91 Myanmar Burma

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the objective nature of those who hold power, their self-perception, their power instruments, and their historical narratives can do serious disservice to the countrys oppressed public. A awed peacemaking process can be worse than no peacemaking at all. Second, practical reections among reconcilers is one way to address this intellectual decit. Current analytical paradigms and historical understandings might be subjected to a collective critique by bringing together a group of local and external reconcilers, in a mentally and physically safe setting, with a group of expert mediators whose views of Myanmar and her conicts have not been tainted by rsthand involvement. The current dominant state-centered narrative, coming from both the regime and the United Nations system, needs to be held up to serious intellectual and empirical scrutiny. The colonial, hegemonic, racist, class-based, sexist, and predatory nature of the military-ruled state in Myanmar needs to scrutinized. The state is the elephant in the room. Regrettably, most peacemakers for various reasons have chosen not to discuss this beast. Third, an in-depth comparative study of similar conicts might yield useful results. With massive investment by the regime in weaponization of the already thoroughly militarized state, Myanmar today is moving away from, not toward, a democratic, peaceful political system. It is deepening its existence as a state in which national security is coterminous with survival of the leadership and the regime, with no space to develop along the lines, for example, of the East Asian Tigers. Conict-soaked Myanmar could usefully be examined against two alternative sets of states: developmentally successful states in East Asia, such as Taiwan and South Korea, and developmentally failed states, such as Iran and North Korea. Additionally, a comparative study could be done between Myanmar and the Southeast Asian states that have moved or are moving away from past militaristic, authoritarian rule, such as post-Marcos Philippines, post-Suharto Indonesia, post-Mahathir Malaysia, and pseudo-communist Vietnam. Finally, the wisdom of intellectual activism, if peacemaking or reconciliation can be called that, needs to be made accessible to the people of Myanmar in their local languages. Without an enlightened population, peace deals at the elite level, while valuable and welcome, will remain elite power-sharing deals. They will not transform society to accept peace as an intrinsic value. A systematic translation initiative devoted to peacemaking and conict analyses could be developed and funded. The elite-driven peacemaking of the past sixty years has failed in part because elite peacemakers are confronted with two major obstacles. First, if
An Inside View of Reconciliation 71
they move too far from the collective position of the community they represent, the community grows suspicious of their mission, and they stand accused of being co-opted by the regime in exchange for personal gain. Second, some peacemakers, though their efforts are grounded in humanitarian and development experience, do not have a grassroots base. While Myanmar is not the West Bank and her communities are not up in arms against one another, the long-standing elite-level conicts, both between and within ethnic groups, have a deeply negative social and psychological impact at the grassroots level across the country. There is no silver bullet for Myanmars conicts; a spiritual, intellectual, and political transformation of society is the only ultimate solution. Elite-level peacemaking can help trigger this process, but ultimately it is human beings, not states or multinational corporations or multilateral institutions, that make peace. Power does not make peace; it only manipulates, exploits, deceives, controls, and dominates. An initiative that brings people into the peace process needs to do seven things: address prejudicial ethnic, class, and gender attitudes and norms; revise ofcial historical narratives; enable communities and individuals to negotiate peace in their localities; empower people by providing them with productive and sustainable livelihood opportunities; transform people into independent thinkers who are less susceptible to ideological manipulation; give communities greater control over natural resources and the environment in their localities; and enhance individual and communal capabilities to resist the centralizing power of a modern nation-state that serves the largely imperial world order.
Global Dimensions of Peace and Reconciliation

The turmoil in Myanmar is taking place not simply within the countrys domestic landscape. Those who claim that the domestic landscape must change before peace or prosperity can be established are categorically awed in their understanding of the nature of both the conicts within the country and the external world order. The turmoil is taking place within a process of regressive globalization, a negative form of globalization that strengthens systems of political oppression and economic exploitation at the expense of peace, stability, and citizen rights in natural resourcerich and geopolitically strategic countries. The Myanmar people are not merely up against their countrys unsavory rulers. Their struggle for peace is in fact against some of the worlds most powerful ideological, economic, political, and military forces. For example, their oppressor enjoys reliable support from China and
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Russia, the two members of the UN Security Council that have used their veto to block efforts to push for reconciliation in Myanmar. The global resource extraction industries are deepening their ties with the Myanmar military regime. Among the global exploiters of Myanmars natural resources are Total of France, Chevron of the United States, Ivanhoe Mines of Canada, China National Petroleum Corporation, Daewoo International of South Korea, the Oil and Natural Gas Corporation of India, Petronas of Malaysia, and Thailands PTT Exploration and Production. They all ll the military regimes coffers and in effect fund the SPDCs oppression. Until the external equation changes fundamentally, reconciliation in Myanmar, not just human rights and human dignity, will remain a victim of globalization. The military regime is simply the local proxy in a process that is seeing the countrys economic sovereignty slip away.
Notes
1. I use Myanmar as the countrys name only to be consistent with other chapters in this book. In 1989 the ruling military junta changed the countrys name from Burma to Myanmar, arguing that the old name, the Anglicized word for Bama, which refers specically to the countrys dominant Buddhist tribe, did not reect the countrys ethnic diversity. Besides the dictatorial manner in which the generals changed the countrys name, the new name, Myanmar, is linguistically incorrect, because the word Myanmar has no meaning without the sufx Lu Myo, to denote the Bama ethnicity, or Tai or Pyi, to refer to the polity (which belongs to the Bama). Nor does it remotely capture the countrys ethnic diversity, as the generals claim. Finally, the correct transliteration of the new name from written Burmese to English is Myanmathat is, without the nal consonant r. 2. My conversations and meetings have ranged across civil society opinion makers, business elites, and high-ranking military ofcers. Key regime ofcers include Lieutenant General Myint Swe (widely known as Senior General Than Shwes pet and the rst chief of the newly created Military Affairs and Security Department, the military intelligence unit), former brigadier general Than Tun (head of counterintelligence under Khin Nyunt and chief regime liaison with Aung San Suu Kyi), former colonel Hla Min (spokesperson of the SPDC), and former colonel Tin Oo (the right-hand man and rst personal security ofcer of Khin Nyunt, not the NLD chairman and former defense minister Tin Oo). Opposition leaders whom I met and held discussions with include the late Pdoh Saw Ba Thin, chair of the Karen National Union; Pdoh Mhan Sha La Phan, the KNU general secretary, who was assassinated in the Thai-Burmese border town of Mae Sot in 2008; other top KNU leaders (KNU defense chief General Tamala Paw, Major Tu Tu Lei, and Pdoh Kwe Htoo); and high-ranking brigade commanders and strategic advisers in the Karen

National Union in the low-intensity war zone of Kawthoolei or Karen state. I also had substantive conversations with various local and foreign mediators who have made attempts at peacemaking in Burma. Among these individuals were the Reverend Saboi Jum (a Kachin Baptist pastor), Dr. Simon Thar (a Karen neurosurgeon and politician), and Dr. Christian Peter Hauswedell, who headed the Asia Division at the German foreign ministry. 3. Maung Aung Myo, The Future of the Tatmadaws Political Role in Myanmar: Prospects and Problems, unpublished manuscript. 4. For the most recent discussion of the militarys refusal to address historical grievances across the board and its consequences, see my forthcoming essay, Bottom-Up Pursuit of Justice in Burma, in Global Civil Society 2011: Globality and the Absence of Justice, ed. Martin Albrow and Hakan Seckinelgin (Basingstoke, U.K.: Palgrave-Macmillan, forthcoming). 5. Aung San, Aung San Suu Kyis martyred father, and his closet nationalist colleagues, who founded the Burma Independence Army or the Tatmadaws nucleus, were all leftist radicals and agitators who admired Stalins Soviet Union. This helps explain the fact that military commanders were answerable to underground nationalist agitators who served as political commissioners during the Tatmadaws rst battlethe revolt against its Japanese masters. 6. In-depth interviews across Southeast Asia with a number of Tatmadaw defectors, both ofcers and other ranks, between January and June 2010. 7. See Maung Aung Myo, Future of the Tatmadaws Political Role in Myanmar, p. 35. Maung Aung Myos observation has been repeatedly conrmed by a half dozen army ofcers of varying ranks who deserted the Tatmadaw as late as spring 2010, during the time of my interviews with them. 8. Personal communication with Arthur Win (not his real name), a Rangoonbased local writer and political analyst, Bangkok, January 2010. 9. The treaty was known as the Panglong Agreement, named for a small ethnic Shan town where it was signed by a group of Bama and other ethnic leaders. Despite the treatys central original awthat it does not fully protect the interests and concerns of its diverse ethnic populationits modern-day adherents continue to cherish its federalist spirit while acknowledging its limitations and hence the need for signicant modications. 10. This observation is based on my personal communication outside Myanmar with a diverse group of local businesspeople over the past ve years. 11. See my analysis of Burmas intra- and inter-group ethnic politics in Confronting the Demons, June 19, 2010 (www.irrawaddy.org/opinion_story.php?art_id=17011). 12. The team members were drawn from different ideological and organizational backgrounds. They were Aung Saw Oo, Naw May Oo, Aung Thu Nyein, and Min Zaw Oo. 13. We were not the only team of dissidents who were assigned to seek Western support for renewed armed resistance. Concurrently, KNU leader General Saw Bo Mya also sent his son, Colonel Nada Mya, to Western capitals on a similar
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assignment, something my colleague Naw May Oo picked up on during our chance meeting with the colonel in Washington. 14. Dalia Dassa Kaye, Rethinking Track Two Diplomacy: The Middle East and South Asia, Clingendael Diplomacy Papers 3 (The Hague: Netherlands Institute of International Relations, 2005), especially What Is Track Two Diplomacy? (www. clingendael.nl/publications/2005/20050601_cdsp_paper_diplomacy_3_kaye.pdf [July 2010]), pp. 57. 15. Priscilla Clapp, who served as U.S.charg daffaires and chief of mission in Rangoon from 1999 to 2002, has noted that Than Shwe overruled the deal his intelligence chief Khin Nyunt reached with Aung San Suu Kyi in 2004. See Priscilla Clapp, Burmas Long Road to Democracy (Washington: United States Institute of Peace Special Report 193, 2007 (www.usip.org/les/resources/sr193_0.pdf [July 2010]). 16. Our groupincluding prominent dissidents in exile such as Tun Kyaw Nyein, Bobo Kyaw Nyein, Aung Thu Nyein, former physician to Aung San Suu Kyi, Dr. Alice Khin Saw Win, and so onbroadly agreed that we should keep talking with General Khin Nyunts ofce, despite this negative development. The dissidents among us later changed their tunefrom involvement and approval to disentanglement and denunciationwhen the Burmese media criticism of my day trip to Rangoon looked imminent. An Irrawaddy editorial, A New Blow to the KNU, discusses the rifts and fallout resulting from our talking to the enemy (www.irrawaddy.org/opinion_ story.php?art_id=6707 [July 2010]). Even General Bo Mya, the late iconic revolutionary with an impeccable record of personal involvement in the KNUs armed revolution, who ew to Rangoon in December 2003 to hold face-to-face ceasere discussions with General Khin Nyunt, did not escape attacks and slanders from his own rank and le. 17. During the last round of ceasere negotiations between the KNU and the regime immediately before the dismantling of the Directorate of Defence Service Intelligence (or military intelligence) under Khin Nyunt, the regimes chief negotiators, such as Brigadiers Kyaw Thein and Thein Swe, would tell their KNU counterparts that the agreement made the previous day needed to be renegotiated, as the Lu-gyi (big man, referring to Than Shwe) did not accept it. My dissident colleague Naw May Oo, in the Free Burma Coalition ofce, was in daily satellite-phone contact with her Karen colleagues who led the KNU delegation during the negotiations. 18. Brigadier General Than Tun was the chief liaison ofcer between the military regime and Daw Aung San Suu Kyi. He was also chief of counterintelligence in General Khin Nyunts Directorate of Defense Services Intelligence (DDSI). Colonel Hla Min was the government spokesperson at the time while Colonel Tin Oo was General Khin Nyunts very rst personal security ofcer or aide dcamp and a condante. They are all serving lengthy prison sentences after their bosss downfall in October 2004. 19. At our insistence during the last-minute negotiations in Bangkok regarding the details of my condential day trip to Rangoon, Colonel Tin Oo faxed us a letter

