Previous Quarterly Editions
Expropriation Risk: 58 58 59 57 Political Violence Risk: 50 52 52 54 Terrorism Risk: 45 45 47 48 Exchange Transfer and Trade Sanction Risk: 62 63 64 63 Sovereign Default Risk: 42 42 42 42
TREND ► OUTLOOK ▲
Attention in Myanmar is shifting towards the national and state-level elections due late next year, forming the background against which the performance of the ruling National League for Democracy (NLD) is being assessed. Its most recent challenge has been the severe monsoon flooding affecting much of the country. Several states have criticised the central government for delays in providing relief, and this may boost regional parties when they stand against the NLD next year. The government, which already faces criticism for the slow pace of economic reform and its handling of the Rohingya crisis, suffered a further setback in July when the minister for industry became the second cabinet member to resign following accusations of corruption. However, despite the NLD’s poor track record in office since assuming power in 2015, public support for State Counsellor Daw Aung San Suu Kyi, who has confirmed she will stand again in 2020, remains strong amongst most Burmans. Her continued presence at the head of the party should be sufficient for the NLD to hold on to power after 2020, albeit with a smaller majority in parliament. The lack of progress under the 21st Century Panglong Conference framework, which is intended to resolve Myanmar’s numerous civil conflicts, ensures that the various political parties representing ethnic minority groups will field candidates against the NLD in their areas. After performing poorly last time, there is a greater chance that they will coordinate their activities in 2020 to maximise their impact. Given the high expectation and subsequent general disappointment with the party’s record in power, there is also time for the formation of new parties to offer an alternative to the NLD and the military-run Union Solidarity and Development Party (USDP). Although fundamental to the country’s governance, the state of relations between the Tatmadaw (military) and ‘The Lady’ remains hard to fathom. The Tatmadaw, which has formally withdrawn from parliamentary debate on the potential amendments to the Constitution presented by the Charter Amendment Committee in July, may be prepared to allow Suu Kyi to assume the presidency, from which at present she is constitutionally disqualified. But it will not accept any change in its control of 25% of the seats in parliament, which ensures its ability to place firm limits on the NLD’s policy choices. The complete lack of progress in resolving the plight of the hundreds of thousands of Rohingya still living in perilous refugee camps in neighbouring Bangladesh continues to dominate Myanmar’s relations with the international community. Reputational risks will persist for foreign businesses and organisations that opt to engage with Myanmar, even if there does not appear to be any immediate prospect of economic sanctions resuming. The regulations governing the operation of foreign financial institutions are gradually being liberalised to allow lending to local firms and the opening of subsidiary branch offices.
TREND ▼ OUTLOOK ►
Despite the return to civilian government, investors in Myanmar must still contend with powerful vested interests that are capable of contravening or circumventing the country’s commercial laws. The weak position of the judiciary is not helped by the dated nature of many commercial regulations, some of which remain unchanged from the colonial era. As a result, enterprises owned by the military and the state continue to distort aspects of the business environment. The government is responding with incremental steps towards opening up the economy but the pace of change is slow. In April, the first foreign insurers received permission to offer their life insurance products in the country.
TREND ▲ OUTLOOK ▲
Renewed attacks on security forces during August have refocussed attention on northern Shan, where conflict continues over the control of narcotics production and smuggling. Manufacture of the synthetic drug methamphetamine is increasing in northern Myanmar as a crackdown in China forces drug syndicates based there to relocate. There is also renewed fighting in Kachin, where the country’s lucrative jade mining is conducted. Armed clashes between the military and the Arakan Army, which claims to represent Rakhine's ethnic majority and demands greater autonomy for the region, persist in the northwest of Rakhine state and southern Chin state. The release in May of two Reuters journalists, who had been sentenced to seven years for investigating killings by the military in Rakhine state, has not been followed by any relaxation of the heavy restrictions placed on the media.
The government’s harsh treatment of the Rohingya, many of whom now live in refugee camps across the border in Bangladesh, has the potential to radicalise parts of the Muslim community in Myanmar, where underlying tensions across the country between elements of the Buddhist and Muslim communities is fed by latent extremism on both sides. The unchecked and highly incendiary comments by U Wirathu and other Buddhist nationalists are widening the divide. A terrorist attack in a major urban centre by Islamist militants remains a distinct possibility, particularly if there is no progress in relieving the plight of the Rohingya, as does the potential for more mob attacks on mosques.
TREND ▼ OUTLOOK ▲
Foreign exchange liquidity risk is an issue for investors in Myanmar as the kyat is not freely convertible outside the country. Despite the widespread international acceptance that the current government has little or no authority over the military and its actions, the evident reluctance of Daw Aung San Suu Kyi and the NLD to acknowledge or condemn the treatment of the Rohingya means that the resumption of economic sanctions and/or the loss of trade privileges remains a distinct possibility in the medium term. However, the new US sanctions imposed on a handful of army officers in July are largely cosmetic.
While the NLD’s prudent approach to public spending has helped to hold down the fiscal deficit, its reluctance to invest in infrastructure may soon begin to constrain growth. There is a need to reduce the extent to which the budget deficit is financed by the central bank, principally by making greater use of market-based financing of public debt such as bond issuance.
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