Burma's Reforms and Regional Cooperation in East Asia

This paper was first published by Foreign Affairs and International Trade Canada and is posted with kind permission. It was prepared for Canada's International Security Research and Outreach Programme, International Security and Intelligence Bureau, Summer 2013.

PREFACE

The International Security Research and Outreach Programme (ISROP) is located within the Defence and Security Relations Division of The International Security and Intelligence Bureau. ISROP's mandate is to provide the Department of Foreign Affairs and International Trade Canada (DFAIT) with timely, high quality policy relevant research that will inform and support the development of Canada's international security policy in the areas of North American, regional and multilateral security and defence cooperation, non-proliferation, arms control and disarmament. The current ISROP research themes can be found at: http://www.international.gc.ca/arms-armes/isrop-prisi/index

ISROP regularly commissions research to support the development of Canadian foreign policy by drawing on think-tank and academic networks in Canada and abroad. The following report, Burma's Reforms and Regional Cooperation in East Asia, is an example of such contract research.

Disclaimer: The views and positions expressed in this report are solely those of the author and do not necessarily reflect the views of the Department of Foreign Affairs and International Trade or the Government of Canada. The report is in its original language.

Executive Summary

• The pace of Burma's reforms since 2010 continues to shock many outside observers and even many Burmese academics and civil society activists. Though the 2010 elections that brought a civilian government to power were not free and fair, the new president, Thein Sein, has embarked upon a path-breaking and seemingly genuine reform process. The investigators believe that Thein Sein and his advisors and closest allies are committed to the reform process and to improving the image of Burma in the world, though whether the majority of the military agrees is open to question.

• Of all of the areas studied by the investigators, they found the least cause for hope in Burma's potential to develop into an effective federal state, one in which significant political and economic power, as well as cultural rights, are devolved to regions of the country.

• Although Chinese pressure in the past winter helped push the Burmese military to slow down its attacks on the Kachin Independence Army, China is not equipped to serve as a mediator in the Kachin conflict. In fact, the Kachin conflict has become symptomatic of the broader decline in Burma-China relations over the past four years.

• Both the president's office and the NLD leadership have been trying to learn from other nations in the region. Both are eager to avoid the situation that has occurred in Thailand, in which despite a transition to civilian government over the past twenty years, the military never truly was divorced from politics, and continues to view itself as a political force and even staged a coup six years ago.

• The need for aid in Burma is severe and the humanitarian situation is dire. Yet, even if significant amounts of aid and investment are allowed to flow into Burma, an enormous question of capacity still lingers. Every aspect of Burmese society suffers from a lack of capacity, and there is a significant chance of aid being wasted or, as in Cambodia in the 1990s, aid serving some positive purposes but also primarily benefiting foreign staff and foreign aid organizations working in the country.

• Policies Canada should consider include: developing a donors' group to coordinate aid projects in Burma; continuing to suspend sanctions in order to retain leverage before the 2015 national elections; encouraging the Burmese government to utilize outside mediators in resolving conflicts in Kachin state and with other ethnic minority groups; working with the Burmese government to study proportional representation models that might fit Burma's ethnically divided polity; working with ASEAN to create an effective team of election observers for the 2015 national elections in Burma; and encouraging the Burmese government to reform the 2008 constitution to reduce the constitutionally-mandated role of the military in government.

I. Issue

Over the past two years, political and economic reform has gathered pace rapidly in Burma (Myanmar), and to some observers the country, ruled for more than fifty years by a brutal military regime, seems on the verge of a democratic transition. Yet in reality, Burma's reform process is not as dynamic as it seems, and the country is balanced right now on a precipice; the reforms could easily regress or be shut down completely, whether because of renewed civil conflicts, an attempt to retake total control by the military, a lack of performance by elected reformists, breakdowns within the reform movement, a failure to manage opening to promote equitable growth, or other reasons. As examined in the investigators' previous articles, as well as in Kurlantzick's new book Democracy in Retreat: The Revolt of the Middle Class and the Worldwide Decline of Representative Government, numerous developing nations, including several in Southeast Asia, have launched reform processes like Burma's, only to see democratization stall and the public sour on the reform process as the growth expected to be linked to political change failed to materialize.

Both outside countries and Burma's reformers also are paying far too little attention to how change in the country, which under the military regime hindered regional cooperation on traditional and nontraditional security issues, could open up space for drastic regional changes. Aung San Suu Kyi herself, despite a recent trip to Thailand, has no close advisors focused on regional issues.

Yet Burma's emergence as a more open economy and a freer political system could have great significance for regional cooperation on many issues. A more open Burma may become more transparent regarding its nuclear programs, as well as its relationship with North Korea and other suspected proliferators. Burma may become a much larger factor in regional cooperation regarding the resources of the Mekong River and other endangered waterways, as well as petroleum resources in shared ocean areas. A more transparent, less xenophobic, and proactive Burmese government also might play a larger role in addressing nontraditional security issues that have become serious threats in Asia, such as pandemic disease, drug trafficking, and labor migration; up until now, Burma has been at best a hindrance to cooperation on these issues and at worst a major source country for drugs, disease, and other challenges. A more open Burma, particularly one with long-time reformists in government after the 2015 elections, could be a leader, along with Indonesia, in encouraging the Association of Southeast Asian Nations to adopt a more proactive stance in promoting human rights regionally. Burma's emergence as a more open economy also could help speed up the process of creating the ASEAN Free Trade Area, which currently is proceeding slowly, on two tracks, with Burma one of the countries on the slower track and hindering true region-wide integration. The successful creation of the ASEAN Free Trade Area, including Burma, which is one of its largest markets, would demonstrate that ASEAN is capable of meeting goals—a problem in the past—and would potentially set the stage for a free trade area encompassing all of East Asia, with ASEAN at the core. Such a free trade area, potentially the largest in the world, could be an enormous boon for both Canada and the United States, allowing companies from both nations to build integrated supply chains across Asia, to treat the region as one market, and opening up many new, largely untapped markets, like Burma, to consumer products. (To take one example of Burma's opportunities, mobile phone penetration in the country currently stands at less than five percent, compared to nearly 100 percent in a more developed economy like Singapore.)

Finally, significant political change in Burma could dramatically alter the strategic calculus in Southeast and South Asia. Until last year, Burma's inclusion in ASEAN was an obstacle to closer ties between ASEAN and many Western nations, including the U.S. and Canada; in addition, Burma's closeness to China hindered India-China relations, and also hindered the development of road and rail infrastructure through Southeast Asia. Burma's political isolation and relationship with Beijing prior to 2010 also helped create a looming situation in which countries in South and Southeast Asia would ultimately divide themselves into two camps, if not formal alliances, with one group allying with China and the other allying with the United States, the two regional powers. A more open Burma could become a closer strategic ally of the U.S., Canada, India, Australia, and several of the more liberal members of ASEAN, such as the Philippines, Indonesia, and Singapore. Or, a changed Burma also could become a bridge between Southeast Asia, China, and India, both with new physical infrastructure and by maintaining close relations with all sides, the way Burma once did early in its democratic period in the late 1940s and early 1950s. In this way, a changing Burma actually could help defuse conflict and the possibility of informal or formal alliance networks emerging in South and Southeast Asia, organized around China and the United States.

