Myanmar’s ethnic con‡icts are the main obstacle to gotiated a tricky cease†re agreement with the gov• continued progress ernment on behalf of the Chin, like many others was FROM THE MOMENT of its birth in 1948 Myanmar has surprised and impressed by Œthe openness, honesty been riven by civil con‡ict, mainly between the majority and willingness to change of Aung Min and his team. Burmans that occupy the country’s central low•lying plain and The European Union and others have funded a new organi• the hill peoples on its periphery. Myanmar is an arti†cial product sation, the Myanmar Peace Centre in Yangon, that is providing of colonial rule, its borders drawn largely for the convenience of Aung Min with a secretariat. British administrators. The Kachin, Chin, Shan and many other ethnic groups never wanted to share a country with the Bur• Give peace a chance mans; within the newly independent Myanmar, they agreed to However, the intense †ghting in Kachin state earlier this do so only on the basis of the Panglong Agreement between year was a reminder of the immense diˆculties that lie ahead. them and General Aung San in 1947. This promised Œfull autono• The Kachin Independence Army (KIA) signed a cease†re agree• my in internal administration for the frontier areas, envisaged ment with the government in 1994, but 17 years later it resumed the creation of a separate Kachin state and guaranteed that Œciti• hostilities, having achieved no progress on becoming semi•au• zens of the frontier areas shall enjoy rights and privileges which tonomous or independent. Since 2011 hundreds of people on are regarded as fundamental in democratic countries. both sides have died and over 100,000 have become refugees. The Panglong Agreement was meant to be the glue to hold For the †rst time Myanmar’s army has been using jet aeroplanes together one of Asia’s most ethnically diverse countries. But the in this sort of action. These tactics have raised doubt over how ethnic minorities say that from the moment the majority•Bur• much control the civilian authority exerts over †eld command• man government took over in 1948 it began to chip away at the ers on the country’s periphery. Thein Sein called for cease†res accord. After 1962 Ne Win’s military regime abandoned it alto• that appeared to be largely ignored on the ground; it was only the gether, trampling on ethnic and religious minorities. In response intervention of an angry Chinese government, alarmed at the the ethnic groups all formed armed wings to †ght for greater au• prospect of thousands of refugees pouring over the border, that tonomy or even outright independence. The old military re• brought the Myanmar government and the KIA back to the nego• gimes made sporadic attempts to arrange cease†res with the tiating table. armed groups, most notably in the 1990s and again in the late For the Kachin and other ethnic groups the Panglong Agree• 2000s, but none of these cease†res proved permanent, nor did ment still inspires the search for a federal solution to the coun• any of them lead to proper political talks. try’s ethnic problems, the only path to an inclusive Myanmar The reformers in Thein Sein’s government know that eth• that can live peacefully with itself. The army, for its part, has been nic violence could undermine everything they want to achieve. stubbornly insisting on the unitary nature of the state for de• Continuing civil con‡ict makes the country an unstable and cades. The question now is whether Thein Sein’s government is dangerous place, deterring the international investors that the willing to go further, build on the current cease†res and hold government needs to help rebuild the economy. Moreover, opi• talks on political devolution and wealth•sharing. 1

