Page-Turner In Burma

BMI View: Shwe Mann's shock removal from his post as chairman of Myanmar's ruling USDP should be viewed as an internal party coup, and is the clearest sign yet that the Tatmadaw retains significant leverage over the nominally civilian political party. It also casts even more doubt over elections slated for November, as both Shwe Mann and opposition leader Aung San Suu Kyi are now all but ruled out of the race.

Myanmar's ruling Union Solidarity and Development Party (USDP) is experiencing a significant shake-up, which we believe is supported by the still-politically powerful military (Tatmadaw). In what should be viewed as an internal party coup, reports indicate that USDP chairman and Speaker of the lower house Shwe Mann was ousted without warning on the night of August 12 at a party conference in the capital Naypyitaw. While the situation remains highly fluid and uncertain, reports broadly indicate that security forces first surrounded and were then seen entering the USDP's party headquarters, after which point party members were not allowed to leave. On August 13, USDP officials confirmed that Shwe Mann was no longer the party chairman, and that he had returned to his home in Naypyitaw. Reports also suggest that security forces have been posted outside his home, suggesting that he may be under some degree of house arrest.

Wither Shwe Mann?

Prior to these events, Shwe Mann was the most logical successor to Thein Sein for the presidency of Myanmar following elections in November 2015. The house speaker had repeatedly indicated his intentions to run for the post since at least 2013, and most probably had his eyes set on the post before then. Shwe Mann outranked Thein Sein in the former military regime (the State Peace and Development Council, or SPDC), and was for many years considered to be a close confidante of Than Shwe, the SPDC's former leader. However, Shwe Mann's vocal support for constitutional reform had recently given rise to a growing rift with the still-powerful military establishment, particularly following a surprise vote in June regarding the Tatmadaw's future role in the government.

An Historically Strained Relationship…

It has long been clear that the relationship between Shwe Mann and President Thein Sein is not particularly strong. As we have written previously (see 'USDP Divide Possible, But Positive Momentum For FDI Bill', October 23 2012, and 'Three Risks That Could Derail Political Reforms', July 16 2013), it is widely believed that Thein Sein was tapped for the presidency in 2010 by Than Shwe because the senior general did not view him as a threat, particularly relative to Shwe Mann, who even by his own account is a very ambitious politician. This led to tensions between the USDP's two most powerful politicians, which flared again as Shwe Mann took over the position of party chairman from Thein Sein owing to the fact that the latter, as Myanmar's president, was constitutionally barred from the role.

…But Broader Factional Forces At Play

Overall, we believe that the factional split within the USDP is likely to be on much broader terms; namely between those who are looking to vest more power in the civilian political apparatus (Shwe Mann, and potentially USDP secretary general Maung Maung Thein, who was also removed in the leadership coup), and those who are willing to remain more closely aligned with the Tatmadaw. Recent events leave little doubt as to which faction is the more powerful one, and provide further evidence that the Tatmadaw retains significant leverage over the USDP.

Thein Sein's Candidacy Still Unclear

Adding to the opacity of the USDP's plans for the upcoming elections, President Thein Sein stated prior to the ouster that he will not be contesting a seat in parliament in November. However, this does not rule Thein Sein out as a candidate for the presidency (as the president does not have to be a member of parliament), and both the president and the USDP have been noncommittal on the potential for his return to the post.

In July, an official from Thein Sein's office stated that he had not yet ruled out a second term, which appeared to contradict the generally held view that he would step down from the post in 2015. Later in the month, Thein Sein himself stated that while he would prefer to retire as a result of personal health issues, Myanmar's lack of 'young or even middle-aged people who could steer the country in the right direction' could spur him to stay on. At this point, and particularly in light of recent events, it would be unwise to count Thein Sein out entirely. That said, we do not view Thein Sein to be the reform-minded politician that he was widely assumed to be towards the beginning of his term. While he has not overtly stymied political and economic reform, he is probably better viewed in the context of a placeholder who has generally achieved the Tatmadaw's goal of constructing a civilian veneer for the former junta.

Elections Loom Ever Larger

The true test of Myanmar's reform momentum will be the outcome of November's parliamentary elections, and the degree to which they will be 'free and fair'. We maintain our expectations for the opposition National League for Democracy (NLD) to score very strongly, almost certainly stealing a significant share of seats in parliament from the USDP. However, with the military maintaining an automatic 25% allotment, it remains to be seen whether or not the two will be able to work together to any substantive degree, or even whether the current administration will allow for the NLD to assume a significantly larger role in parliament in the first place. Should the elections be viewed as aggressively manipulated, widespread social unrest would be highly likely (as per mass protests in 1988 and 2007). Given these considerations, a relatively smooth election process could also have a positive bearing on Myanmar's attractiveness as a destination for foreign investment.