U.S. Policy Options Toward Myanmar

Thursday, April 19, 2012

Joshua Kurlantzick and Lex Rieffel assess the challenges and opportunities of modifying U.S. political and economic policy toward Myanmar.

ROMESH RATNESAR: OK. Good afternoon. Welcome to the Council on Foreign Relations. I am Romesh Ratnesar from Bloomberg Businessweek magazine, and I'm pleased to be presiding over today's meeting on U.S. policy options toward Myanmar.

I want to quickly introduce both of these gentlemen. You have their bios in your handouts, but I'll just say a word about each.

Josh Kurlantzick -- as many of you know, he's a fellow for Southeast Asia here at the council. He is a writer who has contributed to Time, The New Republic, The American Prospect, Mother Jones, the board -- he's on the board of Current History, and of course he is a writer for Bloomberg Businessweek, among other places.

JOSHUA KURLANTZICK: Keeping my child in nursery school.

RATNESAR: (Laughs.) Lex Rieffel is a nonresident senior fellow with the Global Economy Development Program at The Brookings Institution. Among many other things, he is the editor of "Myanmar/Burma: Inside Challenges, Outside Interests," published in 2010. He is someone with deep experience working and visiting Myanmar, including a recent trip this year, which we will ask him about. And I'm pleased that both of them are here to talk to us on this subject.

Before we begin, just some housekeeping. Please turn off, of course, your cellphones, BlackBerrys, other mobile devices. I take this so seriously, I guess I should do it myself. (Pause.) There we go. This would be embarrassing. The meeting today is, of course, on the record.

And as a reminder, we wanted to call your attention to a meeting of the council on Monday with the U.S. ambassador to NATO, Ivo Daalder. There's more information on other events in the back of today's program.

Before we begin, I thought I would just give you a little bit of background. I think everybody here is familiar with what's been happening in Myanmar over the last several months, but as you know -- I think my microphone might be off. Is it? No, you hear?

As you know, Myanmar is one of the -- has for a long time been one of the most closed and (poorest ?) societies in all of Asia, but in the last year or so we've seen a remarkable series of events there as the country has moved from military to civilian government, has liberalized its media, has instituted currency reforms, released many political prisoners, and seen -- then held what has been seen as relatively genuine parliamentary by-elections.

Just yesterday, of course, the opposition leader, Nobel Laureate Aung San Suu Kyi, assumed a seat in parliament for the first time, which was a true watershed for Myanmar. The United States has restored diplomatic relations with the government. The European Union has suspended economic sanctions against the regime. And of course, this is triggering huge investor interest in Myanmar, and I'm sure some of you here may very well be a part of that. And these two gentlemen can probably give you some hotel recommendations -- (laughter) -- after the session if you're interested.

But I thought we would start with you, Lex. Having been to Myanmar recently, I thought you could give us a report on how the Burmese spring looks from the ground.

LEX RIEFFEL: Thank you, Romesh. Just to be -- just to explain very simply, I was invited to go to Myanmar last fall to work at the Union of Myanmar Federation of Chambers of Commerce and Industry as a program adviser. I worked there for three months, with some interruptions. And I returned to Washington on April 13th.

`I would like to open with five points. First, the main lesson I learned from working in Yangon for four months is that a person who does not speak the Myanmar language does not know what's going on there and cannot know what's going on there. And I do not speak the Myanmar language. So take what I say with a grain of salt. It is based more on guesses than on facts.

An example of how big the language problem is: In the Myanmar language, the word for "economics" is the same in Myanmar language as the word for "business." So it's easy to have a conversation with someone that you think is about economics but they think is about business.

Second, a month ago, when trying to explain to friends what it was like working in Myanmar, I said it felt like I was living in an Alice in Wonderland world. A week ago I found a better explanation of this feeling in a Mizzima interview with the author of a new French-language book, "Zawgyi, the Alchemist of Burma," by Jak Bazino. The interviewer asked Bazino, what are some aspects of the Burmese culture that you find special and unfamiliar to people who have not lived there? He answered: I think it would be its lack of rationality, which is sometimes confusing for Westerners, who feel a bit like Alice in Wonderland. Burmese culture has not been influenced by rationalism, positivism or scientism. As such, foreigners often lack references to understand what seems to us illogical, upside-down or simply bewildering.

My third point. I believe the best economic policy decision taken by the new government by far was to abandon the official rate of the kyat, maintained since 1977, and move toward a managed float of the kyat. This step was taken on April 1, the same day as the by-elections. I believe it has the potential of doing more to improve the lives of Myanmar's 50 million people as a whole than the by-elections.

Point four: The government of Myanmar faces two huge economic challenges today. One of the them is the resource curse. Simply put, the government is acquiring more hard currency from selling resources than it can absorb efficiently. The adverse impacts include pressure for the kyat to appreciate and wasteful expenditures. In my report -- on my special report on the Myanmar economy for USIP two years ago, I suggested that an appropriate policy measure would be a five-year moratorium on new resource extraction projects. I see almost no chance of this being done. Like other developing countries that overinvest in natural resources, Myanmar will probably underinvest in human resources.

The other challenge is the tidal wave of visitors that has already begun but is far from peaking. Ministers and director generals are meeting with every Tom, Dick and Harry, leaving insufficient time to make sound policy decisions in a timely manner. And they are spending almost no time on implementation of new policies. A superb description of this problem by an Australian economist, Adam McCarty, was published in the February 13th issue of the Myanmar Times, and that's available on their website.

