Myanmar’s Military Regime is Violating its International Economic Obligations

Since the 2021 coup, Myanmar’s State Administration Council (SAC) has adopted numerous new economic policies, including some that appear to violate Myanmar’s international economic obligations. While these violations have received less attention than the military’s human rights abuses, they are highly consequential for the country’s people, not least because they could act as a barrier to the country’s recovery from the recent earthquake. SAC policies that run afoul of international agreements, such as the multiple exchange rate system or extensive trade licensing, are key drivers of the country’s ailing economy. They hurt Myanmar’s trading partners, negatively affect neighbours like Thailand, and increasingly impoverish the country’s population.

Myanmar is a signatory to various treaties and agreements at the heart of the global trade and financial systems, which form the basis of key parts of public international law. These agreements establish institutions and systems that, at their core, are meant to help improve the livelihoods and incomes of people worldwide. The World Trade Organization (WTO) and International Monetary Fund (IMF) state that key reasons for promoting trade include raising living standards, ensuring full employment, and improving real incomes. Myanmar is a signatory to the IMF’s Articles of Association and the WTO’s Marrakesh Agreement and its Annexes. It is also a party to regional agreements such as the ASEAN Regional Comprehensive Economic Partnership. These agreements outline the rights and obligations of participants, helping ensure that countries benefit from global trade and financial systems and follow some basic rules.  

One of the SAC’s most significant violations of its international economic obligations is adopting a multiple exchange rate system. These rates are set by administrative diktat and do not reflect market conditions. Through the Central Bank of Myanmar, the SAC has access to 25 per cent of export earnings from most exporters at the official rate of 2,100 MMK to a US dollar – about half the market rate. Most of the foreign exchange (forex) acquired at this rate is used by the SAC and not available for purchase by other parties.

This practice seems to run afoul of Myanmar’s obligations under Article VIII, Section 3 of the IMF’s Articles of Agreement, which says that no member shall engage in “any discriminatory currency arrangements or multiple currency practices … except as authorized under this Agreement or approved by the Fund.” Recent IMF guidelines require that the effective exchange rate be no more than two per cent higher or lower than the theoretical reference price. However, with buyers unable to freely purchase forex at the official rate of 2,100 MMK/USD, the SAC seems to violate this requirement. The SAC is also disregarding its obligations under IMF Article IV, which requires that members provide the IMF with information necessary to conduct surveillance of their exchange rate policies.

One of the State Administration Council’s most significant violations of its international economic obligations is adopting a multiple exchange rate system.

Another key policy change is the increase in trade licensing practices, including some that violate the WTO’s Agreement on Import Licensing Procedures. This agreement notes that licensing should be neutral and done in a fair and equitable manner while also being transparent so traders know how licences are granted. It notes that anyone who fulfils the legal and administrative import requirements should be “equally eligible” for a licence. Few businesses in Myanmar would argue that this is the case. The SAC also regularly exceeds the time limits for processing many licence applications.

The SAC’s notifications about licensing suggest it is disguising the motivations for these policies. The SAC stated that restrictions are meant to “remedy negative impacts of the Covid-19 outbreak, to adjust the use of foreign currency, and to ensure the fair and equitable application of import licenses and administration.” Yet Covid-19 has long passed and the regime’s arguments about fair and equitable application do not even constitute a motivation. The regime’s main motivation is control over forex flows. This entails an obligation to consult with the WTO’s Committee on Balance of Payments, yet public records show such consultation has not happened. The SAC also indicated that one of the purposes of its import licensing is to “protect public morals” – a particularly questionable statement, given that licensing has been used to restrict life-saving pharmaceutical imports.

Since the coup, numerous international economic institutions have paused engagement with Myanmar. The Asian Development Bank placed its operations temporarily on hold while the World Bank paused disbursements and new financing commitments from the International Development Association, the bank’s arm for supporting low-income countries. Some institutions suspended technical assistance, a sensible step unlikely to have major negative consequences. In recent years, the SAC abandoned exchange rate and trade licensing systems that largely complied with international obligations. These decisions were driven primarily by the regime’s political calculations, not technical issues. As such, providing technical assistance without a clear political commitment from the SAC to reform may do little more than give the regime political cover.

The effects of the SAC’s violations of its economic obligations are significant. They shape who in Myanmar can participate in and benefit from trade. They also contribute to inflation, as evidenced by the price growth of imported goods like palm oil, which is up about 250 per cent since 2021. Among other things, inflation is one driver of Myanmar’s recent jump in outmigration. For trading partners, these changes restrict their ability to export to Myanmar and make trade more unpredictable. More urgently, these violations also could affect international assistance for relief and recovery from Myanmar’s recent earthquake. They threaten to reduce the amount of local currency that relief organisations receive in exchange for their foreign currency, while import licensing threatens to restrict or delay goods that are essential for relief and recovery. These considerations make the SAC’s violations a concern not just for Myanmar’s people but for the international community as well.

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