Wednesday, November 08, 2006

Myanmar shakes Western noose

By Shawn W Crispin

BANGKOK - It wasn't that long ago that military-run Myanmar periodically wobbled on the brink of economic and financial collapse. The many detractors of the ruling State Peace and Development Council (SPDC) had long hoped that Western-led economic sanctions would eventually squeeze the rights-abusing regime out of power.

A massive inflow of Asian capital has recently wholly undermined the near-decade-old sanctions regime led by the United States and the European Union and greatly strengthened the once-isolated military junta's political staying power. Significantly, the failure of the US-led policy
is also symptomatic of China's and India's ever increasing economic clout across the region.

Foreign investment into Myanmar surged to a record high US$6 billion in the fiscal 2005-06 year that ended in March, up from the paltry $158.3 million recorded the previous year, according to recently released official statistics.
Myanmar's total trade also hit a record high of $5.5 billion over the same period, surging 27% year on year and handing the junta a rare trade surplus of $1.6 billion. Bilateral trade is on pace to expand even faster this year to more than $7 billion as the junta cashes in on high global energy prices.

Those rising figures will no doubt irk the administration of US President George W Bush, which has in recent years referred to the hardline regime as an "outpost of tyranny". China, India and to a lesser degree Thailand have all overlooked Myanmar's abysmal rights record to gain access to the country's largely underdeveloped energy resources, including big new capital outlays for
joint-venture hydropower dams, oil and gas exploration and production, and assorted mining activities. The three Asian countries are also among Myanmar's top five trading partners.

Myanmar's reclusive ruling generals have awoken belatedly to the notion that opening to select foreign investors is more likely to maintain their long-term hold on power than economic isolationism. The junta recently opened six previously off-limits terrestrial-based oil and gas blocks to foreign exploration and development, mainly from India and China, and has also promised to open the country's largest gold mine and other key mineral deposits to foreign investment.

SPDC leader General Than Shwe is reportedly reviewing a larger-scale privatization plan, which would involve the selling of private stakes across a wide array of state-owned enterprises, some of which were nationalized in the wake of the military first seizing power in 1962. If that plan were even partially implemented, the sales would substantially fill the junta's long-depleted national coffers and provide the financial cushion necessary to stabilize inflation and exchange-rate volatility - the key on-the-ground targets of any economic-sanctions regime.

Declining influence

When the US first imposed its economic sanctions in 1997, and the EU later followed suit, Myanmar's isolated economy was highly vulnerable to outside pressure. China had not yet fully emerged economically and Washington was able to keep enterprising Japanese investors from shoring up Myanmar's decrepit economy and depleted finances.

When the 1997-98 Asian financial crisis hit, the local currency, the kyat, went into free fall, and the country was only rescued by China's friendly extension of emergency short-term interest-free loans. A banking crisis in 2003 and the government's inept policy response threatened to undermine completely Myanmar's already precarious financial balance. Without China's behind-the-scenes financial assistance, on several occasions Myanmar's economy could have succumbed to the combination of Western sanctions and its own economic mismanagement.

The sanctions have long been cheered by the hardline regime's many detractors, including detained opposition leader Aung San Suu Kyi, who has said from house arrest that foreigners should refrain from investing in Myanmar until democracy is restored. Yet when the US imposed sanctions against Myanmar in 1997, the punitive policy had achieved its objectives in fewer than 24% of cases since 1973, according to research compiled by the Heritage Foundation, a US-based conservative think-tank.

Meanwhile, the Association of Southeast Asian Nations (ASEAN) member states were initially peeved when the US first imposed its sanctions, which ran counter to their 1997 initiative to engage rather than isolate the junta through membership in their regional grouping - which was at least partially initiated to counterbalance fears of China's growing economic and strategic influence in Myanmar.

Still, investment from financial-crisis-strapped ASEAN countries has only gradually trickled into Myanmar, and was further restrained by behind-the-scenes US and EU diplomatic pressure on certain regional countries. Yet China, India and Thailand have all willingly risked Western philippics to gain access to Myanmar's oil and gas sources, which some industry analysts estimate are second in volume only to Indonesia in the region.

Myanmar has significantly managed to bypass the Western-controlled multilateral lending agencies, including the World Bank, which has in the main observed the US and EU sanctions, and accessed capital investment directly from private-sector Asian sources. While various US and European companies closed down their Myanmar-based investments because of the sanctions, Chinese and Indian - mainly energy - companies have rapidly filled the gap.

India's Essar Oil Ltd, Focus Energy Ltd, MPRL Exploration and Production Private Ltd and Goldpetrol and China's CNOOC (China National Offshore Oil Corp), Sinopec (China Petrochemical Corp) and China National Petroleum subsidiary Chinerry Assets have all recently established substantial operations in the country. And there are reportedly many more joint-venture energy deals in Myanmar's pipeline.

Western sanctions' failure to achieve economic collapse and political change in Myanmar significantly underscores both the United States' and Europe's waning and China's and India's growing economic influence in the region. As Asia's economies become more integrated, particularly through greater Chinese- and Indian-inspired trade and investment links, Western-led economic threats clearly no longer strike fear into the region's roguish regimes.

If US and EU sanctions fail to have the desired effect against a country as backward, mismanaged and until now isolated as Myanmar, then the policy tool is unlikely to work anywhere else in Asia, including against nuclear North Korea. That's a potentially disturbing economic truth considering that current US administration's penchant for using preemptive force against regimes it considers "evil" or, in Myanmar's case, "tyrannous".

Some Western diplomats believe that fear of a possible US invasion was one big reason Myanmar's ruling junta last year abruptly moved the national capital from the coastal city of Yangon to the inland, mountainous redoubt of Naypyidaw. Ironically, perhaps, the junta is now pumping profits earned from China and India into building up a new military-industrial complex, where the ruling generals are living comfortably and hunkering down against a possible US military rather than economic threat. Meanwhile, the junta continues to round up and jail its political opponents, and crack down on even the mildest forms of dissent.

Shawn W Crispin is Asia Times Online's Southeast Asia editor.