Vicious Circle: Myanmar’s Economy as Cause and Casualty of War

As Western and Asian multinational corporations make plans to expand their operations in Myanmar, as foreign governments lift sanctions, and as tourists flock to the newly opened but impoverished nation, it is imperative to understand both the motivations and potential economic consequences of Myanmar’s many ongoing conflicts. In a nation plagued by war and accusations of genocide, the economic impact of conflict cannot be overlooked.

After eight months in power, State Counselor Aung San Suu Kyi’s ruling National League for Democracy has found itself enmeshed in Myanmar’s long standing ethnic and sectarian conflicts, despite Ms. Suu Kyi’s sustained push for political reconciliation under the 21st Century Panglong peace conference series. Reports of systematic violence against Muslim Rohingyas continue to emerge from northern Rakhine State, while the self-proclaimed Northern Alliance has increasingly clashed with the Tatmadaw (Army) in Kachin and northern Shan States.  Meanwhile, long dormant tensions with other powerful ethnic militias continue to increase, with the United Wa State Army (UWSA) expressing concerns about military action near its de facto mini-state, and Karen groups also seeking to reunify in the face of renewed Tatmadaw activities.

Despite increasingly loud denunciations of violence against Rohingyas by prominent international politicians, most notably those in Malaysia, anger over anti-Rohingya violence is unlikely to have sustained or severe economic consequences in the near term.  Regional boycotts related to political or social issues are historically ineffective, while government-linked corporations in Muslim states have continued to pursue investment opportunities despite the ongoing Rohingya crisis.

Although Myanmar stopped sending workers to Malaysia in December 2016, at least 500,000 Myanmar citizens are already in the country and are unlikely to return in the near future.  China’s  plans to build a port and Special Economic Zone in the Rakhine State town of Kyaukphyu are also highly unlikely to be affected by the recent violence.  However, beyond interstate diplomacy anti-Rohingya violence has become an increasing theme in Jihadi propaganda, with militants in Indonesia repeatedly seeking to target Myanmar’s embassy and Buddhist sites as a result. Aside from the attack on the Maungdaw border crossing, the capabilities of Jihadi groups targeting Myanmar remain largely unknown.  However, a mass casualty attack in Yangon or Mandalay resulting in the deaths of governing National League for Democracy leaders, foreign expatriates, or Buddhist leaders could result in widespread retaliatory violence, which in turn would serve to frighten foreign investors and increase the prospect of significant punitive economic consequences from Muslim states.

Elsewhere in the country, Tatmadaw efforts to pressure the Northern Alliance into signing the existing Nationwide Ceasefire Agreement (NCA) have resulted in asymmetric responses by the affected militias, with a series of attacks in November 2016 targeting key bridges along roadways used to transport goods from Mandalay through Lashio to Muse: a border crossing with China’s Yunnan Province which accounts for 90% of border trade between the two countries, including Myanmar’s exports of rice, corn, sugar, pulses, horticultural goods, and fishery products.  These attacks reportedly cut the volume of border trade by two thirds for at least two weeks, with the price of imported Chinese goods rising 10% in Mandalay as a result. Along with other motives, concerns about potential reactions from Kachin members of the Northern Alliance have caused Myanmar’s government to indefinitely delay its decision regarding whether to allow renewed construction of the Myitsone Dam; a major Chinese hydroelectric  project whose suspension has resulted in a drastic decrease in Chinese investment inflows.

In one of Asia’s poorest states, economic paralysis could prove as deadly as war.

In Kayin State, the Karen National Union (KNU) has been a relative success story for the Tatmadaw, after pro-business leaders of the group were elected in 2012 and signed both a bilateral ceasefire and the NCA in 2015.  These leaders then helped facilitate land confiscation associated with oil palm plantations, hydroelectric dams, and the Dawei Special Economic Zone, resulting in personal enrichment despite numerous complaints from ethnic Karens affected by land confiscation. However, the KNU has expressed increasing concern regarding Tatmadaw efforts to stage counterinsurgency operations against KNU splinter factions in areas near mainstream KNU territory.  Meanwhile, internal leadership elections set for next month could potentially result in the selection of hardline leaders sympathetic to NCA non-signatory splinter factions and skeptical of the benefits accrued under the NCA.

Although a resumption of full scale conflict under new KNU leadership remains unlikely, heightened tensions combined with low commodity prices and questions about commercial viability could deter investments in plantations and the Special Economic Zone in the Tanintharyi Region, while fighting near Asian Highway 1 in Kayin State could temporarily block access to the Myawaddy-Mae Sot border crossing, which accounts for the majority of border trade between Myanmar and Thailand.  Fighting with KNU splinter groups has also occurred in proximity to the Hat Gyi Dam in Kayin State as recently as October 2016, and intensified fighting could potentially jeopardize Myanmar’s plans to export electricity to China and Thailand.

Nationally, the impetus for continued conflict is driven by a number of factors. These include NCA non-signatories’ desire to maintain their semiautonomous statelets and associated revenue streams, Ms. Suu Kyi’s acquiescence to the Tatmadaw’s maximalist negotiating demands (such as requiring militias to sign the NCA before participating in the Panglong peace conferences), and the continued lack of civilian authority over the military, police, and border guards (which are all controlled by the military).

In the absence of significant concessions by both the Tatmadaw and NCA non-signatories, Myanmar’s fighting is likely to continue to rage on for the foreseeable future, undermining prospects for the Panglong peace conferences. This in turn will likely distract Ms. Suu Kyi from much-needed economic policy reforms, undermining her support among ethnic minorities and limiting prospects for development in ethnic minority-dominated areas.

In one of Asia’s poorest states, economic paralysis could prove as deadly as war.

John Quentin is a United States-based political risk analyst with a background in government intelligence, now working in the private sector with a particular focus on the Asia region. 

Photo by CEphoto, Uwe Aranas  CC-BY-SA-3.0.

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