Thesis Statement: This project will examine the impact that Burma's reforms have had on the regional strategic and economic calculus, will analyze how the direction of Burma's reforms will alter regional cooperation in the next five to ten years, and will make recommendations for Canadian and U.S. policy about how to foster reform in Burma that also strengthens regional institutions and makes Burma again a central part of these institutions.

B. Project Questions

In examining Burma's reforms and their potential impact on the region, the research has addressed the following core questions:

• How consolidated are Burma's political and economic reforms to date, and what institutional frameworks are being put into place to prevent rollbacks of reform?

• Who are the key actors promoting reform, what are their interests, and what are they doing to ensure long-term public support?

• Who are the key actors potentially obstructing further reform, what are their interests, what are they doing to gain public support, and how might they be handled, both through the creation of institutions and through one-time measures?

• What lessons in its reform period can Burma learn from its neighbors?

• What lessons could be learned for Burma from other nations' civilianization of their militaries?

• What role, thus far, have important regional actors played in Burma's reform period since 2010? How have their efforts been perceived inside Burma? What role are these outside actors likely to have in Burma's economic and political reform over the next five years?

• How realistic is the potential for Burma to become an important road, rail, and shipping hub linking South and East Asia? What kinds of investment can help foster Burma's road and rail links? What rate of investment is possible without overwhelming Burma's capacity to absorb investment? Who, if anyone, is coordinating investment in and aid to Burma, as the aid and investment now flows in?

• What drivers are behind the decisions by the U.S., Australia, Japan, Canada, and Europe to normalize relations with Burma? What are the domestic political constraints in these Western nations on further normalization?

• As major powers have increasingly built up their military ties in the region, as well as their naval projection in the South China Sea, the Indian Ocean, and other important bodies of water, how can Burma avoid becoming the center of a "New Great Game," echoing the period in the 19th and 20th centuries when Western powers competed for advantage in Central Asia? What role do Burma's future leaders see for their country in its relations with the major powers in the region? How do Burma's future leaders see China and India's relations with a revamped Burma?

• What role, if any, can Canada, the U.S., and other Western nations play in promoting greater Burmese engagement in regional institutions?

C. Project Methodology

First, using secondary sources and interviews with a wide range of policy-makers, aid organizations, and specialists on Burma and on regionalism, Stewart and Kurlantzick have analyzed the true extent of Burma's reforms thus far and the major challenges that remain, as well as the significant obstacles to any further progress in Burma. An abbreviated bibliography is attached below, but it does not reflect the entirety of the readings done by the investigators. They held several roundtables in Washington, with officials, experts, and academics including Southeast Asia specialist Duncan McCargo of Leeds University. A further roundtable, featuring several specialists on ASEAN including Amitav Acharya of American University, Murray Hiebert of CSIS, Stewart Patrick of CFR, and James Clad of NDU, focused on ASEAN's challenges adapting to an Asian environment with a reinvigorated U.S. presence and an increasingly aggressive Chinese military presence. The roundtable also considered what role Burma might play in ASEAN. In addition, the investigators conducted personal, one-on-one interviews with officials in Washington, representing a cross section of US agencies and government offices. The investigators also interviewed Chinese officials studying China-Burma relations; several academics currently studying Burma's ability to effectively utilize the large amount of aid now pouring into the country; heads of several large American NGOs now moving into Burma to do work on the ground for the first time; Burmese economists; senior representatives of ASEAN; and others.

These roundtables were attended by a broad range of Western specialists on Burma, on aid, and on Southeast Asian regionalism, as well as by Burmese academics, journalists, politicians, diplomats, and officials.

The investigators traveled to Burma, Singapore and Thailand to examine, first-hand, the state of reforms and the many challenges to reform that exist, and the scenarios for Burma's impact on regional integration. They used their interviews in the region to consider Burma's policy options, the policy options for regional powers and for regional institutions, and how the U.S. and Canada and other Western nations historically focused on Burma can best support Burma's reforms, broaden their focus, and bolster Burma's positive role in regional integration.

The investigators convened a roundtable in Washington in February which examined Burma's reforms, and also looked at the challenges in Rakhine State and with the Rohingya conflict. The investigators also held a roundtable in February examining relations between a changing Burma and neighboring Thailand and Singapore, as well as with ASEAN more broadly.

Conclusions

1. The Current State of Burma's Reform Process

The pace of Burma's reforms since 2010 continues to shock many outside observers and even many Burmese academics and civil society activists. Though the 2010 elections that brought a civilian government to power were not free and fair, the new president, Thein Sein, has embarked upon a path breaking and seemingly genuine reform process. The investigators believe that Thein Sein and his advisors and closest allies are truly committed to the reform process and to improving the image of Burma in the world, though whether the majority of the military agrees is open to question.

Yet at the same time, some fundamentals of Burmese politics have, worryingly, not changed as much as they seem to have shifted since 2010. Burmese politics have remained too highly centralized. The reforms, though progressive, have been led by a small, centralized group of leaders, including Aung San Suu Kyi, and so the reform process is highly dependent on these individuals—Suu Kyi and Thein Sein both have been in poor health at times over the past two years. What's more, the nature and drivers of the reform process remains so personalized and opaque that few average Burmese understand what is happening and why, and thus outside of a small stratum of urban elites/middle-class many Burmese have notbecome as engaged in the political change, in part because they fear the reforms will collapse. Broadening the reform process, and making it more transparent, will be critical to defeating political apathy, as will making the reform process more inclusive of minorities, as discussed later on. It also will help build broader public support for Thein Sein, both within and out of the military; though the president has reshuffled his cabinet several times to remove some of the hardest-line opponents of reform, he still cannot count on all of his cabinet or his regional military commanders to support his decisions, calling into question at times who is running the country today.

In addition, the 2008 constitution that provided the genesis for the reforms remains highly flawed, and while President Thein Sein has demonstrated his reformist instincts, he has less support within the military and his party for allowing significant changes to the constitution. Yet for Burma's reforms to be consolidated, parts of the constitution giving enormous political power to the army must be altered, perhaps through some compromises that prevent any future prosecutions of military officers and allow the military great autonomy in defense and in defense spending. Though these changes have been mooted, there has been pushback among even moderates in the army, though the army commander-in-chief has on several occasions publicly affirmed that the military should in the future restrict itself to national defense.

In addition, the National League for Democracy, likely to win the 2015 elections if they are free and fair, is poorly prepared to step into governing. Suu Kyi herself has only a small group of advisors, and they do not draw upon a large field of outside expertise. Aides and allies say that she has found it difficult to adjust to being an active politician and potential policy-maker, and that she is poorly served by her small staff, which does not have broad knowledge of economic theory, comparative politics, regional security, or challenges in the ethnic minority areas. Both the Burmese business community and many foreign investors who have met with Suu Kyi and her aides report that they demonstrate little understanding of investment laws, the nature of investment in general, and how to manage what is likely to be a vast upsurge in foreign investment in the next five years, particularly from Japan. In addition, Suu Kyi and the NLD have poor contacts with senior leaders in Thailand and Singapore, and there is deep distrust of the NLD among leaders from both Puea Thai and the Democrat Party in Thailand, as well as in the Thai military establishment. Although cooperation between Thailand and Burma and India on nontraditional security challenges like narcotics, migration, arms trafficking, and pandemic disease has never been strong, the authors believe this cooperation actually will get worse in the coming years, as the central government in Burma loses control over regional military commanders, and the party running Burma after 2015 struggles to get up to speed on regional issues and to make contacts with regional leaders and intelligence agencies.

