Breaking new ground: The country stands ready to take on its international responsibilities

With Myanmar taking its place as chair of ASEAN in 2014, a remarkable period of progress in the country’s foreign relations is being acknowledged – both by Myanmar’s neighbours and by the wider world. Now, the country’s diplomats will have to help steer the 10-nation group through some challenging times in the run up to the establishment of the ASEAN Economic Community (AEC) in 2015. Meanwhile, tensions remain over regional maritime boundaries in particular, with the dispute between Japan and China also a case for concern in the South-east. In addressing these issues, Myanmar will likely draw on a history of balancing competing interests – as well as on a new openness to global debate.

Setting The Stage

Recent developments bode well for the country’s ability to act as an international mediator. Throughout 2013, the US government eased sanctions, which has increased interest from firms looking to tap into the market. South Korea and Japan have further extended their reach into the country and will play a vital role in the evolution of the economy, with investment commitments, development of special economic zones and the June 2013 announcement by Japanese Prime Minister Shinzo Abe to cancel debt amounting to $1.74bn.

Liberalisation of the financial sector could hasten development and further boost foreign ties. The Central Bank of Myanmar gained independence in 2013, and steps have been taken to adopt new exchange rate mechanisms, liberalise the insurance market and set up ATMs nationwide. Another key development that is sure to lead to an increased regional presence as economic ties flourish is the government’s commitment to establishing the Yangon Stock Exchange (YSE). The exchange is being set up under Daiwa Securities Group, the Japanese government and Myanmar Economic Bank, and is set to open in 2015 in line with the commencement of the AEC. Although the finance sector is maturing at a rapid rate, considering the majority of transactions were handled in cash previously, many experts believe the YSE will face challenges (See Financial Services chapter).

In June 2013 U Htay Aung, the minister of hotels and tourism, unveiled the Tourism Master Plan (TMP), which set out a goal of boosting annual tourism receipts from $534m in 2012 to $10.8bn by 2020. In a year that saw property and hotel rates rocket, with average expenditure on accommodation at $ 200-299 per night in Yangon, onlookers will be keen to see the effect the proposed plan will have on room rates and availability. As part of the TMP, the tender for Hanthawaddy International Airport was awarded to a South Korean consortium in August, valued at $1.1bn. Viewed as a critical step to boost tourism and trade – with the Asian Development Bank (ADB) estimating arrivals to reach 5m by 2020 – the airport will be situated 80 km north of Yangon and have the capacity to host 12m arrivals annually, with room to eventually expand to 30m.

Meanwhile, foreign direct investment rose to $2.7bn in the 2012/13 fiscal year ending in March 2013, up from $1.9bn in the previous year, according to the World Bank. Oil and gas revenues continue to drive the economy, with GDP growth of 6.5% for 2012/13.

Increased natural gas exports from Shwe and Zawtika gas fields and the opening of the 2000-km Myanmar-China gas pipeline in October 2013, as well as the announcement that 30 offshore blocks will come on-line in early 2014, means that the energy sector will continue to play a key role in driving projected GDP growth for the 2013/14 fiscal year.

Policy Evolution

Geographically situated in proximity to two giant neighbours – India and China – and emerging from its struggle for independence into a post-war world of two globally competing power blocs, Myanmar initially chose a path of non-alignment and co-existence. Internal conflicts, sometimes supported by one or other of these external powers, also focused the country’s energies on domestic issues. Furthermore, military coups and the “Burmese Way to Socialism” ideology also kept the country isolated from the West. When China withdrew support for Burmese communists in 1978, relations with Beijing began to improve, with 1988 seeing a major trade deal that also boosted Chinese military aid. Indeed, Chinese support flourished from then on, as Western criticism and isolation of Myanmar, via a growing regime of sanctions, increased. Likewise, Indian support for pro-democracy movements in Myanmar also kept relations with Delhi frosty. Warmer relations, however, began to develop from 1993 onwards, as India reoriented in favour of better relations with South-east Asia in general.

New Start

Myanmar joined ASEAN in 1997, despite criticism of its human rights record, with the other members often hoping the ASEAN commitment to peace and compromise would lead to gradual changes. Yet lack of progress in this meant Myanmar was passed over for ASEAN chairmanship in 2006, when its turn came. Yet a sea change was soon under way in Myanmar, with this having major implications for the country’s foreign relations. Since the current reform programme began, ASEAN has been at the forefront in calling for these changes to be met with an end of international sanctions against Myanmar.

The US and EU have responded positively, too, albeit with a more gradual lifting of barriers than ASEAN might have desired. The US has removed a previous ban on imports of goods and services from Myanmar, while maintaining sanctions on exports to those inhibiting the reform process, or trade with North Korea. The EU, meanwhile, permanently ended sanctions against Myanmar in 2013, with the exception of an arms embargo, due to run on into 2014.

Tackling Challenges

The internal reforms have also cleared the way for Myanmar to take its place in 2014 as chair of ASEAN, raising the question of how, after so many years of isolation, Myanmar will tackle the range of key foreign policy challenges the organisation now faces. First, there is the move towards the AEC in 2015. Then there is the ongoing dispute over territorial boundaries in the South China Sea, both between ASEAN members and between ASEAN and China. For many years, Myanmar was a close ally of Beijing, with this still a key market and source of investment. Yet Myanmar is also now a destination for much aid and investment from other ASEAN members and the West. Balancing these interests will be a difficult challenge. Handling fallout from tensions between China and Japan over the Senkaku/Diaoyu islands will also require great diplomacy, with Japan too a key part of ASEAN trade.

The signs so far of how Myanmar will cope are encouraging, though. In January 2014, under Myanmar’s chair, ASEAN foreign ministers urged all parties to show restraint and respect for international maritime conventions. This may augur progress on a long-stalled Code of Conduct for the South China Sea. The country’s historic links to India, China, Southeast Asia and the West may well prove a major bonus for its foreign policy and peace in the year ahead.