Previous Quarterly Editions
Expropriation Risk: 65 65 65 70 Political Violence Risk: 59 59 59 74 Terrorism Risk: 49 49 49 55 Exchange Transfer and Trade Sanction Risk: 55 55 64 64 Sovereign Default Risk: 47 47 57 57
TREND ▲
Risk levels in Myanmar have increased significantly since February 1, 2021, when the military (the ‘Tatmadaw’) enacted a coup, a few hours before the country’s parliament was scheduled to resume sitting, following national elections held in November 2020.
The Tatmadaw declared that the elections were fraudulent, unilaterally annulled the results, and announced a year-long state of emergency. State President Win Myint and State Counsellor Aung San Suu Kyi were detained, along with some ministers and their deputies, members of parliament, the election commission and some advisors. All have been replaced by appointees of a ‘State Administration Council’, chaired by military chief General Min Aung Hlaing.
While long-held tensions between the ruling National League for Democracy (NLD) and Tatmadaw were widely known, the coup came as a surprise to most. While the precise reason for the coup is yet to be established, the Tatmadaw had been surprised at how poorly their allied parties performed in the election, which saw the NLD’s aggregate popular vote increase.
Post-coup nationwide public protests were immediate and have resulted in significant violence. As of late March 2021, over 500 civilians have died because of Tatmadaw actions and over 3,000 people have been detained. A widespread civil disobedience movement has commenced, with civil servants, healthcare workers and private sector employees refusing to work. This has brought parts of the financial sector and wider economy to a virtual stand-still.
In a bid to legitimise the coup, the military has cited articles in the 2008 constitution that it claims to provide legal basis for its actions. But these assertions have not been accepted by the international community, which has begun to enact new economic sanctions towards Tatmadaw-connected individuals and companies.
The coup leaders have also unveiled allegations of corruption and other crimes to justify the arrest and detention of various individuals. The military has sought to control popular use of social media and the internet to organise protests and resistance. Nonetheless, social media posts of videos and photographs depicting police brutality and even shootings of civilians with live rounds have been widely disseminated. An opposition government of national unity has been formed.
At the time of writing, there appears to be scant prospect of meaningful negotiations or mediation. As such, Myanmar’s economic and political prospects are negative: prior to the coup, real economic growth was estimated to be around 2% in 2020. As of early May 2021, the country had reported over 142,500 cases of COVID-19, and just over 3,200 fatalities.
The NLD-led government had made incremental steps towards improving the business environment, notably in banking and finance, but these efforts were viewed in the context of a protracted work-in-progress. That anticipation of a slow but steady move towards positive reforms has now gone into reverse post-coup, particularly as many large corporate entities remain under Tatmadaw ownership or are affiliated to it.
With a host of foreign governments instituting new economic sanctions against key individuals and companies deemed to be connected to the coup, the potential for business assets to be expropriated in retaliation has risen significantly. Myanmar’s rule of law and ability to enforce legal decisions was already weak pre-coup, but with most of the judiciary now either pursuing civil disobedience or conversely obeying Tatmadaw orders, the ability for free and fair legal judgements to be made and upheld is virtually nil.
Popular protests towards the coup have occurred in towns and cities nationally and do not appear to be abating, despite the increasing loss of life. Crucially, they are not limited to the main urban centres.
Law and order do not currently pertain in Myanmar, with members of the military and police acting in a lawless fashion towards targeted individuals and their property. While most of the violence has been between civilian protestors and members of the police and military, there has also been occasional violence directed towards companies and individuals that are believed to be Chinese- some protestors believe that Beijing has been supportive of the Tatmadaw’s actions.
Other countries to have erred against criticising the coup include Russia, Vietnam and Thailand. At the time of writing, civilian protestors have not sought to arm themselves, but there is growing speculation that alliances may be struck with some of the ethnic minority armies that populate Myanmar’s border regions. There is the risk of Myanmar becoming a failed state, and the potential for some form of civil war to break out.
Tensions between the Buddhist and Muslim communities in Myanmar are occasionally stoked by extremist elements on both sides. A terrorist attack in a major urban centre by Islamist militants remains a possibility, as does the potential for mob attacks by Buddhist nationalists on mosques.
The recent coup and resulting public protests could be seen as an opportunity by terrorist elements to instigate acts of violence in support of their objectives. In particular, with the Tatmadaw and security apparatus fully stretched in managing mass protests and civil disobedience across large parts of Myanmar, this may weaken their ability to thwart armed attacks in some of the country’s more troubled border regions.
TREND ►
Myanmar’s kyat is not freely convertible outside of the country. Even prior to the coup, the unanimous ruling of the International Court of Justice against the Myanmar government’s treatment of the Rohingya (January 2020) meant that the risk of economic sanctions and/or the loss of trade privileges was a distinct possibility for Myanmar in the medium term. In 2020, the European Union renewed its embargo on arms and equipment destined for Myanmar’s police or military, and the Financial Action Task Force placed Myanmar on its money-laundering watch list.
But the coup has triggered another round of economic sanctions against Tatmadaw-connected individuals and companies, imposed by several countries including the United States. The heightened state of concern around Myanmar will make it perilous for those seeking to remit funds and trade with entities in Myanmar, for fear of even accidentally being non-compliant with a rapidly moving situation.
In addition, many staff working in Myanmar’s banking sector have withdrawn their labour, and the domestic banking sector is under considerable strain. Individuals in Myanmar have only very limited access to their funds held in banks, and worries about a potential systemic banking crisis have risen.
Myanmar’s foreign borrowing is limited, and the country has yet to tap the international financial markets for sovereign or other debt instruments. The country has no credit ratings coverage at present, but Myanmar’s external debt levels are modest, at less than 20% of gross domestic product.
The country has been particularly reliant on soft loans and other financial assistance provided by the international donor community since around 2013, when political reforms were enacted. But much of that assistance, particularly from development finance institutions, and funding directed at government agencies, will be halted indefinitely due to the February 2021 coup.
Support provided by the International Monetary Fund and World Bank, under the Rapid Credit Facility to assist less-developed countries affected by the COVID-19 pandemic, will not be forthcoming. Myanmar has foreign exchange reserves of around USD6.5bn, or about two to three months of import cover, and runs a persistent current account deficit. With foreign investors halting activities or withdrawing altogether, this will put the country’s trade balance under increasing strain.
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