Point five: You have heard a lot about the woeful lack of human capital and institutional capacity in Myanmar. It is true, but not as bad as you would expect from the most widely seen reports. In the public sector, midlevel officials have been attending ASEAN meetings on a vast range of policy issues for 15 years. These officials understand the issues. They are familiar with how their ASEAN partners have dealt with these issues, and they have thought about how they might be addressed in Myanmar. What holds them back from acting on what they know is orders from the top. There is very little delegation of authority within ministries and very little sharing of information either within its ministries or across ministries.

In the private sector, both for-profit and nonprofit, there is also a lot of capacity, including the Burmese diaspora. A risk for the transition, however, is that the best people in both sectors will be hired by the World Bank and foreign investors and NGOs.

RATNESAR: Thanks, Josh.

Picking up on that, I wonder if we can talk a little bit -- before we get into policy prescriptions and where things go from here, if we could talk a little bit about how we got to this point. What have been the factors that have led to this pretty extraordinary opening up in Burma? And I wonder if you could talk a little bit about the role of personalities in this story and how much depends on this relationship between the president and Aung San Suu Kyi and how much the continuation of this momentum depends on these two individuals.

JOSHUA KURLANTZICK: Sure. Well, first, thanks to everyone for coming. This is a very good turnout. It shows, I think, impressive interest in Myanmar.

We got here, and I think anyone who could tell you exactly how we got here for sure is not telling the truth. But we have some general idea of how we got here, and that has some -- several factors that we can look at, going back to the 2010 election, which was not free or fair and yet seemed to set the stage, as well as the constitution before that, for this change.

The change happened after that, in which you had the new president, Thein Sein, who pushed forward quite rapidly and, I think, honestly, shockingly to people who had followed Burma for a long time, a whole series of reforms, which many of you are probably with: press reforms, economic reforms, releasing political prisoners and many others. He also launched into a dialogue with Suu Kyi, and compared to the previous times when Suu Kyi was in a dialogue with the military or interlocutors from the military, there really was a significant degree of trust between Suu Kyi and the president that did not exist before, which is, I think, a bold move on Suu Kyi's part given that previous interlocutors wound up in disaster.

And then we move forward to a situation the end of last year and then this year in which Suu Kyi and her party essentially agreed to give up the 1990 election to move forward to contest the by-elections, to rebuild their party and essentially, at least from her part, to sort of throw in with this reform movement and try to move forward.

I think what I was going to say as well is that I think there is an incredible amount of reform happening on the political side. On the other hand, I think there are a number of roadblocks that haven't been addressed significantly, and one of them is -- and I'm sure Priscilla (sp) is going to tell me that I'm wrong, but that there's too much focus on personalities. And that's possible in the short term, but much of the development that you've had has come from these two personalities as well as one other man in parliament.

And the president is not a young man and not particularly well. And Aung San Suu Kyi is not a young person either, and she has spent a long period of her life in pretty harsh conditions.

There is only a minimal amount of institutionalization of the reforms that you've had so far.

The second major roadblock is all of these people, the personalities here who have been pushing these reforms, all belong to the Burman majority group. Burma is a very highly diverse country, and I have spent a lot of time over the years in the Kachin areas, Asham areas, some of the other areas. And a lot of the problems in those areas remain unaddressed. War continues with refugee flows in the Kachin areas. You have in a number of the areas ethnic militias who have little incentive to put down their arms or to get out of their business, which is narcotrafficking.

Suu Kyi and, I think, the government would like to see some future situation in which Myanmar was more genuinely a federal state. But the problem with that idea is that the entire notion of a really federal state is poisonous to the military, and it has been since the country was founded, essentially.

And even getting to that type of discussion where Myanmar could look at other models like Spain or Indonesia or somewhere else is going to a very difficult challenge both from the military side, to take the poison out of the idea of federalism and from the other side, in which even in these two years of reforms, I think a lot of the ethnics don't feel like they've gotten a lot out of it. I don't think they feel like they've gotten a lot out of the economic change or potential changes. And honestly, even in the figure of Aung San Suu Kyi, although she is well-liked around the country, even she is not necessarily fully trusted by a lot of the ethnic groups. So you're going to have a hard, long slog to a country that is -- genuinely reflects the interests of all of the people and not only the Burmans.

So I think I'll stop there, and we can talk more about that.

RATNESAR: Well, Lex, I mean, given the obstacles that Josh has identified, how would you rate or assess the U.S. government's policy response thus far to the events in Myanmar? And by the U.S. government, obviously, we mean both the administration and Congress, who both have a role in shaping policy here. But how do you think they've handled it so far, and what do you think they still need to do?

RIEFFEL: I should explain. I -- Myanmar became my major project at the Brookings Institution in 2007 because I sensed that U.S. policy had become an obstacle to healthy relations with other Asian nations and was doing more harm than good for the -- Myanmar's population of 50 million people. I thought Hillary Clinton's announcement of a -- of a review of Myanmar policy a month after Obama's inauguration was premature and risky. But I thought the result of the review, the policy of pragmatic engagement that was announced in September 2009, was very much on target. I strongly supported and continue to support the implementation of this policy by the superb team -- superb team of Kurt Campbell, Joe Yun and Derek Mitchell.

My main concern from the outset has been and remains an overtone in statements by U.S. officials that the U.S. -- the United States holds the key to Burma's future. I don't believe it does, and this subtext does not play well in Asia.

