Myanmar After the Coup

At the start of February, Myanmar’s powerful military declared a state of emergency after toppling the elected government of Aung San Suu Kyi and the National League for Democracy (NLD), with a pledge of delivering a “free and fair” election within 12 months. It is unclear how the regime can effectively run the country in the face of a civil disobedience movement backed by swathes of the population, protests disrupting economic and financial activities, refusal from ethnic armed groups to engage, and a bureaucracy that has ground to a halt.

The junta’s cabinet appointees are similar to the 2011-2016 quasi-civilian administration of Thein Sein, but both the domestic situation and external environment point to a very different set of circumstances and challenges, with a return of sanctions, economic damage from COVID-19, investors mulling an exit, and the possibility of severe political instability as well as collapse of the banking and energy industries.

Protests across cities and towns have continued and a civil disobedience movement has shown no sign of abating weeks after the coup, despite explicit warnings from the regime and the use of force by the security forces. Senior General Min Aung Hlaing, the junta leader, summoned industry leaders and tycoons and stated the regime’s desire to welcome investments, but businesses are bracing for a very tough time while journalists and activists worry about the dramatic reversal of democratic freedom previously possible.

A senior worker at an international nongovernmental organization (INGO) in Myanmar warns that the prospect of any junta-supported election will face entrenched domestic and international skepticism. For one thing, the coup government has reappointed as chair of the Union Election Commission (UEC) the same individual who held the position during the 2010 election, in which the military’s proxy party, the Union Solidarity and Development Party (USDP) dominated amid widespread irregularities (and with the NLD refusing to take part). As a result, the INGO worker said, “the UEC’s credibility and perceived independence is at a nadir.”

“Operationally, elections will be a prime target for the civil disobedience movement,” the INGO worker continued. Elections require a massive logistical and operational effort to organize, including mobilizing hundreds of thousands of temporary staff to conduct voter registration and polling operations. Added to that, the junta’s allegations of voter list fraud will almost certainly require a fresh voter list be established.

“The Hail Mary of Senior General Hlaing is most likely to be the introduction of a proportional representation [PR] electoral system to influence election outcomes,” said the worker, a top election expert and among the most senior INGO leaders in the country.

A legacy of mismanagement under military rule and a first-past-the-post electoral system have contributed heavily to the NLD receiving a disproportionately greater number of seats than its share of votes. A PR system produces more proportional results and would significantly improve the USDP’s seat count while curtailing the NLD’s, should the latter even compete.

“The institutional, legal, operational and political context that the junta has shaped around any prospective election it patronizes makes Senior General Hlaing’s ambitions of a ‘free and fair’ election a parody of democracy – and an insurmountable obstacle for the legitimacy he craves,” the INGO leader explained.

According to a February report by the International Crisis Group (ICG), the new regime’s leaders, now constituted as a State Administration Council (SAC) chaired by Min Aung Hlaing, have since tried to project an air of normalcy and continuity with the previous NLD administration.

“It will not be easy, given the massive demonstrations against the coup, and a broad civil disobedience movement that has crippled many government functions,” the ICG report said. “The coup could also alter the dynamics of the country’s multiple conflicts with ethnic armed groups in unpredictable ways.”

The military regime has already ordered the blocking of major social media sites such as Facebook, Twitter, and Instagram (although users can circumvent them using VPNs) and imposed martial law and curfews. In a single stroke, this has undermined the SAC’s quest for continuity, fundamentally changing the way business is conducted and rewriting the rules of the civic space.

“Years of underspending on public services such as healthcare, education, and public transport has left Myanmar among the least developed economies in Asia,” said a former economic adviser to the government. “At the same time, underspending has also contributed to relatively low debt levels and manageable debt servicing costs, meaning the government has enough fiscal space to ramp up public spending without risking a debt crisis, even with the lower expected revenue and lower exports associated with the coup and COVID-19 restrictions.”

But with political instability and the SAC’s attempts to quell dissent disrupting economic activities, the junta regime is presiding over a challenging fiscal and economic climate.

“Tax revenues, which were strained due to COVID-19 restrictions and were already among the lowest in the world as a share of GDP, will fall. Foreign firms will leave the country and overall investment will decline,” the former adviser told The Diplomat. “Low or even negative growth associated with sanctions, boycotts, financial sector turmoil, and the proposed cybersecurity law will reduce incomes and consequently some of the largest sources of tax revenue, like commercial tax.”

A New Cabinet

Shortly after seizing power, the junta purged Aung San Suu Kyi’s administration, installed a new cabinet, and appointed new officials to the UEC, the Central Bank of Myanmar, and other key institutions.

