IFI re-engagement in Burma

Challenges and opportunities

3 August 2012 | Minutes

Minutes of Burma and IFIs meeting, Washington DC, 18 April 2012

Organisers: Human Rights Watch, Bank Information Center, US Campaign for Burma

Panelists: Sean Turnell (Economics Professor,  Macquarie University),  Paul Sein Twa (Executive Director, Karen Environmental and Social Action Network / KESAN),  Khin Ohmar  (Coordinator, Burma Partnership),  Alessandro Pio (Director of the North America Regional Office, Asian Development Bank), Meral Karasulu (Deputy Division Chief, IMF), Markus Kostner (Social Development Sector Leader East Asia and the Pacific, World Bank)

Moderator: Jessica Evans (Senior Advocate for International Financial Institutions, Human Rights Watch)

In response to the flickers of change that have unfolded in the country, the World Bank and Asian Development Bank have begun the process of re-engaging with Burma’s government for the first time in more than two decades. These banks are now undertaking certain assessments and will provide limited technical assistance. Re-engagement with Burma offers the development banks the unique opportunity to – from the beginning – implement best practices and work toward the best possible development outcomes. However, the current environment in Burma still presents fundamental challenges for development – poor infrastructure, no transparency, endemic corruption, ongoing armed-conflicts and consequent humanitarian crises while rule of law remains far from being realised.

Jessica Evans, Human Rigths Watch:

  • There are some reason for optimism in regards to Burma, the by-election results Aung San Suu Kyi with a wish for reform and respect for human rights
  • IFIs is in process of reengagement, but it is cautious and has been tentative since Burma in arrears
  • The focus so far has been on the situation in Burma and where the opportunities lies
  • So what are the issues the IFIs need to keep at the forefront?
  • Engagement need to be people centred, inclusive and focus on urgent social needs, including a focus on open civil society and media, ethnic nationalities and vulnerable people are particularly important
  • Also need full transparency in the work, it needs to support free speech and government transparency more broadly
  • There are growing concerns that development assistant and the private sector could fuel problems, such as corruption
  • IFIs should promote a strong human rights core in all activities
  • They must focus on the most vulnerable peoples, urgent social needs essential, right to food, education, health and should work with the government to address these rights

Sean Turnell, Macquarie University:

  • In the past NGOs were asking for advise on human rights, now it’s on issues such as IFIs and IFIs, hedge funds, which demonstrates that there is an interest from investors
  • There is an immense excitement in the country, but what is the reality?
  • What are the economic fundamentals – there is still a gap, the changes are only in the margins.
  • Burma was once amongst the richest country in SE Asia, now it’s the poorest
  • The economic reforms implemented were first very meagre, close to zero, then came the floating of the exchange rate
  • There are large sums of money going through the region through export of natural gas leading to foreign exchange revenues
  • The old regime fixed the exchange rate – with floating exchange rates there are proper recordings, leading to more transparency what the government is earning in revenues
  • So what are they doing with the revenues? Still pessimistic, increase in public expenditures, but still less on health and education than any other country in SE Asia – so still very low base
  • Focus on military spending, in terms of absolute spending has increase by one third
  • In terms of political economy, there’s been very little or no move at all, but the potential extraordinary – there are low hanging fruit reforms, but requires fundamental change to the political economy of the country, e.g. on export and import into the country
  • There is no lack of money, country pulls in about 3bn USD per year in gas revenues, which will increase dramatically next year with another gas source – there is mainly a lack of will in regards to political economy

Khin Ohmar, Burma Partnership:

  • There is excitement when we talk about Burma now, there is hope and optimism, mainly due to Aung San Suu Kyi
  • On the other hand, there is also anxiety, worry and frustration in Burma – feeling of being kept in the dark, the whole world seem to be more excited than the people in Burma, why are they feeling this?
  • By-election of Aung San Suu Kyi is positive, but only represents 6.6% – how much can this change?
  • Most reforms have not been consequential, only partially implemented or reversed
  • Regarding the release of political prisoners, there are still over 900 behind the bars, what will happen to them?
  • There was the suspension of dam in the Northern Province, but it continues to be built
  • There was the ceasefire, but back into fighting now
  • Lots of confusion and contradictions – is there a real reform? Is it touching the real issues? It’s still the same mindset. The president can’t implement on his own.
  • The review of 2008 constitution has not addressed all issues, including security and justice
  • The process lacks transparency, there are conflicts of interest and no equal footing for ethnic groups – only looking for their signature, but no real dialogue
  • Concerns around state and peace building fund from World Band, in particular in regards to ethnic groups, it could create new conflicts or exacerbating existing ones
  • Problems in Burma’s four geographical areas: cities seeing arbitrary arrests, rural areas wide spread land acquisitions, non-Burmese ethnic zones nationalities see militia groups, drug business, etc, armed conflict ethnic areas “black zones” see extreme human rights violations, including forced labour
  • Burma’s ethnic nationalities consist of over 40 groups
  • Regarding development assistance into ethnic nationalities areas, there are concerns re FDI and IFI reengagement without understanding the problems in the country – IFIs need to work in partnership, we are ready to work with them

