A period of dysfunctional parliamentary democracy was followed by General Ne Win’s deliberate move to inward-looking socialism starting in 1962. In the wake of a popular uprising in 1988, Ne Win was pushed aside and a new military junta began to experiment with market reforms and a more democratic political order. After national elections in 1990 were won by the anti-military National League for Democracy led by Aung San Suu Kyi, the junta repudiated the results of the election and has ruled with an iron fist since then.

The military junta has continued to use economic policies and instruments to entrench their authority and control over the economy and domestic politics while drug trade activities in the region have prospered. Military commanders underpin rampant corruption at every level and preside over institutionalised rent extraction mechanisms. Opacity has been their main cover.

There are many looming challenges that could derail Burma’s prospects for economic and political stability. These challenges include irrational macroeconomic policies, failing to ensure all citizens enjoy benefits accrued from natural resources, endemic corruption, a flourishing illicit economy, a dysfunctional financial system and critical infrastructure bottlenecks. Failure to address these problems would frustrate and limit the effectiveness of peace building efforts.

A conflict sensitive economic strategy for Burma would focus on effective capacity-building, sustained policy reform, progressive steps to reduce corruption, fiscal empowerment of local authorities and prudent natural resource management. Success in these areas requires unwavering political will for sensibly sequenced policy improvements by domestic actors and finely targeted support from Burma’s international partners.  Success in these areas requires unwavering political will from the post-election government to address ten crucial challenges.

1. Boost the agricultural sector. This is the best approach to increase employment and raise the standard of living. Critical parts are restoring a sustainable credit system and removing obstacles to exports.
2. Socialise the benefits of extractive industries. The government’s share of earnings is not flowing to services (including infrastructure) that make the economy broadly more productive and competitive.
3. Devise pro-growth fiscal decentralisation. Generous revenue sharing with regions and states can contribute importantly to national reconciliation as well as improving government services at both the central and local levels.
4. Privatise sensibly. Although de-monopolisation could yield significant benefits by making the economy more competitive over time, the stifling political economy could undermine effectiveness in the near term by rewarding military actors.
5. Carefully target and condition foreign aid and investment. Without a defensive strategy for dealing with an outpouring of interest from aid donors and private investors, it will be difficult for the government to adopt coherent, mutually reinforcing policies for sustainable economic growth.
6. Address critical infrastructure bottlenecks. The most critical needs are reliable electric power in cities and towns
7. Improve macroeconomic management. A disciplined fiscal policy and strengthening the institutional capacity of the central bank is necessary to achieve the high rate of private sector savings required to boost domestic investment.
8. Properly fund the armed forces. Adequate funding is essential to discourage individual units from engaging in economic activities that misallocate or misuse resources a substantial commitment of budget resources may be required to facilitate a partial de-mobilisation)
9. Fix the financial system. No part of the financial system is working close to international standards. The payment system is rudimentary. Commercial banking is severely repressed. Rural credit has largely collapsed. Well-managed microcredit programs are constrained by the absence of a statutory framework. An interbank market and a domestic capital market are lacking.
10. Open gradually to trade and investment. Pressures to open abruptly could be strong, and being too responsive to these pressures could produce a political backlash. Special efforts may be required to ensure that Chinese investments do not trigger social unrest.

Engagement by the international community with the new Burmese government could contribute to national reconciliation and economic progress by taking into account the following recommendations:

1. Go slow. Avoid overwhelming the new government in its first weeks and months with visitors seeking special deals and offering conflicting advice.
2. Focus on capacity-building. The policymaking and policy implementation capacity of the central government is rudimentary. Vast amounts of money will be wasted, and troublesome social problems will be created if foreign aid and investment leads capacity-building instead of following it.
3. Follow regional institutions. Let ASEAN, ESCAP and the Asian Development Bank lead the capacity-building effort, drawing more on Asian talent and models than on Western ones.
4. Understand the political economy. Post-conflict reconstruction has floundered in other parts of the world because aid agencies and other external players seeking to help have ignored or discounted the power of individuals and groups with a vested interest in the status quo. It may be possible, however, to work with these individuals and groups to advance broad social objectives and enlarge the space for new high-value entrepreneurial activity.
5. Encourage wise management of natural resources. Burma’s natural resources, like those in other poorly governed nations, are being over-exploited. The new government is likely to face intense pressure to produce more natural gas, for example. A short-term moratorium on new investment in the gas sector would give the new government time to revise relevant regulations, strengthen key institutions and maximise resource flows to government coffers. A strong case can be made for a similar moratorium on hydropower projects.

Sequenced policy improvements by domestic actors and finely targeted support and engagement from Burma’s international partners will greatly improve the prospects of a peaceful and optimistic future.

Lex Rieffel is a Non-resident Senior Fellow at the Brookings Institution, and Raymond Gilpin is the Associate Vice President for the United States Institute of Peace’s (USIP) Sustainable Economies Center of Innovation.