Spot the tentacles (Image credit: AFP/Getty Images via @daylife)
We know that Goldman Sachs is the "great vampire squid" of Wall Street, in the words of Matt Taibbi. But it's not the only aquatic monster spawned on crony capitalism. For the past year or so, Myanmar (Burma) has been fumbling its way out of political and economic isolation after decades of military misrule. At every step, hardliners have pushed back against democratic reforms that undermine the interests of military men and their business proxies. One prominent spoiler has been Vice-President Tin Aung Myint Oo, whose tentacles extend in every direction, earning him the nickname "the octopus". Whether the obstinate Veep took this is a compliment or not is unknown. But it no longer matters, as the octopus, unlike the vampire squid, has finally had its tentacles clipped (or tied). Earlier this month, amid speculation over his grip on power, Tin Aung Myint Oo resigned his post, citing health reasons. Exit the octopus - to join the Buddhist monkhood (extra robes might be needed).
The downfall of a hardline rival allows reformist President Thein Sein to consolidate power. Yet even without the octopus, the path to rebuilding Myanmar's economy is strewn with hazards, as a new report from the International Crisis Group (ICG) makes clear. Myanmar's new government has started to tackle inefficiencies in currency controls and trade tariffs, while reaching out to Western powers that penalised its repressive predecessor. The U.S. and Europe have responded by suspending or softening sanctions, and Western companies are sizing up potential deals in Myanmar's energy, hospitality and banking industries. But the risks are immense to any major investments at this stage. A new law on foreign investment is still being debated in parliament. Power shortages sparked protests in May. The U.S. Congress has yet to lift a ban on imports from Myanmar imposed in 2003. In fact, a move to let this ban lapse in 2012 may even be reversed after pressure from activist groups. If so, warns ICG, Myanmar would find it even harder to create jobs in manufacturing and would be pushed back onto its natural resources.
China has been the dominant player in exploiting these vast resources. Even Goldman Sachs would be impressed by the sucking sound of natural gas, timber, precious stones and electricity going north. Last year Thein Sein stunned China, and earned credibility at home, by suspending a $3.6 billion hydropower dam in northern Myanmar that would have supplied electricity to Yunnan Province. A port project outside Yangon, the commercial capital, is also on hold. Both projects were contracted to Asiaworld, a construction firm run by Steven Law, a wealthy crony of the former regime (read my 2011 profile of another crony, Tay Za). ICG argues that these cronies are losing ground, along with military holding companies and their patrons. A level playing field isn't their way of doing business. Yet their efforts to resist reform appear to be in vain, as evinced by the downfall of the octopus. These crony capitalists must "accept a diminished role" in the economy, the report notes. Some are also trying to build bridges to Aung San Suu Kyi's opposition movement.
What takes the place of crony capitalism is less clear. Myanmar needs to unleash the talents of its people, starting with rural areas and an industrial sector that went backwards under successive juntas. But the reform process has been patchy. Financial services are a disaster, partly due to mistrust since a 2003 banking crisis. Only North Koreans find it harder to get credit than citizens of Myanmar, according to ICG. The government has tried to rush through economic changes, but appears to lack a strategic vision. The result is a half-baked transition. Some stimulus spending might help: Myanmar desperately needs infrastructure, but public tenders have been on hold while reformers thrash out new rules. The World Bank has begun working there after a long gap, but its hands are still tied in making loans. Maybe an investment bank can help to bridge the financing gap. I think I know just the one.