There appears to have been little preparation in the NLD for the possibility of governing the country right after Burma holds the ASEAN chair, and the authors found almost no experience within the Burmese opposition in regional issues. As a result, regional policy-making is being dominated by a very small group of advisors around the president, but then essentially being thrown open to public comment after plans between Burma and its neighbors have started to go forward, like the Dawei project. On several occasions, the Burmese public, which has become much more educated about regional projects and willing to protest, has actively protested to stop regional infrastructure projects or investment projects like Dawei. The fact that the public is able and willing to protest is a welcome step forward. Unfortunately, there has been little of the kind of intermediate steps on such projects that are necessary in mature democracies: Project proposals that are then vetted in parliament, or posted online, or opened to the public for a comment period. Instead, regional cooperation projects have gone forward essentially by fiat from the president's office, and then sometimes are cancelled by fiat from the president's office after public protest. Already, neighbors like Thailand and Singapore have grown increasingly worried about the lack of protection for their investments in a future Burma.

Yet parliament has surprisingly at times become a significant counterweight to the executive, and not only because of the election of a minority of MPs, in a by-election, hailing from the National League for Democracy. The speaker of parliament, Thura Shwe Mann, has been at the center of this push to entrench more power in parliament, to the surprise of many Burmese. He was previously a high-ranking member of the former junta, and known to be relatively hard-line, at least as compared to Thein Sein, who always had a reputation for relative moderation, even during the period of absolute military rule. Several confidantes of Thura Shwe Mann say that his interest in parliamentary democracy is real; however, he never displayed such interest prior to 2010. More likely, his interest is that he too sees parliament as a vehicle to greater power. However, in his actions to strengthen parliament he has strengthened Burmese democracy—parliament has in the past two years aggressively questioned budgets of government agencies, MPs have begun holding press conferences, parliament has debated many government policies, and overall parliament has increased the level of transparency of Burmese politics and helped make average Burmese far more engaged in politics. This has come as a shock to most Burmese, who expected the parliament to be docile, given the country's history of centralized, executive rule. For Burmese reformers, and donors, the question will be how to leverage the speaker's strengthening of parliament for the better, helping to create an effective balance of powers in the new Burma, without allowing parliament to become simply a group of different factions led by power brokers without any legislative agendas.

2. The Future of the Tatmadaw (Burmese military), and Lessons from other Nations

Both the president's office and the NLD leadership have been trying to learn from other nations in the region. Both are eager to avoid the situation that has occurred in Thailand, in which despite a transition to civilian government over the past twenty years, the military never truly was divorced from politics, and continues to view itself as a political force and even staged a coup six years ago. Both the president's office and the NLD have eagerly interacted with military envoys and civilian leaders from Indonesia who have outlined the Indonesian approach to civilianization of the armed forces, which essentially combined gradual reductions of the army's political power with an increased defense budget, greater professionalization, and protection of former army leaders from any prosecutions for past rights abuses .

Suu Kyi has made clear, both in private and even in some more public appearances, that despite the fact that decades of global Burma campaigns have focused on the atrocities of the military regime, she does not favor a justice and accountability process for the military that would include any serious punishments. In fact, it is the investigators' belief that the transition from military to civilian role launched in 2010 and allowed by former Senior General Than Shwe has occurred in large part because the former military leadership understood that, with Suu Kyi still alive, they had an opportunity to retire with all their economic gains intact, avoid prosecution, and have Suu Kyi deliver this message to the Burmese public—she is probably the only person who could effectively do so. Still, in so doing she will encounter enormous resistance from many in the Burmese democratic movement, and after 2015 the movement could split over this issue of justice.

In some ways, the possibility of a general amnesty for former military leaders, combined with a gradual winnowing of the military presence in parliament, perhaps initially by altering the constitutional provision guaranteeing the military twenty-five percent of seats and the provision retaining great political powers for the army commander-in-chief, has some parallels to the Indonesian experience. Some Burmese academics and officials close to the president suggest that the new leadership of the Burmese military desires to return to a strictly professional, nonpolitical role; in fact, the current army commander-in-chief has repeated such sentiments to American and other Western officials, while asking for greater military-military cooperation and training for his men. The U.S. has been forthcoming, inviting the Myanmar military to attend the joint Southeast Asian Cobra Gold exercises, and promising much closer future mil-mil cooperation, with perhaps even a strategic cooperation agreement on the books by 2016. Senior officials in the Pentagon are very aggressively pursuing mil-mil ties with Naypyidaw, and believe that Burma has significant strategic value for its long coastline, its close ties with China, and its position between India and China. Yet other Burmese activists and some retired Burmese military—and some international rights groups—note that only a few top generals from the former military regime have resigned, that the U.S. has little idea whether the officers it is now interacting with were involved in abuses in the past, and that Burmese officers who trained in American military programs in the 1960s and 1970s played central roles in the 1988 crackdown on protestors in Rangoon and the "coup" in 1990 that nullified the NLD's election victory and kept the military in power for another two decades. In addition, there has thus far been little evidence that mil-mil cooperation with other pseudo-authoritarian Southeast Asian nations, such as Cambodia and Vietnam, has improved those militaries' adherence to rights norms or had any impact on the overall human rights climate. U.S. officials claim to be confident that military-military cooperation will only target the more reform-minded officers in the Tatmadaw.

What's more, the prospect of a general amnesty being negotiated by the military with senior members of the Burman-dominated NLD, when the majority of the worst military abuses took place in Burma's borderlands, in battles against ethnic minorities, could only confirm suspicions among ethnic minorities that the political transition will be an entirely Burman-dominated affair. In addition, although some new donors may be willing to continue providing aid to Burma in the absence of any real justice and accountability project, other donors, such as Open Society Foundations, Scandinavian nations, and others, may not be willing to do so.

Within the military, too, there are deep divides about the future of the institution, which is not surprising given that until two years ago all officers were taught that the Tatmadaw had been the one institution holding Burma together and had played the most critical role in Burmese politics for decades. The possibility of another coup, potentially by middle-ranking officers, cannot be dismissed, and its chances were given at twenty percent in the next five years by several Burmese military analysts. The reason, they say, is that while senior level generals like Maung Aye and Than Shwe retired with all of their assets intact, and with huge wealth distributed to their families and their cronies, mid-level officers from the previous military regime were not able to amass such assets to bring over into the current civilian-run environment.

