Since 1 February, full powers have returned into the army’s hands. This new military state coup has been justified by alleged massive electoral fraud which the national electoral commission did not confirm. De facto country leader Aung San Suu Kyi and President Win Myint have been put under house arrest whereas dozens of members of the ruling NLD party have been arrested. The new country leader, army chief General Min Aung Hlaing, announced a one-year state of emergency followed by new elections and pledged to resume peace talks with ethnic minorities. He also claimed to continue the vaccination programme as planned and to ensure business continuity after several banks reopened. Meanwhile, access to social media remains disrupted. The United Nations Security Council did not condemn the coup after it failed to find a common position.
Myanmar’s hybrid democratic experience thus lasted less than ten years. Aung San Suu Kyi’s NLD party had been ruling the country since the democratic opening in 2011 and its landslide victory at the free 2015 elections. However, the civilian rule was only partial as the military still had large powers. Indeed, the constitution grants the army a minimum of 25% of Parliamentary seats and three major ministries (Home Affairs, Defence and Border Affairs). The latest elections of November 2020 won by the NLD with an even bigger majority were probably seen as too crushing a defeat for the army’s party to accept and, crucially, through a push for constitutional reform, as a future major threat for the military’s wide vested interests across the political and economic landscape. The coup was therefore in the air and happened just before the new Parliament gathered.
The short-term outlook is very uncertain. The risk is to see the country return to a new era of junta rule. As the new country leader is accused by the United Nations for his central role in the ethnic cleansing against the Rohingya, no progress is expected in this field under his rule. As for the prospect of new elections organised by the army, it bodes nothing good as history shows past elections have always been neglected, except in 2015. The state coup highlights Aung San Suu Kyi’s failure to compromise with the army to push the country’s economic development forward into a quasi democracy. She is now back to house arrest, like between 1989 and 2010. After the putsch, she called on her supporters to go to the streets and reject it. Given her widespread popularity, confirmed again by the November elections, large anti-coup protests – combined with civil disobedience, which is currently spreading – are to expect. Without any easing of the army’s stance, the risk is to see another bloodshed, as was frequently observed in the past with violent army crackdowns. External pressure is also to expect, primarily from the US and the EU. Sanctions targeting the military and its many businesses across numerous sectors are in the pipeline, on top of already existing financial sanctions targeting the army (including its chief). As a result, doing business could become riskier for western companies while Myanmar is likely to inevitably move closer to China. By considering the state coup as a domestic affair, Beijing expects to be the top beneficiary on the political and economic side.
Economic and financial risks resulting from political uncertainty and potential external sanctions are also to be taken into account. First, the coup comes at a very bad time for the economy as the country continues to be hit by the Covid-19 fallout and suffered from a new wave of contaminations in the last quarter of 2020. Hence, the post-coup management of the pandemic could be hindered. Second, prolonged lockdown measures, potential trade sanctions, further reduced FDI and delayed tourism recovery could hit the economic activity and affect external liquidity and the current account deficit financing. Since the Covid-19 crisis started, Myanmar got international financial assistance to meet emergency financing and fiscal needs and was a rare South-East Asian country to apply for a public debt service suspension until mid-2021. In the absence of improvement in the political situation, the IMF’s recently released real GDP growth expectation of a mere 0.5% for the 2020/2021 financial year (ending in September) could have to be revised down. At this early stage and given the uncertain outlook, Credendo’s political risk ratings remain unchanged on the back of Myanmar’s moderate external liquidity, relatively low external debt and potential benefit from China’s increased economic and financial support.
Analyst: Raphaël Cecchi – email@example.com