The Economic Impact of Myanmar’s Coup

BORGEN

ON JULY 17, 2021

MORRISTOWN, New Jersey — On the morning of February 1, 2021, a military coup in Myanmar ended a four-year experiment in democracy. According to the Council on Foreign Relations, Myanmar’s military history, the militia’s lasting power on Myanmar’s politics and the increasing power of the civilian leader, Aung San Suu Kyi, created the conditions for a coup. To understand the possible economic impact of Myanmar’s coup, it is crucial to understand the country’s political and economic history.

Even before the coup, Myanmar was facing severe poverty. As of 2017, despite a significant decrease over the past decade, the poverty rate in Myanmar stood at 25%. Then, as COVID-19 hit, Myanmar’s economy began to suffer. Now, the military coup may further jeopardize the economy.

The History of Myanmar’s Military Junta

Since Myanmar (then called Burma) gained independence from British colonial rule in 1948, the country has been under near-constant military control. Over the course of approximately 50 years, the military junta nationalized the country’s major enterprises and implemented isolationist policies that caused the deterioration of the economy. The effects of these economic policies still impact the country today.

The military, or the Tatmadaw, has also used extreme force on many occasions. In 1988, the military killed thousands of people participating in student-led protests against corruption, economic distress and food shortages. Moreover, the Tatmadaw has ceaselessly persecuted ethnic minorities, such as Rohingya Muslims. It has perpetuated what many scholars consider the world’s longest civil war.

Incremental Movement Toward Democracy

In 2007, a large-scale protest called the Saffron Revolution prompted a change in the governmental system. The result was a new constitution that allowed an increase in military power “even under civilian rule.” In 2011, the military junta dissolved suddenly, and a transitional government with a moderate reformist president, Thein Sein – a former army bureaucrat and prime minister – took the place of the junta. Five years later, in 2016, after one of the country’s first democratic elections, resistance leader and Nobel Peace Prize Laureate, Aung San Suu Kyi, became the civilian leader.

While some considered these elections a turning point for Myanmar, they were not the total departure from government corruption that they appeared to be. The Tatmadaw has maintained much of its control over domestic policy, and the Constitution guarantees the militia 25% of the seats in Parliament. Because constitutional amendments require support from more than 75% of Parliament, the Tatmadaw has de-facto veto power as well. Finally, after Aung San Suu Kyi defended the military’s genocidal campaign against the Rohingya, which started in 2017, many analysts and politicians began to doubt her power to democratize Myanmar.

Why Stage a Coup and How?

Because of Myanmar’s democratization over the past decade, the past two American presidential administrations lifted most sanctions against the military. Because she failed to condemn the Rohingya genocide, the United States and other democratic countries distanced themselves from Aung San Suu Kyi. In November of 2020, Myanmar held an election, which resulted in Suu Kyi and her party, the National League for Democracy (NLD), maintaining power in what the military considered a humiliating defeat. Though Suu Kyi still has little impact on Myanmar’s politics, she promised to take steps toward further democratization, including constitutional reforms that would minimize the Tatmadaw’s power.

Without any evidence, the military alleged that the election, in which they lost 396 of 476 available parliamentary seats, was fraudulent. The Tatmadaw staged the coup by capitalizing on a constitutional provision that allowed them to regain control. The military claims the country will hold free and fair elections after a year-long state of emergency. However, many Burmese citizens and foreign analysts fear the country is returning to a complete military dictatorship.

Possible Economic Impact of Myanmar’s Coup

Since Myanmar began taking steps toward democratization, foreign nations have drastically increased investments, making Myanmar one of the world’s largest recipients of foreign aid. Foreign investments and economic modernization were quickly improving the country’s economy.

However, the coup may destroy this progress by losing around $3.5 billion in foreign direct investment (FDI), which would shrink Myanmar’s gross domestic product (GDP). Many analysts believe that economic recovery will falter if democratic countries cut off trade or remove special trade deals to punish the military. Stalled democratization efforts, the Rohingya genocide and a decline in exports and tourism from COVID-19 have all caused investments and the economy to suffer. Experts predict all this will worsen as the result of the February coup.

Foreign Response: A Silver Lining

On February 11, the Biden administration announced sanctions on the military officers involved in the coup, preventing them from accessing “$1 billion in government funds held within the U.S.” Those military officials and their families will be placed on the Specially Designated Nationals (SDN) list, meaning that their American assets (such as U.S. property and bank funds) will be blocked. Additionally, they will no longer be able to pursue business with American companies.

Meanwhile, USAID promised to redirect $42.4 million of assistance away from the Government of Myanmar and instead use the money to support and strengthen its civil society. The Administration hopes and expects that the sanctions will hinder the militia’s ability to lead without denying necessary aid to the Burmese people.

These actions convey the American desire to ensure democratization overseas without compromising human rights. If the United States and other democratic nations maintain this type of targeted response, the economic impact of Myanmar’s coup will be minimized.

– Elyssa Nielsen

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