New Japanese Government Deepens Burma Engagement

Japan plans to forgive the majority of the debt Burma owes it and invest more in the country.

After his Liberal Democrats won last month’s parliamentary elections, Japan’s Shinzō Abe stated that turning the economy around would be his top priority as prime minister. It is therefore not surprising that the first trip abroad by officials in his new government would be to Burma, a country considered the next frontier for foreign investment since it has adopted political and economic reforms after being virtually isolated from the world while living under decades of military rule.

Japan’s finance minister Tarō Asō arrived in Burma’s relocated capital of Naypyidaw last Thursday for meetings with Burmese president Thein Sein and announced a series of moves that amounted to Japan boosting its economic ties with Burma. Asō reaffirmed Japan’s intention of forgiving ¥300 billion ($3.4 billion) of the ¥500 billion owed by Burma that was first announced last April.

Japan will now extend a new loan to the South Asian country of ¥50 billion, the first in decades, intended for infrastructure projects and the development of Burma’s Thilawa economic zone near Yangon. The Abe government will also work with the Burmese authorities and Japanese banks to refinance the balance of the country’s outstanding debt. This will clear the way for Burma to apply for more loans and international aid.

The Japanese and Burmese governments had recently agreed to begin construction on the Thilawa zone this year. Ostensibly a joint venture, work on the site will be done mainly by Japanese companies. The goal is to build an industrial park and port across approximately 6,000acres where Japanese manufacturers and others can set up shop. The first portion of the site, about four hundred hectares, is targeted to be ready by 2015.

Asō was noncommittal on providing assistance to the massive deepwater port that Burmese authorities gave the green light on in Dawei which Thailand has taken the lead on. Envisioned as the main link connecting markets in India and the Middle East to East Asia, Dawei is expected to cost up to $60 billion upon completion.

In its longtime desire of developing an alternative route to the Malacca Strait, China is building rail links and pipelines across Burma connecting Dawei with its Yunnan Province. It is also building another deepwater port in Kyaukpyu in western Burma.

Before the junta took power Japan historically played a large role in Burma’s economy and the debt stems from that era. With the recent reforms, Japan has quickly returned to being a leading country investing in Burma, though it is still second to China.

Japan’s Burma policy is two pronged: to assist in developing its market, which will benefit Japan’s own struggling economy, and to check China’s extensive engagement in the country.

With a population of about 65 million, Burma is blessed with abundant natural resources and a strategic location between India and China. China has coveted its resources for its growing economy. Burma is also a member of ASEAN, the grouping which comprises the booming economies of Southeast Asia that are expected to form a closer economic union in the near future with talk of a common currency on the horizon.

Because Burma is extremely poor with little capacity to develop its economy, it needs foreign capital to assist it. Countries and multinationals have been salivating over the prospects of getting into Burma.

Amid this clamor there remains deep problems between Burma’s ethnic minorities and the central government. Recently, the Burmese military was discovered to have been conducting airstrikes on Kachins in the north of the country in fighting that spilled over the Chinese border.

Opposition politician and Nobel laureate Aung San Suu Kyi has warned that the reforms are not yet irreversible and the priority should be on the implementation of the rule of law.

To that end, the escalation of conflict in the north is of great concern to foreign governments who lifted sanctions and relinquished their leverage over the Burmese military leaders.

Although the United States still have restrictions on imports of Burmese gems, which senior figures in the army are believed to control, they lifted most economic sanctions last year. During his historic trip in November, President Barak Obama pledged American support for continued reforms but maintained that this engagement was not unconditional.

Japan made clear during Asō’s visit that its support was also conditioned on continued reforms by the Burmese government. The fighting between the military and Kachin rebels has the potential to give pause to such engagement. It remains to be seen whether the Sein Administration has the wherewithal and desire to rein in the military.