Previous Quarterly Editions
Expropriation Risk: 72 76 76 76 ►Political Violence Risk:79 81 81 80 ►Terrorism Risk:55 55 55 55 ►Exchange Transfer and Trade Sanction Risk: 73 73 73 73 ►Sovereign Default Risk:57 57 57 65 ▲
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Geopolitical alignmentEast 1 2 3 4 5 West
Alignment five years agoEast 1 2 3 4 5 West
Degree of contestationSettled 1 2 3 Contested
Since the February 2021 military coup, Myanmar’s country alignment has shifted significantly towards the East. Widespread Western condemnation of the coup and the violent authoritarianism that followed, including the arrest and imprisonment of the democratically elected leadership of the National League for Democracy (NLD), has seen the military junta re-align with Russia and China.
Before the coup, Myanmar was leaning towards the West, under Aung San Suu Kyi’s leadership, although relations between Yangon and some Western powers had deteriorated given atrocities against the Rohingya in Rakhine state commenced in late 2016. Although perpetrated by Myanmar’s military, Suu Kyi’s government sides with the military, despite international pressure to condemn an ethnic cleansing exercise that led to the deaths of around 25,000 ethnic Rohingya and a large human exodus.
Prior to Suu Kyi coming to power in 2015, a military-led government had ruled Myanmar by force since 1962. Following the introduction of economic sanctions by the West against Myanmar, the military had
increasingly turned to Russia and China for support. But popular domestic unease with China’s increasing influence was one reason why the military embarked on transition towards semi-democratic governance in 2011, before deciding in February 2021 the democratic ‘experiment’ had not brought the desired results, thus enacting the latest coup. The one constant throughout has been Myanmar’s membership of the Association of South-East Asian Nations (ASEAN) since 1997.
The military regime’s alignment with China and Russia is being contested within Myanmar via a low-intensity civil war between the military and the opposition government in exile. This
opposition in exile, meanwhile, sometimes finds allies amongst an array of armed ethnic groups that have been seeking autonomy from the central government for decades. Even within central Myanmar and Yangon, popular civilian opposition to the illegitimate military government is considerable, thereby forcing the leadership to rule by force. The scale of human rights abuses in Myanmar is high.
The outlook for Myanmar appears dark, with no obvious scenario by which things could improve. The military continues to imprison or kill individuals that stand in opposition to it. The opposition and various ethnic armed groups have no interest in negotiating with the
military, a stance reciprocated by the military. The resumption of targeted sanctions is adversely affecting Myanmar’s economy, but not to the extent that the military – which has largely sanction-proofed their own extensive business interests – feels motivated to open negotiations with the opposition.
The resulting situation is a political stalemate, and the modest economic gains that Myanmar made in 2011-21 are being undermined by a highly unstable economy, a drop in foreign investment inflows, and a large contraction in development assistance by the West.
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The expropriation risk is relatively high. The previous transitional (2011-15) and civilian-led (2015-20) governments had made steps towards improving the business environment, particularly in banking and finance. But the anticipation of a slow, steady move towards positive reforms has evaporated since the coup, and since 2011, the military has displayed a ready willingness to flout international standards of behaviour with the forced seizure of property and other business assets unlikely to represent any dilemmas for them.
With numerous foreign governments instituting economic sanctions against individuals and companies connected to Myanmar’s military, and pursuing legal proceedings for the military’s atrocities, the potential for business assets to be expropriated in reprisal has risen significantly. Myanmar’s rule of law and ability to enforce legal decisions was already weak, but the ability for free and fair legal judgements to be made and upheld is now virtually nil. Sensing little prospect of an improvement in the political situation, a growing number of high-profile foreign investors have sought to divest their Myanmar assets.
Law and order do not pertain in Myanmar, where a low-intensity civil war is ongoing. Military and police individuals have acted lawlessly towards targeted and random individuals and their property, supported by informal militias under their control. While most of the violence has been between civilian protestors and the police and military, there has been occasional violence towards companies believed to be Chinese owned, as some protestors believe Beijing has supported the military’s actions.
Popular protests in towns and cities nationally continue despite the loss of life, whether from the civil disobedience movement, protests and the violent responses, or sporadic guerrilla attacks by armed groups on military installations. The formation of a shadow government in opposition, the National Unity Government, and the establishment of armed militias suggests a heightened risk of political violence will persist for some time, particularly if new elections will not come until late 2023, at the earliest.
Countries that have erred against criticising the military coup include China, Russia, Vietnam, and Thailand. While most civilian protestors have not sought to arm themselves, alliances are being struck with some of the ethnic minority armies that populate Myanmar’s border regions. There have also been reports of some individual defections from within elements of the military, police, and security forces.
Tensions between the Buddhist and Muslim communities are occasionally stoked by extremist elements on both sides. A terrorist attack in a major urban centre by Islamist militants remains possible, as does the potential for mob attacks by Buddhist nationalists on mosques.
The military coup and resulting public protests could be seen as a window of opportunity by terrorist elements to instigate violence in support of their objectives. With the military and security apparatus fully stretched in managing the civil disobedience movement nationally, this may weaken their ability to thwart armed attacks in some of the country’s more troubled border regions. The military junta would allege the opposition and various allied armed groups are acting as terrorists, while the opposition would argue the military rules by terror.
Myanmar’s kyat is not freely convertible outside the country. Even before the coup, the unanimous ruling of the International Court of Justice against the Myanmar government’s treatment of the Rohingya (January 2020) meant 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 its Financial Action Task Force placed Myanmar on its money-laundering watch list.
But the coup has triggered fresh economic sanctions against military 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, invest in, or trade with entities in Myanmar, for fear of being non-compliant in a rapidly evolving situation.
In addition, many staff working in Myanmar’s banking sector have withdrawn their labour, putting it under considerable strain. Individuals have limited access to their funds in banks, meaning worries about a systemic banking crisis are not unfounded.
Myanmar’s kyat has seen a reduction in its value since the coup, from around 1,330 in early February 2021 to roughly 2,100 in September 2022.
Myanmar’s foreign borrowing is limited, and the country had yet to tap international financial markets for sovereign or other debt instruments before the coup. The country has no credit ratings coverage, but Myanmar’s external debt levels are believed to be fairly modest. The country’s fiscal deficit is increasing, with the World Bank estimating that the fiscal balance deteriorated to minus 8.5% of GDP in 2021, and the level of public sector debt rose from around 39% of GDP in 2020 to 62% in 2021.
The country has been particularly reliant on soft loans and other financial assistance provided by the international donor community since around 2013, but much of that, particularly from development finance institutions, and funding directed at supporting government institutions, has now been halted due to the coup. Support provided by the International Monetary Fund and World Bank, under the Rapid Credit Facility to assist less-developed countries affected by COVID-19, has also not been forthcoming.
It is thought that Myanmar had foreign exchange reserves around USD6.4 billion in 2021, or about three months of import cover. The country has run a persistent current account deficit since 2011. With export-oriented foreign investors suspending activities or withdrawing altogether, this will put Myanmar’s trade balance under increasing strain.
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