Previous Quarterly Editions
Expropriation Risk: 58 59 57 56 Political Violence Risk: 52 52 54 55 Terrorism Risk: 45 47 48 49 Exchange Transfer and Trade Sanction Risk: 63 64 63 66 Sovereign Default Risk: 42 42 42 44
TREND ▲ OUTLOOK ▲
International pressure on Myanmar over its treatment of the ethnic Rohingya in Rakhine state increased markedly in October when Gambia, representing the Organisation of Islamic Cooperation, filed a charge of crimes against humanity and ethnic cleansing at the International Court of Justice in The Hague. Gambia is basing its case on the UN's Genocide Convention, to which both it and Myanmar are signatories. Beginning in mid-2017, around 750,000 Rohingya civilians in Rakhine state have been forced to flee, mostly to displacement camps in neighbouring Bangladesh, after the Myanmar military began a “clearance operation” against militants. An estimated 7,000 civilians were killed in the operation, with many more injured. State Counsellor Aung San Suu Kyi (ASSK) led a delegation to The Hague to put her country’s position in December, where her defence of the army as simply combatting a terrorist uprising and a refusal to offer any apology to the Rohingya won her few friends. However, it has played very well at home, where the government’s strong riposte to the genocide allegations has the approval of supporters and opponents alike. This is important as her ruling National League for Democracy (NLD) faces a tough fight to convince voters to give it a second term in power in the election due in late 2020. These elections are already dominating calculations in the political landscape, with the expectation that the NLD will win but with a reduced parliamentary majority. Its government is increasingly seen as failing to make progress in crucial areas, especially the country’s internal peace process and the implementing of economic reforms, but also blamed for a poor response to monsoon flooding over the summer. Parties representing various ethnic minority groups are also expected to do better in this election, having come to adopt a less accommodating, and more coordinated, stance towards ASSK and the NLD. They will also be able to draw on a number of incidents in recent years where the reputation of the NLD has been tarnished by allegations and revelations of corruption. Any reduction in the size of the NLD’s majority is significant as it will reduce the chance that the NLD will be able to achieve its current goal, announced at the start of 2019, to amend the country’s constitution so as to remove the 25% of parliamentary seats currently reserved for military appointees. As the 2008 constitution dictates that any amendment requires 75% of parliament to approve it, this effectively gives the military veto power over any changes. The prize of securing army agreement to changing this goes some way to explain ASSK’s willingness to defend it so publicly before the ICC. Against this background, the issue of the economy has been pushed somewhat into the background, but growth above 6% looks possible in the current fiscal year, which now runs from October to September.
TREND ▼ OUTLOOK ►
The government launched its new Myanmar Investment Promotion Plan (MIPP) in October with the aim of attracting 200 billion dollars in investment over the next 20 years. The long timescale makes sense because, at present, investors in Myanmar must continue to contend with powerful vested interests that are capable of contravening or circumventing the country’s legal framework for their own benefit. The weak and overstretched judiciary is not helped by numerous out-dated commercial laws and 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 NLD has been taking incremental steps towards liberalising the economy, particularly in the financial sector, but the pace of change has been slower than many observers had expected. For example, the first foreign insurers only received permission to offer their life insurance products in the country in 2019.
The Arakan Army (AA), which claims to represent Rakhine's ethnic majority in demanding greater autonomy for the region, released 40 hostages it had been holding in November after abducting them from a ferry. Previous rescue attempts by the military to free them had led to the loss of civilian lives. Armed clashes between the AA and the military persist in the northwest of Rakhine state and southern Chin state. Renewed attacks on security forces are also focusing attention on northern Shan, where conflict continues over the control of narcotics production and smuggling. Skirmishes with the Arakan Rohingya Salvation Army (ARSA) also rumble on.
The government’s treatment of the Rohingya has the potential to radicalise parts of the Muslim community in Myanmar, where underlying tensions between elements of the Buddhist and Muslim communities are fed by latent extremism on both sides. A terrorist attack in a major urban centre by Islamist militants remains a possibility, as does the potential for more mob attacks by Buddhist extremists on mosques. The manufacture of the synthetic drug methamphetamine appears to be increasing in northern Myanmar as a crackdown in China forces drug syndicates to relocate their labs.
As the kyat is not freely convertible outside the country, foreign exchange liquidity remains a risk for investors. The reluctance of ASSK and the NLD, most recently at The Hague, to condemn or even acknowledge the army’s treatment of the Rohingya means that economic sanctions and/or the loss of trade privileges remains a distinct possibility in the medium term. Should any of the legal cases before the ICC result in formal indictments, then EU countries, in particular, are likely to come under pressure to consider a resumption of sanctions.
TREND ▲ OUTLOOK ►
Given Myanmar’s current international standing, it is increasingly unlikely that major financial institutions will wish to incur reputational risks by increasing activities in the country. But such reluctance may force the government to depend more on financing from China, which brings with it the risk of greater sovereign debt obligations. There is clearly 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. However, the NLD’s reluctance to increase public spending on the country’s dilapidated infrastructure may soon begin to constrain economic growth.
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