Several close observers of parliament say that former Senior General Than Shwe has seeded the ruling party with hard-liners who will make sure that any reforms proposed by Thein Sein or Suu Kyi never get too far, too fast. If the NLD were to win the 2015 election, these hard-liners, through the military's seats in parliament, could hinder change or squash it completely. In addition, the constitution still gives the military the right to step back into power if it feels it is necessary, in the case of a national emergency, thus essentially offering the possibility of a coup at any time in the future. While Than Shwe, Maung Aye, and other senior officers retired with the massive assets controlled by they and their families—when Than Shwe's daughter married, in a lavish ceremony captured on YouTube she was draped around the neck in giant necklaces of precious gems—younger officers did not get a chance to amass significant assets before the transition to the Thein Sein period. Instead, these middle-ranking officers may find themselves without a job, and without the access to government funds and natural resources deals that their superiors made before retiring. Already, some middle-ranking officers have essentially been laid off, according to several army sources, or have been pushed into politics, in the USDP party, if they want to continue to retain power. This has angered them, as many are uncomfortable in politics and have no desire for parliamentary politics. This could be yet another powder keg in the country's fractious transition. Angry that their superiors cashed in, but they could not, these middle-ranking officers could easily see justification, like each successively younger class of army officers in Thailand, to stage a coup when there is even the pretext of mild unrest, like the kind currently happening in Rakhine State. The Burmese military has received little warning against a coup from outside actors. None of Myanmar's neighbors seem to care about the violence and ethnic cleansing in Rakhine State. Bangladesh has refused to allow in most of the Muslims fleeing Rakhine State, while the Association of Southeast Asian Nations has been almost totally quiet on the topic, even as it fetes Myanmar's president for his bold political and economic reforms. The former ASEAN Secretary-General, a Thai Muslim named Surin Pitsuwan, however, has pushed the organization to take a bolder stance. Speaking with reporters, Surin said that the international community must pay closer attention to the Rohingya but also said that "it is for the UN and international institutions to come forward in this matter," and that ASEAN should not remain silent. However, he admitted, because ASEAN does not intervene in its members' affairs, "We can help only if [the Myanmar government] agrees." Still, Surin worried that continued attacks on Muslims in western Myanmar would lead to greater radicalization throughout Southeast Asia, as jihadist groups in Indonesia and Malaysia, which are closely following the Rakhine State situation, would strike back at officials from ASEAN, Myanmar, or Western nations in revenge for the killings and burnings.

Yet at the same time, this group of mid-level officers could become a tool of leverage for greater opening and reform, and even could play a role in ending the remaining conflicts in ethnic minority areas. Along with the speaker of parliament, minority of the officers-turned-politicians in parliament have sensed that parliamentary politics may become the vehicle to power (and possibly, wealth) in a changing Burma, and they actually have pushed aggressively for a stronger, more independent parliament capable of scrutinizing and criticizing the president, examining budgets, speaking openly to the media, and other essentials of a democratic system.

However, this progressive future, in which the military plays a positive role, seems unlikely to us, at least at this point. On a recent trip to Rakhine State, the authors were unable to either prove or disprove rumors that local security forces actually were involved in stoking Rohingya-Rakhine violence, though it did appear in several locations that local security forces were doing nothing to search for or arrest alleged perpetrators of violence. What's more, there are significant—and largely unexamined by the press or diplomats—divergences between Naypyidaw and regional military leaders operating in ethnic minority areas. The authors found that many local and regional commanders, as well as officers, were distrustful of the central government's strategies via ethnic minorities in general and the ongoing insurgencies, such as the Kachin, specifically. In the Kachin conflict, local commanders disobeyed orders by Naypyidaw to slow and then stop the fighting, both because they did not trust Naypyidaw to make a reasonable settlement and also because they wanted to extend the army's gains as far as possible before a real and concrete settlement was gained. Although there was more support for the army commander than for Thein Sein among regional officers we interviewed, the army commander also did not enjoy unqualified support. Many officers and regional commanders, though they share some interest with the central government in cease-fires in the Kachin area and other areas, view the resource-rich areas of the Kachin, Rakhine, Karen, and other nationalities as possible locations for army companies, similar to those established in China, to dominate. Quite a few officers envision a future in which they remain powerful in the areas in which they were posted, and wield this power through local businesses set up by the army or approved by the army. So, while in the short term they want peace, in the medium term they do not share the central government's desire for total centralized, civilian control of the military. In addition, no military officers whom we spoke with had any interest in disarming the United Wa State Army, the massive (at least 15,000 men and sophisticated weapons) narcotrafficking militia that controls northeastern Burma and essentially operates without any real central government oversight. The military realizes that fighting the United Wa State Army would be much harder than fighting the Kachin, and even against the KIA the Burmese military displayed a lack of intelligence, tactical know-how, and planning that was exposed in several fights.

Needless to say, this lack of central command over many regional commanders is a serious problem, and bodes poorly for the future of civil-military relations in Myanmar. If Thein Sein, who himself is a former general and has long relations with many regional commanders, cannot control regional commanders, their operations on the ground, or their business interests, how will a future Burmese president with less military background be able to do so? Many officers expressed some respect for Aung San Suu Kyi and the NLD, but they were reluctant (not surprisingly) to say much, and it will be very challenging for any government in power after the 2015 elections to centralize control over the military. It is possible that a government could essentially buy off the regional and local commanders while downsizing and centralizing the military, as was done in Indonesia by giving officers significant pensions, jobs at state-linked companies, and greater defense budgets while also establishing centralized civilian control. But Myanmar's military budget is already enormous, and any effort to give pensions, jobs, or other perks to officers is going to be strongly resisted by many in the NLD and the broader democratic movement, which suffered badly under military regimes. Aung San Suu Kyi herself, while publicly noting her devotion to and connections with the military, has offered little substantive on how to shrink the military over the long run and reduce the influence of regional commanders. Within the NLD and other potential democratic governing parties, there is already strong anger at Suu Kyi simply for discussing her respect for and relationship with the military—a sign of how hard it might be for Suu Kyi to develop closer ties with the military and possibly provide the military with benefits in order to bring it under control.

3. The Future of the Burmese State: Regional Lessons

Of all of the areas studied by the investigators, they found the least cause for hope in Burma's potential to develop into an effective federal state, one in which significant political and economic power, as well as cultural rights, are devolved to regions of the country. Given Burma's enormous ethnic diversity, it would seem that the country's future requires a more federal state than the one created by the military between 1962 and the current day, in which, despite the existence of various states named after dominant local ethnic groups, ethnic Burmans have dominated policy-making, minority regions have enjoyed little actual input into the use of their land and resources, and civil wars have broken out constantly. As a recent article in the Journal of Democracy notes, Burma has little prospect of becoming a nation-state any time soon, in the sense of all its people feeling a strong sense of unity to a national concept of "Burma" or Myanmar, so its best hope should be to aim to become a "state-nation" like India, in which many different ethnic nationalities are given wide cultural and political autonomy, in different states across India, while also swearing fealty to the national government. But this kind of asymmetrical federalism is only possible because Indian states have highly devolved forms of government, with elected state executives and local elections as well. Burma has little history of elected state executives or local elections, even in the brief period post-independence during which it flirted with democracy, before the initial military takeover of 1962. Many military and civilian leaders in Yangon and Naypyidaw retain great fear of the kind of "multiple but complementary identities" model discussed in the Journal article and utilized in India.

India, indeed, is in many ways a model for a future Burma, a state that could hardly count on any national unity for some time to come. However, reflexive Burmese animosity toward their large neighbor may make it difficult for Burmese politicians to see the lessons from Indian democracy. Such a "state-nation" would include elected local legislatures or governors in each province, giving provinces a higher percentage of tax revenues, and giving provincial leaders greater control over the tapping of natural resources, as well as the profits from them. It also likely would include greater recognition of each ethnic minority group's unique cultural heritage. In return, the ethnic minorities would pledge their allegiance to the national government, ending all civil wars, and also would teach a standard history/civics curriculum in schools across the country. Such devolution would likely be the only way to avoid ethnic conflict, to resolve those ongoing wars that have not led to cease-fires, such as the conflict in Kachin State, and to avoid the kind of "ethnocracy" politics that have come to dominate other Southeast Asian nations like Malaysia with significant ethnic diversity and a lack of devolution or recognition of ethnic groups' cultural importance.

