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EU Announces Possible Lifting Of Sanctions On News Of Burma Elections

In Myanmar today, pro-democracy leaders won almost all of the 45 available parliamentary seats.  The ruling party, composed primarily of current or former soldiers, retained control of the Parliament, but the elections were a milestone in Myanmar’s rapid and unexpected entry into the global community.

Garment and textile investors are eager to move into Myanmar. Its large and cheap labor force and proximity to China make it a likely supplier for the enormous Chinese domestic market in apparel, as well as international markets. It has high potential for ready-made goods production, in particular. It also has good proximity to India, a major cotton supplier. Thai investors began moving funds into the country months ago. They have been building infrastructure and increasing capacity in the hope that political reforms will lead the United States and Europe to end sanctions.

That hope came one step closer to being realized today, when the European Commission hinted that sanctions could be lifted as soon as April 23rd, the next scheduled meeting of the foreign affairs ministers. They indicated that restrictions on arms sales might remain in place, but industrial and business sanctions would be lifted. The sanctions revision is predicated on the elections begin declared “free and clear,” which is likely, though some allegations of voting irregularity have been reported.

Investment in Myanmar has been facilitated by a recent currency revaluation, which replaced the government fixed exchange rate of 6 kyat to the dollar with a floating exchanging rate of between 810 and 825 kyat to the dollar. Previously, the exchange rate made it prohibitively expensive to move large amounts of money into the country and was primarily intended to facilitate the acquisition of hard currency by the government, not to facilitate transactions. The country still has restrictions on capital flows, serious infrastructure problems, an underdeveloped stock exchange, and an untested legal system. Templeton Asset Management stated that the lack of a developed legal system should be of particular concern to investors.

Myanmar started heading down the road to freedom about a year ago, but outside sources remain unclear about what motivated the ruling military junta to begin surrendering power. Likely culprits include impending economic collapse and the threat of popular uprising. Five decades of severe mismanagement, corruption, and international sanctions have left Myanmar among the poorest nations in the world.