conrming that we had pressed for a meeting with Aung San Suu Kyi but that his side, that is, the prime ministers ofce, decided against it, citing the tense political atmosphere. 20. At the Bi-annual Conference of the Burma Studies at Northern Illinois University, DeKalb, Illinois, in October 2004, Matthew Daley remarked publicly that there was nothing personal about the U.S. State Departments support for my trip and went on to justify such support on grounds that the U.S. governments Burma policy is to encourage and support dialogue among Burmese citizens in political conicts. 21. Besides our track-two dissident team, the intelligence camp also made contact with several other inuential dissidents such as Harn Yawnghwe, then top opposition lobbyist based in Brussels, and Dr. Thaung Htun, a New Yorkbased representative of the Burmese exile government headed by Aung San Suu Kyis rst cousin, Dr. Sein Win. However, no follow-up activity was taken by either side. Personal communications with Harn Yawnghwe and Dr. Thaung Htun, November 2006 and June 2010, respectively. 22. Even if the regime were to allow him into the country, Fassino is not believed to be the right man to advance the European Unions unspoken Myanmar policy objective of high-level dialogue with the generals. Personal communications with both European Commission ofcials in charge of Burma and Southeast Asia and ambassadors to Burma from key EU countries, 200810. 23. Personal communications with Thai security analysts at Chulalongkorn University, Bangkok, as well as with the Tatmadaw defectors in two Southeast Asian capitals, 2010. 24. In May 2006 I served as a facilitator and interpreter for a meeting in Rangoon between Professor Johan Galtung and a senior military ofcial in the Military and Security Affairs Department. The department chief and his deputies wanted me to assure them that Galtung came to see them because he wanted to befriend the military government. 25. In June 2010 a senior Chinese scholar and administrator from Chinas National Academy of Social Sciences told me about his experience interacting with Myanmar academics, who are also civil servants. According to him, at the scholarly exchange forum held in Rangoon in 2008and initiated and funded by a German political foundationthe academics, handpicked by the Myanmar regime, explained to foreign visitors that Aung San Suu Kyi was a major obstacle to the Myanmar military governments desire for wanted peace and reconciliation because she continued to insist on transfer of power on the basis of the NLDs election victory two decades ago, a veriably incorrect assertion. During my two-and-a-half-hour meeting with them in Rangoon in May 2004, even Khin Nyunts deputies, who were relatively open minded compared with the ofcers who replaced them, were more keen on heaping blame on Aung San Suu Kyi for the countrys political stalemate than on jointly exploring potential solutions to break the political deadlock.
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26. These reports have culminated in the Harvard Law Schools May 2009 report Crimes in Burma, a powerful indictment of the regimes atrocities both in areas under its direct rule and in the countrys armed conict zones. Crimes in Burma, report by the International Human Rights Clinic at Harvard Law School, 2009 (www. law.harvard.edu/programs/hrp/documents/Crimes-in-Burma.pdf [July 2010]). 27. In one of my meetings with Lieutenant-General Myint Swe, then head of military affairs and security, he told me directly that he was observing sabbath for the day despite his busy schedule and indicated that his bosses and senior colleagues were also doing the same. He even exhorted me to go and pay homage at the Shwedagon pagoda after the late afternoon meeting to build up my karma. 28. Charles Tilly, War Making and State Making as Organized Crime, in Bringing the State Back In, ed. Peter Evans, Dietrich Reuschemeyer, and Theda Skocpol (Cambridge: Cambridge University Press, 1985), pp. 16991. 29. Maung Aung Myo, The Future of the Tatmadaws Political Role in Myanmar: Prospects and Problems, p. 39.
david dapice
Recapitalizing the Rural Economy
n January 2009 I met with groups of farmers from areas just north of Mandalay down to areas in the Ayeyarwady Delta that were still recovering from the devastation caused by Cyclone Nargis in May 2008. I was part of an assessment team facilitated by International Development Enterprises Myanmar, a nongovernmental organization focused on social entrepreneurship. We were able to meet with many farmers, usually without any ofcials present, so they were able to speak freely about the challenges they faced. This chapter does not recount in detail the ndings of our team, which were delivered to International Development Enterprises and the Myanmar government.1 Sufce it to say that we found many farmers, even those with considerable land holdings, wanting to borrow at 10 percent a month interest and unable to do so. Virtually all families we talked to were deeply in debt. They had great trouble nancing inputs for rice and other crops. To save labor they were broadcasting rice seed instead of transplanting, even though broadcasting results in lower yields than transplanting. Farmers were also using much less fertilizer than they would have if credit had been available. Even pulses, legumes, and crops other than rice, one of the great recent successes of agriculture in Myanmar, had been hit by collapsing prices.2 It was reported that a group of well-connected traders in Yangon had promised high prices to local buyers and farmers but asked them to provide credit by deferring payment. Their attempt to corner the market evidently failed, and they were unable to pay after they had taken the product, leaving many of the local buyers without capital. Reports conict over how well the situation with these major cash crops is evolving, but the main food product of Myanmar has always been rice, and this chapter focuses on rice, even though pulses are often an important cash crop for rice farmers.
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To begin with, there are two major data series estimating rice output. One is produced by the UNs Food and Agriculture Organization, which largely relies on government data. Its estimate puts current annual output of milled rice at about 18 million tons.3 Given domestic consumption of about 10 million tons, this would imply 8 million tons of rice exports annually, making Myanmar the largest rice exporter in the world. Since recorded exports are typically considerably less than 1 million tons and unrecorded border trade is unlikely to be more than a few hundred thousand tons, it is doubtful that these production estimates are close to reality. The second data series is produced by the U.S. Department of Agriculture. It has local people making estimates based on area and yield samples. The department estimates rice production to be in the range of 10 million to 11 million tons a year, a much more plausible gure. In 2009 rice exports were about 1 million tons and domestic rice prices were stable. This is not surprising. The world rice price has dropped by half from its high in 2008, and the kyat-dollar exchange rate has been stable or even appreciating slightly. Based on these facts, some observers have concludedprobably incorrectlythat there is no real food security problem in Myanmar. The lack of credit has led to a lack of work for landless laborers.4 They are eating taro and types of rice normally used for animals. Their demand has collapsed owing to a lack of wage income, and they are hungry. The lack of entitlements to food means that even when food is available in the markets, it may not reach the stomachs of the landless or their families. Even the normal safety net of Buddhist monasteries feeding of children and even adults is frayed and strained. Things are quite close to the edge, if recent informal but plausible reports are correct. The situation in 2009, a reection in part of the damage to capital, labor, and land (salt intrusion, lling of irrigation ditches, and the like) wrought by Cyclone Nargis, is only the latest chapter in a long book. Farmers always and everywhere are used to annual crop variation and natural disasters. They save in the good years and use these savings (food, livestock, gold, or nancial savings) to tide them through the lean years. What has happened in recent years in Myanmar is that surpluses have been scraped away through low crop prices, and little has been done to help out in the bad years. Farm-gate paddy prices in Myanmar are about half of those in Vietnam.* This difference reects the lower quality of Myanmar rice, owing to
*Paddy is unprocessed rice taken off of the stalk. It is milled to produce the rice sold in markets. Farm-gate prices are prices actually received by farmers from buyers who transport the paddy from the elds where it is harvested.
Recapitalizing the Rural Economy 79
the countrys ancient milling equipment, mixed varieties, poor drying, and unreliable export reputation. But part of the story is high costs of transport, shipping, and trading. At one time, the problem could be blamed on regional military commanders who, being responsible for their troops, were taxing farmers by buying paddy at low prices. This practice is less common now, but there is another kind of tax on farming going oneffectively, not ofcially: the possibility of exporting is not really open to all. Existing requirements for exporting rice include a regulation that the exporter has to have several thousand tons of rice not meant for export in a warehouse before applying for an export license. This requirement effectively excludes many potential exporters. The exporters who are able to amass large stocks or get export permits are likely to be well connected to the government. They are effectively monopolists, or nearly so. They are able to offer low prices to local traders, who have to accept what is offered and, in turn, offer even lower prices to farmers. Even the state exporters in Vietnam offer far better prices, though their rice is typically of better quality, reecting more modern milling equipment and better overall post-harvest systems. There is no equivalent in Myanmar of BULOG, the rice logistics agency, the entity that, while not without problems, has stabilized rice prices for both consumers and farmers. Price stabilization in Myanmar often uses physical restrictions on the movement of rice rather than sales or purchases of rice or paddy. This creates enormous uncertainty for traders and depresses export prices because of the uncertainty of actually obtaining rice. It is hard to fully communicate what years of policies like these have done to the capital stock of the rural economy. When farmers and the rural landless are hard pressed, they do whatever they can. They use up natural capital. They overcut rewood, depleting forests. They oversh, depleting future catches. They use the land too intensively, planting on steep slopes that erode, or forgo planting crops that produce little immediate income but turn organic matter and nitrogen back into depleted soils. Indeed, government policy has forced farmers to plant back-to-back paddy elds, creating pest problems, reducing soil fertility, and crowding out crops that would enrich the soil and that farmers would prefer to plant. Of course, improvements to the soil are out of the question when policy is pushing in the other direction.5 The result is that farmers are slowly destroying the agro-ecological system on which they depend. The destructive impact of Cyclone Nargis was also a result of the widespread deforestation of mangrove forests, a natural buffer against cyclones. Severe underinvestment in physical capital such as roads, production equipment, or processing equipment (for example, rice mills) is part of the
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problem. Fuel is also very expensive. We visited one rice mill using a boiler from the early twentieth century to generate electricity from rice husks. No reliable central electricity was availableand this was in a city. Other rice mills were powered by nineteenth-century steam engines. These systems, though ingenious, are not likely to compete effectively with the Thai or Vietnamese equipment, which is run off of a central power grid. The amount of irrigated land has increased, driven largely by government investments. However, the effectively watered area of these projects declines over time as irrigation system maintenance is neglected. Actually, data on the acreage planted or harvested, as well as on production, are of uncertain quality. Nevertheless, it is abundantly clear that the entire rural economy has undergone many years of massive disinvestment. While the production situation is lamentable, malnutrition is likely to have the most lasting impact on the future growth of the Myanmar economy and the welfare of its population. Recent household surveys measuring malnutrition suffer from the same problems as rice production surveys. Personal communications with some involved with these surveys suggest that the results reported are too optimistic by a substantial margin. An objective nutrition survey of children is badly needed.6 If our own observations are representative, there is already a very serious problem.7 Children who are poorly nourished do not learn well and also have much higher mortality rates. Quite aside from the quality of schools, unless there is a substantial improvement in food intake, it will be difcult to produce a generation of workers suited to any but the most basic tasks. The January 2009 visit was only to central lowland Myanmar, not to any of the ethnic minority areas. It has been reported that in many of those areas conditions are worse than in areas with a Burman majority. In particular, the seventeen-year owering of bamboo in some regions has led to severe rat infestations, and there has also been a severe drought in other states. This is not precise information but suggests that the problems for all of Myanmar may be even greater than for the areas visited. If so, Myanmar faces a vast legacy of problems to be dealt with on top of the substantial current problems. Production and incomes depend on land, labor, capital, and technology. It is hard to identify any of these inputs in which the trend in recent years has not been stagnation or worse in Myanmars rural economy. There is no doubt that farmers will respond with alacrity when prices favor their efforts, as proven by the great rise in pulse production earlier in the decade. But farmers need inputs, and these are hard to come by. Ofcial lending through the Myanmar Agricultural Development Bank in 2009 covered less than 10
percent of the requirement for rice production inputs. If commercial credit is not available for other inputs, many farmers will use fewer inputs because informal credit is very expensive, if available at all. The government has lately been making large grants of land to companies that promise to grow rice. While this amounts to tens of thousands or even (in the aggregate) hundreds of thousands of acres, it is not yet a substantial fraction of the total rice area.8 Past experiments with rice estates in other Southeast Asian nations have not had promising results. It is troubling that a major response to concerns about food security or production has been to promote the development of a parallel system of production instead of improving conditions for ordinary farmers. It is unlikely that industrial rice estates will ultimately prove to be competitive. On the other hand, a new program has been announced recently to provide credit for rice production and, to some extent, sesame and pulses. Rice millers and traders with ties to the government are being urged to lend at 2 percent a month to farmers with holdings of more than ve acres who are also in a good nancial condition. The amount lent is well over the seven dollars an acre provided by the Myanmar Agricultural Development Bank, but the total credit provided by all companies is less than $20 million, while billions of dollars are needed and only the best-situated farmers get credit. These agricultural development companies, formed by Yangon tycoons and local millers and traders, are a small step forward, but most farmers will still have to rely almost entirely on informal credit, when it is available.9 Some estimates are that only 510 percent of farmers will meet these two conditions (enough land and nancially stability), so most will remain without access to credit on sustainable terms. Capable micronance programs are operating in various townships and villages now, and it is reasonable to ask whether they could be part of a solution to the severe credit shortage that was observed. A careful answer would take more work, but horseback speculation is that in the near future, at least, they can play only a small part. The required aggregate credit is on the order of $2 billion, and individual loans would be thousands of dollars in many cases. Operating at this scale is well beyond the current capacity of microcredit programs. Opening hundreds of ofces and training thousands of personnel is a work of many years, even if such a program were well resourced. This does not mean that microcredit cannot play a useful role, but unless these schemes can attract large amounts of deposits and control risk while expanding rapidly, it is likely that other institutions will play a larger role in any near-term solution.
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Some urban banks have expressed interest in agricultural lending on behalf of the government, with a 100 percent guarantee if the loans go bad. Past experience suggests that this is not a sound approach. When nothing is at risk, the tendency is to lend freely and not carefully, and bad debts often soar. It would be better to work out a risk-sharing arrangement and allow interest rates high enough to cover the higher costs of operating in rural areas and normal default rates. No urban bank is positioned to operate in many rural areas, so expansion would be a slow process, though perhaps not so slow as with micronance. A third possibility is to reinvent the government-owned Myanmar Agricultural Development Bank by separating it from the Ministry of Agriculture and allowing it to gather deposits at realistic interest rates and make loans at about 3 percent a month, but only to those likely to repay. This would require new rules, salaries, training, and accounting. It would be a large undertaking and could not happen immediately, but such restructuring could follow the example of Bank Rakyat Indonesia, which was in a similar situation in the early 1980s and became a protable lender to millions of rural borrowers at market rates. If the 2010 elections and other developments create an opening for international aid to the rural sector on a substantial scale, the rst thing to do (if the situation has not improved by then) is to provide credit to farmers. This alone would lead to higher production and increased employment of rural labor. The interest rate should be 2 percent a month in real termsenough to cover the costs of administration, bad loans, and the interest on deposits. If farmers are prepared to borrow at 10 percent a month but cannot, then a loan at 3 percent a month, the nominal rate including ination, will be very welcome. Ensuring the viability of lenders for future cycles of lending is more important than reducing the interest rate from levels in the range of 35 percent a month. Because the amount of aid is unlikely to equal the demand for credit at 3 percent a month, aid donors and the government might work out joint funding of banks in a position to provide agricultural credit. Financial reserves exist within Myanmar that could be used for this purpose. Labor-intensive construction projects could repair rural roads, build small bridges, clean out irrigation ditches, and construct rural markets or water storage ponds. Local governments could be tasked with identifying and bidding out such projects. While supervision and guidelines would be needed to prevent leakages (that is, corrupt or wasteful use of funds), the double injection of income to the landless and capital to the villages would be an essential step in getting many households back on their feet. Pilot programs with village grants of up to $5,000 have had initially promising results.
But simply producing more rice or other crops will not help much if they fetch little when sold. A comprehensive push is needed to reduce monopoly power among exporters, lower port and internal transport costs, improve milling and drying, and get farmers a fair price (similar to prices in neighboring nations) for their production. These steps could yield a large leap in household income, even if physical output is stable. While the residue of competence in the bureaucracy is fast fading, it would be wise to build on it. Training programs for irrigation engineers, rice specialists, banking ofcers, and many others should be part of any largescale aid effort.10 Getting learning materials in Burmese and teaching teachers who would lecture in Burmese (and some minority languages) would be a wise early step. If the past disinvestment in human skills and knowledge is not soon reversed, Myanmar will fall even further behind as the rest of the world moves on. As long as world prices for raw materials stay relatively strong, Myanmar will have vital sources of income while its rural economy catches up with the rest of the region. Natural gas revenues could be used to recapitalize the rural sector and its population, should the priorities of the government shift in that direction. But it is hard to see how adequate progress can be made without some external assistance. Support for signicant levels of assistance will depend in part on perceptions in aid-giving nations that their aid funds will be well used. Changing perceptions will be a tough sell during the current era of scal retrenchment if foreign aid, never very popular, is seen to be going to a nation that has a poor reputation. While the donor countries in the Organization for Economic Cooperation and Development may need a more exible policy toward Myanmar, there will also need to be some exibility from the Myanmar side if a rapprochement is to occur. Given current and likely future circumstances, it is probably desirable for donor agencies initially to provide grants rather than loans, even if the amounts transferred are much smaller. There are many moving parts to realistic cost recovery, and the mass debt forgiveness of very-low-interest loans from multilateral institutions to African countries is a warning that large amounts of lending in weak administrative environments is not promising. Building up absorptive capacity can set the table for lending, but grants are a better rst step. In any case, the problem is rst one of allocation and secondarily one of resources. Until a better use of domestic resources is apparent, it would be unwise to add debt. The severity of the problems described in this chapter may or may not create domestic political pressures to push the Myanmar government toward closer relations with countries beyond China and, perhaps, India.
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But unless signicant policy attention, administrative resources, and funding are focused on the rural sector, it will continue to lag badly and be a drag on the Myanmar ship of state and its economy. A fuller understanding of the sources of national security and unity and a decent concern for the broader welfare of the population would in itself create more pressure to deal with the rural decapitalization problem. It remains to be seen whether history will continue its old pattern or a new one will emerge, perhaps encouraged by any changes that 2010 might bring.
Notes
1. The full report, Assessment of the Myanmar Agricultural Economy, is available from the Ash Center for Democratic Governance and Innovation, March 2009 (www. ash.harvard.edu/Home/Research-Publications/Publications/Occasional-Papers). 2. Production of sesame, pigeon peas, chickpeas, groundnuts, and dry beans rose from 3.36 million tons in 2002 to 4.12 million tons in 2007, according to the UNs Food and Agricultural Organization. This is a 4.1 percent annual growth rate. Exports of grams (dal) and other pulses rose from 831,000 tons in 200001 to 1.14 million tons in 200708, a growth rate of 4.6 percent. This supports the rate of reported production growth. 3. The UN Food and Agricultural Organization estimates 32 million to 33 million tons of paddy and, at a 56 percent milling rate, 18 million tons of rice. Rice consumption is said to be about 200 kilograms per capita per year in the food balance sheet but 160 kilograms per capita in food surveys from a few years ago. Population in 2007 was estimated to be 57.5 million. 4. The fraction of landless laborers varies from a quarter to more than half of the population, depending on region and village, but many farmers with very small holdings are facing similar problems since they cannot support themselves with such limited farmland at their disposal. At least half of rural families depend on wage labor for their livelihood. 5. Ofcial data show a 30 percent increase in rice yield from 2000 to 2007, but this may be as illusory as the production estimates. Farmers reported yields depend mainly on weather, irrigation, and fertilizer. The U.S. Department of Agriculture reports uctuations but a stable long-term trend in Myanmar rice yields from 1988 to 2008. 6. UNICEF, in cooperation with the Myanmar government, completed a nutrition survey in 200809, but the results are not yet available. Many months of processing will be required to analyze the results for the 8,000 households surveyed. 7. I have served on both national and international committees concerned with nutrition surveillance. 8. Ofcial data report paddy area sown is 8 million hectares, equivalent to about 20 million acres.