This goal, unfortunately, seems very hard to reach in Burma, and indeed it will be the failure of true federalism, more than the challenges of reintegrating the army into civilian control, that is most likely to derail the transition. It has become clear that, while on many other issues—reforming the military and reducing its budget, helping foster an active civil society, creating a truly free and fair electoral process, improving relations with many of Burma's neighbors, making environmental considerations a greater part of government decision making about infrastructure projects—both the administration of Thein Sein and the leaders and rank-and-file of the democratic opposition take relatively thoughtful and progressive stances. However, when it comes to creating a more devolved, federal structure of government, there are almost no leading Burman politicians willing to aggressively enunciate this view, as Suu Kyi's father, independence leader Aung San, once did. In addition, while ethnic minority areas are the most in need of aid and investment in physical infrastructure, players in Naypyidaw already are competing to channel new foreign aid and investment to Burman regions, which though needy are not as needy of roads, electricity, and other necessities.

Instead, the investigators found that there is minimal support among ethnic Burman leaders for a truly federal state, with the kind of devolution of economic and political power that Indonesia has attempted during its period of democratization. In addition, nearly all of the senior officials in the president's office, the NLD, and civil society remain focused on national-level politics, and particularly on the upcoming 2015 national elections, which are seen as the polls that could consolidate Burma's democracy. However, there is almost no brainpower being spent on developing ideas for devolution, for local level elections, and for state executive elections. Within the top ranks of the National League for Democracy, Suu Kyi's party, nearly all senior leaders do not support significant federalism, despite the fact that they have few other concrete proposals for how to handle Burma's vast ethnic diversity and ethnic minorities' deep distrust of the national government, due to years of repressive centralized rule. Although Suu Kyi herself has publicly advocated for a new federal model, and has paid homage to her father's vision, which was enunciated at the Panglong Conference and Agreement in 1947, and though she is probably the only Burman trusted enough by ethnic minority leaders to preside over a new federalism, she has not made it the centerpiece of her politics since joining Parliament last year. She, too, has focused on the 2015 national elections almost exclusively. Given that she remains relatively weak politically, she also has been wary of taking on tough ethnic minority issues that could cost her Burman support before she and the NLD actually control Parliament. In addition, even at the highest levels of the NLD many senior leaders exhibit worrying racism and hostility toward numerous ethnic minority groups. This has manifested itself most noticeably in reaction to the ongoing violence in Rakhine State, in the west of Burma, near the Bangladesh border. Many in the NLD originally issued tough statements essentially calling for the Bengali Muslim Rohingya to be forced out of the country following the initial wave of violence, and with her own party equivocal on the violence—which has affected far more Muslim Rohingya than Buddhist Rakhines—Suu Kyi did not for months take a strong public stance condemning the violence or suggesting that the Rohingya were due the same rights and privileges as any other Burmese citizen. For this stance, she was heavily criticized in the international community, and by several ethnic minority group leaders, yet it was privately welcomed by many Burmans in the NLD.

The president, Thein Sein, initially responded to the violence in Rakhine State by calling for all Rohingya to be deported from Myanmar, though by the fall he softened that stance considerably. In August he called for a government committee to investigate the violence, and has at times obliquely suggested the Rohingya Muslims should be given citizenship, before backing off those claims. In November, Thein Sein also publicly announced that the government would prosecute anyone involved in violence in Rakhine State, the first time he had made such a statement. Right now, though, because Thein Sein comes from the military, and because many in Rakhine State have doubts about whether the military and police have been involved in triggering, or at least tolerating, the violence there, Thein Sein is not seen by most Rohingya as an honest broker.

4. Kachin State and Relations with China

This problem of lack of trust will manifest itself again when the government deals with the ongoing conflict in Kachin State, which has spiraled out of control in the past two years even as the government has made peace deals with several other smaller ethnic insurgent groups. The Kachin do not trust Thein Sein as an honest broker, even though his cabinet does contain several ministers with experience with the Kachin. In addition, Thein Sein seems as uncomfortable with the idea of significant political and economic devolution to states and localities as the NLD does. At the same time, though the Kachin leadership trusts Suu Kyi and the NLD more, Suu Kyi's wavering with the Rohingya/Rakhine issue, and her overall problems transitioning to policy-maker, have made some of the Kachin Independence Army leaders increasingly distrustful of her as well. Should this distrust build, and Thein Sein and Suu Kyi not work quickly in the next year to develop plans for a future federal state, by 2015 Burma may be in the position in which many ethnic minorities trust no Burman leaders at all, which would be a recipe for continued conflict and even a splitting up of the country. In the past two months, in fact, Suu Kyi, who was once above criticism in Burma, has come under withering criticism not only from Kachin, Rakhine, Rohingya, and other ethnic minorities but even from many ethnic Burman politicians and activists for remaining silent on the Rohingya/Rakhine issue and for failing to present a reasonable plan for a future federal Burmese state.

In addition, both the remaining armed ethnic groups and the national government appear distrustful of the possibility of utilizing outside mediators and facilitators to help end the war in Kachin state and other remaining conflicts. In other parts of Southeast Asia, outside mediators have played a constructive role in helping end conflicts in the southern Philippines and Aceh. But within Burman elites, there remains a strong strain of xenophobia, even within the NLD, in part because of Burma's long isolation from the world, and more recently Western sanctions, which pushed Burma into a close relationship with China that was resented by many senior military commanders. This isolation may be contributing to the refusal to allow significant outside mediation in Burma's ongoing conflicts. Although Chinese pressure in the past winter helped push the Burmese military to slow down its attacks on the Kachin Independence Army, China is not equipped to serve as a mediator in the Kachin conflict. The authors found that no senior Burmese commanders trust China as a mediator, and many still remain suspicions that China is somehow equipping or harboring KIA forces, which we believe to be utterly untrue.

The Kachin conflict is symptomatic of the broader decline in Burma-China relations over the past four years. The long-time allies Burma and China experienced a turning point in their relationship in Sept. 2011 when the Burmese government conceded to public opposition, activists, and pressure from Aung San Suu Kyi to suspend the Chinese Myintsone dam project on the symbolically-important Irrawaddy River in the Kachin State of Burma. The $3.6 billion project financed and run by Chinese state-owned enterprise China Power Investment Corp. would have flooded nearly 65,000 acres of land, displacing as many as 10,000 Kachin people. President Thein Sein suspended the endeavor in September 2011, saying it was "contrary to the will of the people." The 2006 joint venture stated that 90 percent of the power generated from the dam would have been directed to China. It was to be built less than 100 kilometers from the major Sagaing fault line, presenting an enormous risk to local communities in the event of an earthquake. Experts worried there would have been environmental ramifications, including the decline and loss of certain fish species. Immediately downstream of the dam, the flow of water would have been similar to the conditions during the height of the dry season, making for less favorable habitat for fish.

