Myanmar and ASEAN build their relationship

After decades of dictatorship, Myanmar emerged as an unlikely beacon of democracy in South-east Asia in 2015, as the National League for Democracy (NLD), under former political prisoner and Nobel-Prize-laureate Daw Aung San Suu Kyi, strode to a victory in November’s landmark election. With the government in Naypyidaw poised to hand over power in February 2016, elsewhere in the 10-member ASEAN bloc, governments from Thailand to Malaysia and Cambodia sought to curb debate; limit the media, restrict opposition parties and pass stricter laws in the name of maintaining security.

The question now is how Myanmar’s first democratically elected government will deal with its ASEAN partners – whether it will continue the engaged approach adopted under outgoing President U Thein Sein or take a more hands-off stance and focus on the country’s domestic challenges.

ASEAN Background

It was ASEAN that first attempted to court Myanmar, triggering widespread condemnation for its 1997 decision to invite the country, under what was then a military regime, to join the organisation. Tainted by its poor human rights record, Myanmar remained an outsider in the group. In 2005 under pressure from ASEAN members, the country agreed to forfeit its turn in the ASEAN chair, a sign that it still had a way to come.

It was only in 2014, three years after it began an ambitious political and economic reform programme, that Myanmar was able to take the ASEAN helm. Its chairmanship proved more successful than many had expected. Despite a lack of recent diplomatic experience, the country successfully organised the more than 1000 meetings that the organisation holds each year, pushed forward the ASEAN Economic Community (AEC) agenda to create a single market and production base, and kept a range of other initiatives on track, not only among ASEAN members, but also with the world’s major powers, including the US, Japan and China – long one of Myanmar’s closest regional allies.

Even before the November 2015 election, reforms had led to the gradual relaxation of economic sanctions. Taking the chair of ASEAN was an opportunity to show the world how much the country had changed in recent years. However, Daw Aung San Suu Kyi could prove to be more cautious about the group. Although barred from the presidency by a clause in the constitution, the NLD’s electoral mandate is likely to mean the decisions of a woman known universally as “The Lady” will be key to the country’s future direction, as she has positioned herself as the party’s leading figure.

“Throughout her years of incarceration, ASEAN was extremely cautious not to upset the military regime, trying to balance its diplomatic efforts to persuade Myanmar to continue reform and to free her,” wrote Thai human rights commentator Kavi Chongkittavorn in the Bangkok-based The Nation newspaper in December 2015.

Regional Cooperation

Nonetheless, Myanmar’s year at the helm of ASEAN showed that, despite its long-standing ties with China, it could also navigate its way through difficult diplomatic situations, notably in relation to the South China Sea, where China’s expansive claims have fuelled tension with governments in the Philippines, Vietnam and Malaysia.

“Myanmar pursued relatively modest goals on the South China Sea issue and rather skilfully negotiated between pushing for a collective ASEAN position and deflecting China’s frustration,” Yun Sun, a senior associate and fellow with the East Asia programme at the US-based think tank the Stimson Centre, wrote in a 2014 report.

Respondents to the US Chamber of Commerce’s 2016 “ASEAN Business Outlook Survey” were broadly optimistic about ASEAN’s economic prospects, naming Myanmar as one of the three most popular countries for expansion (the others being Indonesia and Vietnam). Those surveyed also stressed the importance of the AEC – launched officially, if not completely achieved, at the end of December 2015 – to their companies’ prospects, in particular its elimination of trade tariffs, liberalisation of investment and more streamlined customs procedures. Some 73% of executives surveyed in Myanmar said their companies’ level of trade and investment in ASEAN had increased since 2013, and 93% said they expected it to increase further through 2020.

ASEAN’s total trade was $2.5trn in 2014, an increase of nearly $1trn over seven years, according to the ASEAN Secretariat. Trade within ASEAN made up 24% of the total – the largest share – followed by China at 14% and the EU at 10%.

ASEAN integration and closer cooperation should provide a significant opportunity for Myanmar to gain access to regional and international markets, and benefit from its neighbours’ expertise, even though, as a low-income nation, it has until 2020 to fully adopt the provisions of AEC. Joining the community will connect it to the global supply chain, supporting the government’s plan to position the country as a manufacturer of basic components for industries like electronics.

Infrastructure

The country also needs billions of dollars to develop crucial infrastructure, such as roads, ports and air links, ensure regular power supply, and create a modern banking and financial system. Much of that investment will need to come from outside, and Myanmar’s ASEAN neighbours, unencumbered by US sanctions, have proved among its most committed financial backers. Singapore, Thailand, Vietnam and Malaysia are among the top-10 foreign investors in Myanmar behind China, which backed Myanmar throughout its isolation, and remains the leading investor in the country today.

After decades of underinvestment, Myanmar’s road network is the most poorly developed in the region, and airport and air transport technology require significant modernisation efforts. While the railway network has been expanded, it remains in poor condition and is reliant on old engines, rolling stock and signalling equipment.

Less than one-third of the population is connected to the electricity grid, and even in Yangon blackouts remain common. The country has the lowest life expectancy and highest rates of child and maternal mortality in ASEAN, with the UN’s “Human Development Report” ranking Myanmar 148th out of 188 countries in 2015. Despite rapid growth, Myanmar remains behind its neighbours when it comes to telecommunications and the internet.

At the end of 2013 the mobile market was liberalised, reducing the cost of SIM cards and phones, and allowing more people to get online. The Myanmar ICT Development Organisation says just over a third of the population are now online. While about 3.6m people, or 7% of the population, now use Facebook this falls short of levels elsewhere in ASEAN. This signals that the country still has room to improve.

The expansion of telecommunications – the winning bidders for the new licences were from Norway and Qatar – is an indication of the country’s willingness to embrace change. The kyat was floated in 2012, the same year that a new foreign investment law was adopted – amendments are under discussion. A securities exchange law has also been passed, and the Yangon Stock Exchange, backed by Japan, opened in December 2015.

Three special economic zones with special incentives and simplified procedures for foreign investors are also under development at key locations in the south and west of the country. The neighbouring projects at Dawei and Thilawa are backed by Thai and Japanese investors, and will focus on heavy industries, oil and gas, garments and technology.

Impact Of Reform

Reform has helped lift Myanmar’s rating in the World Bank’s “Ease of Doing Business” report. In the 2016 index it rose to 167th place, compared with 177th the year before. The World Bank’s report saw the biggest improvement in starting a business, dealing with construction permits and getting access to electricity. Still, closer integration and liberalisation carry risks in a country that is undergoing substantial reform. Its relatively undeveloped economy – Myanmar’s GDP totals just $64bn – may also leave it vulnerable to external forces. As labour markets are opened, for instance, Myanmar’s best talent may find it more attractive to work in ASEAN’s wealthier countries.

Myanmar’s progress towards the AEC should shore up its economic reforms, in line with the development path taken by its ASEAN neighbours many years ago. Keen Observers will keep a close eye on political developments in a country that, despite its new image as one of the region’s most promising democracies, must still contend with the legacy of its isolated and turbulent past.

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Cover of The Report: Myanmar 2016

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This article is from the Country Profile chapter of The Report: Myanmar 2016. Explore other chapters from this report.