The role of Myanmar's export markets in regime survival
By Gideon Lundholm (PINR) / October 19, 2007

U.N. envoy Ibrahim Gambari has begun a tour of Myanmar's neighbors to gain their support in putting political pressure on the government. The United States announced new sanctions against the regime in September, in early October Portugal (which holds the current leadership of the E.U.) confirmed that the European Union would be strengthening sanctions against the ruling military junta, and Washington has proposed that the U.N. Security Council debate a sanctions regime sponsored through the United Nations. On October 15, the European Union effectively widened its sanctions program to include a number of factors detailed below.

Recent reports from within the country claim that the top general, Than Shwe, has apparently reversed his typical attitude toward Aung San Suu Kyi by allowing her name to be used in his presence. In addition, the government has appointed a representative to meet with Suu Kyi in response to Gambari's initial meetings with the junta. This pattern is not new. In 2002, the government staged a release of the activist that was immediately followed up with a government-sponsored attack on her convoy and her re-arrest.

At other times, the government has simply discussed the possibility of release in order to temper international pressure for progress in the democratic transition. The imprisonment of the leader had, to date, effectively frozen domestic opposition and international opposition as she provides a foci and symbol for these efforts which can easily be manipulated by the Myanmar government.

Sanctions

The United States has the broadest sanctions regime in place against the government. The Burma Freedom and Democracy Act was brought into law in 2003 and includes bans on all imports, restrictions on financial services provided to Myanmar, a freeze on targeted financial institutions (accused of money laundering) and an extensive visa restriction list on the top junta officials, business partners and their family members.

The E.U. sanctions had involved restrictions on military assistance, targeted financial and travel restrictions on junta members and their families and the suspension of non-humanitarian assistance. The newest restrictions were placed on the import of timber, metals and gemstones while the export of equipment for use in the logging and mining industries within Myanmar were also curtailed. Finally, E.U. states were prohibited from investing in the logging and mining industries. The notable exception from the sanctions regime was the oil and gas sector, and representatives from the E.U. said that humanitarian aid will not be discontinued.

Despite these measures, the junta continues to function and the economy, while bloated, continues to move forward at an approximate growth rate this year of 2.9 percent. Myanmar continues to enjoy market access to non-sanctioning neighbors and earn the foreign currency necessary for its survival.

Export commodities are incredibly important to the government, allowing the junta to weaken or negate the impact of U.S. and E.U. sanctions. The overall trend for the junta to date has been a focus on easily saleable "raw" resources that undergo little processing within the country. In this fashion, resource royalties represent an easy source of income for the government as it requires little infrastructure development, which also means that there is little domestic economic development. State involvement throughout the economy directs revenue toward military interests, while patron-client networks with business partners ensure that the top military commanders profit from the resource royalties.

An examination of Tay Za's company, one of the top businessmen in Myanmar who is married to Than Shwe's daughter, mirrors the critical export trade sectors. Tay Za and the Htoo Family International Trading Co. is involved in the import of trucks and autos; the import/export of marine products; the import/export of timber products (one report claims that Tay Za controls 80 percent of the country's legal timber production); real estate development; and its subsidiary Htoo Family International Jewellery Co. exports gemstones (including rubies and sapphires). Tay Za is reportedly also involved in small arms deals and apparently brokered the sale of Mig-29s and helicopters from Russia (the deals took place in 2001 and 1996, respectively).

Oil and Gas

The oil and gas sector has arguably been the most important factor that has allowed the country to avoid international pressure. In this respect, Thailand is the most significant partner in the sector. Thailand-Myanmar bilateral trade is a substantial relationship that is often overlooked in the debate over how to influence the junta. While China is an important trading partner and has significant interests in Myanmar outside of the economic arena, Thailand continues to be the largest export market for Myanmar's resources.

In early October, however, the new energy minister for Thailand, Piyasvasti Amranand, hinted that sweeping changes may be made to the country's current energy policy. Amranand's statement included a suggestion that the country may move away from projects that have "aggravated social tensions." Furthermore, he did not include Myanmar on the list of countries to which Thailand was looking for future energy sources. This marks a considerable change from the policy of former Prime Minister Thaksin Shinawatra's government, which worked hard to establish considerable commercial links with Myanmar. Thailand was Myanmar's largest source of Foreign Direct Investment in 2006, largely due to a US$6.03 billion investment in a hydropower project.

According to the International Monetary Fund (I.M.F.), the sector accounted for 30.2 percent of Myanmar's export revenue in 2005-2006. Oil and gas revenues translated to $1.5 billion in 2005, and with recent finds and developments it looks set to steadily increase its role in the Myanmar economy. The country reported its first trade surplus in 2002, three years after the first pipeline to Thailand came online. Resource royalties, especially when they make up a considerable portion of the economy, can arguably warp a country's political and economic fortunes. Myanmar's economy is already seriously strained under the corrupt patron-client networks created by its military class.

