Sectarian Violence Intensifying Pressure On Government

BMI View: Myanmar continues to struggle with wide-scale public unrest stoked by historic ethnic and religious tensions, with conflicts reportedly emerging much closer to economically vital population centers such as Mandalay. With the government proving hesitant to intervene, we highlight the social risks inherent in such a rapidly liberalising political environment.

Myanmar continues to struggle with the onslaught of sectarian violence, and conflicts have spread far beyond Rakhine State. In a substantial deterioration from the nascent conflict that began in Rakhine state during the summer of 2012, reports indicate that violent riots have cropped up near the economically vital city of Mandalay in central Myanmar, with some indication of skirmishes approaching or perhaps even within the country's most populous and developed city of Yangon. Over the past week alone, state media estimate that at least 40 people have been killed in direct relation with the riots, which have often included the large-scale razing of both public and private property.

Historic Tensions Boiling Over

The nature of the conflicts stems from long-standing tensions between majority Buddhists and minority Muslims, which have been amplified at times by the government's perceived preferential treatment of the former and refusal to acknowledge certain ethnic Muslim groups (such as the Rohingya) as Myanmar citizens. Almost counterintuitively, just as the government has introduced wide-ranging political reforms (and myriad new rights, such as the right to peaceful protest) for Myanmar citizens over the past year, the volume and seriousness of physical conflicts between the two groups has ramped up substantially.

As we have written before ( see: 'Deeper Risks Seen In Rakhine Crisis', June 12 2012), the most pertinent risk for the country as a whole (and, indeed, as an investment story) lies with the government's response to the violence. Although Myanmar's government, whose parliament is dominated by the Union Solidarity and Development Party (USDP), has been nominally civilian since general elections in 2010, the military (or Tatmadaw, which also holds a mandated 25% of seats in the parliament) continues to hold considerable sway over both policy adoption and implementation, and is in some ways still free to act on its own accord in certain regions of the country. With a long history of heavy-handed treatment towards anyone that could possibly threaten the stability of the regime, the Tatmadaw would pose a major risk to Myanmar's soaring international profile if it were to crack down with disproportionate force.

Government Remains Tentative

We stress, however, that we have thus far seen no such signs. On the contrary, numerous reports indicate that the government's involvement in the wide-ranging conflicts has been somewhat passive, likely indicating its awareness of the potential damage that could be wrought by an overly aggressive reaction. However, the growing severity (and geographical spread) of the riots presents its own set of fundamental risks to Myanmar's development, as the release of religious and ethnic tensions appears to be an unintended by-product of the government's remarkably successful political reform drive.

Risky Business
Myanmar - BMI Short and Long-Term Political Risk Ratings & Social Stability Sub-rating

Whereas such conflicts had previously been limited to far-flung, scarcely governed regions of the country, their emergence near Myanmar's economically vital regions warrants concern. As a result of the deterioration in the 'Public Unrest' sub-category, we have slightly downgraded Myanmar's overall short-term political risk rating from 59.0 to 57.7, and note that further downgrades are possible should the situation continue to escalate. Such an escalation would likely force the government to act more judiciously, posing a critical test of its ability to maintain order without crossing the international community.

This article is tagged to:
Sector: Country Risk
Geography: Myanmar, Myanmar

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