Opportunity is in the air as Yangon’s hotels bustle with foreign investors eager to stake their claim in the coming economic boom. Myanmar is a country rich in resources emerging from isolation through political, economic and legal reform. In a bid to encourage investment, the government has enacted a Foreign Investment Law (FIL) to replace the failed 1988 version. But insufficient attention has been paid to the emerging legal regime’s impact on the ability of the government to regulate sustainable development. Effective law reform requires a corresponding political and cultural shift in Myanmar.
After all, this is not the first time the government of Myanmar has attempted economic liberalization. The reforms in 1988 ushered in an era that demonstrated that economic liberalization can exacerbate environmental and human rights violations. The previous reform hinged on joint ventures with Myanmar’s economic holdings corporations. These were run by inexperienced military men keen to exploit their connections with local businessmen and those from neighboring states.
The result has been crony capitalism characterized by thirty years of corruption, ethnic conflict, human rights abuses, environmental degradation and little overall improvement in the lives of citizens. Any economic growth was squandered, for example, by spending forty percent of GDP on the military with less than one percent on education. The entire pattern of exploitative development pursued has been condemned in a plethora of reports from civil society. Development became just another excuse to confiscate land, displace communities and enrich military commanders. Foreign investors have been accused of complicity.
The English translation of the new Foreign Investment Law – peddled at many Yangon traffic lights – is a 22 page document that regulates foreign investment and improves upon the previous law. On paper, the new law enables the government to curb foreign investment harmful to development. For example, investment in businesses that use hazardous chemicals or activities that “can affect public health”, “cause damage to the natural environment and ecosystem” or cause “great effect on the conditions of security, economic, environmental and social interest of the Union and citizens” must be submitted to the Myanmar Parliament before a permit is granted.
Yet this is the dilemma for human rights and environmental activists – the government of Myanmar has the final responsibility to regulate foreign investment and it has consistently proven itself unwilling and unable to do so. It is dependent on foreign investment. Can the Myanmar government be trusted to apply its own laws in the pursuit of sustainable development and human rights or will it engage in a race to the bottom, encouraging natural resource exploitation and a low skill low wage export economy as it has done in the past?
In a country infamous for endemic corruption and the absence of the rule of law, foreign investors need to proceed cautiously. There are myriad voluntary international legal standards available to investors. Yet the majority of investment in Myanmar has been badly handled and associated with top-down development policy, corruption and complicity with Myanmar in human rights abuses. Popular opposition to this type of investment is mounting and having an impact in Myanmar, with at least two major projects temporarily halted due to local opposition and instability.
Foreign investors want stability. Conflict in many resource rich areas means uncertainty. Western investors will push for bilateral investment treaties that protect their interests against expropriation and the application of performance requirements by Myanmar. Yet these can be tools to promote human rights and the environment. What constitutes these terms must be clearly defined. Does expropriation mean nationalization of assets or does it include unforeseen regulation, or affirmative action programs to promote local development that reduces profits? Does the transfer of clean technology constitute a performance requirement? Many treaties allow investors to challenge these policies through international arbitration.
What is apparent is that it is no longer 1988 and foreign investment must contribute to human rights development in Myanmar, where health and education standards rank among the lowest in the region. The government must strike a balance between regulation and discouraging investment. The new FIL is unclear on dispute resolution in these matters.
The FIL has the potential to curb the worst exigencies associated with foreign investment. This requires a government willing to regulate, not one seeking only to ensure lucrative retirement packages for government officials as local partners to foreign investors. Privatization and deregulation can insulate the business activity of these elites from popular scrutiny. If poorly regulated, the sudden inflow of investment may continue the trajectory that enriched the well-connected at a cost of extreme inequality, the destruction of traditional livelihoods, environmental damage, instability and conflict. This will scare away long term, sustainable investment just as it has over the last three decades.