9. Each of the twenty-nine agricultural development companies operates in one township and has a leading rm that makes large loans, providing capital; smaller amounts are added by township millers and traders. However, the capital of the leading rm is guaranteed by the millers or traders who lend it out. The 2 percent a month interest rate is too low to attract much capital or cover the expenses of lending to risky smaller farmers, but it is higher than the controlled urban lending rate of about 1.5 percent a month. There is an understanding that those who participate in these agricultural development companies will have access to export quota, and this will help defray the expenses of lending. 10. Of course, some efforts along these lines have been made in the past, but they are considerably fewer than are needed.
xiaolin guo
Boom on the Way from Ruili to Mandalay
espite the articial boundary lines and modern infrastructure that set present-day Myanmar and China apart, trade across the historical frontiers dominated by local forces in the absence of central control has shown no fundamental change over time. After decades of civil war and class struggle impeding economic development in the two countries, market activities and cross-border trade resumed in the 1990s, beneting local communities on the border and beyond. Cross-border trade today continues to be an indicator of harmony as well as tension in bilateral relations. As much as economic prosperity and political stability are mutually reinforcing, one is by no means a guarantee for the other. The cross-border trade described in this chapter underscores an imbalance between the two countries in economic strength and an uneven political development with regard to bureaucratic capacity and central policymaking toward ethnic minorities on the periphery. A major challenge to the government of Myanmar that aspires to consolidate its control over the countrys historical frontier areas is to balance economic development and political integration. To be sure, the ongoing cross-border trade can assist as well as upset the desired process.1
Historical Context
Legend has it that once upon a time, the king of Bagan, Anawrahta, led his men in tens of millions on a mission to obtain a Buddhas tooth relic from the Utibwa of the Tarop country.2 The legendary Tarop country would have been the Dali kingdom (9371253), although the mission from Bagan is not mentioned in Chinese records.3 By the time Bagan was overrun by the Mongol army, Dali had already been captured by Kublai Khan and subsequently
86
Boom on the Way from Ruili to Mandalay 87
became the thirteenth province of the empire ruled by the dynasty under the Chinese name Yuan (12711368). The province was given the name Yunnansouth of the cloudswhich conveys a sense of remoteness in relationship to the center. Political integration of this newly conquered frontier was facilitated by a special administrative device, the court-appointed aboriginal chieftainship, which was duly adopted by the succeeding Ming and Qing governments. Inevitably, from time to time there emerged overlapping claims by Beijing and Mandalay primarily over the native Dai-Shan inhabited territories. When the Konbang dynasty sought to expand its inuence eastward into the Qing borderlands in the mid-eighteenth century, China retaliated. During the Burma Campaigns (176569), the Qing armyHan soldiers and Manchu cavalrysustained heavy losses, not the least to tropical diseases and the unfamiliar climate. In the end, the Qing court imposed sanctions on trade, adversely affecting not only the livelihood of local residents but also the coffers of local ofcials. Smuggling continued, nonetheless.4
Mechanisms of Border Development