I might add that I focused from the beginning on the economy of Myanmar because I thought it was understudied and more important than was generally acknowledged.

The -- we are at a very special point in U.S. relations with Burma today because the by-elections and because of the -- because of the election campaign in the United States too. I mean, this could be -- this could play in some curious ways in the election campaign in the United States. And then it is quite remarkable that we seem to have, at this moment, what has been called a bipartisan consensus on Myanmar in the U.S. Congress. And I hope that consensus can remain and that the -- that we can have a -- I'm optimistic that we can handle this situation well.

RATNESAR: And does that include lifting sanctions? I mean, do you -- do you believe that that's something that we should be moving toward or is it too soon to be considering that step?

RIEFFEL: The sanctions are on a wide range of things and of actions and legislated in various ways. I -- it seems to me a wholesale lifting of sanctions makes no sense and is probably politically infeasible.

There are a few -- a few of these sanctions that are serious impediments to economic progress in that country, economic progress that is going to deliver the democracy dividend to the people -- to the people of this country, I mean. And you know, if the -- if the rural population -- this is a country where 70 percent of the population lives in the rural area -- if the rural population does not begin soon to feel the benefits of this transition, you know, there -- this could be political destabilizing. And so there are -- there are certain financial and economic sanctions that I believe are very much -- very much in the U.S. interest, wanting to support this transition in Myanmar, in Burma -- very important for us to remove as quickly as possible.

RATNESAR: Josh, do you share that view?

KURLANTZICK: Well, maybe just step back a second. First of all, I think that in talking about why this has happened, I don't think that sanctions were the reason why we've had this change. Like I said, I don't think anyone knows for sure, but foreign investment in Myanmar was going up at the end of the sanctions period. I think you could credit perhaps the possibility that the military wanted a pacted transition in which they are able to control the transition, essentially, to some extent; they don't wind up like Moammar Gadhafi; and they are able to continue to -- not amass but retain the massive amounts of assets and privilege that they have had over 50 years and, most specifically, since oil and gas came on line in the last 15 years.

So I don't think sanctions had a major role to play, but I don't agree with Lex that the U.S. has no -- little role. I think -- well, you're going to go broke counting the number of times that we think that we have the key to any country. So -- but -- (chuckles) -- I think the U.S. does have a role to play. I mean, I think Myanmar's a country surrounded by large and, in the past, like, sometimes predatory neighbors. They have had a poor relationship -- a very, very poor relationship with the Thais. They've had an on-and-off relationship with India, an on-and-off relationship with Bangladesh and a very mixed relationship with China.

So even if the U.S. doesn't have an enormous economic or aid role to play -- and it's never going to be the same as China, the Thais or India, because it's not our neighborhood -- there is a role to play as, A, a sort of offshore balancer that is possibly more trusted because -- simply because we don't have the same strategic and potentially predatory interests; B, we -- whatever the Western companies that have been in Myanmar before have been involved in, they're still liable to Foreign Corrupt Practices Act. There are certain types of ways in which they can improve the business environment; and C, I think that the Myanmar government has actually looked to the U.S., to some extent, for a degree of international prestige. So I don't think the U.S. is completely out of the game.

I would, to the extent that it's possible, follow Canada, David Cameron and the EU in suspending sanctions for a period, with the option that you can then put them on. I don't think Congress will do that right now, but that's what I would do.

RATNESAR: You mentioned the kind of -- the neighborhood that we're talking about that Myanmar sits in. Let -- if we could just build on that a little bit. I mean, in what ways do the interests of some of the other foreign actors in Myanmar potentially conflict with the kind of outcomes we want to see? And what, if anything, can we do to make sure that the process of democratization continues even as you have a great deal of other foreign actors who want to get involved?

KURLANTZICK: Well, first of all, I think they conflict with what people in Myanmar want to see. That's the most important thing. And some of their own actions conflict with themselves. That's actually another problem.

So for example, China is hardly a monolithic state. You have many different actors active in Myanmar, and they do not necessarily have some -- one person telling them what to do. There is significant conflict between the provincial government, the national government, local businesspeople, resources, companies.

With the Thais, Thailand has millions of Myanmar -- they are not classified as refugees, but millions of Myanmar people living in the country and often in abysmal conditions. And in Thailand they also have conflicting impulses. They provide a significant source of cheap and often exploited labor. The Thai military has long-standing interests in things that come across the border. At the same time, Thailand would like a peaceful, stable neighborhood, that they can have economic development. I don't think that democracy is a major factor for them.

For India, the same -- everyone wants a peaceful, stable neighbor. And if that could be achieved by a government that has a pacted transition to a functioning democracy, I think that would be fine with all those countries, including China. China has warm, good relations with plenty of democracies.

The problem that you had before is that government was neither peaceful nor stable, and in the interregnum, you could have a lot of lack of stability.

So I don't think -- I think we share the overall interests with those countries, although they themselves are divided internally. But right now they have to -- we all have to make a bet in the long term, which is not always so easy to see.

RIEFFEL: I would say two things. One of the first research questions I put to myself when I started working on Myanmar was, which country is ripping off Burma worse, China or Thailand? You can ask me my conclusions later. But just -- I mean, that's -- to me, this is -- I mean, the region has basically had an exploitive relationship with this country, not a -- not a -- not a relationship of, you know, positive, uplifting or whatever you want to -- second, an economic fact: This country has five neighbors. There is not one single railroad or highway connecting this country to any of its five neighbors. The reason for that -- one of the reasons for that of course is the mountains, because the -- there are difficult mountains on all of the borders, but there are also these historical -- various historical reasons.

