.
Mizuho insights by Vishnu Varathan, Head, Economics & Strategy, Asia & Oceania Treasury, Department, Mizuho Bank, Ltd.,
“It’s the deep breath before the plunge.” – Gandalf, Lord of the Rings
In a Nutshell: Last week, the US imposed targeted sanctions on Myanmar’s military leadership and machinery responsible for the coup; extending to their family and related businesses. In addition, exports controls to restrict the military’s access to sensitive US goods/technology was also imposed alongside freezing some USD1 billion of Myanmar’s military funds parked in the US. The consolation is that these targeted sanctions by the US are formulated to spare the wider economy and the people of Myanmar of undue, compounded, economic pain.
But the worry is that this is merely a prelude to series of unintended consequences; which may entail, but certainly not limited to, tit-for-tat escalation in military crackdown and consequent sanctions as well as geo political disruptions further complicated by pre-existing US-China tensions. Upshot being, initial US response is neither a resolution (far from in fact) nor a reprieve from on-going political and economic uncertainty.
US Sanctions: Targeted by Accountability & Complicity
Following unequivocal condemnation of the military coup that took place on 1st Feb 2021, the Biden Administration has responded with initial sanctions on Myanmar’s military leadership and some of its attendant machinery that it deems responsible and/or complicit. The list of individuals is comprised of the key military leadership behind the coup, led by Commander-in-Chief Min Aung Hliang who has now assumed the position of the de facto ruler; with the likely extension of sanctions to adult family members and their related businesses. Also, the sanctions target three military-linked corporates identified to have aided financially or directly in the coup.
The good news is that the US (Biden Administration) is acutely aware of the disproportional economic suffering of the people of Myanmar and businesses from sweeping economic sanction. And so, this targeted sanctions at the individuals responsible and military-linked corporates that have enabled the military is a welcome consolation; insofar that sanctions do not end up perversely inflicting suffering on the very people it was meant to help, and to the extent that targeting by accountability and complicity induces economic dis-incentives to continue engaging in the current coup/state of emergency.
Complicated by Unintended Consequences
So the hope is that the US’ targeted pressures will mitigate collateral damage and nudge the military back towards restoring the democratically elected government. But the reality is that cause-and-effect are far more complex, risking unintended consequence(s). In particular, inadvertently resulting in an escalation in military clamp-down on protests onshore simultaneously responding to, and in turn invoking, increasingly broader US sanctions. Point being, misunderstood motivations and geo-political miscalculations on both sides remains a significant risk.
Limited Reach & Sub-optimal Recourse
Partly because the limited impact of initial US action may necessitate riskier and more extreme measures. Notably, US sanctions in the current form may have very little sway on the military leaders with this round of sanctions. Point being, these sanctions may not have been unanticipated by some of the military top brass. And the political and economic advantages gained from the coup, in all likelihood, far outweighs the US’ limited sanction penalties.
After all, Myanmar Economic Corporation (MEC) and Myanmar Economic Holding (MEHL), the military’s two (behemoths of) conglomerates, which have a hand in, if not significant domination, of almost every conceivable (certainly key!) sector in Myanmar, have been subject to sanctions all along in any case. And as a result have adapted to not only operate, but thrive, under significant international constraints.
Risking Escalation that May Flout “Do No Harm” Principle
In which case more drastic measures may have to be contemplated; including broader and more brutal economic/financial sanctions that tighten up “leakages” and loopholes. But these will inevitably extract a higher toll on the Myanmar economy; entailing a greater degree of collateral damage. And that necessarily paints the US (and its allies) into a moral quandary of having to flout the low bar of “do no harm”; all in the name of a greater good that may lack visibility.
Sharpened by Geo-political High-Stakes Gambit
What’s more, US’ and the UN Security Council’s options are not only constrained by China’s opposition (support for Myanmar), but by the implicit economic/geo-political threat that an opportunistic China may pose. Whether articulated or not, there is a growing sense that China may be eager to fill up any vacuum left by the US and international investors in Myanmar; simultaneously gaining economic and strategic advantage.
And insofar that geo-political mistrust gets in the way of US-China cooperation on Myanmar resolution, the high-stakes conflict/competition between the US and China may inadvertently prolong political/economic uncertainty in Myanmar. Although it is this very dynamic that Myanmar’s generals may be betting on profiting from.
Far from a Resolution in Sight
The grim upshot appears to be that targeted US sanctions, as much of a relief the initially targeted approach appears to be, cannot shake off very real risks of falling short of the intended effect due to Myanmar’s closed nature coupled with implicit support from China (and Russia). What’s worse is that the potent mix of precarious geo-politics and the military’s tightening grip on Myanmar’s may result in greater economic and political uncertainty in the short-term, pushing out a resolution further from sight.
A foreseeable outcome may be intensifying economic headwinds, and resultant Dollarization in a bid for wealth preservation/purchasing power (amid rising inflation); which in turn magnifies pressures on MMK and the dearth of USD onshore for access by individuals and corporates alike. (See Mizuho Insights – Myanmar Coup: What Next?, 2 Feb 2021)
Source: Mizuho Bank Ltd
