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Economy

Suu Kyi's party drops first hints on plans

An oil tanker is docked at a new wharf in Myanmar's Thilawa special economic zone. The nation's growth prospects are stirring hopes and, in the NLD's view, some unrealistic expectations. (Photo by Steve Tickner)

YANGON -- Myanmar's constitution makes it unlikely that Aung San Suu Kyi will become president after elections scheduled for late 2015, but her National League for Democracy is the favorite to emerge as the country's biggest party.

     That outcome would increase the likelihood that the NLD will be in government in some form by 2016. But in her rare engagements with the foreign media, Suu Kyi, as party leader, has usually shunned any discussion of economic policy.

     Han Tha Myint, a member of the NLD's central committee, was more forthcoming in a recent interview with the Nikkei Asian Review, saying the party is considering faster banking liberalization, leasing government land to investors to encourage manufacturing, and moving swiftly to quell destabilizing labor unrest.

     "Some of our priorities will be the same as the current government -- poverty alleviation, administrative reform. Everyone is agreed on these issues," Han Tha Myint said.

     The government, which took office in 2011 following decades of military rule, is dominated by the Union Solidarity and Development Party, a military-backed group that will likely be the NLD's main competition in the upcoming election.

     Led by President Thein Sein, a former prime minister in the era of military government, the administration has introduced new investment promotion laws and overseen a jump in economic growth. The International Monetary Fund projects Myanmar's economy will expand 7.8% in fiscal 2014, which ends in March 2015.

     That number is down slightly on the year but higher than the 5.1% average for 2005 to 2010, and the 6.5% average since 2011, according to World Bank figures.

     Han Tha Myint credited the government with overcoming some of what he termed "vested interests" by creating an independent central bank and revising foreign investment laws. But he said reforms had stalled in recent months because of continuing close links between members of the USDP and businessmen granted monopolies over lucrative sectors when the military was in charge.

     "There are many vested interests who are against reform, who are not very keen about the reforms," he said.

     The NLD has courted controversy by accepting donations from some of these businessmen, including prominent figures such as Tay Za and Zaw Zaw, who have sprawling empires in banking, aviation, construction and resource extraction, but remain under U.S. sanctions imposed during the military era.

     Nevertheless, Han Tha Myint said the Myanmar electorate would view an NLD-led government as less beholden to cozy insider dealings. "We don't have that baggage," he said, referring to the decades-old ties between the military and some businessmen. "If we are in power, we will make reform actually happen."

This old rail line runs through the Thilawa special economic zone. (Photo by Steve Tickner)

     Han Tha Myint said the NLD would press on with the liberalization of the banking sector. In October 2014, nine foreign banks were awarded restricted licenses to operate in Myanmar as part of a gradual opening up to foreign investment.

     Foreign banks are limited to a single branch each, cannot serve individuals or locally owned companies, and are prohibited from making loans in kyat, the local currency. Han Tha Myint maintained the NLD would loosen these restrictions, saying, "It will be much better for the economy."

"Clean and open"

The government expects foreign investment to reach $5 billion for fiscal 2014 -- a huge leap from $329.6 million in fiscal 2009 but still less than neighbors such as Thailand and Vietnam. Much of the investment has been in energy extraction, a sector seen as opaque before the transition to civilian government.

     The NLD says it is happy with the mechanism for awarding contracts to foreign companies. The British-Dutch group Royal Dutch Shell, France's Total and Norway's Statoil were among the global energy giants awarded 20 offshore contracts in early 2014.

     "The process of tendering has been open; the process has been accepted as clean and open," Han Tha Myint said. However, problems remain with the rules requiring foreign energy companies to team up with a local counterpart.

     "The domestic side is not transparent," he said. "There is a list of the companies who can work with the foreign investor. Nobody can say how they choose these companies, or how this allotment came about." 

     The NLD wants to clean up the last of the sharp practices it sees in the natural resources sector. But it also wants to see investment oriented away from oil and gas and into manufacturing to provide jobs for some of the estimated 37% of the population who are unemployed.

     According to a recent World Bank report on the Myanmar economy, the proportion of workers employed in industry is low compared with neighboring countries at comparable stages of economic development -- 12% in Myanmar, compared with 16% in Cambodia and 21% in Vietnam.

     Unemployment may be even higher than the figures suggest. The World Bank says its "rough estimate" is that the informal sector accounted for 73% of the total labor force in 2010. Excluding agriculture, the figure still came to 57%.

