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Myanmar’s Transition Needs a Helping Hand from Washington

An easing of U.S. sanctions would foster much-needed foreign investment and help the new NLD government lift the economy.

March 30 was a historic date for Myanmar, marking the first transfer of power in 56 years to a government chosen in free and fair elections. The National League for Democracy (NLD), led by longtime opposition leader Daw Aung San Suu Kyi, won a resounding victory in the November 2015 elections, capturing 77.1 percent of the vote and an overwhelming majority of the contested seats in the two-chamber parliament. But 25 percent of parliamentary seats are reserved for the armed forces, known as the Tatmadaw, which holds the keys to future constitutional reform.

So far, to the credit of all sides, the transition from military government to quasi-military government to democratically elected government has progressed smoothly and peacefully. Although the constitution bars Aung San Suu Kyi from becoming president because her sons, like her late husband, have British nationality, parliament earlier this month passed a bill to create the position of state counsellor, akin to prime minister, for her. The measure passed despite vociferous opposition from the military, with all military parliamentarians voting against the measure.

To govern effectively, the NLD will need the loyalty of the civil service and military. After 56 years of military and quasi-military rule, this may not come easily, but Aung San Suu Kyi has emphasized the NLD’s commitment not to seek retribution for past deeds by the military and its allies. Such a commitment is essential to implementing much-needed reforms and maintaining unity in a nation fractured by economic hardship and decades of civil strife between rival political factions and breakaway ethnic groups.

The public pins high hopes, and perhaps unrealistic expectations, on her and her team. Even without those, the new government faces massive challenges to improve the economy, modernize the country’s decayed infrastructure and reform Myanmar’s governance to a point at which the U.S. will lift its economic sanctions.

Robert S. Pé, a partner in the Hong Kong office of U.S. law firm Gibson Dunn and an adviser on legal affairs to Aung San Suu Kyi, believes the government will focus on improving the economy, infrastructure, health care and education and putting in place the necessary human capital to improve the rule of law, but he cautions that progress may come more slowly than some would like.

The NLD inherits a substantial budget deficit that limits its room for maneuvering.

With a population of 54 million people and rich agricultural and mineral wealth, Myanmar offers great potential for development-oriented businesses, notwithstanding the country’s poor infrastructure, education levels and governance. Yet Washington’s sanctions largely prevent companies from the U.S. and other members of the Organization for Economic Cooperation and Development (OECD) from participating in those growth opportunities.

Myanmar has advanced significantly since adopting a more open-door policy in 2009, but international banks won’t transact dollar transfers to the country for fear of punitive U.S. penalties. As a result, cash is king, and companies doing business in Myanmar must literally carry dollars into the country. Only crisp new notes are accepted. These restrictions in effect block U.S. businesses from competing for infrastructure projects or investing in Myanmar. One result is that China and India are the lead players in Myanmar’s rapidly developing economy, whereas the U.S., the European Union and other countries of the OECD are losing out.

If, as seems likely, Myanmar remains on track for continuing democratic reforms, improving human rights and rule of law, then isn’t it time to ease the blocks on interbank dollar transactions? The lifting of at least this part of the Myanmar sanctions would improve the business environment. After all, the U.S. trades with and allows interbank dollar transactions with countries that don’t have democratically elected governments and have worse human rights records than does Myanmar. The lifting of sanctions will require a lot of hard work to ensure that Myanmar’s recent bright start is followed with substantive, sustained and entrenched governance and compliance reforms.

In the meantime, companies doing or wanting to do business in Myanmar face considerable difficulties. Much of Myanmar’s economy is dominated by two armed forces–controlled conglomerates: Myanmar Economic Corp. and Union of Myanmar Economic Holdings. Although they are reforming themselves and recently committed to paying tax, they have a long way to go to meet international standards of governance.

The new NLD government faces major challenges, but finally, after decades of isolation and some false starts, Myanmar may be on the path to development and prosperity. The chances of success rest only partly in the hands of the people, the government and the military of Myanmar. The country’s prospects also lay in the hands of the U.S. government and other overseas decision makers. They have the power to enable Myanmar to fully benefit from international credit and investment.

Julian Stargardt is CEO of Hong Kong–based Asia Pacific Strategic Consulting and a senior research associate with the University of Sussex’s Centre for World Environmental History.

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