Turmoil over the Myintsone deal augmented a list of reasons that convinced Burma to open to the West, including: the progress its previously poor neighbor Laos had enjoyed; anxiety in Burma about the implications of the Arab Spring; the lessons of Vietnam's cooperation with the United States and the belief in American business; embarrassment over the economic sanctions regime; superstition surrounding the 2009 collapse of the family pagoda of Than Shwe in Dagon; the desire to follow the path toward democracy outlined in the Seven Point Roadmap; as well as a sense—especially in the military—that Burma cannot rely on China to secure its welfare and that the relationship was unbalanced, favoring Chinese interests. Like many in Southeast Asia, Burmese feared China may turn their country into a Chinese colony. Opening to the West was a way for Burma to rebalance its relations.

The Myintsone episode took place against a backdrop of fragile relations since 2009 when tensions came to a head over a military drug raid in Kokang, in Burma's Shan state, that sent as many as 30,000 refugees fleeing to China's Yunnan province. The Kokang people are Mandarin-speaking Han Chinese living in the Kokang Special Region of Burma, a place where many Chinese nationals also do business. The raid infuriated Chinese officials who said the Burmese military should have done a better job of protecting Chinese citizens in Burma, maintaining internal stability, and notifying China before it happened. In response, the Chinese government tightened security along the porous border while applying pressure to both sides to return to a ceasefire. They received mild praise from international bodies by housing and feeding the Kokang refugees. In the summer of 2012, however, the Human Rights Watch accused China of forcing the refugees back to the conflict zone in Burma.

During the sanctions regime against Burma, China took the opportunity to invest in Burma, extracting resources such as jade, teak, fossils, and its famous gems. In fact, some officials cited China's "backdoor" economic relationship with Burma as weakening the sanctions. This extractive relationship has created resentment inside Burma. Along with Burma's cronies, China is also a huge beneficiary of land grabs. The Burma-China relationship further deteriorated last year from controversy over a copper mine project in Letpadaung, near the city of Monywa in the Sagaing Region. It was another project involving a Chinese SOE Wanbao Company and a Burmese military-owned company that featured corruption, "excessive force" against protestors, and a massive land grab of 7,800 acres from 26 villages, according to the Irrawaddy. The dispute started when the local farmers accepted compensation from the mining company for three years' worth of income from the loss of their crops, when, in fact, the government had leased their land to the mining company for 60 years without fully consulting the farmers. In September 2012, local villagers and monks staged a peaceful protest against the building of the dam. In response, Burmese authorities used grenades and white phosphorous weapons against the demonstrators, inflicting second and third degree burns.

In response to strong protest from the Burmese public against the Letpadaung project, the government launched an investigation on whether it should proceed. In Feb. 2013, a report issued by the investigation found excessive forced was used against protestors, including the use of military-style white phosphorous weapons to inflict serious burns on as many as 100 monks and villagers. According to the Irrawaddy, The parent company of Wenbao is the Chinese state-owned Norinco Group, which manufactures vehicles, chemicals, as well as military firearms, ammunition, and explosives. A story recently featured in the Washington Post press tells of a villager in Letpadaung who refused to "lease" his village's rice paddies to a military-owned company and Chinese partner was then thrown in jail. Bulldozers flattened the land anyway and armed guards threatened violence against villagers who left their houses.

According to Brookings scholar Yun Sun in Foreign Policy magazine, after Burma's suspension of the Myitsone Dam, Chinese government analysts recommended China should focus on strengthening relations with the ethnic Wa and Kachin groups, as maintaining ties with the central government in Naypyidaw has not worked to their advantage. As the scholar pointed out, China can no longer depend on Burma as its "strategic corridor into the Indian Ocean" or support in ASEAN given the rapidly warming Burma-U.S. relationship. These analysts say assisting the minority ethnic groups and stabilizing the border area will reinstate China's influence over Myanmar. Overall, China faces the dual challenge of an increasingly democratic Burma that views U.S. ties as the path to prosperity as well as being associated with colluding with the tainted military junta. As mentioned earlier, one of Burma's greatest challenges is to create a national identity along the lines of a nation-state or at least a "state-nation." If China is seen as undermining Burma's democratic progress and national cohesion, however, by supporting rebel groups, abetting corruption, promoting cronyism, or stifling public opinion, its image and influence in the country are likely to suffer. If China is able to help repair Naypyidaw's relations with ethnicities toward a national unity conference, desired by President Thein Sein, or a more robust federalism, it could stand to gain in standing greatly.

Nevertheless, Burma is looking to its other neighbors to diversify its international partnerships. Although Indian influence in Burma is currently small, India is one example of a growing partnership with great potential. In early 2001, India and Burma began a 160 km highway, called the Moreh-Kalewa Road or the Indo-Myanmar Friendship Road, aimed at providing strategic and commercial transportation connecting Northeast India and Southeast Asia. The highway connects India, Burma, and Thailand. India's focus recently has turned toward geostrategic issues and improving its relationship with Burma's military. The countries have undertaken joint military exercises against insurgents in India's Northeast. The military exercises solidified a new commitment for coordinated counterinsurgency operations. India and Burma signed four economic cooperation agreements on June 24, 2008 in the Burmese capital with India's Union Minister of State for Commerce and Power and the Burmese Minister for National Planning and Economic Development. In January 2010, India led a delegation to Naypyidaw for three days of ministerial-level talks with Burmese officials with a focus on demarcating the 1,643 km shared border and fighting the smuggling of narcotics and weapons over the border. In May 2012, Indian Prime Minister Manmohan Singh completed a three-day state visit to Burma, where he held talks with the Burmese government and Aung San Suu Kyi, who in turn gave a speech in New Delhi later that year to reestablish cultural ties. Twelve bilateral agreements were signed during Prime Minister Singh's visit, with an emphasis on connectivity, such as creating a cross-border bus service. Trade between the two countries has increased by 300 percent in the last six years, with commerce evolving into several sectors.

Despite growing resentment and distrust in Burma toward China, the two countries are bound to one another politically and economically. Several sources predicted China's influence may diminish slightly in the new Burma but will remain significant. China is Burma's largest trading partner and provides a third of the country's FDI. Moreover, China has been the major provider of military equipment to Burma since 1989. Yet, Burma has developed stronger military relations with India to balance China and economic cooperation with India, ASEAN, and Japan—its largest source of foreign aid. While foreign assistance from Japan and the Asian Development Bank can provide some counterweight, sources in Southeast Asia speculated that China's state-owned enterprises are one of the only entities that can provide the infrastructure development that Burma needs since these SOEs make business decisions based on political interests even if the projects they run are unprofitable. At first it was shocked from the turn in Burma, but China learned some lessons from the Myintsone dam project—that it must be more sensitive to political sentiment inside countries it does business with. Burmese strongly disapprove of the corrupt and cozy relationship between their former military regime and Chinese SOEs. But according to a recent article in The Economist, Chinese SOEs have not learned the complete lesson.

To be sure, Burma needs roads, schools, and infrastructure, but it also needs softer assets, such as banking, education, and government services, areas in which the United States, Canada, and Europe leads. Interviews in Burma confirmed that Burmese are eager to learn new skills from the West. Given the drive for reform and democratization in Burma and the political conservatism of President Xi Jinping in China, it is reasonable to assume that the West will continue to have a comparative advantage in providing these softer assets.

