Myanmar’s economic landscape in 2015: Foreign investment and transitional democracy

YANGON-- In the wake of Myanmar’s post-2011 democratic overtures and the subsequent abrogation of non-military sanctions by the US and EU, President Barack Obama has pledged to take a ‘long and broad view’ of Myanmar’s progress toward democracy. Forging new diplomatic ties will augment US economic interests in the Asia-Pacific region and, in so doing, facilitate economic growth. Yet, critics warn foreign investment may also serve to bolster an only nominally civilian government with a record of widespread human rights abuse. As President Obama urges caution, pundits weigh the benefits of foreign investment in Myanmar against potential human rights setbacks.

Economic stagnation

Prior to a wave of recent economic optimism – one side effect of the new constitution adopted in March 2011 – the economy of Myanmar had been in decline since the coup d’etat of 1962. Under the notorious Burmese Way to Socialism, a disastrous economic scheme to nationalize industry, the ruling military junta plunged the nation into catastrophic economic bankruptcy. Though Myanmar is rich in natural resources, by 1987 it had come to be recognized as one of the most impoverished nations in the world.

Though the military regime that came to power in 1988 revoked some of the country’s totalitarian socialist policies (e.g., permitting a small degree of both expansion in the private sector and foreign investment), the economy continued to suffer from serious macroeconomic imbalance and broad environmental mismanagement from 1988 to 2011. Rampant corruption and the continued state co-ownership of private enterprise suppressed opportunities for growth. A dual exchange rate system allowing state-owned enterprises to divert funds while simultaneously giving the junta power to control rates contributed to skyrocketing inflation and other economic distortions.

Despite an increasing current-account deficit in the late 1990s, the state arbitrarily closed off border trade, thereby putting an end to what had for years been an economic lifeblood. Rice exports, once an essential component of the state’s international trade, also declined exponentially between 1994 and 1997. In 2003, a major banking crisis proved yet another serious setback to the economy when the junta forcibly closed twenty private banks. Further restrictive measures against those financial institutions that remained severely curtailed the private sector’s access to formal credit.

Meanwhile, continued human rights violations and state-sponsored repression abetted deteriorating foreign relations. While most of the nation’s overseas development assistance had been halted in the wake of unrest between 1988 and 1990, the US renewed heavy economic and political sanctions against Myanmar in 2003, followed by further sanctions from the European Union in 2007. Due to widespread instability, corruption, and inefficiencies in Myanmar, foreign investment from neighboring countries like China and Thailand was largely deterred – apart from investment in natural gas and hydropower – between 1990 and recent reforms.

Structural changes and liberalization

But that may be changing. Myanmar is a resource-rich nation with the potential to develop effective means to manage its resources and stake its revenues in projects that will improve internal conditions. Myanmar formally transitioned to a new democratic government in August of 2011, amid much speculation as to whether sincere economic reform was to follow. The new constitution was celebrated alongside a slew of progressive anti-corruption laws, currency exchange rate reform legislation, tax reforms, and the repeal of foreign investment restrictions.

Amid these structural changes, the civilian government announced a draft of its new foreign investment law in a significant move to liberalize the economy; a signal that Myanmar’s new leadership is actively seeking investors. Under proposed legislation, foreign firms will be able to fully own their enterprises and qualify for unprecedented land leases, all without the involvement of local or government partners. These measures, once in place, would dramatically reduce barriers to foreign enterprise and increase the appeal of investment in Myanmar for some of the world’s leading corporations.

Economic liberalization efforts also inspired newfound confidence from Myanmar’s former development partners. Pursuant to sweeping democratic reforms, the Asian Development Bank (ADB) announced its reengagement with Myanmar in 2012; introducing a $512 million loan to fund a network of infrastructure development projects slated to better facilitate increased productive economic activity in the country. The infusion of this capital into a nation that had not seen a development loan from the ADB for more than thirty years instigated a waterfall of related investments in energy and transportation infrastructure.

By the end of January 2013, a bevy of international lenders followed suit and, together with the Myanmar government, announced a major debt cancellation agreement. Japan and Norway joined the Paris Club – a group of nineteen creditor states including the US – in relieving Myanmar of an enormous debt burden, constituting the forgiveness of a landmark 60% of the national debt.

Though this vote of confidence demonstrated the international community’s positive outlook on Myanmar’s economic future, the nation’s promised social and political reforms have not entirely kept pace.


While the government pours its efforts into democratic reforms in the nation’s central Bamar regions – and thousands of political prisoners, including Daw Aung San Suu Kyi, have been released – Myanmar’s minorities continue to suffer from deteriorating civil liberties and human security, with particular international concern for the nation’s Rohingya Muslim minority.

The question of ethnic self-rule left unresolved at independence has perpetuated tense relations between the central government and Myanmar’s ethnic states; a conflict that has lingered even despite the nation’s 2011 democratic overtures and subsequent reduction in authoritarianism. Historically, ongoing civil wars; endemic humanitarian abuse; illegal extraction operations; and environmental destruction have caused these minority ethnic states to be hardest hit both socially and economically – and violence continues today in Shan, Karen, and Kachin states. The fragmentation of the economy into more self-contained areas, however, has also provided some hope of staving off economic collapse in minority states. Myanmar’s border regions and pastoral areas are self-sufficient where rural economy has not been disrupted by conflict and the burgeoning trade in opium.

Though some criticism has surfaced over the reestablishment of diplomatic ties despite instances of ongoing human rights abuse in Myanmar, the climate among the international community is one of constructive engagement. Many of Myanmar's neighbors (Thailand, India, and China) have for years adopted a globalist approach to development and progress, and with the embrace of democracy and mixed economy in Myanmar following recent reforms, the rest of the international community appears poised to proceed in similar course.

The seeds of political change are inevitably linked with Myanmar's economic future. Corporate investments and the expansion of crucial internationally-backed infrastructure projects exemplify the long view of democracy in Myanmar and the idea that democratic transition, for any modern state, is a gradual process.