Finding Dollars and Sense: Burma's Economic Dilemmas

Western sanctions have failed to topple Burma's military regime. Instead, foreign investments from non-Western states have sustained the junta's grip on power. Will the military junta tighten its control of the economy after the national elections later this year? On March 24, the Asia Program, with co-sponsorship from the Program on America and the Global Economy, assembled a panel of experts to evaluate the current state of Burma's economy and prospects for reform.

Following "nearly 50 years of willfully inept economic management" by the junta, Sean Turnell asserted that Burma's economy is "grim." The country has a "dualistic" economic system in which the junta dominates Burma's "formal" economy (driven by energy, raw materials, metals, and gemstones), while the illegal trafficking of narcotics, gems, timber, and humans conducted by the junta and ethnic groups make up the "informal economy." The absence of transparency and the rule of law, entrenched inflation, and inconsistent exchange rates concentrate the country's wealth in the hands of the ruling class, denying vital public spending to social sectors. Meanwhile, the devastation from Cyclone Nargis has deprived farmers and laborers of access to rural credit. Burmese banks cut off from international capital and functioning financial markets lack the capacity to lend. Turnell sees Burma as suffering from a "resource curse," in which the junta collects revenues from the sale of natural resources only to spend them on "wasteful" and "grandiose" projects that undermine economic growth. The post-election government should focus on restoring and recapitalizing the rural credit system. Looking ahead, Turnell advised the ruling party to "rectify mistakes" during the pre-election period by building the institutions and policies that will direct the revenues from the country's natural resources more towards the people.

Ken MacLean noted that the West's understanding of post-colonial Burma remains "one-sided," focusing more on the democracy movement and ethnic conflicts, less on the formation of "commodified enclaves" along Burma's eastern borders. These areas, which are administered by two or more different armed groups on a seasonal, monthly, or daily basis, have paradoxically expanded Burma's territory but also "eroded" the junta's authority. The enclaves' leaders, taken from field battalions, ceasefire groups, state-owned enterprises, and local entrepreneurs (some with access to foreign capital) and their family networks, conduct large-scale resource extraction within these large and discontinuous tracts of land. These ad hoc joint ventures extracting gems, metals, minerals, tropical hardwoods and other forestry products evade public scrutiny, because they are not formally registered with the state. Realizing such arrangements can enhance economic development, the junta turns a blind eye to these operations.

Brad Babson recommended that stronger U.S. economic engagement in Burma take place during the present pre-election period. American policy toward Burma, according to Babson, should depart from discussions of human rights and of Burma's ethnic minorities. The lack of American involvement to this point has created opportunities for competing powers like China, India, and Thailand to move in and advance their objectives and interests without hindrance. The coming election, Babson predicted, will "set the stage for a new era in Burma's internal political and economic life." Babson described the current regime as a "transitional government" open to "robust domestic policy debate" on the economy. Some of the provisions within the new constitution, Babson believes, will enforce the rule of law. For instance, the constitution stipulates the prohibition of monopolies and unfair pricing practices, and emphasizes enhanced scrutiny of elected officials. It even outlines the distribution of economic powers among the various levels of government. In closing, Babson urged the United States to reach out to the younger generation of Burmese leaders, especially those in the military, by proposing opportunities to engage in educational and professional exchanges.

Morten Pedersen promoted a "linkage between different strategies" to attain realistic human rights progress in Burma. He assessed the pros and cons of three main approaches used by the international community. The sanctions approach, applied by the West, has failed to achieve regime change. The absence of a significant domestic political challenger has enabled the regime to deflect the economic and political impact of sanctions. Furthermore, sanctions have produced a "hampering effect" on labor-intensive export sectors. The second main approach, regional engagement through foreign trade and investment, can improve human rights but entails a higher cost. Regional investments from Burma's neighbors have kept the junta in power because the newly rich do not challenge the status quo. Pedersen opined that the third approach—principled engagement—to improve the governance framework for human rights protection is the "most legitimate way of addressing the bad behavior of the regime" and the basic needs of the people. Pedersen concluded that none of these approaches can succeed on its own. Practitioners should assess each strategy on its own terms and foster a linkage between them to make it work.

By Sue Levenstein
Robert M. Hathaway, Director, Asia Program