The Political Economy of Myanmar’s Conflict

On Point No. 22

This ISP OnPoint No. 22 (English version) is published on October 8, 2024 as a translation of the original Burmese version published on October 4, 2024.

Analyzing the Pros and Cons of De-escalation Through Economic Incentives

∎ Events

On September 9, 2024, the Chief Minister of Karen State, Saw Myint Oo, met with Thailand’s Ambassador to Myanmar in Hpa-an, Karen State. After discussions on cross-border trade, the two sides negotiated the reopening of the Asian Highway, a crucial trade route for Myanmar-Thailand trade. Since the 2021 coup, repeated clashes between the Karen National Liberation Army (KNLA) and the Myanmar Armed Forces (MAF) have led to the temporary closure of the vital Myawaddy-Kawkareik section of the Asian Highway, shutting it down at least five times. The latest closure occurred in December 2023 at the start of the siege battle to capture Kawkareik town and has not yet reopened. Intense fighting in the Myawaddy township between March and April 2024 led to the KNLA fully controlling the Myawaddy-Kawkareik Asian Highway. Though no official announcements have been made, the Border Guard Forces (BGF) maintain security of the Myawaddy town on behalf of the State Administration Council (SAC).

∎ Preliminary Analysis

The frequent closures of the Myawaddy-Kawkareik section of the Asian Highway necessitate the use of three rural routes crossing the Dawna Mountain Range for transporting goods and passengers. As a result, transportation of goods slowed down and the border trade value significantly dropped. According to the SAC’s Ministry of Commerce, Myawaddy border trade value decreased by approximately $927 million during the 2023-2024 fiscal year. Karen armed groups controlling the Dawna Range routes have also reportedly collected an average monthly toll fee of approximately four billion Myanmar Kyat (approximately $900,000, based on the United Nations operational exchange rate of $1 = 4,500 MMK). In the long term, not only do traders and business owners suffer, but ordinary consumers also face hardships due to increased prices and scarcity of medicines and other essential goods. Thus, the reopening of the Asian Highway is crucial not only for national-level border trade but also for the daily lives of ordinary people. Brigade 6 of the Karen National Union (KNU) is currently leading negotiations to reopen the Asian Highway, with Brigade 7, the Democratic Karen Buddhist Army (DKBA), and the KNU/Karen National Liberation Army—Peace Council (KNU/KNLA-PC) participating. The SAC negotiates through the proxy Col. Saw Chit Thu’s Border Guard Force (BGF).

After Operation 1027 in 2023, neighboring countries like China have pushed for conflict de-escalation based on trade, commerce, and investment projects. The SAC and resistance forces are being nudged to accept a profit-sharing system. However, this strategy differs from the humanitarian ceasefire advocated by Western nations, the United Nations, and ASEAN.

To revive border trade, China, Thailand and Myanmar’s neighboring countries are focusing on their mediating effort to push for an agreement between the SAC and resistance forces. These efforts involve not only facilitating border trade agreements and infrastructure projects like roads and bridges, and establishing economic zones, but also inviting stakeholders to become partners in arrangements spanning from taxation to shared administration of border areas, and involving as economic partners in various sectors, all aimed at stabilizing cross-border commerce. On the other hand, they also pressure stakeholders to uphold these agreements by monitoring the implementation and closing border gates controlled by Ethnic Armed Organizations (EAOs) if they refuse incentives, such as access to market opportunities.

The de-escalation strategies based on economic incentives were observed at the Haigeng Discussions in Kunming, Yunnan Province. For instance, at the fourth Haigeng Discussion, China proposed and pressured to accept a profit-sharing deal to re-open the border trade, allocating 30 percent to the SAC and 70 percent to the Myanmar National Democratic Alliance Army (MNDAA) and the rest of the Three Brotherhood Alliance (3BHA). Although neither side disclosed such information, the agreement failed to materialize as the 3BHA relaunched the offensive against the MAF with the second round of Operation 1027. They seized control of the important cities of Lashio, Mogok, and the North Eastern Regional Military Command (RMC) of the MAF and extended their reach to towns near Mandalay.

This prompted China’s stringent measures on the 3BHA, which in turn appeared to catalyze internal disagreements within the Federal Political Negotiation and Consultation Committee (FPNCC), under the leadership of the United Wa State Party/Army (UWSP/UWSA), regarding conflict de-escalation and the role of China. This development can be understood as “a shift in the balance of power within the FPNCC” in post-Operation 1027, as ISP-Myanmar foresaw and detailed in the On Point No. 19 published on December 5, 2023. While the clashes have subsided, the MAF —tacitly approved by China— has escalated attacks on the 3BHA in a “revenge campaign of raining bombs.” Over time, a ceasefire in various forms may emerge.

With the northern Shan trade route with China disrupted, the SAC is now endeavoring to forge a new trade corridor through eastern Shan. Concurrently, efforts to rekindle trade activities at the Myanmar-Thailand border, particularly the reopening of the pivotal Asian Highway, are underway. The reopening of the highway is a condition that Thailand demanded the SAC and resistance forces to fulfill in order to demonstrate goodwill towards them. Indeed, a ceasefire driven by economic interests might temporarily offer some respite in conflict-ridden areas. It could reduce hostilities and ease public distress by rejuvenating border trade. Additionally, it could steer armed groups towards legitimate commercial activities, diminishing their participation in illicit enterprises such as narcotics trafficking. However, it must be noted that a ceasefire based on economic incentives and war dividend-sharing is not economic power and resource-sharing based on principles relevant to decentralization, federalism, or even confederation and respective institution buildings. This is nothing more than a temporary resolution involving the sharing of the war dividends among conflicting armed groups arranged by neighboring countries. During times of disagreement over profit-sharing or when economic ties are strained by climate crises or pandemics disrupting trade, these fragile war profit-sharing systems are at risk of collapsing, potentially reviving illicit economies. Even without immediate disruptions, ongoing demands from neighboring countries and their extended international markets can exacerbate the extraction of natural resources within Myanmar, often at the expense of the local population who suffer from a lack of accountable resource governance.

∎ Scenario Forecast

Negotiations regarding the reopening of the major Asian Highway may result in success, failure, or a temporary opening followed by another closure. The Karen National Liberation Army (KNLA), which has significant control over the route, is demanding to receive 70 percent of the tax revenue generated from the goods passing through, while the SAC is insisting on an equal split of 50 percent, according to those involved in the negotiation. So, these negotiations, which started in early September, appear to be encountering ongoing difficulties. Thailand is likely to support various measures to facilitate a successful agreement.

The most critical issue is that using economic incentives for conflict de-escalation may provide only temporary relief. If these initiatives do not lead to a political resolution and a shift from profit-sharing to economic power-sharing based on federal principles, the people of Myanmar and the country as a whole will suffer. Since 1988-89, ceasefire agreements between successive military juntas and ethnic armed groups have resulted in extended profit-sharing arrangements, causing severe suffering for the people due to ceasefire crony capitalism. This historical lesson must not be forgotten. ASEAN, the United Nations, and the international community need to recognize that without understanding and taking into account Myanmar’s complex political economy in addressing the crisis, their efforts will continue to be misdirected.