There is -- there has been some speculation that the pressure to connect Myanmar to the rest of Asia, to India, China and Southeast Asia, with transportation links, railroad and highway -- these pressures have become unbearable and that we will see -- regardless of anything else that happens in Myanmar, we will see Myanmar connected by road and by highway and railroad to the rest of Asia. And that is going to change the country in some -- well, in some ways, but maybe not predictable.

I might also add that I don't want to be misunderstood. I do believe the U.S. has an important role to play in Myanmar. I don't want the U.S. to sort of opt out. What I would like to see is the U.S. government working with the Asian countries more closely and more cooperatively, and for example, not sort of going in alone all the time. I mean, it'll be nice to see Americans go in with Asians into that country to have discussions.

For example, we did a -- we did a scoping -- a USAID scoping mission n this country. Why does -- why does the United States and every other country in the world have to send a scoping mission? Isn't there -- can't these things be combined? Because what's going to happen -- you have 20 countries doing 20 scoping missions; you're going come to out with 20 different sort of visions of what their country should do. And that just doesn't help it.

KURLANTZICK: We should also just mention one other country, which, although it's not in the immediate neighborhood, is going to be the biggest donor and probably it's going to be competing with China as the largest investor, which is Japan. Japan has long historical ties to Burma. Japan was not really so onboard with the sanctions policy ever, and so Japan has already forgiven a significant amount of debt. And you're going to see a very large amount of Japanese aid and investment.

RATNESAR: Last, before we get to questions from the audience, I'm just wondering if either one of you sees any negative or positive model that could guide policymakers going forward. I mean, are there any other nations with -- in comparable situations, military governments that have transitioned to civilian rule, that can provide a kind of template for what we would like to see ultimately unfold in Myanmar? Or is this a case where the situation is so unique we're going to have to just kind of -- well, essentially kind of treat it as a unique situation that doesn't have a road map which we can follow?

RIEFFEL: This -- first of all, I have to stress I am an economist; I'm not a political scientist. But to me, this is a very good question.

And I -- what I have been suggesting to Myanmar people that I interact with is they look carefully at what has happened in Indonesia over the last 15 years since it began its transition to democracy, because we have seen in Indonesia a multiparty democracy achieve some fabulous governance benchmarks or -- and made some fabulous progress in government -- political governance.

But at the same time, Indonesia, in my view, has a parliament that is dysfunctional and is the single biggest obstacle to progress in that country. And it has an -- a judicial system that is just unbelievably awful, terrible, despite benefiting from millions and millions of dollars of U.S. assistance to build a strong, you know, reliable judicial system.

And so I would want -- I would hope that the leaders of Myanmar will be able to sort of figure out how to avoid being sucked into this sort of a -- this kind of a system that Indonesia has unfortunately been drawn into.

KURLANTZICK: I would add that, on a somewhat more realist perspective, although that's not actually my normal foreign policy mindset, which is that I don't think you're going to see any real change in Myanmar unless you have a period of extended amnesty or essentially lack of justice and accountability for the massive crimes that are committed by the military and some of the ethnic militias over an extended period of time. And that could be something like Chile or Argentina, where basically there was an agreement that for a period of time, no one was going to do anything about Pinochet as the country's democracy stabilized. Later, partly with the prodding of Spanish magistrates, they did. But you're not going to see any change now without that.

And I think that even Suu Kyi recognizes that. She has been on -- publicly, including in her event here, when asked about justice and accountability, she says various things about she can forgive personally for the abuses that were done to her. That suggests to me that there's not going to be a process of justice and accountability like you had for Charles Taylor or someone like that any time soon. And since most of the military leaders who were in charge before are quite old, I suspect they will all pass away before there is any real justice and accountability.

I'm sorry if that sounds harsh, but I think that is actually critical to Myanmar's future. If you start to go down that path in any serious way, that, more than anything else, I think, is likely to trigger a return to involvement by the military.

RATNESAR: Thank you. Well, let's open it up to the floor. If there are any questions for the panelists, just wait for the microphone and state your name and affiliation and keep your questions short.

Yes, sir.

QUESTIONER: Thanks. Dan Bob, with Sasakawa Peace Foundation. I was wondering if you can expand a little on the comments about Japan -- that was sort of mentioned in passing -- and what the views internally of Japan are within Myanmar-Burma and opportunities for U.S.-Japan cooperation in terms of development assistance and economic development. And if I might, Suu Kyi has said she is going to visit Japan in the fall in the aftermath of visits to other countries; no announcements about any visits to the U.S. I wonder if there's any speculation on that.

KURLANTZICK: About Japan? I can --

RIEFFEL: Yeah, go ahead.


KURLANTZICK: Yeah, go ahead.

RIEFFEL: The Japan relationship with Myanmar is quite surprising because from where we sit, you would think, having been occupied by Japan and so forth, there'd be a lot of anti-Japanese sentiment. But there is actually positive -- there are more positive than negative feelings toward Japan, and this has also a historical basis, which is that Japan, in a sense, liberated Burma from colonial rule, and that's sort of how it's perceived.

