Myanmar vote raises hopes for sanctions removal

As the National League for Democracy (NLD) looks poised to win Myanmar’s historic elections, western exporters hope that a democratic transition may bring further easing of the US sanctions regime.

The first round of sanctions lifting occurred in 2012 after the military regime agreed to loosen its grip on power and establish a civilian parliament, and brought about an increase in trade between the south Asian country and the west. Three years since, foreign cars from Mercedes to Land Rover roam the streets of Yangon, Myanmar’s former capital, and perhaps no sign of the opening of the trade relation is as remarkable as the opening of a KFC fast food restaurant there in June.

US trade of goods with Myanmar (referred to as Burma in American official documents) has been increasing in the past four years, but month-on-month trade volumes reveal occasional outliers misrepresenting the general picture. From June 2014 to May this year, the balance of trade was standing at an average surplus of US$9.4mn, then suddenly jumped to US$39.3mn in June, to fall back to a deficit in the following three months.

This pattern suggests that despite the increase in trade relations, sanctions-related challenges remain, with businesses and banks still struggling to finance trade with the country. “Banks have long been wary of counterparty risk and have more recently extending their due diligence along the supply chain,” says Janet Hyde, country head for the Asian Development Bank’s trade finance programme in the country.

When President Obama was in Myanmar his plane landed at Yangon Airport and he stayed at a hotel in Naypyidaw operated by tycoons on the US blacklist. Andrew Tan, Consult Myanmar
This kind of process is necessary for a country in which the main infrastructures are controlled by sanctioned individuals. “Myanmar’s main airport, seaport, banks, hotels and building and construction companies are mostly owned by people on the US Specially Designated Nationals (SDN) list. You can’t live and operate in Myanmar without doing business with them,” Andrew Tan, managing director at Consult Myanmar, tells GTR. “Even when President Obama was in Myanmar his plane landed at Yangon Airport and he stayed at a hotel in Naypyidaw operated by tycoons on the US blacklist.”

Particularly problematic is the ownership of the main port in Yangon. According to a Reuters article from November, Citigroup discovered in June that the port’s main terminal is controlled by Steven Law, one of the blacklisted individuals, and then alerted other banks to the risk of violating remaining sanctions. “For US or European banks to refuse to finance sea trade that is going through Yangon’s Asia World Port […] is tantamount to a trade embargo, as 80% of sea cargo enters the country via this port,” says Tan.

With western powers closely monitoring the country’s progress to a more democratic government representation, a result favouring the NLD may increase the possibility of final sanctions removal – “by the end of this year,” according to Tan’s optimistic prediction.

Hyde’s forecast is more realistic: “The lifting of sanctions will be gradual over a period of years to maintain the momentum for reform. It will not all happen overnight and certain individuals could remain listed for many years,” she warns.

We are advised that some US banks are now clearing US dollars in New York without delay for some Myanmar banks. Janet Hyde, Asian Development Bank
Yet, she concedes, there are signs of progress too. “We are beginning to tackle the practicalities of sanctions that were devised for a previous era in Myanmar’s history. Also, we are advised that some US banks are now clearing US dollars in New York without delay for some Myanmar banks […] Each bank is taking its own view on and approach to Myanmar and trying to address and highlight the obstacles and difficulties that arise.”

The US imposed sanctions on Myanmar following the military regime’s violent suppression of protests and detention of political prisoners in 1988, and throughout the years it has updated and revised the list of forbidden activities and blacklisted individuals.

A fresh round of protests in 2007, a devastating cyclone in 2008 and mounting international pressures undermined the junta’s authority to the point at which the regime considered political reforms. Under the terms of a new constitution, contested elections (boycotted by the NLD) were held in 2010, which saw the military-backed party win a wide majority in the newly-established civilian parliament. The military junta was dissolved and a former army bureaucrat and then-prime minister Thein Sein was appointed as president, with a government largely formed of military-affiliated ministers.

Since then, the country has begun to open up to foreign lenders, with a handful of Asian banks have recently received licence to operate in the country. A sign of distension came in 2012, when the US waived bans on financial service provisions, investment and bilateral and multilateral assistance, but also expanded the list of individuals subject to visa bans, the freezing of assets, and other targeted sanctions.

Thein Sein is now expected to concede electoral defeat to the NLD and its leader, long term regime-opponent Aung San Suu Kyi , once official results are declared. The NLD will then have to face, amongst others, the challenge of leading a process of national reconciliation with the military, which will retain 25% of parliamentary seats regardless of the electoral result and control ministerial posts concerning security, defence, and the police.

Source: Global Trade Review
NB: Take note that Myanmar has been taken off the US Sanction List by President Obama’s Executive Order signed on 7th October 2016. See US terminated remaining sanctions against Myanmar on 7 Oct 2016.

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