The Peoples Republic of China and its predecessor, the Republic of China (191249), inherited from the Qing dynasty a historical frontier inhabited by ethnically diverse peoples, as did the independent Union of Burma from its British colonial rulers.5 Good neighborly relations facilitated the demarcation of boundaries between the two countries.6 Across these articial boundary lines, the peoples of the intermingling communitiesthe Dai, Jingpo, Lisu, Deaung, Bulang, Wa, Lahu, as well as the Hanfound themselves overnight becoming, technically, citizens of separate nation-states. On the Chinese side, nation building proceeded with incorporation of ethnic elites into the new government, in tandem with a series of socialist reforms that placed a specic emphasis on development.7 By contrast, the political process in postindependence Burma was interrupted at the outset by a civil war in which the population in the border areas played a large part. Chinese Communist Party support for the Communist Party of Burma in the 1960s, enlisting various ethnic minorities in the border communities, pushed bilateral relations to their lowest point.8 After the Chinese Communist Party cut its ties with the Communist Party of Burma in the 1980s, former military supply routes came to serve a booming cross-border economy. The last two decades have seen life in the border communities transformed, which would have been inconceivable without
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signicant, albeit quite distinct, political developments on the two sides of the border. Yunnan province had long been administratively integrated with the rest of China by the time the Peoples Republic of China was founded in 1949. A peripheral province, whose ethnic minorities make up a third of its 40 million-plus population, Yunnan in its economic development enjoys preferential treatment from the central government in the form of scal arrangements that have at different times included a range of revenue-sharing devices and in the form of nancial subsidies in support of public spending and projects of economic construction and social relief.9 The scal system and its reforms at the national level have had a decisive impact on the pace and direction of economic development in this southwestern province. Equally important is the local strategy of drawing attention and investment from Beijing by making the economic development of Yunnan a national priority.10 Like other landlocked provinces, Yunnan experienced a slow start in the early period of economic reform, owing to its inferior economic infrastructure and a central policy favoring foreign trade in the costal regions. Signicant signs of an economic breakthrough in Yunnan emerged in the mid-1990s, following two major developments at the national level: the scal reform implemented in 1994 to divide revenue and expenditure responsibilities between the central and local governments and a policy shift to redirect the central governments investments to Chinas less developed western region (of which Yunnan is a part).11 Turning its geography and multiethnic population to its advantage, Yunnan set out on a development course to build a great province of ethnic cultures, the center of which was tourism. As reforms deepened, this provincial development strategy came to include an even more ambitious design to build a major gateway to Southeast Asia, seeking ultimately to become a future hub of commerce and trade between coastal China and Southeast Asia and beyond. The same period saw the political landscape shifting in Myanmar. After the 1990 elections in which the National League for Democracy won a majority in parliament, the country found itself still under military rule. Faced with domestic challenges on all fronts as well as international isolation, the ruling State Law and Order Restoration Council/State Peace and Development Council (SLORC/SPDC) made tactical policy alterations to achieve national reconciliation. Following the disintegration of the Communist Party of Burma in 1989, the military government embarked on a long-overdue process of negotiating ceasere agreements with ethnic armed forces across its border regions.12
On the economic front, the governments control of certain areas of trade was gradually relaxed to allow diversication of economy and generate desperately needed revenue. Availing themselves of the peace and of local connections, the ethnic leaders in the border communities went into business, trading with and drawing investment from Yunnan. A moderate degree of stability in the east and northeast of Myanmar, which had for decades remained impenetrable owing to widespread antigovernment insurgencies and perpetual local competition for dominance, now made it feasible for the SPDC to introduce and implement its own seven-step roadmap to democracy.
The China Factor

The ethnic armed forces that have reached ceasere agreements with the SLORC/SPDC are primarily based along the border with China. Thus it is doubtful that political stability and an ensuing economic boom in this area can be viable without a degree of cooperation from the Chinese side. This may have inadvertently provided some international observers with grounds to call on the Chinese government to take the lead in efforts to break the political deadlock inside Myanmar. The Chinese governments consistent position vis--vis Myanmar as an immediate neighbor, seemingly at odds with that of the Western powers, has only served to draw more media attention amid growing international frustration over the apparent failure of the existing sanctions policy. Reecting on the situation, Chinese academic and policy circles have debated among themselves Chinas standing in international affairs.13 Ultimately, they conclude, what China can do is no more than what Asian democracies such as Singapore, Thailand, and Indiawith whom Myanmar has amicable relationsare prepared to do in their individual capacities, rhetoric aside.14 Because China is a major economic powerhouse and regional rising power, however, its economic interest in Myanmar has, over the years, been subject to intense international scrutiny. The deal made by China National Petroleum Corporation with Myanmars Ministry of Energy in 2009 to build crude oil and natural gas pipelines from the west coast of Myanmar to Kunming by way of Ruili came to highlight for Western observers the Chinese strategic interest in maintaining good relations with Myanmar, in addition to a long-standing concern for border security.15 At the conclusion of his trip to Myanmar in August 2009, U.S. senator Jim Webb published a statement in which he asserted that sanctions by Western governments had allowed China to dramatically increase its economic and political inuence in Myanmar, furthering a dangerous strategic imbalance in the region.16
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The growing Chinese commercial inuence in Myanmar, he warned, could easily lead to a military presence. The awareness of, and to some extent the emphasis on, the strategic interests of China and those of other world powers has provided the momentum for reviews of policy toward Myanmar, especially in the United States, as a way to overcome the apparent moral dilemma confronting politicians who call for the lifting of sanctions imposed on a regime once ofcially labeled as an outpost of tyranny. The smart U.S. policy toward Myanmar today seeks to engage the government in Naypyidaw. Weeks after the August 2009 visit by Senator Webb, the State Departments assistant secretary for East Asian and Pacic Affairs, Kurt Campbell, visited Myanmar and held high-level talks with its government. A few days later, in mid-November, President Obama addressed the leaders of all ten ASEAN countries, including the prime minister of Myanmar, on the occasion of the Asia-Pacic Economic Cooperation summit. The new U.S. policy toward Myanmar puts a specic emphasis on deepening ties with Southeast Asia, a region perceived to have come within the sphere of Chinas inuence in the past decade. To what extent future international involvement from outside the region may have an impact on the existing pattern of economic development (and bilateral relations) is, for the time being, an open question. Any comprehensive assessment would require factoring in ongoing economic activities across the historical frontiers.
Cross-Border Trade
Myanmar is endowed with rich natural resources, and a large proportion of its population works in the agriculture sector. Fertile land and a tropical climate provide favorable growing conditions for a great variety of crops, with harvests up to three times a year. The self-sufcient lifestyle of the ordinary people has been essential for Myanmars military rule to survive more than a decade of economic sanctions imposed by the United States and the European Union, with or without support from China and other neighboring countries. On the other hand, trade with China and other countries in the region has enabled Myanmar to obtain consumer goods that it cannot produce domestically, and growing trade has eased revenue constraints on the military government. Indeed, the period in which international sanctions intensied saw a boom in cross-border trade not just with China but also with other countries in the region. A recent estimate shows that goods exported from Myanmar to its neighbors accounted for two-thirds of the total value of Myanmar exports in scal year 200708.17
Characteristic of cross-border trade is a lack of regulation, evident on both sides of the border. Some preliminary research on the Myanmar side has identied informal practice as common in trade with its neighbors, namely, China, Thailand, India, Bangladesh, and Laos. The pattern of exploiting legal loopholes is said to be of long standing and locally accepted; reasons for the prevalence of such practice are many, but most relate to circumvention of lengthy licensing processes and restrictions on export and import goods and, not the least, tax evasion. In this environment of cross-border trade, brokers with connections to outlets of goods in demand and to markets understandably play a key role. Needless to say, local contacts are indispensable. The value of undocumented goods traded across the land border is, therefore, considered many times the value recorded in ofcial statistics.18 Cross-border trade, by Chinas denition, is a component of foreign trade that includes state-to-state trade by air and sea, settled in U.S. dollars or euros; trade across land borders, settled in local currencies; and trade in goods of necessity between villagers of border communities.19 Yunnan shares with Myanmar a 2,000-kilometer border, along which are six prefectures; three of these are autonomous and linked to ethnic minorities: Nujiang (the Lisu), Dehong (the Dai-Jingpo), and Xishuangbanna (the Dai). Some twenty ofcially designated land ports in Yunnan are currently in operation, of which a dozen or so are national level and the rest provincial, mostly along the border with Myanmar. Up to 60 percent of Sino-Burmese trade is channeled through Yunnan province, and exports and imports to and from Myanmar constitute 80 percent of the foreign trade in Dehong Dai-Jingpo autonomous prefecture. Ruili is the most important and busiest of all land ports in Yunnan and one of the four (two national and two provincial) ports in Dehong prefecture.
Ruili Taking Off