I -- the Japanese have a very strong interest in this country, want to help this country. They are going to invest a lot of money in this country, I believe. I also believe that the non-Burmese economist who knows more about the Myanmar economy than anyone else is a Japanese economist who happens to speak the Myanmar language and worked there for three years 10 years ago by the name of Toshi Urikubo (ph). And so I think the Japanese have a lot to offer this country. But it has to be -- it has to be selective. I mean, Myanmar -- the -- if it simply sort of tries to take everything Japan wants to give, it's not going to stand up in the best place.

KURLANTZICK: I would agree that the views of Japan are generally pretty positive in Myanmar, and people's views of the war are mixed because, first Japan (raised ?) the country, and then we and the British (raised ?) the country. So -- and Japan did have a long history of giving significant ODA under the Ne Win regime. But I think, you know, at this point, people will be very happy for aid and investment.

I would say also, however, though, that I don't think that in Myanmar, just like in many other countries in Southeast Asia, that Japan -- Japan's own domestic problems, their own domestic political and policy weakness, and the fact that overall ODA has been slashed over that time has definitely put them on the back foot overall. And so Myanmar is a place where, because Myanmar's so isolated, Japan could make -- play a much larger role in sort of like a blank slate way in a way that's not really possible, I think, anywhere else in Southeast Asia.

I have no idea whether Suu Kyi is going to visit here, but I would think that she would first want us to make sure that everything goes completely well in her U.K.-Norway trip and then see what goes on beyond that.

RIEFFEL: I might -- I might add that I have heard speculation that she has indicated that she wants to come to the United States at an appropriate moment.

RATNESAR: Well, let's hope she meets the council here and not in New York. (Laughter.)

Sir, yes, please -- front row.

QUESTIONER: Yeah, Chris Wall, Pillsbury Winthrop. Actually Aung San Suu Kyi did give a talk, as you probably know, here via --

MR. : (Inaudible) -- video.

QUESTIONER: -- live video feed which was one of the more interesting conversations that we've had in D.C. And I asked her a question about the pace (of ?) the lifting or suspension of sanctions, and it was very clear in her response that, in her view, the sanctions should be lifted after political action has taken place, not before. It shouldn't be used as a -- as a kind of an inducement, but as a -- as a favorable response. And naturally we've seen the favorable political developments in connection with the election, for example.

So the question I have now is, in light of the fact that the U.S. sanctions are a mix of both statutory and executive action -- import ban and assets locking and visa bans, statutory; leave those aside, we have investment facilitation, exports of financial services, strictly executive order -- what would be your view on the pace of lifting those sanctions from an executive standpoint? In her view, obviously, she is in favor of suspending those sanctions. The U.K., others, Canada have suspended the sanctions. What's the pace that the U.S. should be following in lifting those sanctions or suspending them, I should say?


KURLANTZICK: We should suspend the sanctions as much as is possible as soon as possible, and we should see how it goes without, you know, completely getting rid of them so that we can also allow Congress to continue to play a role.

RIEFFEL: Yeah, I -- to me, it's not a -- it's not something (that's ?) easy to debate because there's a political reality that overrides everything. And I see an administration -- I see an Obama administration that wants to remove sanctions more than the Congress is likely to allow it to remove sanctions. And of course, we're in an election season here, and it doesn't make sense for the incumbent president to spend political capital on this issue, I don't think.

RATNESAR: Yes, ma'am.

QUESTIONER: Thank you. I'm Jeannie Win (sp) with Voice of Vietnamese Americans. Would you share your vision about China's interest in Myanmar regarding energy, nuclear potential, and also the connectivity and navigation for Indian Ocean and also the Southeast Asian Sea, and how would that affect U.S. policy, including the sanctions?

Thank you.

KURLANTZICK: Well, China already has massive energy interests in Myanmar that are already there, and I think there is -- China is there. China is Myanmar's most important neighbor, or along with the Thais. So China's not going anywhere. And so it would be foolish to think that, you know, our role or our investment is going to trump China's.

I think, from my experience there, there has been growing anti-Chinese sentiment in the northern part of -- central-northern part of Myanmar, whether that's warranted or not, and so I think that would provide some Western companies with some other potential advantages. But the fact is that China is there.

In terms of nuclear power, I cannot answer that. I mean, they have said that they are not pursuing a nuclear program and that they are open to inspections, but they have not actually had inspections. They have had a -- for a few years a very close mil-mil relationship with North Korea that we know little about, and that is definitely still a concern. But I am not briefed at that level.

RATNESAR: Lex, do you want to -- can you just talk a little bit about the Chinese influence in Burma today and what it's likely to be going forward?

RIEFFEL: As Josh has said, we were taken by surprise by what this government did. If you -- as he said, if you hear anybody tell you they know why what happened happened, don't believe them. The Chinese, I think, were taken by surprise too. They didn't expect President Thein Sein to do what he's done in the last year.

The Chinese interests in this country, I think, are very clear. But they are not single-minded. I see three Chinas at work in Myanmar. There is the Beijing government, which has sort of a strategic interest, and this includes things like access to the Indian Ocean. There is Yunnan province, which you can think of, I think properly, as a state within a state, that has, in a sense -- likes to think of Myanmar as, you know, a big township that's part of Yunnan province. I mean, they want to bring -- they want to bring the Myanmar economy into the Yunnan economy as much as possible.

And then you have some Chinese companies, some big Chinese companies that also have some -- that behave at times like states within a state, independent of central government policy, that have -- that see opportunities to make profits, to gain market share or competitive advantage by investing in this country.