Timber

The forestry sector, one of the traditionally important industries in the country, continues to play an important role in the economy. In 2005, export of wood products was the second largest sector within the economy. Total exports have almost doubled since 2001 and Myanmar became the world's fourth largest exporter of tropical logs in 2006.

The global trend in the forestry industry has seen an increase in the domestic conversion of logs to sawn wood products within the producer country, but this pattern has not been replicated in Myanmar. The government continues to treat its forests as a method to earn royalties from the export of the resource to neighboring countries who reap the value-added benefit from secondary and tertiary processing industries.

China and India, the top two importers of tropical timber in the world, are the junta's most important customers based on log value and volume. Thailand is the third most important client, fifth largest tropical log importer while also a major producer, and Thai companies play a significant partnership role with the junta in the forest economy of Myanmar.

The case of Thailand is interesting. In 1989, commercial logging was banned after excessive logging practices were blamed for severe flooding that damaged considerable areas of the country. It is now one of the largest producers of sawn wood products in Asia and has a considerable secondary processing industry (largely furniture). All of this is based on the import of raw logs, largely from Myanmar and Cambodia.

In Myanmar, the Annual Allowable Cut (A.A.C.) is set based on foreign currency earning goals rather than sustainability levels, reflecting the underlying short-term goal of the government to gain access to foreign currency rather than long term development. In addition, the extensive problem of illegal logging that exists outside of the A.A.C. combines with the unsustainable underlying premise to the A.A.C. to produce a highly unsustainable rate of forest clearing. Myanmar's deforestation rates, both legal and illegal, seem destined to increase; teak prices have reached record levels in Southeast Asia due largely to a restriction on supply. This supply restriction is ironically linked to higher success rates in curbing illegal logging and restrictions on raw log exports in countries other than Myanmar.

Recent changes have introduced private companies into teak-harvesting, an area that had previously been reserved for the Myanmar Timber Enterprise, a state-owned corporation under the Forestry Ministry. Included under the changes is the push to plant teak plantations since, according to recent reports, the harvest rate of teak wood from forests is far outpacing any reforestation attempts currently underway. The plantation land will be leased to private companies for 30 years in return for 25 percent of the profits. Plantations in Myanmar are particularly odious due to the tendency of the military junta to forcibly evict small landholders with little or no compensation for their land.

Agricultural Products

Myanmar remains a largely rural agriculturally based society and, because of this, the third largest export sector is agricultural products. Under the "Early Harvest Plan," China and Myanmar have progressed toward an early establishment of the China-A.S.E.A.N. Free Trade Area by removing tariffs from a number of agricultural products. The export products are primarily dried beans, with smaller amounts of sesame, milled rice and natural rubber. The country has a trade deficit in agricultural products.

Garments

The garment industry was hit hard by the 2003 U.S. sanctions program, although the sector had already begun to decline in total export value as early as 2001. In 2005, the garment sector was fourth in total export value for the Myanmar economy and made up only nine percent of the total export value. After the sanctions were introduced, Myanmar businesses increasingly looked to European customers to market to in the "cutting, making and packaging" trade.

Not included in the equation but worth mentioning is the large migrant labor force currently working along the Thai-Myanmar border. Special factories have been established in large numbers on the Thailand side that attract Myanmar laborers from the border regions. The workers reportedly face poor working conditions and unfair labor practices in some situations due to the relatively unregulated environment at the border zone. After the sanctions were imposed, the skilled labor from the Myanmar garment industry started to migrate to the border regions where garments are produced with a "Made in Thailand" label by a Burmese workforce.

Fisheries

The fisheries sector recently surpassed the troubled garment industry in Myanmar. Fishery production numbers have almost tripled since the mid nineties and aquaculture, with estimates of 162 000 ha of prawn and fish farms along the coast, has seen a significant increase. Primary markets for prawn are Japan, Australia, Canada, Europe, China and Thailand. In 2004, the shrimp export tax was removed from goods sent to China in order to encourage trade.

The fish products are primarily sold to Thailand and China. While it is impossible to tell due to the lack of reliable information from within the country, the recent moratorium on fishing licenses in coastal waters suggest that the industry is likely facing considerable over-fishing pressures. Aquaculture will likely continue to expand in response to the success to date, placing additional pressure on the ecologically important mangrove coastline zone.

Mining and Gem Sales

The mining sector is a particularly troubling one. Much of the export revenue accrues from one copper mine, brought to profitable operational status by a Canadian mining company (Ivanhoe Mines Ltd, which has recently transferred its interest to an unnamed third party trust, a condition imposed by its joint venture partner in its Mongolian properties), whose cathode sheets are sold to Marubeni Corporation of Japan. Once again, little economic development benefits are gained from the exports, while the mine consumes 5.4 percent of the total industrial power usage in the country (based on 2003 calculations).

