The Call

Economic reforms solidify the political opening in Burma

Economic reforms solidify the political opening in Burma

By Roberto Herrera-Lim

Economic reforms that are the most significant in Burma since the 1990s confirm that the country’s recent awakening has repercussions that go farther and deeper than politics alone. The news that the local currency will be floated on April 1, coupled with the likely passage of a new investment law, signals that the reform agenda has strong support throughout the leadership, not just with the visible President Thein Sein. The floating of the kyat — with its potential to upset entrenched corruption and deny state enterprises and well-connected businesses privileged access to foreign currency — reveals that reformers are relatively secure in pushing through with this change despite the risks to powerful interests. By doing this, the government is also showing a willingness to deal with near-term popular risks such as inflation, which may increase as state enterprises are forced to price their goods and services at market rates. The kyat float sets the stage for unwinding distortions that have led to corruption, lack of transparency in official transactions, and ineffective monetary policy. It will also enable Burma to use development aid more efficiently; the EU has already promised an additional $200 million in aid over the next two years. Meanwhile, the new investment law will allow foreigners to set up businesses without the need for local partners, and may provide a five-year tax holiday.

None of this would have been possible if the leadership were fracturing. Burmese politics, for the most part, remains very opaque despite the changes of the past few months. This creates near-daily speculation regarding the positions of the different cliques and institutions on the trajectory and pace of reform; serious disagreement can give hardliners the upper hand. Every instance of disagreement or lack of coordination — whether between parliament and Thein, or between the central government and local military commanders — is micro-analyzed for signals of dissent and fracturing of the senior leadership. This is why the substantive steps forward on economic reforms provide such a clear signal of a sustained commitment to reform.

On April 1, the former pariah nation will also hold its first free elections since the 1990 vote won by the opposition (but which the military refused to recognize). By the numbers alone, the outcome shouldn’t matter much in the parliamentary balance of power. Up for grabs are a measly 40 seats in the 440-seat house, six seats in the 224-seat senate, and two for regional chambers. Including those regional assemblies and the 25 percent of seats automatically allocated for the military, Burma’s legislature totals 1,158 seats. But the vote will be an important marker for democratic reforms-an idea that no one was willing to connect to Burma even a year ago — because it opens the next political chapter for opposition leader and democracy symbol Aung San Suu Kyi. Suu Kyi and her opposition allies in the National League for Democracy (NLD) are expected to win most, if not all, of the seats being contested. Suu Kyi has not given any signals about her future political role, whether as an opposition leader validating the process of political change or as a more integrated participant in Thein’s push for reform.

Burma is not yet fully out of the woods — there are still several ways in which the reform process can be derailed. But with the raft of economic reforms, this is starting to look more and more like the highly praised "doi moi" (renovation) of Vietnam. It might be a bit too early to call it that, but it is becoming more and more difficult to bet against it.

Roberto Herrera-Lim is a director in Eurasia Group’s Asia practice.