Named after the river separating Yunnan from upper Shan state, Ruili is a county-level city under the jurisdiction of Dehong Dai-Jingpo autonomous prefecture. It has a population of more than 160,000, about half of which work in agriculture. The ethnic Dai, Jingpo, Deaung, Lisu, and Ah-chang together make up 46 percent of the local population. The boom in Ruili has largely resulted from gemstone trade with Myanmar, which took off after the mid-1990s. The self-designated title Jewel City of the East is designed to attract investors as well as tourists. Despite its decline since 2004 as the result of a ban by the government of Myanmar,
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jade-related businesses continue to provide jobs for some 35,000 people, amounting to more than 40 percent of the labor force in Ruili. As many as 80 percent of the craftsmen and dealers come from Fujian, Guangdong, Henan, Zhejiang, Sichuan, and Hunan provinces, in addition to Hong Kong and Taiwan. Most foreign nationals come from Myanmar, Pakistan, India, and Nepal.20 Ruili owes its economic boom largely to the intra-boundary, extra- customs status granted by the State Council in 2000 to Jiegao, an area of 2.4 square kilometers (including water surface) located on the Myanmar side of the Ruili River, sharing a land border with Muse. Not long ago, this Old Town (Jiegao in the Dai language) was merely a village, and the local residents relied on bamboo rafts for transportation. The ofcially registered population in Jiegao is currently 3,000 and predominantly engaged in agriculture; temporary residents (mostly in businesses related to cross-border trade), however, number more than 4,000, and the population constantly oating in and out Jiegao is estimated at 12,000.21 The Jiegao economy is divided into four zonescommerce, manufacturing, storage and logistics, and tourismall tax exempt. Here, for example, gemstones imported from Myanmar are processed and motorcycles exported to Myanmar are assembled. The main tourist attractions are, rst and foremost, jewelry shops, followed by village sightseeing and ethnic cuisine. Linked today by a bridge to the inland city of Ruili, Jiegao is a point where ows of goods meet and depart. The total value of foreign trade carried out in Ruili in 2007 was more than 5 billion yuan; exports represented over two-thirds of the total. The major commodities imported from Myanmar are agricultural products (for example, rubber, pulses, and other oil-bearing crops) and forestry products, followed by minerals and shery products. Exports to Myanmar range from textiles, machinery, and building materials to electric appliances, household necessities, and foodstuffs. Goods passing through customs are documented, which by no means suggests that all documented goods are actually exported or imported.22 Similarly, not all imported and exported goods are documented by customs. Smuggling, like corruption, is a slippery concept, and the specic local circumstances make it even harder to dene. The growth in cross-border trade during the past decade has stimulated Ruilis urbanization. Property development is booming, and roads in and around the city are constantly being upgraded. The major investor in construction and infrastructure is not the local government, which relies on the higher levels of government for much of its spending, but the private sector.23
A prominent local entrepreneur is the boss of the Jingcheng Group, owner of a landmark four-star hotel in the city center (in business since 2004), a hot-springs holiday resort (currently under construction) on the outskirts of the city, andallegedlyas much as 10 percent of the land in Ruili city. A native Jingpo-Kachin from a mountainous village in a neighboring county, he made his rst fortune from timber trade with his kinsmen on the Myanmar side of the border in the 1980s. Like many others, he went into the gemstone trade in the mid-1990s, and his business has since diversied to include land development, infrastructure construction, and a wide range of operations. His massive wealth has turned the Jingpo tycoon into a local patron, bigger than the city government itself. The recent inauguration of his private bank, specializing in microcredit, marked yet another business success, allowing him to collect additional social and political capital. Business empires like his (and he is by no means alone) could not have been built without tacit support from the local government. In one decade, Ruili has been transformed from an agricultural backwater to a commercial center, a place where money talks to such an extent that the normal bureaucratic clout is irrelevant. Here one is expected to either make a fortune or spend a fortune. In the eyes of the local ofcials (among whom there is no shortage of Communist Party members), personae gratae are those who are loaded and spare no expense in the local jewelry shops. Paradoxical to the apparent wealth is a steady decline in the revenue from cross-border trade going to the prefecture government coffers.24 This situation reects, in addition to the general passivity of local ofcialdom, imbalanced development between the eastern and western regions of China. According to the local ofcials, more than 90 percent of the goods exported from Dehong are produced in Guangdong and Fujian provinces; Dehong (and Yunnan, for that matter) basically provides a land corridor for those goods to pass through, thus allowing the business enterprises from the coastal provinces to take the lions share of prots.25 Looking on the bright side of all this, however, Dehong, being a land corridor, benets from growth in the service sector as well as from tourism; in so doing, as some ofcials say to console themselves, Dehong assists economic growth in other Chinese provinces, which adds to the political achievements of the local government.
The Road to Mandalay

From Jiegao, goods exported to Myanmar enter Muse. The main transfer point between Muse and the interior cities is Lashio (184 kilometers from
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Jiegao), a district-level government seat in the Shan state and a strategic military outpost since independence. Under British rule, this peripheral town boomed with the development of silver mines. In the 1990s it experienced a second boom as trade between China and Myanmar normalized. As far as infrastructure is concerned, Lashio, unlike Ruili, is mostly rural. Large numbers of local residents make a living, directly or indirectly, from cross-border trade. Some are internal migrants from other parts of Myanmar, whereas others come from across the borders to the north and east. Life here is multiethnic. Burmese is the lingua franca, though the Yunnan dialect (and the Dai) by no means sounds alien. Temples dot the hills and streets, and many are brand new, Chinese and Shan styles blending together. On the outskirts of the town, there are three brand-new institutions of higher learning.26 Road conditions in and out of Lashio are probably the best in the country. Lashio is not a tourist destination, and local accommodations serve primarily the simple needs of business travelers. The Lashio Motel is conveniently located and the most adequate in town, with an exterior typical of township government guesthouses in Yunnan. The owner of the property is the Asia World Group, a contractor reported to have built the highway from Muse to Mandalay.27 Highland Lashio is a different world to the lowlanders of, for instance, Mandalay. That particular reputation strikes home when an accidental tourist like myself arrives at the checkpoint at the foot of the mountain, where the historical frontier meets Burma proper. All vehicles without exception are pulled over for inspection. Drug trafcking is apparently far from a thing of past, and trade in prohibited goods is only too real, as one can tell from the vigorousness of the inspectors in action. The journey from Ruili to Mandalay is an all-day drive along a seemingly endless winding road: three to four hours to Lashio and another ve or six hours to Mandalay. The seat of the Konbaung dynasty is today a major commercial hub where wholesalers and retailers from all over Myanmar converge. Two adjacent multistory concrete buildings are packed with hundreds of stalls handling everything from spices to household utensils, from fabrics to electric appliances, and much more. Some of the goods are domestically produced, but most are imported from neighboring countries. During business hours, the streets are jammed with pickup trucks, tractors, and cars, and the sidewalks crammed with parked motorcycles, carts, and pedestrians. The gemstone market is separately located on an open ground, surrounded by dozens of tool shops. An ordinary scene in a local commercial bank is striking: stacks of 1,000-kyat notes more than half a meter high spread out on a surface the size of ping-pong table encircled by counters, behind which half
a dozen cashiers are feverishly counting money under the stares of queuing customers. The volume of daily transactions is considerable. The boom on the old Burma Road today is impressive, considering that not long ago this rugged terrain was inundated by insurgencies and mired in poverty. However informal it may be, the cross-border trade has its own order, which incidentally goes a long way back in history. In the past decade or more, cross-border trade has stimulated economic development in the local communities and also social mobility. With the ow of goods, people move from one place to settle in another. As dealers from the Myanmar side set up shop in Ruili and Jiegao, Yunnanese (Han, Dai, Jingpo, and others) entrepreneurs venture to Lashio and beyond, all making a living on what there is to offer. Whatever their ethnic background may be, once they put their feet down on the other side of the national border, the migrants are identied as citizens of China or Myanmar. These national identities tend to complicate things more than ever before, as international politics is becoming increasingly intertwined with economic competition.
Chinese Presence in Myanmar

Business in Mandalay is ourishing, owing to cross-border trade. Chinese entrepreneursold and new immigrantsplay their part. Streets in Mandalay are full of signs in Chineseon petrol stations, jewelry stores, restaurants, and temples. One street called the ethnic market opens after six in the evening and is packed with stalls selling vegetables (big in the Chinese diet, say the local residents). Around the corner, there is a Yunnanese food quarter, featuring cross-bridge rice noodles, chickpea jelly, and other specialties. Menus are written in both Chinese and Burmese; customers are mixed. Chinese cuisine is as popular as the kung fu movies. DVDs and VCDs (video CDs) originally in Chinese with Burmese subtitles are available on the street at the price of twenty for a U.S. dollar. In Mandalay, it is not unusual to nd Burmese youth speaking some Chinese (usually a mixture of Cantonese picked up from kung fu movies and the Yunnan dialect from local shopkeepers). Chinese language schools are reportedly attractive to young men and women in Mandalay, who are eager to become competitive in business. Chinese temples are conspicuous, as they tend to be spacious and bear Chinese characters all over their surface. In addition to a venue of worship, a Chinese temple often functions as a meeting place for fellow townsmen. In the absence of an ofcial census, estimating the size of the Chinese population in Myanmar is very much guesswork. Some put the number of legal
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Chinese immigrants registered with the government at around 300,000, and illegal Chinese immigrants at as many as 2 million.28 In Mandalay, Yunnanese-Chinese are estimated to make up 20 percent of the local population, whereas in Lashio the share is as high as 50 percent.29 The early generations of Chinese immigrants have been largely assimilated, in the sense that Burmese is their rst language, and many are naturalized Burmese citizens.30 Anti-Chinese sentiment, although often publicly denied, has been a persistent part of ethnic conict in Myanmar. The riots against the Chinesespeaking population that broke out in the streets of Yangon in the summer of 1967 nearly severed diplomatic relations between the two countries. Today, Chinese descendants continue to be subject to discrimination, not least in education and employment. This reality makes the growing Chinese presence in cities like Mandalay ever more sensitive.31 The Chinese immigrants are said generally to stick to their own way of life, which seldom bothers anyone, but their business ventures are not always appreciated. Besides, the difference between government-funded projects and private operations is not often acknowledged. Many private entrepreneurs from Yunnan prefer to deal with local bosses in their designated autonomous districts, circumventing red tape and inconveniences resulting from the discrepancy between ofcial and market currency exchange rates.32 Trade of natural resources in the border regions sometimes upsets the national government of Myanmar, which claims rights over all natural resources within its territorial bounds. At the same time, growing awareness of adverse environmental impacts is increasingly becoming a source of local resentment toward foreign enterprises, especially in large cities.33 Since 2005, reacting to complaints from Naypyidaw, Beijing has sought to tighten border inspection, curtailing the outow of illegal migrants and banning Chinese illegal logging and mining activities in Myanmar. One immediate consequence of this policy was the return to Yunnan of 20,000 Chinese workers.34 Such ad hoc administrative measures, however, can have only limited effect in the face of unrelenting market forces.35
Prospects for Cross-Border Development