The Economist May 25th 2013 9 SPECIAL REPORT MYANMAR

2 The †ghting in Kachin state suggests that it is not, but people have no rights at all. close to Aung Min insist that they are now nearing full political The sta at the Myanmar Offer to readers negotiation with the cease†re groups and that everything is on Peace Centre who are support• Reprints of this special report are available. A minimum order of five copies is required. the table. They say that he and other ministers have even started ing Aung Min in his peacemak• Please contact: Jill Kaletha at Foster Printing talking about federalism, breaking an old taboo in government ing e orts are so dedicated to Tel +00(1) 219 879 9144 circles. This re‡ects a genuine evolution of thinking on the gov• their work that sometimes they e-mail: [email protected] ernment’s part. Ministers started o believing that the griev• do not even go home to sleep. Corporate offer ances of the Chin, Kachin and others arose from economic un• They reckon that the tumultuous Corporate orders of 100 copies or more are derdevelopment and could easily be overcome by more events of the past two years have available. We also offer a customisation infrastructure spending. Only recently have they understood given them a unique opportuni• service. Please contact us to discuss your that to win peace they will have to acknowledge and respect the ty to change Myanmar for good, requirements. religious and social di erences between themselves and the eth• and they are determined to Tel +44 (0)20 7576 8148 e-mail: [email protected] nic groups. Whereas the Burmans are Buddhists, for instance, make the most of it. They have a For more information on how to order special most of the Kachin are Christians, mainly Baptists. point. This special report has ar• reports, reprints or any copyright queries The reformers, and perhaps even a future president Aung gued that the country’s military you may have, please contact: San Suu Kyi after 2015, will have to grapple with other such reli• rulers seem to have been sincere The Rights and Syndication Department gious and racial divisions. Just as the Kachin, Karen and others in their reform e orts, and have 20 Cabot Square have su ered decades of discrimination at the hands of the Bur• already gone further than they London E14 4QW man state, so too have hundreds of thousands of Muslims. The had intended to. There is more to Tel +44 (0)20 7576 8148 Fax +44 (0)20 7576 8492 murderous attacks by Buddhists on Muslims in Rakhine state in do: for example, about 200 polit• e-mail: [email protected] June and October last year, which spread to central Myanmar ical prisoners are still behind www.economist.com/rights this year, re‡ect a hatred of non•Burman incomers of a di erent bars. But by now reform has gen• faith dating back to early colonial times. erated its own momentum, Future special reports If these outbursts of racially and religiously motivated kill• opening up possibilities that two Germany June 15th The Arab spring July 13th ing are not dealt with they could spiral out of control. An archaic short years ago seemed totally Biodiversity September 14th law passed in 1982 denies any form of citizenship to the Muslim out of reach. Brazil September 28th Rohingya, the victims in Rakhine state, on the ground that they Everything is now in ‡ux are not an Œindigenous race like the Kachin, Karen and others. and change is accelerating. Even Previous special reports and a list of forthcoming ones can be found online: The other ethnic minorities have su ered the same sort of dis• the constitution, supposedly the economist.com/specialreports crimination at the hands of Buddhist Burmans for being Chris• basis of the army’s continuing tians as the Rohingya have for being Muslims, but in practice the grip on the country, is up for oˆ• Rohingyas are in the worst plight because as non•citizens they cial review by a parliamentary commission, initiated by the army itself through its parliamentary proxy, the USDP. Encour• aged by the apparent willingness of reforming ministers like Shwe Mann and Aung Min to re•examine every aspect of life in Myanmar, exiles have been returning to provide much•needed technical expertise. So there will never be a better time to draw up a proper fed• eral constitution for the country, based on the principles of pow• er• and resource•sharing between the Burman centre and the ethnic groups. Some at the Peace Centre argue that this is also an opportunity to set up a mechanism for redistributing wealth, based on each state’s income and population. This would help the federal idea along, especially as at the moment almost all the new foreign investment is going to the Burman heartlands, mak• ing existing inequalities worse. Seize the moment The army could probably be persuaded to exchange eco• nomic and political power for professionalisation. The aim would be to turn it from the rambling, low•wage, chicken•farm• ing organisation that it has become, frequently implicated in tor• ture and other gross human•rights violations, into a slim, mod• ern, properly funded institution. Some oˆcers are known to be in favour of this sort of transformation. But the new army would also have to be truly national, incorporating the Kachin, Karen and others, just as General Aung San originally envisaged. And the wilful discrimination against the Rohingya Muslims and oth• ers would have to end. All this will take courage‹and considerable help from abroad. But as this special report has argued, the risks of not un• dertaking such fundamental reforms are far greater than the risks of trying. All the economic and political progress so far could still founder on Myanmar’s old, deep divisions. That would be a trag• Don’t miss the boat ic waste of a golden opportunity. 7

10 The Economist May 25th 2013