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Over-investment Fears Loom in Myanmar

WASHINGTON, May 3 2012 (IPS) - As governments around the world continue to discuss how to ease sanctions in Myanmar, fears are increasing that a sudden massive influx of foreign investment could be detrimental to the delicate ongoing transition.

“I see a rush of over-investment, to the extent that things that can be done to slow down investment may be in the long-term interest of the country,” Lex Rieffel, an economist and Southeast Asia expert with the Brookings Institution, said Thursday at the Council on Foreign Relations, in Washington.

“I can assure you that even if we keep sanctions in place, there is going to be plenty of investment in this country. But what we will probably see is underinvestment in people – the government is currently meeting with every Tom, Dick and Harry, but there is no time being set aside for important decision-making or implementation.”

Recent weeks have seen a flurry of investment-related moves surrounding Myanmar, kicked off by two critical events on Apr. 1. First were parliamentary by-elections in which opposition leader Aung San Suu Kyi’s party, the National League for Democracy (NLD), won 43 seats. That included one for Suu Kyi, who finally made her first formal entrance into the government on Tuesday.

Several major governments, including those of the U.S. and U.K., used the electoral outcome to begin to draw down the economic sanctions that have been in place for years. These had successfully cut Myanmar off from much of the rest of the world, making much foreign investment exceedingly difficult if not impossible.

Second and simultaneous with the election, the Myanmar government took long-overdue steps to allow its currency, the kyat, to trade freely.

For three-plus decades, government officials had kept the kyat pegged to an International Monetary Fund (IMF) global rate. While this left the country’s official exchange rate at between six and eight kyat to the U.S. dollar, black market rates hovered between 700 and 1400 kyat to the dollar.

Such a discrepancy created a huge impediment to doing business aboveboard.

“The currency decision was a more important step than the by- election,” Rieffel says, “in terms of its potential to affect the lives of ordinary people of Myanmar.”

Even prior to the elections, over the past year foreign business representatives had begun flocking to Myanmar, as the country implemented a series of contested but significant reforms. Reports suggest that inbound flights and high-end hotel rooms in Yangon have been abnormally full, particularly with potential investors.

Already, competition has heated up. According to a letter by the U.S. business community sent to President Barack Obama last week, “U.S. companies are starting from a disadvantage, as numerous entities from Europe and elsewhere in Asia have substantially stepped up their engagement in recent months.”

The letter, signed by the U.S. Chamber of Commerce, the U.S.-ASEAN Business Council and others, including the American Petroleum Institute, called for “lifting the financial services facilitation and transactions sanctions in conjunction with easing the investment ban”.

The sanctions issue has been a divisive one for Myanmar watchers for years, and the overall efficacy of the multiple international sanctions regimes remains debated today. With most agreeing that the time has come to revisit the various financial and other bans in place, however, the conversation has shifted to the rate at which these measures should be rolled back.

“We do not agree with the business community’s approach,” Jennifer Quigley, with the U.S. Campaign for Burma, told IPS. “They think they should be allowed into all sectors, with no restrictions. The argument seems to be, ‘Everyone else is being let in, so we don’t want to be left out.’ But it’s too early for U.S. companies to go in.”

In an economy as devastated as that of Myanmar, the country’s complete lack of regulation spooks many as international investors begin to line up. The U.S. Campaign for Burma and many others are currently pushing for the adoption of a framework by the U.S. and other major international actors on how to encourage investment that positively impacts on the people of Burma.

Critical among these are ensuring buy-in by local communities, particularly long-marginalised ethnic communities. Given that much of Burma’s natural resources are found in areas dominated by ethnic minorities, Quigley says, “Ethnic groups feel that the regime is engaging in talks for economic benefit – so, right now, ceasefire negotiations are very fragile.”

Other reforms notwithstanding, violent conflicts are continuing between ethnic minority groups and the government, as are related human rights violations.

The sanctions issue also remains one of the most important points of leverage for the international community – simultaneously its greatest stick and carrot.

“If we go in and allow foreign investment, there won’t be any motivation for the government towards political resolution,” Quigley says.

Others see economics as having come dangerously close to eclipsing more pressing concerns.

“The United States needs to be very stingy about removing sanctions, as once sanctions are removed the Burmese military government (now in civilian clothes) is likely to dump Aung San Suu Kyi, the NLD and the pro-democracy forces,” Kyi May Kaung, an analyst based in Washington, told IPS.

“The U.S. has to be very careful that it does not place human rights on the back burner, as it seems to be doing in the case of Chen Guangcheng in Beijing.”

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