And there is -- there's actually a scholar who has done a lot of work on the Chinese relationship, by the name of Yun Sun, who has worked with International Crisis Group. And I encourage you to read what she has to say about China's relations with Burma, because they're very insightful.

QUESTIONER: Thank you.


QUESTIONER: Hi. Greg (Poling ?) with CSIS. You spoke about the potential to suspend sanctions along the EU model. I'm wondering if you can elaborate a little more on how that would work. Because I've been concerned that if you suspend sanctions for six months or 12 months, who's going to build a factory under the potential that you can't import goods in six months? Or forget (resource obstruction ?); who's going to invest in agriculture or services if they might have to pull back out in 12 months?

RIEFFEL: I think that's a -- I think that's a good reason to do it, because, I mean, what I see is -- I see a potential rush of investment, over-investment. I mean, it seems to me things that can be done to slow down this rush of investment may be in the long-term interest of the country. In fact, there was a World Bank economist by the name of Vikram Nehru who wrote recently that one of the dangers he sees is sort of an over-investment in the early stages in Myanmar.

I can assure you that whether we keep -- even if we keep sanctions, there is going to be plenty of investment in this country. It will only be limited by, you know, any sort of controls or constraints that the Myanmar authorities impose, plus of course the well-known sort of difficulty of doing business in Myanmar.

KURLANTZICK: I would just add to that, I think there's going to be plenty of investment in certain areas: resources, the agriculture, infrastructure. I'm not sure that Myanmar is a great investment opportunity for people in consumer goods and other things. The infrastructure is terrible. It's not equivalent with other countries in Southeast Asia except perhaps Laos or Cambodia, and it's a market that's very, very, very challenging market. So I do think there's going to be a lot of investment, but I don't think you're going to see every company across the board jumping into Myanmar.

RATNESAR: Yes, right here in the front.

QUESTIONER: Hi. I'm Neena Shenai. I work for the Ways and Means Committee. I work for Chairman Camp. We are the committee that is responsible for reauthorizing the sanctions annually.

As we continue to do our due diligence on reauthorization of the sanctions, I guess, you know, our concerns are we've seen a lot of change in Burma over the last eight months, but that's with the backdrop of years and years and years of repression that has gone on by this government. What are the assurances that this particular trajectory will continue? And in terms of lifting of any sanctions, once investors go in and the government sees investment and business coming into the country, what incentive does the government have to continue on its trajectory?

KURLANTZICK: I mean, on the first part, I don't think you have any obvious incentives, I mean, that they're going to continue on that trajectory any more than -- I'm not sure what you mean. I mean, any reform effort could be turned back. Thailand had 15 years of democratic reform that was then stopped with a coup. I think that as long as the military is -- does not see in its interest to stop the reform process, then you're unlikely to see the reform process dropped, because I think -- there are problems in the ethnic areas, but I think, certainly among the Burma population, no one doesn't want reform, economic opening and change.

And the military, those reasons would happen if their -- felt that, A, their accountability was challenged; if they thought that, B, the system was moving too quickly, if -- I think possibly if you saw a C, that it was moving in a way that would immediately cut them out. But I don't think you can 100 percent guarantee that any trajectory is not going to stop.

On the economic side, the reason they would have, once investment continues -- starts and continues, is because if they start nationalizing or throwing out investment, then they're never going to get it back; they're never going to at some point be able to raise money anywhere. They'll wind up like Argentina.

RIEFFEL: Yeah, I see the views of the Congress being closely aligned with the views of Aung San Suu Kyi for the past decade or more, and the assurance -- I think the greatest assurance that anyone has is her thinking, her feeling about the pace of progress.

KURLANTZICK: I don't agree with that at all, but -- (laughter) -- I mean, I think that's completely wrong, so I mean --

RATNESAR: But we're not going to leave it there, so --

KURLANTZICK: Yeah. I mean, Aung San Suu Kyi is a great person and a beloved leader, but I don't think U.S. policy should be decided by one person ever. What if, God forbid, that Aung San Suu Kyi passed -- Aung San Suu Kyi passed away tomorrow and our entire policy was based on whatever assurances she gave us that this reform process was happening? It can't be based like that. And in fact, I don't even think that within the NLD, they would want that.

RIEFFEL: That was not really what I was suggesting. (Chuckles.) What I was suggesting was that the Congress has been playing very close attention to what she thinks. And I think as long as she is -- she favors relaxing sanctions, the Congress should have sufficient assurances to relax sanctions. But of course, as Josh was saying, I mean, there's a lot more to Myanmar than Aung San Suu Kyi, and the forces that are behind this remarkable transition, I think, will remain even despite what she may do.

Again, the -- there is -- there are a lot of -- there are a lot of uncertainties. I guess one of the messages that I often stress is that -- that I haven't stressed yet -- is the degree of uncertainty -- this is -- there is -- there are enormous uncertainties here -- and that we -- and U.S. government policy, I think, needs to be subtle and flexible and not assume very much.


QUESTIONER: David Short from FedEx. And I wonder if the panelists could comment on the role of Bangladesh in supporting and encouraging reform in Myanmar, whether having a neighbor next door that, you know, while there are obviously differences, it seems like there are many similarities as well in terms of level of economic development and the challenges that both countries face, and yet Bangladesh, by opening up to trade and investment, has been able in their recent years to significantly increase its standard of living. Has that been something that both the people and the leadership in Myanmar have taken note of and that has encouraged or reinforced the reform process?