Traders buy and sell at the Bayintnaung commodities exchange in Yangon. (Photo by Simon Roughneen)

     In a recent paper published by the Institute of Southeast Asian Studies, visiting fellow Stuart Larkin wrote that "for broad-based development Myanmar needs to diversify its economy away from dependence on agriculture and resource sectors and target labor-intensive manufacturing exports for growth."

     "The level of investment is rising, but too much of it is still in the extractive industries," Han Tha Myint said. However, he added, "the trend is into the garment sector and other very simple manufacturing."

     He also acknowledged the government's success in promoting special economic zones to encourage manufacturing at Dawei in southern Myanmar, Thilawa, outside Yangon, and Kyaukphyu, in Rakhine state. "We accept these principles of economic zones," he said.

     The NLD would try to find ways to allocate more state land to investors, using a still-to-be finalized system that would focus on facilitating manufacturing. "The government owns a wide area of land," Han Tha Myint said. "But the cost of land is high. We need stability in land prices."

     He added: "We can lend out the land to the foreign investor, and then we can tie the area of land we lend to how much investment is going [in and] in what sector they are going to invest."

Strikes and riots

Strikes, such as an ongoing protest against low wages by about 2,000 employees of factories in Shwepyithar Township, Yangon, are another possible deterrent to manufacturers. "Wages are attractive, but there are many strikes and riots," Han Tha Myint said. "Workers are protesting because of real suffering, but we can address those grievances very equitably."

     Han Tha Myint said he hopes that NLD participation in government would lead to greater trust among voters, including labor organizations that see the party as a standard-bearer for democracy. Han Tha Myint said the trust factor could enhance dealmaking in other parts of the economy, such as securities trading. Myanmar's first stock exchange is due to open in Yangon by the end of this year.

     The proposed market, which is backed by the Tokyo Stock Exchange, is expected to feature only a handful of companies at first, but Han Tha Myint said an NLD government could help to attract more participants as trust in Myanmar institutions increased.

     "There are not so many public companies, we don't have a culture of public companies in this country," Han Tha Myint said. "Trust between people, and between people and government, is quite low." Would that change under an NLD government? "I think it will be somehow improved, but not that much," he said.

     If it does find itself in government, the NLD will need to damp down what it views as unrealistic expectations of rapid economic progress, such as hopes that the size of the economy can be quadrupled to $200 billion by 2030. Gross domestic product was $56.8 billion in fiscal 2013, with per capita GDP at $1,105 -- one of the lowest levels in East Asia and the Pacific -- according to the World Bank.

     Australia's ANZ Bank, one of nine foreign banks that last year gained a license to operate in Myanmar, said in a recent report that the country could attain double-digit growth in the coming years. "Growth is currently accelerating in Myanmar, and we expect the economy to experience sustainable growth of between 8% [and] 9% over the next five years; some periods could be as high as 10%," ANZ said.

     But Han Tha Myint said projections of such high growth are unrealistic. "You must increase steadily at 9% per annum over 16 years," he said when asked whether Myanmar would become a $200 billion economy by 2030.

Economic development or identity politics?

Asked whether a failure to reach such lofty targets could spur discontent among Myanmar's tens of millions of expectant poor, Han Tha Myint suggested that people are pragmatic enough to understand that their country might not attain the type of economic lift-off that optimistic observers have suggested.

     Moreover, he said, most people have more pressing day-to-day concerns than the overall course of the economy. "Most people think about tomorrow, where they can get rice for tomorrow."

     It is also possible that economic issues may not be prominent in the election, given tensions caused by decades of ethnic conflict and a rise in discrimination against Muslims since the formation of the Thein Sein government.

Welders work at a construction site in Yangon. (Photo by Simon Roughneen)

     "Maybe the election will be more about identity politics, tribal and religious, a road to nowhere, rather than economic development. That's a pity," Larkin said, arguing that while the USDP had presided over economic growth, neither the NLD nor the government has shown much economic vision.

      "The Thein Sein government seems to regard foreign direct investment approvals as the main scorecard for its economic track record, regardless of whether the FDI displaces local companies or anchors new industries," Larkin said. "Nor does the government seem to have much interest in facilitating international project financing that would empower Myanmar's own corporate sector." 

     "These issues are fundamental to the country's future economic performance, but neither the USDP or NLD have demonstrated much understanding of these issues, let alone developed policy positions on them to defend in public debate."  

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