5. The Aid Environment in Burma, and Burma's Links to South and Southeast Asia

The need for aid in Burma is severe and the humanitarian situation is dire, yet the country faces two, seemingly opposite problems. The United Nations and ASEAN have called for urgent humanitarian aid, which is being blocked by the Burmese military in some cases, such as in Rakhine State, where the government and civil society together have worked to keep out assistance from the UN and from several Persian Gulf States. The blockage of aid in some parts of the country has led some experts to doubt whether President Thein Sein is truly the reformist he claims to be or has sufficient power to bring change. Yet at the same time, in other areas of Burma aid is flowing in at such high rates that local civil society, the government, and the country's physical infrastructure do not have the capacity to effectively absorb the aid, and there is concern that much of this initial rush of assistance may be wasted.

Thein Sein has come to be viewed with a degree of trust by Burmese civil society and opposition politicians as a moderate reformist. His government has taken steps toward democratization, deregulating some of the country's censored media and inviting media executives to advise the government, allowing the opposition to run for election, and freeing some political prisoners. According to aid workers in Burma, one refugee camp called Taung Paw in the western Burmese Rakhine state is the worst condition of any camp in Asia and probably the world. The 4,000 Rohingya who live there must tolerate hunger, open sewage, dilapidated tents, and a shortage of basic supplies due to the block on aid. The poor conditions there are common in the Rakhine state where about 115,000 people have fled their homes amid sectarian violence between Rohingya Muslims and Rakhine Buddhists. Another 235,000 have fled their homes in the Karen State and 75,000 have been displaced in the north. The UN office puts the total number of displaced people in Burma at 400,000. In Kachin State, where the war between the military and the Kachin Independence Army actually has increased since Thein Sein became president, the number of refugees has nearly doubled in the past two years, straining camps and putting greater pressure on Chinese officials on the other side of the border to take a more proactive stance on allowing in more migrants. As noted above, the president does not even seem to have control of his commanders on the ground fighting in Kachin State. At the same time, the Burmese military's poor performance in the battle against the KIA has actually strengthened the hand of the United Wa State Army, which sees how much better trained and equipped it is than the Burmese military. It remains unclear what the UWSA will negotiate for, but the authors believe it is possible the Burmese government will try to leave the UWSA territory as a kind of government-does-not-go area similar to what the former Colombian government tried with the FARC, allowing it to essentially control a portion of territory. This failed in Colombia, and in Burma it would allow the UWSA to continue to entrench its narcotrafficking operations across Asia.

Thein Sein first rejected efforts by the Organization of Islamic Cooperation to help the thousands of displaced Muslims in the Rakhine state. In October 2012, the president acknowledged that Burma needed humanitarian assistance to help those in the refugee camps, or else the country would face international backlash. Still, radical Buddhist groups are preventing doctors from international organizations from giving assistance to injured or malnourished people. The fighting in the north meanwhile has continued despite Thein Sein's order to the military to stop its attacks against ethnic minority rebels a year ago. This continued conflict has raised the question, even among some senior advisors to Thein Sein, whether the president even has control over all of his military regional commanders. The concern over Thein Sein's control is keeping a ceiling on the amount of aid many Western nations are willing to provide to Burma; as in the U.S. Congress, some Western legislatures are reluctant to completely turn on the tap of aid until after the 2015 national elections.

Even if significant amounts of aid and investment are allowed to flow into Burma, however, an enormous question of capacity still lingers. The government has strongly encouraged new aid flows into central, eastern, and southern Burma, and over the past year nearly every major industrialized democracy has suspended or lifted sanctions, and the amount of aid flowing into the country is expected to increase tenfold by 2014 at the latest. According to interviews conducted in Burma by the authors of this report, every aspect of Burmese society suffers from a lack of capacity, and there is a significant chance of aid being wasted or, as in Cambodia in the 1990s, aid serving some positive purposes but also primarily benefiting foreign staff and foreign aid organizations working in the country. Many leaders of Burmese civil society have already expressed a concern that Burma is headed in the same direction.

One cause of this deteriorating capacity has been the declining quality of the country's educational system. Less than half of Burma's 18 million children complete five years of primary schools. Less than 1 percent of the country's GDP is spent on education, and Thein Sein's' government does not appear adequately focused on improving the educational system, which was destroyed by the former military government, which closed most of the finest universities. Poorly educated teachers are passing along their ignorance to their students, we were told by interviewees. One NGO worker in Burma said that many international companies from states that did not have sanctions on Burma in the past come to Burma with unrealistic expectations and give up on Burma after six months due to a lack of basic capacities—from business licensing to Internet and telephones.

A Burmese businessman in Yangon told the authors that Burma should therefore emulate Thailand's National Institute of Development Administration, which is funded by US foundations, by setting up elite public administration schools for regional and national leadership. He also suggested that technical schools also be set up for job training, along the lines of the German model, to make up for the lack of secondary education. Some companies, such as Thailand's TSL Auto Corporation, plan to address this lack of capacity by importing experts to Burma. Other organizations, such as Japanese nonprofit Bridge Asia Japan and Korea's International Cooperation Agency, are offering Burmese courses on auto repair and manufacturing. Yet this is an area that many aid organizations and donors do not see as a high priority, and instead have begun concentrating their funding on other, sexier areas, such as the Burmese media—essentially disregarding Burmese leaders' own input on where aid should be targeted. The investigators have seen that this is a common problem, as the number of aid workers and aid conferences in Burma has grown exponentially in the past year, but without the kind of organization or even donors' contact group that has proven effective in preventing duplication in other post-conflict societies such as Timor-Leste.

In the opinion of many in the Naypyidaw government as well as civil society leaders in Rangoon, aid must also go toward improving the country's infrastructure, including its antiquated transportation system and agricultural sector. For example, goods are still transported by wheelbarrows and bicycles throughout much of the country. The roads are extremely congested due to the recent end of restrictions on buying cars. Ox-drawn ploughs are still used to farm much of the country, suggesting that the country's agriculture industry would increase tremendously from improvements in mechanization. Foreign investors who have been coming to Burma expecting to see another Asian tiger in the making have been shocked that the physical infrastructure more closely resembles that of a post-conflict sub-Saharan African or Latin American state.

Another common concern among interviewees, including many Western diplomats, was the potential for a property bubble in Burma's cities. A lack of supply and a surge of speculation have caused office and residential property prices, as well as hotel rates, to soar. Yangon office space is expected to surpass that of New York or Beijing, according to Global Post. Meanwhile, Mandalay's high property prices over the past year have been called "unnatural" by experienced brokers. Prices have doubled and tripled since 2011 and are expected to continue to remain high through 2013. Already, the high land prices around Yangon have led to the confiscation of land from peasant farmers, duplicating a problem seen when investment and aid began to pour into other neighboring nations like Cambodia.

With the influx of foreign investments projected to increase, countries should begin to target specific economic zones within Burma. For example, Japan is already offloading new cars off the Yangon River estuary, while India is offering oil and gas investments and information technology.