KURLANTZICK: I don't think Bangladesh has been seen as a model by the -- both the democratic leaders or the military. First of all, Myanmar and Bangladesh have had sort of long-standing disputes over water. And I think in the Burman population there is a decent amount of racism towards people of Indian and Bangladeshi descent, and they don't view Bangladesh just as a place that they would want to use as a model. They also are linked to ASEAN, and so they spend a lot of time interacting with the other ASEAN countries and are constantly having hammered at them that the model is Indonesia or the model is Singapore or whatever.

And so -- there's also a long-standing serious refugee cross-border dispute with Bangladesh. So overall, I don't think Bangladesh would be seen either favorably or -- and certainly not as a model for them.

RIEFFEL: You may know that India has this "look east" policy that sort of contributed to its more positive relationship with Indonesia.


RIEFFEL: With Myanmar. Sorry.

And -- but Myanmar does not have a "look west" policy to complement that. And the only -- the only good thing I've seen in terms of Myanmar-Bangladesh relations is that within the last few months, a settlement was reached -- this was through international arbitration -- on the maritime boundary. And that settlement will allow both countries to exploit the oil and gas that's available offshore in that border area.

I see Bangladesh -- I mean, while I was there, there was a visit by the Bangladesh prime minister or something to Myanmar, and a business delegation, and I'm sure -- and I -- there's plenty of evidence that Bangladesh wants to have closer relations with Myanmar. I don't -- I think Myanmar also is looking east to Southeast Asia, to its ASEAN partners, and not looking west to Bangladesh in particular and not really too much to India either.

RATNESAR: Yes. Right there, in the middle.

QUESTIONER: Thank you. Bama Athreya with United to End Genocide. And these comments are more for Josh because I'm trying to figure out something that seems contradictory in the conversation about political reform when you stated very clearly you think any movement to institute more accountability over the military would trigger a pushback and retreat from that.

Now the military's constitutionally guaranteed a role in government right now and are largely operating without reference to the central government in the ethnic minority regions. So can you just unpack a little bit what kind of -- you know, sort of how far -- when we talk about reform, what exactly is politically possible in an environment where you really can't hold the military accountable?

KURLANTZICK: Well, first of all, what I meant was, I don't think you want to have any war crimes trials for senior military leaders right now. But secondly, I don't think that I'm suggesting that you just continue with this situation. Just like in Indonesia, you eventually had a transition in which the military, though certainly not the Swedish military, is less powerful than they were in 1995 or 1997.

I would think, first, you would want to build up your party's strength and continue to convince the military that there should really be an election in 2015, a national election. Then you should win the election, which I don't think is really going to be in dispute if that's a contested election. Then I would think you -- and you make sure that there is plenty of press coverage and monitors.

Then I would think you use that power as well as the assurances that the senior leadership from before are not going to be prosecuted or have their assets taken from them to slowly unwind the way that the military has had control of the country, while at the same time doing what -- which Suu Kyi does all the time, which is to say that she respects the military; her father was the military; she loves the military; she grew up in the military, et cetera, so that the idea that in the country the military has been the central institution forever, it is not immediately thrown a way, despite the fact that as the central institution, they basically ruined the country. You unwind that.

You then, with more power, control over the budget, aid, investment and leverage, you start to unwind other aspects, like in Indonesia. You get rid of the military's constitutional right to a certain amount of seats. You alter the constitution. You stop allowing regional commanders the amount of leverage where they are totally uncontrollable. That's the hope. And then maybe 10 years from now, you have Than Shwe still alive, and you really have control of the whole military and their younger men and women who listen to you. Maybe you put him on trial.

But my point is that at this point, that's just not feasible.

RIEFFEL: I would add I don't think it's wise. I agree with Josh completely on this, and I think in terms of U.S. policy or the policy of the world, it's -- it would not be wise. I mean, there was also a lot of discussion about an International Criminal Court action. And you know, I -- that was Myanmar then, Burma then. This is -- this is today. And I think if we want to see this transition work to the benefit of the 50 million people of this country, I think we need to let them sort these things out and not put pressures on them that make them do something that's counterproductive.

KURLANTZICK: But I don't think, however, though, that you want a situation over the long term like in Indonesia, where you let it all go, and then there is never any justice and accountability so you have people like Wiranto and other people who are engaged -- have been engaged in massive human rights abuses running for president, and there's never any sanction.

My point is that after a certain period of time in some of the South American countries, the tide turned, the civilian democratic governments had real control, and then they were able to begin to explore the past and look for justice in the past. I don't think you want a situation like in Indonesia where you just let it go, because that sets the idea that there's never any punishment for abuses.

RIEFFEL: But I would also say this is Asia, and that was Latin America. And --

KURLANTZICK: I don't see the -- I think that's a -- I mean, just because one -- this country is in Asia, another country is in Latin America, you can get away with massive abuses?

RIEFFEL: Well, I mean, it's up to them. It seems to me -- I would say it's up to them to decide what they do.

KURLANTZICK: Right, so it -- that's true.

RATNESAR: I think we have time for one more. And why don't we go to the back?

QUESTIONER: Yeah, I'm Dan O'Flaherty with the National Foreign Trade Council. I'd like to return to the question that was raised earlier about the timing of lifting of U.S. sanctions by the Congress. Given the political season we're in, one understands that it's not a good idea to do it now. But I wondered if you could give us some sense of the criterion you would recommend to the Congress to use for lifting those sanctions.

RATNESAR: Lex, why don't you try that first?

