Saturday, April 7, 2012

US Partially Relaxes Burma Sanctions

As expected, the US State Department announced a partial relaxing of Burma sanctions following the April 1 by-elections won by Aung San Suu Kyi’s National League for Democracy (NLD) party.  I’ve explained before why the US cannot immediately relax all Burma sanctions, due to the myriad of regulations and legislation imposed and the need to involve the US Congress in the process. Nevertheless, the actions announced by US Secretary of State Hillary Clinton represents a major corresponding step by the US:

  • The US will name a new ambassador (resident in Yangon) in the very near future. This is expected to be Derek Mitchell, the current State Department official in charge of Burma policy.
  • The US will establish a USAID office in Myanmar, which should allow USAID funds for ASEAN support projects such as the ASEAN Single Window (which had been blocked) to be spent in the country.  This is critical as the country becomes ASEAN Chair in 2014, with responsibility for the ASEAN Economic Community.
  • The US will support a normal country program for the UN Development Program.
  • The US will allow private organizations to support non-profit activities such as democracy building, health and education. Presumably this could include education on economics and business, so we can expect US business organizations to start arriving on educational missions to Myanmar soon (their EU and Australian counterparts are already doing this).
  • The US will allow certain Myanmar regime officials to visit the United States.
  • The US will begin a review of its ban on the export of financial services and investment to Myanmar.  The US State Department said that priority would be given to investments in agriculture, tourism and perhaps telecommunications, but not investments in minerals and other natural resources. The financial services ban currently has the highest priority for US businesses and individuals. These sanctions prevent any direct financial transfers to the country, making the use of credit cards, for example, impossible.  As US competitors are not subject to such restrictions (such as the EU), they have been filling up Myanmar-bound flights and Yangon hotels.  

Understandably, unwinding the US Burma sanctions will take quite some time, due to their sheer complexity.  For example, under current sanctions, US officials cannot fly from Yangon to Naypyidaw because the only airlines available are linked to entities covered by the sanctions (and so they must spend the better part of the day in car motorcades to get up to the Myanmar capital). The expected “safe harbor” announcement by the US government of what can and cannot be done in Myanmar cannot come soon enough.

However, the prospects of making immediate returns on the country are relatively small, and the universe of Americans with practical experience in the country even smaller.  US companies looking to go to Myanmar just want to get a first hand view of the investment conditions, not necessarily invest immediately.  The most relevant comparison would be Vietnam; the initial US investors in Vietnam in the early 1990’s had heavy losses, but those who toughed it out are doing quite well now.  As we can expect Myanmar to be not so different, ending more stringent sanctions such as on the importation of Myanmar-origin goods are of lesser priority than relaxing those which make it impractical even to get on a plane to Myanmar.

Ironically, the NLD’s great electoral success on April 1, which motivated this partial relaxation by the US and others, may negatively impact foreign investor sentiment.  It raises the spectre of a backlash by hardliners in the Myanmar regime, as well as raising doubts about whether any deals made with the current government will stay in place after a 2015 election in which the NLD is more likely to take over.

All of this makes the next few months critical both in the international community as it relaxes the Burma sanctions, and within Myanmar itself, as President Thein Sein and Aung San Suu Kyi try to lay down a new operating framework for the country that will satisfy both Myanmar regime hardliners and opposition activists who have been waiting so long for real change.  In any event, both processes will take time, but the US and other Western countries can and should take expedited and cautious steps to support this reform.