When the Qing government at the end of its Burma Campaigns in the 1760s imposed a transfrontier trade embargo, the immediate victim was the local population, which relied on trade for a living. But that was not all. Watching their coffers shrink, county ofcials in Yunnan could hardly sit still anymore. Someone from Gengma (the present-day Dai-Wa autonomous
county)wearing two hats, as a Qing native ofcial and a Burmese saw-bwa (native chieftain)came up with a cunning plan to trick Beijing into lifting the trade embargo. He allegedly sent gifts to the Burmese king under a forged letter from the Qianlong emperor; in due course, the Burmese king dispatched a tribute mission to Beijing, and thereafter the trade routes were reopened.36 This historical anecdote illustrates the resilience of cross-border trade and the degree to which local ofcials can maneuver for their own benet, availing themselves of their strategic geographic position. This situation continues to challenge Naypyidaw and Beijing today. The formation of nation-states in the twentieth century has not fundamentally altered the relationship between the central government and the periphery; nor has the demarcation of boundaries terminated the socioeconomic ties across the border. It is the same today as yesterday: a link to national interests is a blessing for local development. Yunnan is now envisioning itself as having been transformed over the past two decades from Chinas southwestern window to its southwestern gateway, and an even more ambitious development is already under way. Further attracting attention and investment from the central government, the governor of Yunnan boasts of his plans to build the third Euro-Asia Continental Bridge, linking coastal China to the Indian Ocean and in the process creating a new southern Silk Road.37 In this bold vision, Myanmar is going to be indispensable. Equally, continued economic development in Myanmar and to some extent political stability in its border regions will be difcult to sustain without sufcient goodwill from China. Two decades of ceaseres have brought a degree of economic prosperity to the local communities along the Chinese border, in which investments from and through Yunnan have played an essential part. Six decades after the country gained its independence, however, the national government of Myanmar shows only limited capacity in administering its periphery.38 The existing ceasere agreements are yet to be translated into a lasting peace, and the governments policy circumscribing the economic rights of local authorities in the delineated autonomous districts can hardly be conducive to political integration. Facing the incumbent government of Myanmar and its successor after the general elections is the daunting task of economic reform, in addition to nation building. Without economic development, political stability may be in jeopardy. On the other hand, economic development alone cannot solve all political problems. Peace and prosperity on the extended historical frontiers require efforts from both sides of the border. In this process, cross-border trade will continue to serve as a barometer of progress, for better or worse.
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Notes
1. This paper is essentially a report on the authors trip to Myanmar in the spring of 2009 and eldwork conducted later in the year in Yunnan, China. Accounts of Ruili, Lashio, and Mandalay are the authors own observations, unless otherwise noted. 2. Pe Maung Tin and G. H. Luce, trans., The Glass Palace Chronicle of the Kings of Burma (Oxford University Press, 1923), pp. 8083. 3. Mou Li and others, eds. and trans. (from the Burmese into Chinese) Liuligong shi [The glass palace chronicle of the kings of Burma] (Beijing: Shangwu yinshuguan, 2007), editors note, 1:208. 4. C. Patterson Giersch, Asian Borderlands: The Transformation of Qing Chinas Yunnan Frontier (Harvard University Press, 2006), pp. 100 07. 5. At the fall of the Qing dynasty, the government of the Republic of China (191249) claimed sovereignty over the territory of Qing China in its entirety, including what historians call China proper and the former outer domains (that is, Mongolia, Tibet, Qinghai, and Xinjiang) of the Qing Empire. These outer domains became autonomous regions after the Peoples Republic of China was founded. 6. The boundary treaty that settled all territorial disputes between the Union of Burma and the Peoples Republic of China was signed in 1960. 7. For more on the Peoples Republic of China nationalities work as part of nation building in relation to the Chinese Communist Partys rhetoric of development, see Xiaolin Guo, State and Ethnicity in Chinas Southwest (Leiden, Netherlands: Brill, 2008), pp. 59, 4161. 8. This was a party-to-party rather than country-to-country relationship. For a brief history of that period, see Xiaolin Guo, Towards Resolution: China in the Myanmar Issue, Silk Road Paper (Uppsala, Sweden: Central Asia-Caucasus Institute, March 2007), pp. 3747. 9. The preferential treatment targets Yunnan, Guizhou, and Qinghaithe three provinces that have a large percentage of ethnic minority populationsin addition to Chinas ve large ethnic minority autonomous regions, namely, Inner Mongolia, Xinjiang (Uighur), Guangxi (Zhuang), Ningxia (Hui), and Tibet. Different regions and provinces have specic arrangements with the central government, depending on the prevailing local conditions. 10. For an analysis of the interaction between national development plans and local strategies in different periods of Chinas economic reform, see Guo, State and Ethnicity in Chinas Southwest, pp. 98107. 11. These mechanisms simultaneously intensied the central governments efforts to alleviate poverty in Chinas western region. 12. For more on the ceasere movement and the political implications, see Martin Smith, State of Strife: The Dynamics of Ethnic Conict in Burma (Washington: East-West Center, 2007), and Mary P. Callahan, Political Authority in Burmas Ethnic

Minority States: Devolution, Occupation, and Co-existence (Washington: East-West Center, 2007). 13. Chenyang Li and Jianwen Qu, eds., Miandian jiasha geming: Qiyin, qushi, yingxiang yu duice yantaohui lunwenji [Collected papers from the conference Myanmars saffron revolution: origin, trend, impact, and policy adjustment] (Kunming, China: Yunnan University Institute of Southeast Asian Studies, 2007). 14. Chenyang Li and Lye Liang Fook, Chinas Policies towards Myanmar: A Successful Model of Dealing with the Myanmar Issue? China: An International Journal 7, no. 2 (2009): 25587. 15. Markets, energy supply, and access to the Indian Ocean bypassing the Straits of Malacca are said to be Chinas major concerns. David I. Steinberg, Burma/Myanmar: What Everyone Needs to Know (Oxford University Press, 2010), pp. 15960. 16. Jim Webb, We Cant Afford to Ignore Myanmar, New York Times, August 25, 2009. 17. Winston Set Aung, The Role of Informal Cross-Border Trades in Myanmar, Asia Paper (Stockholm: Institute for Security and Development Policy, September 2009). 18. Ibid. 19. The third category is ofcially endorsed and legal on the Chinese side of the border (where it is known as bianmin hushi) as part of the preferential treatment accorded to ethnic minority communities along the national border. On the Myanmar side of the border, the economic rights enjoyed by the autonomous districts populated by ethnic minorities are far more restricted, and such economic activities may be viewed in a very different light. 20. Ruili nianjian 2008 [Ruili yearbook 2008] (Ruili, Yunnan: Ruili Municipal Peoples Government, 2009); Liu Liu, Zhang Ying, and Li Shaoming, Ruili, Xiangyu haineiwai de dongfang zhubaocheng [Ruili: The famed Jewel City of the East], Yunnan Daily, September 24, 2009. 21. Ruili nianjian 2008, p. 109. 22. For example, goods for export that are exempt from the value-added tax cigarettes, among othersdo nd their way back to Yunnan for a huge prot. 23. Presently, the Dehong prefectural government relies on funds allocated from the provincial (and, by extension, central) government for up to 60 percent of its expenditures. 24. The cross-border trade currently contributes ve percent of the total revenue of the prefecture government. 25. In addition to selling their products, exporters enjoy tax breaks granted by the central government to encourage exportation. 26. They are Lashio University, Lashio Technological University, and the Computer University of Lashio. 27. The owner of the Asia World Group is one of three Myanmar tycoons who allegedly have close ties with the military government and with China. Brian McCartan, On the March to Do Business in Myanmar, Asia Times, August 26, 2009.
100 Xiaolin Guo

28. Steinberg, Burma/Myanmar: What Everyone Needs to Know, p. 121. 29. Ibid. 30. The Chinese-speaking population also includes those from Taiwan, who are more culturally afliated with Fukien-Cantonese than with Yunnanese. A further breakdown of these categories presents even more difculties. 31. For more on Chinese migrants (legal and illegal) in Myanmar, see Li and Fook, Chinas Policies towards Myanmar, pp. 27476. 32. In 2009 the ofcial foreign exchange rate between the Chinese yuan and the Myanmar kyat was 1:8 and that between the U.S. dollar and the kyat was 1:6, whereas the market rates were 1:200 and between 1:1,000 and 1:1,200, respectively. In part to overcome problems caused by the discrepancy, China Construction Bank and Myanmar Economic Bank signed an agreement to formally settle cross-border trade in Chinese currency starting in October 2009. 33. Reportedly, university students in Yangon have taken to the streets protesting against illegal timber trade. Guangsheng Lu and Chunmeng Zou, Border Trade between Yunnan and Myanmar: Current Situation and Signicance, paper presented at the conference Political Development and New Challenges for International Relations in Southeast Asia, Yunnan University, Kunming, China, July 1921, 2009, pp. 14758, 155. 34. Li and Fook, Chinas Policies towards Myanmar, p. 266. The complaint from the Myanmar government may have been prompted by a Global Witness report on illegal timber trade. Amy Barry and Jon Buckrell, Dramatic Decrease in Illegal Timber Trade between Burma and China but Smuggling Continues, press release, Global Witness.org, October 21, 2009. 35. According to the Global Witness report, China may be a main destination, but not the only one, for timber smuggled out of Myanmar, and the companies involved in the illegal timber trade include some based in the United States and the European Union. Barry and Buckrell, Dramatic Decrease in Illegal Timber Trade. 36. Giersch, Asian Borderlands, pp. 10708. 37. Zhang Yixuan, Yunnan: Cong xinanchuangkou dao guojiamenhu [Yunnan: From southwestern window to Chinas gateway], Peoples Daily, overseas ed., June 26, 2009; Xu Yuanfeng and Zhang Yixuan, Dichu kaifang de mingpian [Opening up is the policy], Peoples Daily, overseas ed., June 26, 2009. 38. The so-called liberated zones are said to have often been politically administered, with networks of schools, health clinics, and regular armies. Smith, State of Strife, p. 12.
michael vatikiotis
Three Scenarios for Myanmars Future
yanmars relationship with Southeast Asia has been problematic for most of the postcolonial era. It did not start that way. When the British left Burma in 1949, the splendid colonial capital of Rangoon was the regions most developed and progressive city, a regional hub for communications, education, and nance, and the country it represented was Southeast Asias most dynamic export economy. But as the rest of Southeast Asia emerged from the cold war and grew prosperous, Myanmar became detached and withdrawn from the region. With all the international concern about Myanmars torturous internal political struggle, the countrys changing position in the region over time is rarely the focus of scrutiny. But for a brief effervescence of economic reform and openness in the early 1990s, Myanmars relationship with Southeast Asia has mostly been colored by growing criticism of military rule and cross- border fallout from the ongoing internal conict that besets much of the countrys hinterland. Today, even conservative states of the Association of Southeast Asian Nations (ASEAN) like Malaysia and Singapore quietly regret the decision to admit Myanmar as a member, and most people in the region have given up waiting for the reclusive military regime to either relinquish power or open up the country with gradual economic and political reform. Without a substantial change to the internal status quo, it begins to look like Myanmar will remain suspended between India and China, neither contributing to nor beneting from close ties with its Southeast Asian neighbors. This chapter explores the strategic and geopolitical dynamics of Myanmars relationship with Southeast Asia and attempts to project future scenarios based on Myanmars possible trajectory in the next few years.
101
102 Michael Vatikiotis
Three Scenarios
The term Southeast Asia was coined relatively casually toward the end of World War II to help dene a theater of operations and an allied military command. This Southeast Asia has always been an imprecise geographical combination of territories that carries a good deal of colonial baggage. Myanmars inclusion in the entity called Southeast Asia was mostly determined by the Japanese invasion and occupation, which extended across all of Europes colonial territories east of India and south and west of Japan. In fact, Myanmar was annexed and governed by the British and became known as part of Farther India when viewed from the colonial seat of Calcutta. However, in its precolonial form as a kingdom, Myanmar was one of a string of states that owed loose but diligently acknowledged allegiance to China. In this sense, precolonial Myanmar had a great deal in common with Siam, Annam, the Malay Peninsula, and the sprinkling of princely states in between. In terms of Myanmars contemporary relations with Southeast Asia, the precolonial period is therefore of rather more importance than the colonial one, since the memory of Burmese military aggression up and down the mainland has helped dene not just contemporary boundaries but also perceptions of cultural afnity and enmity. That said, Myanmar has developed in virtual isolation from the rest of Southeast Asia for much of the past half century. From the 1960s onward, countries like Thailand and Indonesia, together with Singapore and the newly established Malaysia, were emerging from the early vicissitudes of their struggles for independence and embarking on more open policies of trade and investment, turning away from radicalism toward mainstream pluralistic politics, initially with a rm stamp of authoritarianism. Myanmar by contrast was moving in the opposite direction: embracing socialism and turning inward on self-reliance and isolation as a measure of defense against external enemies real and perceived. The trend continued through the early economic boom years of the 1970s and 1980s as economic growth advanced in ASEAN countries and they shook off the image of being poor and underdeveloped. Foreign investment poured in, and stock markets in the region boomed in the 1990s, but Myanmars economy trailed behind the others. Even when Myanmar was eventually admitted to ASEAN in 1997, the contrasting socioeconomic indicators were shocking. During a brief period from the late 1980s to the mid-1990s, Myanmar seemed to be limbering up to open its doors to foreign investment on a grand scale and poised to transform itself from a largely closed economy into
Three Scenarios for Myanmars Future 103
one that more resembled its ASEAN neighbors. But this proved a short-lived episode as the political trajectory after 1996 saw reformist, open-minded military ofcers replaced or supplanted by an inward-looking conservative clique that continues to run the country today.1 What does Myanmars already well-documented isolation mean in the medium to long term for its position and role in Southeast Asia? This chapter addresses that question by focusing on geostrategic and regional economic issues rather than trying to imagine the future of Myanmar politics. Specically, three commonly posited post-2010 scenarios are examined, not in terms of their internal political implications, which have been dealt with elsewhere, but more from the perspective of their impact on Myanmars regional identity and context. These regional dynamics may have a greater impact on the countrys political trajectory than internal dynamics.
Status Quo: Splendid Isolation

