How Will the Military Coup Impact Myanmar’s Struggling Economy?

On Feb. 01, 2021 the Myanmar military also known as Tatmadaw, dismissed the civilian-led and democratically elected National League of Democracy (NLD) government and imposed a national emergency for a year. Apart from toppling the civilian government, the military also arrested NLD Supremo and state counsellor Aung San Suu Kyi, outgoing President Win Myint and many other senior leaders of NLD. The military coup has evoked strong responses especially from the US, UK, EU and G7. 

A case was filed against Suu Kyi for illegally importing walkie talkies. Army Chief Min Aung Hlaing who led the coup in an address on Monday stated that elections would be held within one year. 

After the result of the November 2020 elections, the military and civilian government had been at loggerheads with the Myanmar military. The NLD won 396 seats out of a total of 476 seats, while the Union Solidarity and Development Party (USDP) backed by the Myanmar military secured 33 seats. 

On Wednesday, Feb. 10, 2021, US President Joe Biden said that the US imposed sanctions on Myanmar’s military leaders. He also announced that his administration will freeze $1 billion of Myanmar government’s funds held in the US. The US President stated that while American exports to the ASEAN nation would be restricted, with the intent of ‘imposing consequences’ on the military leaders, support for areas like health care and civil society groups would remain intact. Biden emphatically stated that the US would not refrain from taking more stringent actions and that Washington would work with its partners.

US Secretary of State Antony Blinken during his conversation with Chinese Foreign Minister, Yang Jiechi also asked China to unequivocally criticize the military takeover – something China has refrained from doing so far. 

Economic implications of the coup

It is premature to comment on the economic implications of the coup. There is no real consensus on the degree to which the military takeover will impact the ASEAN nation’s economy since it depends upon a myriad of factors; specifically the nature of economic sanctions imposed by Western nations, and the responses of Asian countries to the military takeover. It would be pertinent to point out that the Myanmar military chief, Min Aung Hlaing has already met with investors and asked them to ‘continue work on international projects.’

Trajectory of the Myanmar economy in recent years

In recent years, Myanmar has managed to grow at over 7%. During 2019, the country’s growth rate considerably slowed down, and for 2020 this was estimated at 0.5%. In terms of FDI, the ASEAN nation has not been able to fulfill its potential though it managed to receive $5.5 billion for the year 2020 in spite of the Covid-19 pandemic (the bulk of the investment was received in real estate, power, manufacturing and oil and gas).

While the South East Asia nation has been able to reduce poverty in recent years, the benefits of Myanmar’s growth have not percolate to rural Myanmar. The Rohingya Crisis which resulted in the migration of 7,40,000 Rohingya from the Arakan Province, was accompanied not just by international disapprobation of Aung San Suu Kyi for turning a blind eye to human rights violations committed by the Myanmar military, but also UN dubbed the campaign against the Rohingyas as ‘ethnic cleansing’. 

The US also imposed sanctions on senior military officials – including Min Aung Hlaing and four other senior military officials for their role in the atrocities committed against the Rohingyas. The sanctions had been imposed under the Global Magnitsky Human Rights Accountability act and sought to freeze any U.S. assets held by these officials. The sanctions have also prohibited Americans from doing business with them. The EU too imposed sanctions in 2018 which included suspension of military cooperation with the ASEAN nation, travel bans and freezing of assets of certain individuals and an arms embargo amongst other measures.

It would be fair to say that there was a sense of disappointment with the NLD administration for failing to usher in the necessary economic reforms and change, and disillusionment for its handling of the Rohingya Crisis, yet understandably there was an overwhelming consensus that democracy must be allowed to strengthen in the ASEAN nation.

Why have Western reactions been different from Asian nations to the military coup

As mentioned earlier, the US has been unequivocal in its response to the coup. The EU too is likely to remove the EBA (everything but arms) arrangement which gives preference to imports from Least Developed countries. The withdrawal of the EBA could impact Myanmar’s garment and footwear industry.

Top investors in Myanmar

The large chunk of investment in Myanmar comes from Asia – Singapore, China and Japan are amongst the top investors. Many analysts thus believe that the South East Asian nation may be able to deal with Western economic sanctions.

It is not just China which has been cautious in its response to the coup, but even countries like Japan and India (which view Myanmar as a gateway to South East Asia) have responded less aggressively, because there is an apprehension that Myanmar would move closer to China. 

NLD Government and relations with China

It would be pertinent to point out that even the NLD government had good ties with China. In January 2020, President Xi Jinping became the first Chinese President to visit Myanmar, after a period of 19 years, and a total of 33 MoU’s were signed during his visit. A large number of these were related to infrastructural projects, including the strategically important Kyaukpyu Deep Sea Port and Special Economic Zone, which were part of the China-Myanmar Economic Corridor. 

Exit of Asian companies 

While some Asian businesses are adopting a wait and watch attitude, some are scaling down operations in Myanmar. Prominent examples are Kirin (which has a joint-venture partnership with the nation’s largest brewer Myanma Economic Holdings Public Co). Similarly, prominent Singapore businessman Lim Kalin has exited from his stake in a tobacco firm and so have prominent Thai investors developed cold feet.

It is tough to forecast the impact of the coup on Myanmar’s economy as it is dependent upon a wide range of factors which have been discussed earlier. Strong economic measures by the West will certainly result in Myanmar moving closer to Beijing. It is important for the military to revive the democratic process at the earliest and the Western world to ensure that any actions against Myanmar are well-thought-out and not counterproductive. The US President so far has indicated the same. It would be fair to say that while the NLD government may have not lived up to expectations, but the coup has come as a setback to the Myanmar economy which was barely on the recovery path.

The views and opinions expressed in this article are those of the author.

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