Key EU decision today on lifting Myanmar sanctions

A positive outcome is expected after Prime Minister David Cameron hinted at UK support for loosening EU sanctions in encouragement of Myanmar’s move towards democracy. The US will surely follow this trend; in fact, it promised a few days after the April 1 by-elections to relax some restrictions and named its first ambassador to Myanmar in 22 years. Australia’s recent move to ease financial and visa bans further highlights the instant rewards for Myanmar’s impressive transformation, which bodes well for a country in need of a system overhaul to sustain growth and improve national stability. Because without stability, Myanmar’s open-door policy may once again see a setback – just as it did a decade after its first adoption in 1988.

The abrupt reversal of Myanmar’s first open-door policy was in stark contrast to the success of Vietnam’s Doi Moi policy adopted in 1986, owing to the differences in their political and economic stability. Vietnam’s one-party state was stable, with the Communist Party anchored as a long-term leader, while Myanmar faced a political impasse between the military junta and the civilian opposition.

This impasse only resulted in international boycotts that denied Myanmar any fruitful foreign trade and investment to support industrialisation. Vietnam, on the contrary, benefited from the lifting of US sanctions in 1994, and was able to draw business opportunities and spend the large inflow of foreign aid on building infrastructure to boost investor confidence.

Further exacerbating the instability in Myanmar were the dual kyat exchange rates, which created a poor business atmosphere. While Vietnam also faced this setback at the start of Doi Moi, the government was eventually able to unify the dong exchange system, which, on top of more flexible investment regulations and greater tax incentives, contributed to significantly higher foreign direct investment growth than that of Myanmar. Economic disappointment finally prompted Myanmar to impose a series of severe trade restrictions in 1997, including a number of import bans that crippled the manufacturing sectors, which required imports of raw materials and machinery. Why should we believe in Myanmar’s reopening this time?

The latest political and economic reforms will advance Myanmar towards national stability, which is the ultimate key to sustainable openness. The country’s path towards democracy, underscored by the recent by-elections, has already triggered the prospect of numerous sanctions being lifted. At the same time, by making a mere 6 per cent of parliamentary seats available in the by-election, the ruling party ensured that its majority cannot be threatened, thereby placating the anti-reform bloc in the government. Commitment to financial reforms is also apparent. Following the unifying of the kyat under a managed float regime, progressive policies continue to emerge in addressing long-standing problems such as a primitive financial system, poor infrastructure and the land tenure system.

Above all, once everyone – both the haves and the have-nots – experiences the fruits of reforms, it will be too difficult for the Myanmar government to reverse its course and let it all slip away.

This is part two of a three-part series on Myanmar. The final part will take a closer look at the industrial sectors that have the potential to benefit from Myanmar’s new openness. Part one was published on March 19. Dr Sutapa Amornvivat is chief economist and head of the Economic Intelligence Centre at Siam Commercial Bank. She has wide international work experience at IMF, ING Group and Booz, Allen, Hamilton.