Political Risk Analysis - By-Election Results Suggest Peace Process Faces Increasing Challenges - JUNE 2017


BMI View: While Myanmar ' s ruling NLD party maintained its comfortable majority in parliament following the by-elections in April 1, the loss of seats in predominantly ethnic minority areas suggest that these group are fast losing patience with the slow pace of peace negotiations. This, in addition to the continued violence in the northern regions, suggests that the government continues to face an uphill task to achieve peace.

The results of Myanmar's April 1 by-elections have been viewed as an indicator of the population's satisfaction with the ruling National League For Democracy (NLD) that swept to power in a landslide victory in 2015. While the NLD maintained its comfortable majority in parliament (winning nine of the 19 seats), the loss of seats in predominantly ethnic minority areas suggests that these groups are losing patience with the slow pace of peace negotiations. This, in addition to the continued violence in the northern regions, suggests that the government continues to face an uphill task to achieve peace. With the government having prioritised obtaining a long-lasting agreement over economic growth, we believe that the NLD is unlikely to embark on any major economic development programmes in the near future. However, the government will seek to ensure that Myanmar's business environment remains open to foreign investment, and we maintain our forecast for real GDP growth to average 7.4% over the next five years.

NLD Retains Strongholds, But Loses In Ethnic Areas

The NLD won nine out of the 19 seats that were contested, with the military-linked Union Solidarity and Development Party (USDP) winning two, while the remainder were won by ethnic minority groups. Out of the 19 seats, three were for Myanmar's upper house, nine seats for the lower house, and seven seats in two of the country's 14 state and region assemblies.

The NLD fared well in its strongholds around the commercial capital Yangon and in central regions further north, winning seats in nine races, according to results announced by the Union Election Commission. However, it faced losses in more remote areas, including in ethnic minority regions where insurgent violence has continued despite State Counsellor Aung San Suu Kyi's promise to bring peace after decades of strife.

NLD Remaining Comfortably In Power
Myanmar - Breakdown Of Upper (LHS) & Lower House Seats, % Of Total
Source: BMI, myanmarparliament.org

The most embarrassing defeat was in the southern state of Mon, where the NLD lost a lower house seat to its main opposition, the USDP. The NLD had comfortably won that race in 2015 when it trounced the USDP in nationwide legislative elections. The fall in support was likely due to the naming of a local bridge after Suu Kyi's father (independence hero Aung San), in a move that sparked mass protests in Mon in March. The naming of the bridge was viewed in the ethnic minority dominated region as emblematic of the Bamar elite's steamrollering of minority cultures. The NLD also came up short in a race in Rakhine, a western state that continues to be embroiled in ethnic and religious conflict (see ' No Solution To Rohingya Issue In Sight', January 25).

Loss Of Ethnic Seats Negative For Peace Process

While we note that the NLD's comfortable majority in parliament was never threatened by the by-election results, the by-elections have been viewed as a barometer of public sentiment towards the NLD. With less than 5% of the population eligible to vote in races held mostly to fill seats emptied by politicians who took on ministerial posts, the turnout (approximately 37%) was considerably lower than the 69% seen in the national 2015 polls.

As such, NLD's win in its strongholds suggests that while its core Bamar majority support group continues to view the government favourably, tensions in ethnic areas are rising and reflect the growing impatience of the various ethnic groups with the slow pace of the peace process. Indeed, tensions in ethnic minority regions have continued simmering despite the government's best efforts to obtain ceasefire agreements with the various ethnic rebel groups in the different states. In addition, clashes between the military and various rebel armies have continued in the northern region of Kokang, leading to a steady stream of refugees across the border into China (see ' Achieving Peace Still An Uphill Process Following Kokang Clashes ' , March 23).

In particular, the strong showing by local ethnic political groups suggests that the NLD will face an increasingly uphill challenge in its efforts to obtain peace in the country, with local voters favouring local ethnic minority groups instead. For instance, an ethnic Shan party won several races held in northeastern areas where voting had been cancelled in 2015 because of unrest. The NLD and USDP also each took one regional parliament seat. In the state of Rakhine that continues to be plagued by sporadic violence due to tensions between the Muslim Rohingya and Buddhist groups, the lower house seat was won by the chairman of the local Arakan National Party, a politician known for his hardline stance against the Muslim Rohingya.

Economic Development Programmes To Continue To Take A Backseat

The inability of the NLD to resolve these issues will accordingly weigh on social stability and undermine the government's best efforts to obtain a lasting peace in the country. More importantly, this suggests that the government is unlikely to embark on the implementation of any major economic development programmes in the near future. This is as the government has prioritised obtaining a peace agreement over economic growth. Given that we expect the peace process to remain slow, we believe that the government will continue to focus on the negotiation process at the expense of the economy.

However, the absence of major economic development plans does not dim our bright outlook for Myanmar's economic growth trajectory. We expect the government to continue to seek to improve the country's business environment as it seeks foreign direct investment (FDI) as part of its strategy to develop the economy (see ' Investment Law Positive For Business Environment ' , November 23 2016). This, in addition to ongoing plans to develop the nascent manufacturing sector, will be supportive of growth, informing our forecast for real GDP growth in Myanmar to average 7.4% over the next five years.