MR. : (Chuckles.) Goodness.

RIEFFEL: I mean, my problem with answering a question like this is I've been focusing on Myanmar. I don't -- I've not been focusing on the Congress. I don't -- I don't have a good understanding of the sanctions. So to me, this is a -- this is a U.S. domestic political issue.

RATNESAR: But what might be some benchmarks of progress that we should be looking for and focused on?

RIEFFEL: To me, I mean, again, what -- one of the biggest benefits for these -- for the -- for the country as a whole is going to be economic policy decisions. They made on April 1 a fabulous decision on the exchange rate, for example. And so I would say, well, look, if you're going to reward them for this exchange rate move -- (chuckles) -- by removing all of our investment sanctions, you know, that would be proportionality, maybe.

So there are some other things that they need to do, lots of things they need to do in the banking sector, in the -- the two sectors that are really critical in the near term are the banking sector and the agriculture sector. And the -- unfortunately, I would say the Myanmar government, this government, has not been able to come out with a sort of a breakthrough policy measure or set of policy measures in the agriculture area, which is in a sense -- the agriculture sector, which -- (inaudible) -- the most important for the population.

It has -- it has been doing things in the banking sector that are not widely understood or widely seen or not being rapidly implemented, but I see -- I see more progress in the critical banking -- because it's a cash economy. The banking sector has not been functioning like -- I mean, you wouldn't recognize it as a banking sector, coming from the United States. It doesn't look like -- banks don't operate like our banks do. And you cannot have a modern economy without a banking system, commercial banking system. They are making some progress there. So really, in a sense it's the agriculture sector that I worry about most right now.

KURLANTZICK: I wouldn't suspend sanctions, but if you're turning to lifting sanctions and benchmarks, I would say, A, all political prisoners need to be released. And it needs to be clear, if there are people remaining in jail, that they're -- actually committed criminal acts. So it's a little bit blurry with a lot of people; that needs to be clear.

B, there needs to be transparency on what the hell they've been up to with North Korea. And that includes the nuclear and potential ballistic missiles, which may be nothing, but it needs to be totally transparent.

C, there needs to be a path paved towards the 2015 elections which clearly is free and fair. And D, there needs to be some movement towards a real resolution of the conflicts in all the ethnic minority areas. That doesn't mean that we have to wait for them to end, because that's going to be a long time, but there seem -- there needs to be a clear movement, which, for example, in the Kachin area, there is not. I think those would be four benchmarks before lifting sanctions.

RATNESAR: I think we can take one more, if anyone has a last question. Yes, please.

QUESTIONER: Richard Bush at Brookings. Lex and Josh, thanks for your presentations. Richard Bush at Brookings.

Who in Myanmar is opposed to the transition that's going on; what are the prospects that they might try to reverse it, and under what circumstances; and would they succeed?


RIEFFEL: (Chuckles.) Goodness. No fair, Richard. (Scattered laughter.)

The simple term, I think, is vested interests. I mean, there will be losers in this transition. So one starting point for the answer is, you know, where are the vested interests? Who will lose from this political and economic transition?

The answer -- the most obvious answer is the military and the -- and the -- and the cronies, the former -- the cronies of the former government. But I don't see the cronies as a group opposing this economic transition. I think -- I mean, one of the reasons why it's been possible, I think, is because the cronies saw that the system that they were operating in was an obstacle to being as successful as others in Asia had been. I mean, they want to -- they want to be as successful as the -- you know, they want to be billionaires like the must successful businessmen in -- you know, in the rest of Asia are, and they saw the system as being obstacle.

So I don't think that's -- I don't think they are resisting, and I don't think they'll even resist when they see some of their privileges and their licenses or franchises sort of removed or more competition where they have enjoyed less competition.

But the military -- I mean, to me, that's a -- that's a black box. I mean, I -- they -- they're -- and another -- I mean, you see -- read in the press about U.S. -- the USDP, the United -- this is the government party, that lost, some would say ignominiously, in the by-elections. So will they resist? But I -- you know, that's not -- it's not obvious to me that there is going to be a sort of a revolt from that quarter, or even a -- I just -- I just don't see an obvious sort of a putsch, a (colonel ?) putsch from the military either. But I could be wrong.

KURLANTZICK: Well, I certainly don't think you would want to be going on record stating that there would never be another coup in Myanmar, so -- .

I don't agree that the cronies would be generally in favor of the reforms. I think that they might think that in some ways, but if the country really was going to open up, and they're going to have to compete with major Chinese firms on a level basis, or they're going to have to compete with -- (inaudible) -- Thai or Western companies, they're going to lose, and that is not in their interest. I don't think that they have the power to stop the reform, though. they're just business people with links to the government.

I also think that several of the ethnic militias have no interest in the reform if it means getting out of lucrative narcotrafficking businesses. But at the same time they can't stop the whole reform, they can be a problem.

The military could stop the reforms. I -- you know, I think that it's impossible to predict. I mean, I think that it doesn't seem like the mid/high level of officers around Thein Sein is opposed to this reform, and that the previous leadership seems to have retired with the idea that nothing's going to happen to them. But, you know, it's not an institutionalized system, and so if you don't have an institutionalized system and you also possibly don't have control of all your regional commanders, possible.

RATNESAR: Well, I think you'll agree with me that this is a fascinating story with many chapters left to be written. And I want to thank Lex and Josh for a truly illuminating discussion. Thank you. (Applause.)







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