Myanmar’s new ties with U.S. may come at a cost

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NEW DELHI — The Obama administration’s decision this week to ease financial sanctions imposed on Myanmar, encourage American investment there and appoint a U.S. ambassador for the first time in 22 years should further the long-isolated nation’s reform process, analysts said Friday.

But it could also goose inflation and intensify other adjustment problems affecting millions of impoverished Burmese, they said, in a nation already struggling to cope with a recent torrent of foreign companies, dignitaries and tourists.

“This is a move that Myanmar has been waiting for a long time,” Khin Zaw Win, director of Yangon’s Tampadipa Institute, said in an email exchange. “Regrettably it doesn’t have the capacity to absorb the investment. Local costs and prices are already rising.”

Decades of isolation and iron-fisted rule under a military government have left Myanmar, also known as Burma, with a distorted and inefficient economy, extensive corruption, major industries controlled by a handful of cronies and an administration short on the technical skills needed to run a modern state.

Those deficiencies have only become more apparent as the country has opened up in recent months, holding elections, releasing political prisoners, forging peace deals with ethnic minorities, liberalizing exchange rates and writing an investment law, sparking what some have described as a new “gold rush.”

Thursday’s U.S. announcement, the start of what President Obama termed a “new chapter” in relations, follows pressure from American companies that have watched their less encumbered Chinese, Southeast Asian and European competitors pile into Myanmar ahead of them.

“It is a case of wanting to keep up with the Johansson [Europe] as well as help U.S. business,” said Bridget Welsh, a political science professor at Singapore Management University. “Myanmar — especially its resource wealth — has pipped interest by companies.”

Secretary of State Hillary Rodham Clinton said Thursday in Washington, standing beside Burmese Foreign Minister Wunna Maung Lwin, that the administration would issue a general license paving the way for U.S. energy, mining, financial services and other companies to do business in Myanmar.

While the steady opening of Myanmar makes it increasingly unlikely that hard-line military leaders will be able to reassert the tight grip they long enjoyed, Washington is reluctant to move too fast, concerned about the country’s closed political system and human rights violations.

The U.S. will maintain its arms embargo and continue to sanction Myanmar military companies, business tycoons and generals accused of human rights violations and corruption.

“It is a difficult balancing act given that so many problems remain in Burma, and the obvious danger that rewards given too early could be counterproductive,” said Sean Turnell, economics professor at Australia’s Macquarie University and editor of the website Burma Economic Watch. “So much to do still.”

Human rights groups, however, have criticized the U.S. move, arguing that it rewards a quasi-military government that still holds hundreds of political prisoners.

The Obama administration’s decision to nominate Derek Mitchell, who has served as special envoy to Burma since April 2011, as U.S. ambassador signals Washington’s growing confidence in Myanmar’s policy direction, analysts said. But Mitchell still needs to widen his circle, some said, beyond the military, pro-democracy activists led by opposition leader Aung San Suu Kyi and officials in Naypyidaw, the capital.

“He has been trying hard, but is little known outside Naypyidaw and Suu Kyi’s residence,” said Khin Zaw Win, the Tampadipa Institute director. “He has to do much more to make up for 22 years of isolation and neglect by the U.S.”

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-- Mark Magnier