Previous Quarterly Editions
Expropriation Risk: 54 56 58 58 Political Violence Risk: 45 48 49 50 Terrorism Risk: 43 45 45 45 Exchange Transfer and Trade Sanction Risk: 55 57 58 62 Sovereign Default Risk: 42 42 42 42
TREND ▲ OUTLOOK ▲
Tensions remain high between the Myanmar government and the international community over the treatment of the Muslim Rohingya, 700,000 whom are now in overcrowded refugee camps in neighbouring Bangladesh. More evidence has been collected by human rights organizations to implicate the Myanmar military in the beating and killing of civilians and the burning of thousands of homes belonging to Rohingya as part of an effort to force them from Rakhine. Although the government set up a new independent commission of inquiry in July that has two foreign members, the lack of progress under the previous commission means that few expect this one to hold the military to account. The large majority of ‘Burmans’, including the government of Aung San Suu Kyi, regard the Rohingya people as unwelcome ‘Bengalis’ that have no place (or rights) in Myanmar. In August, the government rejected claims by the International Criminal Court in the Hague to have jurisdiction over aspects of the Rohingya issue, arguing that Myanmar had not signed the statute which established the Court, but the ICC is moving forward on the grounds that Bangladesh is a member. In the meantime, a damning report from the UN Human Rights Council in August, finding that the military’s action towards the Rohingya showed ‘genocidal intent’, has paved the way for a subsequent US State Department report. This has the potential to trigger new US sanctions against the military while leaving the civilian government largely untouched, although the military still controls 25% of seats in the legislature. Myanmar expects China and possibly Russia to protect it in the UN and help offset the impact of any new sanctions. Much of the international business community has become more reluctant to conduct business with Myanmar since the human rights abuses in Rakhine because of the reputational implications, and this is already reflected in the country’s modest FDI inflow figures. Recent months have seen the Myanmar currency, the kyat, come under selling pressure, losing around 7% of its value against the US dollar in June and July. Within the country, business confidence remains weak, and the manufacturing sector’s purchasing manager’s index has started to drop. The appointment of U Soe Win as the new finance minister was broadly welcomed after his ineffectual predecessor resigned to avoid prosecution for corruption, although the reappointment of the central bank governor, who is seen as resistant to economic reforms, is less encouraging. As the national elections due in 2020 come closer, political jockeying will intensify. While the National League for Democracy is widely expected to maintain a parliamentary majority and so retain power, the party’s disappointing performance in government since 2015 may see some ethnic minority parties gaining parliamentary seats.
TREND ► OUTLOOK ▲
The new Companies Act and its implementing regulations came into effect in August, following the enactment of a revised investment law in October 2016. However, the legal and regulatory framework for business in Myanmar will remain weak for some time to come, despite a ‘strategic action plan’ launched last year to strengthen the calibre of the civil service. The legal system is not strong enough to prevent powerful interests from contravening the country’s commercial laws, many of which remain outdated. Military- and state-owned enterprises continue to operate, distorting some aspects of the wider business environment in Myanmar. Although the possibility of new economic sanctions is a worry for the business community, endemic corruption remains a greater concern.
The third session of the 21st Century Panglong conference, introduced by Daw Aung San Suu Kyi in 2016 as a means to bring about a peace agreement with the country’s multiple armed ethnic groups, was finally held in July 2018, after four earlier postponements. However, no major progress was made at the session. Fighting continues in northeast Kachin, where the country’s lucrative jade mining is conducted, and in northern Shan, where the contest is primarily over opium, narcotics, and illicit trade routes. In addition, the military continues to clash with militant Rohingya Muslims in the northwest of Rakhine state. The imprisonment of two Reuters journalists has drawn international attention to the tight controls on the press.
The harsh treatment of the Rohingya has the potential to radicalise parts of the Muslim community, and both al-Qaeda and the Islamic State group have signalled their intention to open an ‘Eastern front’ in Myanmar. The very public assassination last year of one of the few Muslims close to government, the prominent constitutional lawyer and NLD adviser Ko Ni, as well as the armed attacks on police stations in Rakhine later that year, underlined the tensions existing between the Buddhist and Muslim communities. A terrorist attack by Muslim militants in a major urban centre is becoming a possibility, particularly if no progress is made in relieving the plight of the Rohingya.
The kyat had held relatively steady in recent years but started to weaken in June and July, partly because of the global pressure on emerging market currencies. Significant monsoon flooding in July will adversely affect the economy, and the impact on food prices could quickly be reflected in the inflation rate. The original economic and financial sanctions against Myanmar targeted the military government and were removed in 2016 with the coming of democracy. Despite an acknowledgement that the government has little hold over the military, the widely-held sense that Myanmar has chosen to reject the international community’s views on the situation in Rakhine is bringing the prospect of new and meaningful economic sanctions closer.
The NLD-led government has so far resisted the temptation to increase public spending but needs to develop a sustainable borrowing strategy that is better aligned with the country’s medium-term investment requirements. The domestic insurance sector is widely expected to be liberalised before the next election and this should help the development of a domestic sovereign debt market, as insurance firms will have a need for appropriate paper in which to invest.
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