Burma Business Wrap (January 16, 2012)
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Burma Business Wrap (January 16, 2012)


By STEPHEN BLOOM Monday, January 16, 2012


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Burmese President Thein Sein and his administration began and ended last week with bold moves that have significant implications for the domestic and international business communities.

At the start of the week, the administration once again flexed its newly developed regional muscles by announcing that it was cancelling the 4,000 megawatt coal-fired power plant that Italian-Thai Development Pcl (ITD), Thailand’s biggest construction company, had planned to build in Burma’s Dawei Special Economic Zone (SEZ).

Then in two major political developments that have far-reaching implications for Burma’s business environment, on Thursday the administration entered into a ceasefire agreement with the Karen National Union and on Friday released many of the country’s most prominent political prisoners.

These last two developments are some of the strongest indications to date that the Thein Sein administration is serious about taking concrete and meaningful steps towards establishing two things that companies making business investments care most about: stability and the rule of law. The Dawei power plant cancellation, however, sends mixed signals in both regards.

Gov’t Push for Ceasefire Agreements Increases Potential for Stable Environment

Karen insurgents have been involved in conflicts with the Burmese government for over 60 years and the KNU had never before signed a ceasefire deal. The agreement on Thursday follows a similar ceasefire agreement with the Shan State Army-South and a clear push by the government to establish an atmosphere in which the much more difficult political talks to negotiate long-term accords can occur.

The one exception to this is in Kachin State, where despite Thein Sein’s order that government military offensives be halted, the army continues to engage in serious conflict with the Kachin Independence Army (KIA). Two possible explanations for this are that the Burmese military is protecting powerful people with vested interests in Kachin resources, and that it is using the offensive to put negotiating pressure both on the KIA and the other ethnic armed groups. Both explanations unfortunately signal that some elements of the Burmese armed forces are still mired in the old military mindset and have the power to assert their influence when they choose to do so.

However, the fact that Thein Sein and his colleagues are making a public effort to put a stop to armed conflicts in most ethnic regions means increased current stability and greater potential for long-term stability in Burma, and that is good news for those doing business in the country.

Release of Political Prisoners a Major Step Towards the Rules of Law

Just as good news is Thein Sein’s decision to finally release a significant percentage of the political prisoners. The fact that they were being held behind bars on trumped-up charges was the primary evidence that Burma was not yet committed to making progress towards the rule of law, which the legitimate business community prizes greatly when making investment decisions.

Burma is still far away from establishing anything close to a publicly promulgated, equally enforced and independently adjudicated legal system. But hopefully, the release of a significant number of political prisoners signals that other reforms meant to improve the arbitrary and corrupt nature of Burma’s current system will soon follow. What happens during the next session of Burma’s Parliament, which begins on Jan. 26, will be a good indication of whether further progress can be expected.

Ceasefire and Prisoner Release Increase Likelihood of Sanctions Reduction

In addition to providing increased stability and a movement in the direction of the rule of law, the combination of the ceasefire with the KNU and the release of political prisoners provides the strongest indication yet that a significant reduction, or even elimination, of economic sanctions may be just around the corner.

The three most widely cited conditions for the reduction of US and EU sanctions—reiterated by British Foreign Secretary William Hague during his trip to Burma last week—are the release of political prisoners, the end of armed conflict and human rights abuses in ethnic areas, and free and fair elections. So after the positive developments this week, all investor eyes will be on the conflict in Kachin State and the upcoming by-elections, because if the fighting stops and the elections go well, the sanctions barrier may be eased or lifted soon and the Burmese “gold rush” will be on.

Even now, Burma is beginning to reap some rewards for its reforms.



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