The rest of the sector is rife with reports of harsh working conditions, poor environmental controls and heavy military involvement. The country is particularly known for its gemstones and holds a number of gem auctions annually attended by international buyers. Each auction generates up to $100 million in foreign currency, and the government has responded by creating a massive commercial center in Rangoon to handle the events. The fifth such auction is scheduled to occur in Rangoon in November despite new proposals by U.S. companies, trade associations and the European Union to impose a ban on sales of products that originate in Myanmar.

Conclusion

China is often cited as the only vector of leverage for placing pressure on the isolated government in Myanmar. Trade data shows that there are other potential avenues to follow which may not be as politically palatable. While there are other important considerations beyond the economic, including strategic, political and the wider context of trade within A.S.E.A.N., China's bilateral trade partnership is not the largest revenue earner for the government. When considering the relative size of the trade numbers in relation to China's overall trade statistics, it is possible that China's influence and interest within the country has been overstated, especially recently in the context of the protests.

What is certain is that the combination of resource royalties, the recent windfall of oil and gas discoveries and regional trading partners that are capitalizing on the vacuum created by European and U.S. trade restrictions has allowed the Myanmar government to survive and maintain the political status quo within the country. For actors trying to find ways to influence the government, the importance of trading partners within A.S.E.A.N., especially Thailand, should not be overlooked.

Russian economic interests drive its policy on Myanmar
PINR / October 08, 2007

The current civil and political situation in Myanmar presents an opportunity for several major powers, namely Russia, China, India and the United States. Of these, Moscow has been working in concert with China to maintain the status quo in the country in order to preserve Russian interests.

For Russia, Myanmar holds a special economic interest since, during the past few years, it has entered into various business dealings with the country. In May, for example, nuclear equipment export monopoly AtomStroyExport forged an agreement to construct a nuclear research center in Myanmar. Leading foreign energy trade company Zarubezhneft, natural gas producer Itera, and Silver Wave Sputnik Petroleum are currently producing Myanmar's off-shore oil deposits alongside the Chinese company PetroChina, after forming a link with the south Russian republic of Kalmykia.

Additionally, Myanmar purchased 15 Russian MiG-29 Fulcrum fighters for approximately US$150 million in 2001. Furthermore, it is negotiating with Russia's state-controlled arms exporter Rosoboronexport on the establishment of an air defense system using the Tor-M1 and Buk-M1-2 missile systems. These business dealings, with a special emphasis on the energy related deals, are especially important to Russia.

Russia, which is currently one of the leading exporters of natural gas, is on the path to achieving a monopoly on energy throughout Europe and is most likely utilizing Myanmar and its oil and natural gas deposits (which it has gained access to after having negotiating the placement of the aforementioned air defense systems) to further its goals of monopolizing Europe's energy industry and possibly expanding its economic and political interest into the East.

It is also important to note that the air defense systems will serve other purposes, such as establishing bases to counter growing Chinese power or U.S. influence.

Demonstrating Russia's position on Myanmar is a recent Foreign Ministry statement that warned that "urgent steps must be taken to prevent the escalation of tensions" in Myanmar. The statement demonstrates that Russia supports an urgent response to stop the escalation of hostilities; however, the purpose of an end to hostilities is simply to reestablish a measure of stability in Myanmar, for Russia does not support the implementation of sanctions against the country, which could work to cripple the ruling junta.

In essence, Russia's interests are the stabilization and continued unsanctioned existence of Myanmar's ruling government, so that Moscow can continue to acquire Burmese oil and retain a stable ally in the region.

Opposition to this policy has come from several sources, one being the United States, which has called for immediate action and sanctions against the military junta in Myanmar. One reason for the United States to push for a change of government in Myanmar is to undermine Russia. If the current regime in Myanmar is disposed, it will be possible that a democratic government will come to power and seek better relations with the United States and its allies. The possibility of a democratic government, and its possible disposition toward friendly relations with the United States, is also an important driving force behind Russia's and China's actions in Myanmar.

Another source of opposition has come from India. The reason for India's involvement is the veritable backstab by Myanmar concerning the removal of India from the status of "preferential buyer" in regard to the off-shore oilfields off the coast of Myanmar. After removing India from preferential buyer status, the junta entered into negotiations with Russian and Chinese oil companies. Possible Indian interests are limited at best since it has been pushed aside by China. It is most likely that the Indian government opposes Russia and China in an attempt to maintain some form of business relations with the small Asian country.

Currently, with the lack of harsh or committed rhetoric, it is difficult to tell what actions and strategies Russia will adopt when taking action around Myanmar. It is not clear whether or not its strategy will be an active intervention or a more passive campaign of rhetoric. It is also difficult to tell as to whether the involvement of India and the United States will play a significant role in the situation at hand. It is clear, however, that Russia has extended economic interests in Myanmar that it considers critical to its interests.