The appointee catching the most media and public attention is Social Welfare Minister Thet Thet Khine, a gem magnate and former NLD lawmaker who was suspended from the party in September 2018 for criticizing Aung San Suu Kyi. Her party, the People’s Pioneer Party, won zero seats in last year’s elections, although her criticisms against the NLD’s economic leadership on the campaign trail resonated widely with the business community.

Many cabinet members come from Thein Sein’s former team, including Finance Minister Win Shein and Foreign Affairs Minister Wunna Maung. Than Nyein, who led the central bank until 2013, was reappointed to take charge of the now-nominally independent institution.

Some business executives in Yangon see the cabinet make-up, and especially the appointment of Aung Naing Oo, the new minister for investment and foreign economic relations, as a clear signal that the junta plans to follow the reformist path that defined Thein Sein’s presidency.

Aung Naing Oo is an ex-military public servant who used to run the Directorate of Investment and Company Administration (DICA), and was widely credited for spearheading reforms to the investment, SEZ, and companies laws that were enacted under successive administrations.

Maung Maung Lay, vice chair of the Union of Myanmar Federation of Chambers of Commerce and Industry (UMFCCI), for example, spoke highly of the economic appointees. Maung Maung Lay told local media that Win Shein in his first stint as finance chief managed the budget and regulated the monetary policy well and that Aung Naing Oo is trusted by foreign investors.

But that trust is no longer there now that the legitimacy of the regime itself is questioned at home and abroad, senior corporate figures told The Diplomat.

Indeed, as protesters and elected and ousted lawmakers refuse to recognize the legitimacy of the junta, major foreign business groups and big Western and Japanese investors have stayed away from engaging the new officials, even before a group of NLD politicians elected last year established the Committee to Represent the Pyidaungsu Hluttaw as a parallel legislature to liaise with the international community.

After the purge of ministers, the military regime reached out to the American Chamber of Commerce in Myanmar and a few other foreign chambers of commerce in the country. According to a source in AmCham, the business groups did not pursue the invitation.

The Business of Business

The business community, whatever their view of the junta’s cabinet, has yet to recover from the disruption stemming from the shutdowns of the mobile data network, nightly movement restrictions, and the growing civil disobedience movement.

“What a joke,” a senior executive of a Yangon-based Asian company said in response to the news of regular internet blackouts and nightly curfews imposed by the junta. “How can we run businesses like that?”

“It doesn’t matter whether a company has good relations with the military. The problem [for investors] is the instability. Who would want to do business in the country now?” another said, referring to the disruption and massive public opposition to the new regime and fears of a violent crackdown.

Others are confused about how they could pay their employees with a paralyzed banking system, as banks were forced to stay closed given that many staffers are on strike. Even if bank operations can resume, the central bank has recently limited the amount of money individuals and businesses can withdraw in cash, confirming widespread fears of a bank run.

“Having lived and worked in Myanmar for seven years from the days when sanctions were lifted internationally, I have seen its tremendous legal and business achievements. It’s so distressing to see what is happening today,” commented a senior foreign lawyer involved in Myanmar transactions.

“In my view the new government has a political, not legislative agenda,” the lawyer added. Foreign exchange controls might be expected if the economic disruption is severe, and the Central Bank of Myanmar will have to act “if the banking system comes under strain.”

But the junta’s first act of public lawmaking, a proposed law to rewrite the rules of the internet, ended up prompting a firm and spirited backlash from the business community, with some investors suggesting they may pull out of the country if the punitive law is adopted.

If passed, the draft cybersecurity law, released a week after the military toppled Aung San Suu Kyi’s government, would allow the regime access to online users’ personal data for security reasons. It would also allow authorities to force the removal of any content on platforms that they deem could inspire hate, disrupt unity, or harm stability or peace. Telecom operators and banks were given a week to provide comments on the draft legislation.

Around 250 civil society organizations have publicly condemned the proposed law, with many, including the Myanmar Computer Federation, saying they would refuse to accept it as a legitimate law.

On February 15, the usually pro-establishment UMFCCI also objected to the proposal.

“We object to the plan to hastily put out the cyber bill as a law because it harms the development of the domestic digital economy, prevents innovation and poses challenges in inviting foreign investments,” the UMFCCI said in a statement.

All major Western chambers of commerce in Yangon, with the exception of the Australians, signed a statement warning that the proposed law would empower the authorities to “intervene in business operations at their unfettered discretion, including enforcing data localization, confiscation of data and equipment, and prohibition (either temporarily or permanently) of entire business operations.”

On February 15, the junta issued surprise amendments to the Electronic Transactions Law that had not been circulated in advance to the business community. Many of the amendments were copied straight from the cybersecurity bill, and placed further limits on free speech and the sharing of information, as well as undermining data privacy.

Other foreign investors have decided that the coup necessitated cutting ties with military firms.