Paul Sein Twa, Karen Environmental and Social Action Network:

  • We should acknowledge some positive developments regarding reforms, e.g. relaxation of restrictions of media, becoming more critical on government development projects
  • Historic victory regarding the dam, president stood up against ‘big brother’ China – different matter if they will resume it or not, but at least stopped at this moment
  • There is more room for civil society to influence the government, also the president is more willing to engage with ethnic groups – but need to see if this is genuine or not
  • In the Karen area, people are still living in fear – why have the government not withdrawn the military?
  • Political settlement with ethnic groups is lacking from the governments, instead they are focusing on special economic zones, hydro power etc. This creates tension between ethnic groups, which will lead to conflict
  • Why has the government only suspended the coal power plant and the dam, there are many others are around – need to call for a review or study of the other projects
  • They are trying to turn conflict zones into special economic zones
  • There is a need of a proper environment law, it’s sub standard to international standards, no Environmental Impact Assessment requirement, for example
  • Land law is in the interest of cronies and foreign investors only – there is conflict between local people and government in regards to land issues
  • Why is the government not prioritising the reforms that will benefit the local people, e.g. agriculture helping people to farm and natural resources management? There are no policies that link the different sectors together, asking the people what they need – there is a lack of consultation.
  • Groups are developing benchmarks for energy, extractives and land in Burma for investors, including international best practices and respect for civil society – there is a need to respect people’s priorities, not just private sector.

IFIs respondents:

  • Myanmar is a member of IMF since 1955, there are yearly policy discussions with  the authorities
  • Change in country authorities has led to a willingness to engage, in particular regarding exchange rate reform, but have a different view regarding ‘low hanging reforms’, there is a need to be very careful
  • The Apr 1 announcement regarding floating exchange rage – it’s worth noting that the fixed exchange rate was only used for the public sector, not for the private sector
  • Regarding export and import restrictions, they are there for reasons in the past and only for the private sector – can’t get rid of them over night. There is a lot of suppressed demand for imports, so need to go very gradually to ensure absorption possible. Exchange rate reform could happen faster.
  • The banking sector, a repressed financial sector, has improved over past couple of years, but is still problematic. Liberalisation of the banking sector needs to be done carefully and not too fast – can wreak havoc in a country’s development process.
  • Need to get macro economic house in order, e.g. exchange rate, fiscal area – first debate on fiscal policy in parliament is a good step
  • Regarding national resources management issues, e.g. extractives, IMF has met with the new energy minister who is following up on these issues
  • Regarding immediate impact on people – there is a desire for reform, it’s perhaps right that it doesn’t necessary need a lot of money, but need to understand what needs to be done and what to prioritise
  • Best thing IFIs can do is to support key reforms we know are essential, based on experiences from other countries
  • There used to be no monetary policy, but there is now a desire to change this and learn from best practice
  • Myanmar is a member of ADB since 1973, but has been outside since 1988.
  • The challenge is to do things quickly, but with the necessary consultation process
  • Have experience from other previously closed countries, e.g. Vietnam and Cambodia
  • Important to have clear priorities and limits and to get stakeholders onboard
  • There is strength in working on sectoral level, ADB has already initiated initial sectoral assessments, e.g. on agriculture, natural resource management, urban developments.
  • The second phase will narrow down priorities vs comparative advantages
  • Myanmar is important from regional perspective, for regional coordination
  • Focus on grant finance, building capacity and institutional development
  • Third face, once enough international consensus amongst shareholders regarding extent and speed of process
  • Regarding whether funds are necessary in a country with large natural resources – it’s not just the money that counts, it also provides safeguards, confidence to international investment and so on
  • There is also a need to talk to the bilaterals, this will be very important. Multilaterals not as light on their feet, will be stages they need to go through
  • The last World Bank project closed 20 years ago, there has only been a few activities since
  • WB’s World Development Report on conflicts, will bring experience to Myanmar and use ‘best fit’ approaches
  • Myanmar doesn’t need to be rebuilt, it need to be built, there is no reference point to use for reconstruction which is unchartered territory
  • Three areas of importance: democratisation, transition out of 60 years of civil wars and conflict, and economic transition
  • There is a multitude of stakeholders inside and outside the country – all have a stake in the future of the country, WB’s role is to support this process
  • Needs and opportunities are enormous, noone can do this on their own, prioritisation is important
  • Regarding political transition and peace process, WB is looking into using its peace building fund to provide early results in cease fire areas, allowing WB to move faster than normal, but doesn’t mean it will go faster. Early results are important to build confidence
  • Regarding economic transition, better understanding is needed – what are the rules and regulations, oversight mechanisms, etc. Need a second stage public expenditure review. Need support for the private sector, this was a main reference point in WDR, too, to stabilise fragile situation. Long term local private sector is essential –  the public sector can only fill short term gaps, an investment framework important
  • Regarding state building, it’s important to work with civil society and government. WDR states that civil society plays an important role in any transition, but also recognises the multitude of stakeholders, so need proper reflection and understanding. The government also need to be willing to be held to account.