In the 1970s Myanmars GDP growth averaged a little less than 4 percent a year; in the 1980s it fell to less than 2 percent. In the 1990s it peaked at around 9 percent in the brief period of opening up to foreign investment, but it then fell below 5 percent after the 1997 Asian nancial crisis.2 By 2008 real GDP growth was estimated at less than 1 percent.3 Today, the United Nations estimates that the average household spends more than 70 percent of its income on food, and the World Health Organization routinely ranks Myanmars overall healthcare system among the worst in the world. Less than half of Burmese children go to primary school, compared with the 70 percent of children in Southeast Asia who complete secondary school. If we assume that Myanmars current political trajectory is toward more of the same, a solidly authoritarian and military-led regime resisting all pressures for change yet welcoming strategic investment partners and making lucrative royalties from oil, gas, and other minerals, the simplest assumption is that Myanmar will continue to remain detached from Southeast Asia. This detachment, or at least lack of integration with regional economies, greatly benets the two emerging superpowers of India and China. Both are in search of readily available primary resources and worry about strategic access to oil and gas in particular. Myanmar is a boon to China and India in two ways: it has its own sizable oil and gas reserves, and, for China in particular, it is a convenient conduit to the sea. For India, Myanmar is an overland bridge to the rest of East Asia as well as a necessary security bulwark against the restive peoples of Indias northeastern states.
Myanmars extraordinary usefulness to these two giant neighbors means that the country does not really need the dubious political and security benets of a regional organization like ASEAN. Lucrative revenues from primary resources have enabled Myanmar to survive a decade-long regime of economic sanctions imposed by the West. Once the Shwe gas eld off the Arakan Coast comes online in 2013, for example, it is estimated that it will supply more than 7 percent of Chinas domestic gas demand. Moreover, Indias Gas Authority has a 10 percent stake in the venture. It used to be imagined that Myanmar needed ASEAN to balance the inuence of its two powerful neighbors, but today ASEAN has little or no leverage over either India or China. In political terms, it makes little sense for either China or India to rock the boat in Myanmar. The current regime serves the strategic aspects of their relationships well. Totalitarian regimes and extractive industries are easy bedfellows. Who wants to deal with land disputes over the path of a pipeline, or the demands of corporate social responsibility in a pluralistic society? Neither China nor India is seeing Myanmar as a market for goods that require an emerging middle-class market, although China certainly benets from selling goods sent in cheaply overland to Myanmars 47 million people. Meanwhile, lucrative revenues from oil and gas provide a signicant stream of income for the narrow-based military leadership, which only needs to think in terms of managing social expenditure to prevent outbreaks of unrest and providing a minimal social safety net. The income earned from primary resources, which accrues to companies that are 100 percent owned by the junta, also helps defend the regime from the most debilitating effects of economic sanctions. Status quo, therefore, prolongs and protects Myanmars isolation, turning the country effectively into a client state of two major Asian powers without having any appreciable impact on politics. The country remains on the margins, and neither international nor regional diplomatic initiatives have much impact.
Partial Transition: Economic Reform and Transformation

With all the sound and fury of international impatience over Myanmars military regime, it is hard to project what kind of government will emerge after the 2010 electionassuming a change in government takes place in 2010. But let us imagine as one possible scenario a partial transition of some kind. Skeptics argue that the military regime in Myanmar has successfully adopted a strategy of sustained delay whereby democracy and civilian
government can be perpetually promised and planned for but somehow lost in committee in an endless process of consultation and preparatory work.4 However, the 2008 constitution in fact establishes a signicantly different government structure: a presidential system supported by a bicameral legislature and fourteen regional governments with their own military commands and a degree of autonomy. True, the army has a reserved block of seats in the new legislature, and the army commander will exercise considerable authority through a powerful national security council, but the new structure opens up potential space for the kind of gradual economic openness and reform that characterized the last decade of the authoritarian New Order regime in Indonesia.5 It is often forgotten that the seeds of Indonesias democratic transition were sown in the decade of economic growth and prosperity that preceded the 1998 fall of Suharto. There is congruence between the economic liberalization that started in Indonesia in the late 1980s and the gradual opening up of the political sphere, which allowed gures such as Abdurrahman Wahid to establish early forums advocating democratic reform. If market opening and liberalization start to happen in Myanmar, the economy will begin to gravitate toward Southeast Asia and its traditional export markets. This in turn will start to have an impact on the political landscape. If the Indonesian experience is anything to go by, Myanmars military power brokers will rst be tempted to explore more economic openness because it leads to enrichment without any signicant loss of power. Technocrats will draw up reform measures that open up Myanmars market and create a better climate for investment. Initially, ownership of large corporations will be concentrated in the hands of the military, as was the case in Indonesia. But as the range and diversity of investment grow, so will the need to take on additional shareholders from the domestic and international business community. Myanmar will attract considerable interest from companies in Japan and Korea but also in countries like Singapore, Thailand, and Malaysia, which are looking for better margins in terms of labor costs. Much new infrastructure needs to be built in Myanmar, so a construction boom will ensue. In terms of developing new roads, airports, and ports, the current strategic emphasis on serving the access interests of India and China will be tempered by the opening of more border crossings along Myanmars borders with its Southeast Asian neighbors, thus enhancing links with the region, where more open trade and investment regimes will make it easier to import and export goods. These openings will primarily help develop a
more sophisticated consumer market, which in turn will act as a stimulus for further investment. Tourism will also receive a big boost and generate additional income for consumer spending, opening up the country to greater scrutiny and installing modern forms of access and communication. In short, Myanmars economy will start to resemble that of countries like Vietnam a decade or more ago, with the rapid inux of regional investment in such areas as mobile communications, airport and transport services, consumer products, and so on. The interesting point about this scenario is that it is the one most likely to lead to substantive political change. There are two reasons why this process of economic growth and development more integrated with Southeast Asia will start to impact on politics. First, Myanmars growing economic integration with the rest of Southeast Asia will enable the movement of labor and capital, which will accelerate demands for openness and transparency (right now Thailand and, to a lesser extent, Malaysia and Singapore already benet from signicant outows of Myanmar labor, much of it illegal). These demands for a more open trade and nancial regime can be dealt with to some extent, as they were in the case of Indonesia, by tailoring reforms to satisfy the business community. From the late 1980s onward, as pressure for political reform started to swell in Indonesia, the Suharto regimes polished Western-trained technocrats kept external political pressure at bay by delivering economic reforms that made investment very attractive to foreign investors, which in turn made stability and security more important priorities than social and political reform and upheaval. What makes political change inevitable is the extent to which the ruling elite seeks to enrich itself at the expense of the rest of the population. In the case of Indonesia, the key to Suhartos fall was the resentment felt by his own supporters that he had allowed his family to acquire too much wealth at their expense. It is highly likely, given current and traditional patterns of elite behavior in Myanmar, that the rapid opening of the Myanmar economy will lead to corruption on a massive scale. Of course, members of the junta are already allegedly up to their necks in business interests with all the attendant opportunities for enrichment. But having in this partial transition scenario a form of government that allows some political activitya limited degree of spacewill inevitably lead to the channeling of discontent and the manipulation of corruption charges by competing political factions. Given the greater stake the Myanmar population will have in a more service- and consumer-oriented economy, the likelihood of protest will also be greater because there is more to lose. Eventually, the regime will be forced
into political reform and its leaders asked to share more power, laying the basis for a transition to a civilian-led democracy. This process of course will take time and could take longer in Myanmar than it did in Indonesia over the decade from 1989 to 1999. However, technology is a great driver of change, and the mobile phone and the Internet cannot be underestimated as factors collapsing the time frame of political change. Simply put, this scenario suggests that while the 2010 election and subsequent implementation of the 2008 constitution will not bring about a signicant transformation of the political landscape and will sustain the military in power, the inevitable economic opening to the region it allows will sow the seeds of more profound change, just as the economic reforms that opened up Indonesias economy in the 1980s and 90s helped set the stage for democratic transformation. To be sure, the process is by no means guaranteed. Vietnam has enjoyed the fruits of economic openness for two decades and there has been virtually no political change, although communist ofcials have been forced to become more transparent and accountable. But Vietnam is perhaps a special case, a Confucian outlier with a strongly disciplined political culture rooted in a cadre-based Communist politburo that is capable of adjustment and renewal to avoid the impact of popular pressure for change. Myanmars political culture and society more approximate the Indonesian context: authoritarian rule based on strong ties of patronage rooted in a paternalistic culture. As sure as night follows day, the opening and development of Myanmars economy will tempt the power holders into amassing great wealth, and without the cultural and ideological discipline of the Vietnamese, they will surely allow greed to blind them to the need for prudence.
State Collapse: Everything Changes

