If a sudden inflow of capital enriches only the few, then the consequences for global economic re-balancing are worrisome
The great gold rush to Burma started a little while ago, but it has gathered steam in the past few months. Now, with the lifting of western sanctions against the country, the party has really hotted up. Hotels in Yangon, Mandalay and the capital Naypyitaw are filled to bursting with eager businessmen jostling with government officials of different countries, all eager to get a piece of the resource and market pies. Multilateral organisations and aid agencies are sniffing around as well, their laptops full of policy suggestions.
Imagine the scene: a country rich in natural resources, ruled for nearly half a century by a military regime that had obsessively chosen severe external isolation and harsh internal control, now opening up both internally to some political changes and externally to foreign trade and investment. The opportunities – both for those interested in profit and for external do-gooders – are almost boundless.
The outside world has seen political change in Burma in simplistic terms as a contest between the army and the democratic movement led by the much-revered Aung San Suu Kyi, but the reality is more complex. Long-running civil wars with a variety of often changing enemies – not just regional secessionist movements but insurrectionist struggles supported by foreign powers – defined the repressive tendencies of the ruling elite and drove the militarisation of polity, economy and society.
By the early 1990s the regime had abandoned any pretensions it may have had about "the Burmese way to socialism" that was promulgated in the 1970s. It opted for military-backed economic expansion based on foreign investment in extractive industries (plantation crops, oil, minerals and precious metals, and the newly discovered offshore natural gas reserves). Much of this investment came from countries that did not apply western-style sanctions, like China. This was growth of the kind that many other countries have experienced in the form of a "resource curse", with little diversification or improvement in general living standards. The people have mostly remained very poor, and the abysmal development of basic infrastructure in much of the country testifies to the unequal spread of the benefits of that expansion.
Elections in early 2010 were initially expected to be a charade because of the control retained by the army but turned out to be a game-changer of sorts. The newly elected government led by President Thein Sein, with implicit if surprising support from at least some generals, has moved much faster to transform the polity and economy than anyone had expected.
Ceasefire agreements have been signed with several rebel groups and important political prisoners have been freed, including pro-democracy campaigners. In the west these moves were given less prominence than the April byelections for 48 seats, which were largely free and fair and in which the National League for Democracy (Aung San Suu Kyi's party) secured an overwhelming result. While this does not amount to much in a parliament of nearly 500 still dominated by the army, it is surely a sign of further political change in future.
The speed of economic change is startling and can even be disconcerting. Burma must be the only country where even the IMF representative worries that the economic liberalisation process is too rapid and needs to be more cautiously worked out and paced.
When the currency – the kyat – was moved from a regulated rate to a managed float in early April, the initial level jumped quickly from the earlier official rate of 6.4 to the US dollar to 818 – a collapse of nearly 130 times. This did not create as much dislocation as might have been expected simply because most transactions – even those by government agencies – already occurred at the parallel market-driven rate. The danger for the immediate future is that the currency, which has already appreciated about 30% in the last six months, will be further boosted by massive natural resources sales, privatisation of government assets including real estate, foreign direct investment, and even speculative capital inflows.
These inflows are likely to be generated by new laws that have already eased land use changes and will liberalise foreign investment, along with other financial reforms that are being suggested, and by the lifting of western sanctions. In 2010, nearly three quarters of foreign direct investment came from China, and the rest from other regional investors like Thailand, Malaysia and India. US and European companies felt increasingly frustrated at the economic sanctions that prevented them from accessing the rich pickings to be had in Burma, and many had already opened negotiations in the country in the anticipation of sanctions being lifted.
There are real dangers that the sudden inflow of global capital will put the economy on a trajectory that will provide immediate enrichment of a few in the initial phase but then lead not only to even more inequality and unbalanced development, but also to destruction of traditional livelihoods without enough new jobs being created, instability, crises and environmental damage.
Some of these concerns are already being expressed, with at least two major projects being halted because of environmental concerns. Western investors may find that earlier foreign investment strategies that exploited opportunities for excessive resource extraction and ecological degradation, and did not benefit the people through productive employment generation, are less likely to be accepted – not least because now more alternatives are available.
In any case, what will happen in Burma in the near future is of tremendous importance, not only for the people of that beautiful country but for the world economy as a whole, especially if it provides any indications of what the changing balances of global economic power actually mean for residents of poor and still developing countries.
• Follow Comment is free on Twitter @commentisfree