Yet Burma's poor physical infrastructure, low level of skilled labor, and xenophobia is already a worry for foreign investors. Several business consultants working in Rangoon (Yangon) told the investigators that they fear that if the next two to three years do not produce strong growth, the government and average Burmese people may come to resent foreign investment, and there is a real risk of a high degree of investment nationalization once again—or, at least, that Burma's investment environment will remain less open than foreign investors have been led to expect at this point, after the passage of a new foreign investment law streamlining procedures and making it easier to repatriate profits. The idea, promoted by Thein Sein and other leaders, that Burma will attain sustainable growth rates of 5-6 percent by 2015, and also make strides toward reducing inequality by that time, will be very hard to accomplish. A senior Singaporean official interviewed expressed skepticism about whether Burma could deliver sustainable growth by the 2015 elections. He said he predicts Burma will instead only "widen the circles of corruption." Already, the majority of this Western investment now entering Burma is coming in the oil and gas sector, hardly known for its transparency or for broadly benefiting large numbers of locals. Though some manufacturing and textile firms, of the kind that have powered broad-based growth in countries like Bangladesh or Indonesia, might be attracted to Burma's low labor costs, the poor infrastructure will most likely keep the majority of companies away. These weaknesses could put transport costs in Burma on the level of the most expensive places in Africa, as well as contributing to corruption: In its latest Corruption Perceptions Index, Transparency International ranked Myanmar the second most corrupt nation in the world. Rakhine State, for one, expects to see little of the new investment coming in from the West and Japan, a problem that may only exacerbate anger and conflict. Already, desperation has enveloped Rakhine State, according to many residents—fears that the investment and aid flowing into Myanmar will bypass rural areas like Rakhine State, leaving residents just as poor—and angrier—as before the reforms.

On a recent visit to Rakhine State, the investigators found that the potential for conflict had not dimmed, despite a lull in actual fighting and arsons during Nov-Jan. Instead, both the remaining Rohingya and many Rakhine groups appear to be building up their strength and re-arming, in preparation for potential conflicts in 2013. In addition, the security forces appear to be preventing many Muslims from returning to their homes, creating the possibility for permanent displacement. A recent report by Human Rights Watch found that even those Muslims who had not been forced out of their homes last year are being subjected to new restrictions on their movements and everyday activities, while few of the perpetrators of last year's violence have been arrested.

Recommendations for Policy-Makers

For Policy-Makers from ASEAN

• Invest significantly more resources in building the ASEAN secretariat in Jakarta into a powerful and knowledgeable body, with more staff, greater abilities to solve problems without calling in all the ASEAN member states, and far more sophisticated technical expertise about trade, economics, and nontraditional security threats. The enhanced ASEAN secretariat could also potentially have its own aid disbursement apparatus, election monitoring unit, and small peacekeeping force, which could focus on Burma's 2015 national elections as a test case of its election monitoring. The election monitoring unit is more likely to be trusted by both the NLD and the military's preferred parties in 2015 than election monitoring organizations from the West, which are highly distrusted by the Burmese military.

• Construct a mechanism to better help the poorer ASEAN members like Burma bring their economies and foreign ministries up to the standard of the richer members. This is critical in advance of Burma becoming the chair of ASEAN in 2014, as this dynamic is worrisome to many ASEAN members and still a major concern for Western nations dealing with Burma. At this point, both civilian and military leaders in Burma appear extremely unprepared to serve as the chair of ASEAN, and this lack of preparation could mean that in 2015, a critical year when the ASEAN Economic Community is supposed to come into effect, ASEAN continues to stagnate on economic and political cooperation. In addition, if Burma is an ineffective chair, and too preoccupied with its own domestic challenges, other critical pressing issues facing ASEAN, such as developing a code of conduct for the South China Sea agreed to by ASEAN and China, may also be postponed. The past two years have shown that continued postponement of a code of conduct leads to greater and greater potential for live conflict in the South China Sea.

• In order to help solidify the transition to a civilian, democratic government in Burma, ASEAN could help the government with its process of civilianizing the military. Greater transfer of funds to poorer ASEAN nations like Burma might help with this process, in addition to joint regional mil-mil cooperation at which officers from Indonesia could discuss the Indonesian civilianization program in more detail. This transfer program could include significantly boosting aid transfers from richer ASEAN members to poorer ones, by creating a mechanism such as the EU's structural funds for new members from the former Eastern Bloc. ASEAN has already taken strides in this "two-tier" direction by allowing poorer nations more time to join the region-wide free trade area.

• Encourage the Burmese government to make good on its series of reforms planned before the 2015 national elections designed to make the elections free and fair.

• Work with Burmese officials to help them learn about models of political devolution used effectively in Southeast Asia, including in Indonesia and the Philippines.

• Help integrate the growing Burmese civil society into ASEAN's civil society networks, so that they can participate at ASEAN's regular civil society meetings and roundtables and be prepared for Burma's turn as the chair of ASEAN next year. This initiative could include using aid monies to bring more Burmese civil society activists to conferences and workshops in Bangkok, Hanoi, Singapore, and Jakarta.

• Help the Burmese government learn from regional models of peace-making with ethnic groups, such as the Aceh process and the process utilized in Mindanao. Offer ASEAN officials, such as the Secretary-General, as mediators in the Kachin and Rakhine State conflicts. Allowing the Kachin conflict to be mediated primarily by China will not be a long-term solution, since the Burmese government does not trust China to be an impartial mediator.

• Encourage military-military cooperation between the most professional militaries in the region, like the Singaporean armed forces, and the military in Burma. Encourage cooperation that emphasizes the importance of civilian control of militaries and that focuses on cooperation between military leaders in Naypyidaw and other nations, rather than cooperation between Burmese regional commanders and military from other nations.

• Encourage the Burmese government to adhere to the ASEAN Nuclear Weapons Free Treaty by being more transparent about Naypyidaw's links with North Korea, by allowing international inspectors into all facilities suspected of any nuclear activities under the past military regime, and by being more forthright about what Naypyidaw means when it says that it will continue to pursue nuclear energy for civilian purposes only, when in reality Burma does not need nuclear energy to fulfill its own energy needs. In addition, encourage the Burmese government to provide information to ASEAN and Western nations about the manifests of ships arriving in Burma from North Korea, as well as the composition of military delegations arriving in Burma from North Korea.

For Policy-Makers from the U.S. and Canada

• While increasing aid funding, develop a donors' group, along with other leading democracies (including Japan, which is quickly becoming the largest donor again) and China, to coordinate aid projects. This has been done successfully in Timor-Leste, and even in countries like Cambodia where China does not make decisions on lending along with other donors, it often participates in donor groups at least as an observer. One of the major tasks of the donor group also would be to better ascertain priority needs for Burma, such as vocational education, as discussed above, and to avoid aid replication by Western donors and IFIs.

• Continue to suspend rather than totally withdraw sanctions in order to retain leverage before the 2015 national elections.

• Move forward with military-military cooperation with Burma at a slow pace, in order to help professionalize the Burmese military but not reward officers who have been complicit in past abuses.

• Encourage the Burmese government to utilize outside mediators in addition to China in resolving conflicts in Kachin state and with other ethnic minority groups. In particular, mediators with experience in other regional conflicts, such as Norway and Sweden, could play a sizable role in Burma. In addition, apply greater pressure on the Burmese government to immediately allow aid into Kachin State and Rakhine State. Work with China to make this aid available in cross-border deliveries.

• Work with the Burmese government to study proportional representation models that might fit Burma's ethnically divided polity.

• Work with ASEAN to create an effective team of election observers for the 2015 national elections in Burma. The Burmese government is unlikely to trust Western election monitors, and the best solution for the 2015 elections is to develop a competent group of ASEAN monitors trusted by all parties in Burma.

• Encourage the Burmese government to reform the 2008 constitution to reduce the constitutionally-mandated role of the military in government, and which creates the possibility that the army commander-in-chief can always step back in and control government in case of a national emergency—a situation defined far too vaguely in the constitution.

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