Southeast Asia has experienced the effects of failed states, mostly in the part of the region formerly known as Indochina, where the decolonization process was prolonged and violent. The case of Cambodia is perhaps the most important and instructive example. In the space of three decades, Cambodia was transformed from a relatively stable monarchy through a brutal revolution that imposed a murderous totalitarian rule, to a vicious civil war, an international recovery effort spearheaded by the United Nations, and nally to a struggling multiparty democracy under the thumb of an authoritarian but elected strongman. What would happen in Myanmar if the military lost power, either through internal elite struggle or, less likely, through popular overthrow?
An internal military power struggle is likely to see the immediate threat of fragmentation, as the new constitution allows for the creation of powerful military commands in the regions. This could lead to a state of civil war and the abandonment of formal government, creating a huge threat to human security. The principal outcome of the inevitable breakdown of authority would almost certainly be some kind of attempt at international recovery, led by the United Nations and ASEAN. This could only happen with China and Indias blessing, but since neither power would want to see the other gain advantage, some kind of hybrid international effort spearheaded by the United Nations and ASEAN would most likely prevail. Given the acute sensitivities in Myanmar about sovereignty, not to mention the concerns about infringement of sovereignty among neighboring states, this international recovery effort would be implemented through economic and development aid programs under the control of the International Monetary Fund, the World Bank, and the United Nations Development Program. Peacekeeping and armed intervention to maintain security in highland areas would probably be mooted but not tolerated. Unlike the case of Cambodia, Myanmars internal strife has been marked less by violence and disruption to human security and more by accommodation and prolonged ceasere. It is possible that well-armed Kachin, Shan, and Wa forces in the remote northeast of Myanmar would seek to establish independence by force of arms, but this would not be in the interests of powerful border states such as China. Therefore the priority will be repairing Myanmars neglected economy in the hope that prosperity promotes unity and reconciliation. Although state failure and collapse would seem to invite suggestions of further marginalization and isolation, in fact, given the formal enshrinement of intervention based on the idea of a responsibility to protect, the opposite may occur. For those looking for a precedent, the recent international response to the devastation of Cyclone Nargis in 2008 offers a useful guide. Cyclone Nargis struck the Ayeyarwady Delta region of coastal Myanmar on May 2, 2008. The severe cyclone devastated the region, killing more than 140,000 people and displacing hundreds of thousands of others in an already impoverished region of the country. Amid the anxiety and threats from the international community about the Myanmar governments initial reluctance to allow in international aid and relief for the victims of Cyclone Nargis, ASEAN secretary-general Surin Pitsuwan stepped in with an offer to send a less intrusive ASEAN Emergency Rapid Assessment Team. This was a groundbreaking step in the sense that it put ofcials from the ASEAN Secretariat on the ground in a crisis situation. This response quickly led to
the creation of a coordinating mechanism named the Tripartite Core Group to facilitate international aid.6 The Tripartite Core Group enabled international organizations like the World Bank to operate under a less threatening ASEAN umbrella. For the Myanmar army, which was initially resistant to the idea of an international relief effort on the ground, it soon became apparent that by being seen to direct and channel foreign aid, it projected an image of protecting the people. In a state of chaos following the collapse of the centralized regime, one might imagine individual military commanders welcoming international relief as a way of shoring up support on the ground in their areas.
Conclusion
Of these three scenarios for Myanmars future, the one most likely to hinder the countrys engagement and integration with Southeast Asia is continuance of the status quo. The current mix of access to lucrative primary resources, sclerotic milimainly beneting two competing regional powers, offers the tary regime an almost perpetual source of support by playing one off against the other. Neither China nor India is as yet sufciently engaged with the international community to permit universal norms of political behavior and human security to trump narrow strategic interests. The scenario most likely to bring about rapid change and transformationalthough in quite what way remains uncertainis a full-blown collapse of the state. To be sure, the immediate aftermath of such an outcome would be chaos that threatens the national integrity of Myanmar, but based on recent events and given the way the world works today, the pressure for international intervention would very soon become overwhelming. And we must assume that neither China nor India would tolerate border instability and insecurity for long. However, the most likely scenario to actually unfold, based on current estimates of the situation, would seem to be the partial transition established by the 2010 election. It is not that the election itself will create a perfect environment for the normalization of political life in Myanmar. The pullout of the National League for Democracy has further delegitimized the juntas measured approach to political change. Moreover, the process of economic reform and integration with the rest of the region will take some time. Given what we know about similar situations elsewhere in Southeast Asia, two points seem clear: a political transition has rarely happened overnight, and economic prosperity and well-being of the populace is a signicant
prerequisite for stable democratic progress. For this reason, although the process will take some time, it is probably important for the international community to encourage rather than hinder the gradual process of transition laid out by the military, however awed it may seem for now. One nal issue in this scenario is worth noting, one that derives directly from the theme of this paper: Myanmars evolving relationship with Southeast Asia. While it may be that the 2010 election and its aftermath will set Myanmar on the path to closer integration with the region, which may help promote progressive political change in the long run, there will be pluses and minuses for the rest of Southeast Asia. Thailand could end up being a big loser. Currently, Thailand benets, much like China and India, from cheap imports of natural gas; it also benets signicantly from the almost 3 million Myanmar workers whose wages are kept low by their illegal status. It is not hard to imagine a more open Myanmar economy pushing up the costs of its primary resources and its labor and therefore affecting the costs of doing business in Thailand. At the end of the day, despite the ASEAN rhetoric of regional integration and inclusion, it is not only China and India that benet from Myanmars isolation.
Notes
1. Michael Vatikiotis, Catching the Wave, Far Eastern Economic Review 158, no. 7 (1995): 4852. 2. Michael von Hauff, Economic and Social Development in Burma/Myanmar, Economic Studies on Asia (Marburg, Germany: Metropolis-Verlag GmbH, 2007), 1:16371. 3. U.S. Central Intelligence Agency, The World Factbook (www.cia.gov/library/ publications/the-world-factbook/geos/bm.html [July 2010]). 4. Michael Charney, A History of Modern Myanmar (Cambridge University Press, 2009), p. 205. 5. International Crisis Group, Myanmar: Towards the Elections, International Crisis Group, Asia Report 174, August 2009 (www.crisisgroup.org/home/index. cfm?id=6280&l=1). 6. The Tripartite Core Group was formed after the May 19, 2008, special ASEAN foreign ministers meeting in Singapore and the May 25, 2008, ASEANUnited Nations International Pledging Conference held in Yangon. The aim of the Tripartite Core Group was to act as an ASEAN-led mechanism to facilitate trust, condence, and cooperation between Myanmar and the international community in the urgent humanitarian relief and recovery work after Cyclone Nargis hit Myanmar on May 2 and 3, 2008. See First Press Release of the Tripartite Core Group, June 28, 2008 (www.aseansec.org/21691.htm).
part
II
Outside Interests
li chenyang
The Policies of China and India toward Myanmar
yanmar has the same strategic importance for China and India in both the geopolitical sense and the geoeconomic sense. After the Myanmar military seized power in September 1988, the Chinese and Indian governments both endeavored to expand their inuence in Myanmar to protect their national interests. Their policies toward Myanmar had many similarities, but there were also important differences in content and results. This chapter compares the objectives, content, characteristics, process, and results of the policies of China and India toward Myanmar. It assesses the inuence of China and India in Myanmar as well as the trend of their relations with Myanmar.
Objectives of Chinas Policies since 1988

Myanmar has played an important role in Chinas foreign policy calculations since the Peoples Republic of China was founded in 1949. Chinas policy objectives in relation to Myanmar include access to the Indian Ocean, stability along the border it shares with Myanmar, energy security, economic cooperation between the two countries, and its relations with developing nations. These can best be understood by bearing in mind Chinas foremost desire to develop peacefully while pursuing its strategic, political, economic, and security objectives. In other words, the objectives of Chinas policies toward Myanmar are multidimensional.1 These objectives were formed gradually, with changes and renements made over the years.
113
114 Li Chenyang
Access to the Indian Ocean

Located between China, India, and other ASEAN nations, Myanmar is Chinas best shortcut to the Indian Ocean. A core objective of Chinas policy toward Myanmar is to establish a strategic route from Yunnan province in southwest China through Myanmar to the Indian Ocean. This route is expected to include a comprehensive set of road, rail, and air connections as well as water, oil, and gas pipelines; it will be crucial to the economic development of southwestern China. According to Voon Phin Keong, the director of the Centre of Malaysian Chinese Studies in Kuala Lumpur, An outlet on the Indian Ocean would add a new dimension to Chinas spatial relations with the world. It would enable China to overcome its single-ocean strategy and to realize what would constitute a highly signicant plan for a two-ocean strategy.2 Many Chinese scholars and ofcials have urged the government to pursue an Indian Ocean strategy and build international channels to the Indian Ocean, but so far the Chinese government has kept quiet.3
Stability in the Sino-Myanmar Border Areas

A peaceful and stable neighborhood is essential for Chinas development. The Myanmar-China border is estimated to be 2,204 kilometers long.4 There are more than 40,000 soldiers in relatively independent minority groups in the north and northeast border regions of Myanmar. Moreover, serious nontraditional security issues like smuggling, crime, illegal immigration, environmental degradation, illegal currency circulation, and money laundering exist along the border. These pose challenges to Chinas efforts to establish a stable frontier and harmonious region.
Energy Security
China became a net oil importer in 1993. Its dependence on imported oil reached 50 percent of total oil consumption in 2008, from 29 percent in 2000, and is expected to reach 60 percent by 2020.5 About 80 percent of its imported oil passes through the Malacca Straits, and Chinas oil security would be severely threatened if the Malacca Straits were rendered impassable by opposing forces.6 Chinese scholars have advocated importing oil from the Middle East and Africa by pipeline through Myanmar to southwest China. The proven natural gas reserves in Myanmar are about 2.5 trillion cubic meters, which equals Chinas own proven natural gas reserves.7 On March 26, 2006, an agreement on the construction of a gas pipeline was signed by the governments of China and Myanmar. The construction of the

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70 Maung Zarni

An Inside View of Reconciliation 71

Global Dimensions of Peace and Reconciliation

An Inside View of Reconciliation 73

An Inside View of Reconciliation 75

Recapitalizing the Rural Economy

Recapitalizing the Rural Economy 79

Recapitalizing the Rural Economy 81

Recapitalizing the Rural Economy 83

Recapitalizing the Rural Economy 85

Boom on the Way from Ruili to Mandalay

Boom on the Way from Ruili to Mandalay 87

Mechanisms of Border Development

Boom on the Way from Ruili to Mandalay 89

The China Factor

Boom on the Way from Ruili to Mandalay 91

Ruili Taking Off

Boom on the Way from Ruili to Mandalay 93

The Road to Mandalay

Boom on the Way from Ruili to Mandalay 95

Chinese Presence in Myanmar

Prospects for Cross-Border Development

Boom on the Way from Ruili to Mandalay 97

Boom on the Way from Ruili to Mandalay 99

100 Xiaolin Guo

Three Scenarios for Myanmars Future

102 Michael Vatikiotis

Three Scenarios for Myanmars Future 103

Status Quo: Splendid Isolation

104 Michael Vatikiotis

Partial Transition: Economic Reform and Transformation

Three Scenarios for Myanmars Future 105

106 Michael Vatikiotis

Three Scenarios for Myanmars Future 107

State Collapse: Everything Changes

108 Michael Vatikiotis

Three Scenarios for Myanmars Future 109

110 Michael Vatikiotis

The Policies of China and India toward Myanmar

Objectives of Chinas Policies since 1988

Access to the Indian Ocean

Stability in the Sino-Myanmar Border Areas

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