By Hanna Hindstrom
With the world’s eyes fixed on Burma, there’s been much commotion about free and fair elections, political prisoners and ceasefire talks. Democracy icon Aung San Suu Kyi has endorsed these three issues as criteria for lifting sanctions against the new government. But beyond the media frenzy, perhaps the country’s greatest challenge will be the continued mismanagement of its abundant resource wealth.
Burma ranks third from last on Transparency International’s Corruption Perceptions Index and according to a 2008 study by the International Monetary Fund, less than one percent of the country’s gas revenues (totalling $US3 billion dollars annually) even enters its budget. No visible improvements have been made since President Thein Sein took power, with land-grabbing and human rights abuses continuing unabated. Earlier this month, nine activists were arrested in Tharkaeta township for participating in a global day of action against the Shwe pipeline project, which is expected to net $US29 billion over 30 years and has already led to the confiscation of thousands of acres of land without compensation.
Campaigners say revenue transparency is key to boosting pressure on the nascent government, and steps have been taken in this direction. The European Union (EU) recently approved new legislation that would require European listed (and large non-listed) extractive companies to disclose all payments made to foreign governments for natural resource projects. It follows in the footsteps of the 2010 Dodd-Frank Act in the United States, which made similar provisions for US-listed firms.
The new legislation would force companies like Total and Chevron to divulge their exact contributions for the controversial Yadana and Yetagun projects, which are the two single largest sources of income for the Burmese regime. It is also expected to “shame” other companies into ethical practices, deter investors from backing them and set a global standard for transparency legislation. Reporting requirements are also now being debated in the South Korean National Assembly.
But overall progress has been slow and the Dodd-Frank Act is facing growing pushback from industry lobby groups. The Securities and Exchange Commission (SEC) is set to issue final rules on transparency for the extractive industries by 19 April, but it is looking increasingly likely that its provisions will be watered down. “The oil industry has made some fairly overt threats to sue the SEC if they don’t like the rules,” Paul Donowitz from EarthRights International told DVB. Last month a group of 14 Congress representatives wrote to the SEC urging them to resist this pressure. Any delays or alterations will have a direct impact on the EU and Korean legislation, which are both set to be modelled on the SEC’s guidelines. As it stands US reporting requirements will not come into effect until 2014 at the earliest.
Industry voices insist that reporting requirements will cripple domestic firms with “red tape” and provide an unfair competitive advantage to less scrupulous companies. Indeed, the four biggest investors in Burma are China, Thailand, India and Singapore. Out of the 27 oil and gas companies currently operating in Burma – only three (Chevron, Total and the China National Offshore Oil Company) will be required to report under the Western regulations. If Korea’s amendment goes through – it would throw KOGAS and Daewoo International (a large investor in the Shwe project) into the mix. But substantial gaps remain, notably the Chinese state-owned company China National Petroleum Corporation (CNPC), which has one of the worst sustainability records in Burma.
While more Western companies are likely to pour into the country if further sanctions are lifted, they are unlikely to challenge China’s regional dominance. Despite rumours of a split between Burma and its northern neighbour, compounded by Thein Sein’s decision to drop the Myitsone Dam project, China is still responsible for nearly $US14 billion or 35 percent of Burma’s total foreign direct investment. Most of this money is pumped directly into hydropower, oil, gas and mining projects. So the reach of any extra-territorial transparency legislation remains incomplete at best.
Among the growing clamour around corporate accountability, there is also a risk of becoming distracted with “transparency for transparency’s sake”. Most of Burma’s challenges are inherently domestic, linked to the legacies of the endemically corrupt, military-dominated government. While exact payment figures could help tailor criticisms towards the regime, especially at the project level, it won’t necessarily reduce corruption and much less guarantee egalitarian development outcomes.
Burma faces a slew of development and human rights challenges that will require a strong civil society, as well as corporate accountability and constructive dialogue with the government to address. Problems arising from natural resource development are impossible to disentangle from ethnic conflict and militarisation, as most projects have had a disproportionately negative effect on minority communities. Accountability for rights abuses, community-level consultations and grievance mechanisms are all essential parts of the puzzle, along with macroeconomic reform and responsible fiscal management. Recent indications that the dual exchange rate might be abolished are positive, as it would end decades of market distortion that enabled the regime to conceal billions of dollars in foreign investment. But it is still far too early to rely on the sincerity of the regime’s reformist agenda.
Further significant anti-corruption efforts are needed at the country level. The world’s leading transparency drive – the Extractive Industries Transparency Initiative (EITI) – is local and consensus-driven but largely voluntary. Both Total and Chevron are supporters, but it makes no practical difference since the Burmese government is not. EITI has itself been criticised as both “toothless” and “slow” and to date Thein Sein has given no indication that Burma is considering joining the initiative, despite some rumoured grassroots support. Capacity-building for local advocacy groups may play a role, but will ultimately have limited influence without sustained global pressure.
The international community has an unprecedented opportunity to take action as the isolated regime hopes to convince Western governments to drop sanctions. This gives them substantial leverage – both directly and indirectly – to push for greater accountability of its revenue flows, whether in a voluntary or regulatory form. Indeed for sanctions against natural resource investment to be lifted without any transparency provisions whatsoever seems inherently misguided. Whether its current omission from the sanctions dialogue is intended to “encourage further reform” or implement a more cynical agenda remains debatable. In any case, natural resource management will serve as a crucial test not only for Thein Sein’s government, but also for the west’s commitment to democratic change in Burma.