Kirin Holdings, the Japanese brewer, said it is withdrawing from its joint venture with the military-owned conglomerate Myanmar Economic Holdings Limited (MEHL). The Singaporean tycoon Lim Kaling announced his withdrawal from a joint venture with military-linked Virginia Tobacco, the country's biggest cigarette maker.

Both Western and Asian investors told The Diplomat that many are adopting a “wait and see” approach but a violent crackdown would likely lead to an exodus of executives and investment plans.

Meanwhile, some of the biggest investors in Myanmar issued a joint statement with the help of the independent Myanmar Center for Responsible Business (MCRB) to express their “growing and deep concern.”

“As investors, we inhabit a ‘shared space’ with the people of Myanmar, including civil society organizations, in which we all benefit from respect for human rights, democracy and fundamental freedoms – including freedom of expression and association – and the rule of law,” said the statement signed by nearly 30 local firms and multinational companies, including Carlsberg of Denmark, Dutch Heineken, Norway’s Telenor, Australian oil and gas company Woodside, and French energy giant Total, as well as major Myanmar conglomerates and domestic banks.

Sanctions and Changes

In response to the coup and suspension of democracy, the United States government has sanctioned military chief Min Aung Hlaing, his deputy Soe Win, and several other military or ex-military officials directly associated with the coup or regime. Three military-linked gemstone companies are also affected. Similar targeted sanctions have been announced by the United Kingdom, Canada, and the European Union.

Businesspeople in Yangon and Myanmar-focused analysts expect more targeted sanctions to be imposed soon, including on military-owned commercial entities.

Hunter Marston, a Canberra-based political analyst who has written about Myanmar for several publications, expects expanded targeted sanctions from Washington in coming days or weeks, specifically going after more generals in the new military regime and their extended family members.

“I also anticipate that the U.S. will expand sanctions on military-owned businesses beyond the initial three MEHL subsidiaries,” Marston said. “The Treasury [Department] is currently reviewing potential sanctions targets linked to the military, but President Biden may decide to hold off based on the military's response to ongoing protests, as the administration wants to retain some leverage in the hopes of convincing the generals to de-escalate.”

“Apart from the reputational damage that has already been caused, there will be a huge slump in foreign investments. Myanmar worked hard over the last decade to relax foreign investment policies with liberalized laws and regulations,” said a long-term lawyer focused on Myanmar. “However, if sanctions are to be imposed, investors would once again lose confidence in Myanmar. Also, the cost of investing in Myanmar will go up significantly and dissuade investors from investing.”

And however unlikely blanket sanctions by the West may be, the reversal of democratic reforms has damaged Myanmar’s image as an attractive place to do business.

A Yangon-based Asian investor complained that the coup had destroyed the narrative of international investors doing business in Myanmar, that the country was moving toward greater respect for human rights and helping lift people out of poverty. That narrative had already come under pressure since the 2017 Rohingya crisis, triggered by the military’s brutal expulsion of more than 750,000 Rohingyas, a Muslim minority group, from Myanmar’s west.

For several decades, investors in Myanmar have been the subject of more activist attention than other countries with comparable governance and human rights records.

The 2020 Pwint Thit Sa (corporate transparency report), published by MCRB and consulting firm Yever, says the scrutiny underlines the importance of companies being able to “know and show” that they understand and are managing human rights risks – that they undertake due diligence, act on it, and disclose it.

Foreign business figures say the risks have intensified to a different level following the coup, but they are not new. Both Min Aung Hlaing and his deputy Soe Win prior to the coup were already subject to U.S. and U.K. sanctions. Companies came under pressure to cut ties with them following the release of the U.N. Fact-Finding Mission’s report into the Rohingya crisis in 2019.

Danish shipping giant Maersk, the United States’ Western Union, and clothing giant Esprit were among the multinationals that shunned military-associated entities over the past 12 months, before the regime change.

The 2020 Pwint Thit Sa report further argues that Myanmar’s economic liberalization over the past decade means that it is possible to avoid military-owned companies in most sectors of the economy where they are active, such as banks, cement, and telecommunications.

On top of the new risk of economic sanctions comes fear among foreign business representatives over their own future under the military regime. “You never know what the military leaders will do to international businesses,” one investor said, referring to past coups when military leaders have nationalized foreign-owned businesses.

But the immediate and ongoing concern among corporate leaders is how they could speak up safely and engage with the authorities without being seen as endorsing the regime.

Several senior investors told The Diplomat they worried that advocacy and pushing back would put the safety of their employees at risk under a regime considerably less tolerant than before.

Jared Bissinger, a Myanmar-focused development economist and consultant, says business groups and industry bodies are well-placed to express collective concerns because “there is some safety in numbers.”

“It is important for the private sector, especially those that do business internationally, to recognize that there are consequences of speaking out, and also consequences for remaining silent. They need to carefully consider the implications of both,” he commented.