On 1 April, the NLD (National League for Democracy) opposition party led by historic figure San Suu Kyi, won the by-elections overwhelmingly despite President Thein Sein’s multiple steps towards reforms and conciliatory initiatives since September 2011. Even though the political impact will be limited, as less than 7% of the seats in Parliament were at stake and leave a large majority for the ruling and military-backed USDP party, this is a symbolic event. It is indeed the first time in half a century that a democratic party will sit in Parliament. As a result, the EU decided to suspend all sanctions (except the arms embargo), whereas the US, denouncing the persistent ethnic conflicts, restricted their easing policy  to a few sanctions and normalised diplomatic relations. Moreover, the positive momentum was further confirmed by Japan’s decision to write off more than half of Myanmar’s bilateral debt, which will reduce the country’s total external debt by a third, and by its announcement that Japan will resume its financial aid to Myanmar.

Impact on country risk

San Suu Kyi’s return to domestic political life as MP and NLD’s local landslide victory are a blow to the military junta. But it might also give a boost to President Thein Sein, as it will encourage him to pursue his policy towards political opening and economic liberalisation. This is crucial as his planned reforms will face resistance from hardliners within the army and the USDP party, which will struggle to keep its privileges. The peaceful conduct of the by-elections and absence of vote-rigging are beneficial to Myanmar’s future political mutation. However, cautiousness prevails given the speed at which Thein Sein has implemented this significant turnaround and the fact that a similar opening occurred in the ‘90s before it was reversed. Meanwhile, contrary to the US’s gradual easing of sanctions, the EU has suspended its sanctions faster than expected to support Thein Sein in his reformist drive. Although the EU can always reintroduce the sanctions if the reforms are reversed, the suspension nevertheless seems to indicate a more decisive move towards improved bilateral relations and increased FDI in Myanmar’s promising market. Moreover, Japan’s decision to cancel Myanmar’s debt paves the way for creditors to take similar steps, which could lead to the resumption of multilateral aid, provided that the positive momentum translates into concrete and lasting measures.

Analyst: Raphaël Cecchi, r.cecchi@credendogroup.com