American lawyer Eric Rose has promoted foreign investment in Myanmar during his five years as director of Herzfeld Rubin Meyer & Rose. The American law firm was the first to open an office in Yangon back in 2013, a time when the country was just beginning to open its doors to the West after decades of isolation.
On February 1, in a surprising reversal, the firm announced it was closing its office. Launched with the help of Myanmar lawyers Andrew Lian, an advisor to former President Thein Sein, and Kyaw Hoe, an advisor to State Counsellor Aung San Suu Kyi, the well-connected firm has helped to draft new legislation and rules, set markers for commercial litigation and trained several Myanmar attorneys over the past five years.
Rose, an active and vocal member of the American Chamber of Commerce, has been a tireless critic of the remaining US sanctions against Myanmar, which persist in the form of lingering financial constraints. Rose spoke to Asia Times contributor Peter Janssen about why his New York-based law firm decided that maintain an affiliated office in Yangon was no longer viable. Excerpts follow:
The decision to close your office comes as a surprise to many. What happened?
For the past five years…we’ve been trying, again and again with limited success, to bring American investment here. The US Treasury Department’s OFAC [Office of Foreign Assets Control] sanctions [lifted in October 2016] were a major stumbling block.
But these were separate from the more pervasive financial sanctions, administered by the Treasury’s FinCEN [Financial Crimes Enforcement Network], which remain in effect to this day.
Six years after the US sanctions started being removed, no American bank will finance trade with Myanmar, nor finance investments in Myanmar, and any American company here, including my own, cannot send dividends back to the US, because no American bank will accept funds directly from Myanmar.
The US is alone in maintaining sanctions against Myanmar. Unfortunately, the majority of dollar trade goes through US banks or banks with operations in the US.
And with the Rohingya incident, those sanctions are unlikely to be lifted soon?
This is a three-legged stool. The sanctions are the first leg. The second leg is the Rakhine situation, which has made the reputational issue untenable for most publicly traded companies, and certainly for SMEs, our bread-and-butter.
In other words, while some people would have an explanation for why there were riots against Muslims in some parts of the country, why there would be discrimination against and still civil war with some of the [ethnic] minorities – this could be explained at some level if one were to spend the time to understand the history of the country from the beginning, or China’s current involvement.
But there is no way to reasonably explain what happened in the Rakhine state in two waves. The first one in October 2016, and then what happened last August. In both cases, the military’s actions, as well as those of other elements, such as ARSA’s [Arakan Rohingya Salvation Army], have contributed to more than three-quarter of a million people becoming refugees. That’s the second leg.
The third leg is the domestic economic policies of the current government, which came to power two years ago with a great deal of hope that it will finally reform the protectionist policies of the former government, will secure international financing and reform the banking and insurance markets, and adopt a pro-investment policy which would leap-frog its regional competitors by setting Myanmar and foreign investors on equal footing.
Unfortunately, so far, this agenda has not been realized. And that is not because there has been interference from the military or the cronies. It has been, in my opinion, purely due to the inactivity of the government itself.
In June 2016, I co-wrote a large set of ‘low hanging fruit’ recommendations for the government that were delivered by the US Chamber of Commerce. The point is we have made recommendations, offered to help implement them, as we have done it in several other countries, but those recommendations have not been followed through.
I don’t know whether it is a distrust of foreigners, or there is a lack of understanding that, in today’s Myanmar, business needs government support and a predictable regulatory structure, based on well-established rule of law, simply because domestic private industry cannot do it all by itself.
Our experience in other countries in transition from dictatorship to democracy, specifically in Eastern Europe after 1990, is that foreign investment, together with domestic know-how, thrive together when the government sets rules which apply to all equally, enforces them in a rule of law environment, and then mostly gets out of the way.
What has gotten worse in the past two years?
Take corruption at the lower levels of government, in other words the bureaucracy, which is under the [military-controlled] Ministry of Home Affairs. At the same time, there has been this total ‘freezing in the headlights’ of government employees, primarily because there is little to no reward for taking an initiative not approved by the ‘higher authority.’
Thus, approvals can’t be obtained in the normal course of business, as the process resembles a pyramid, and you can almost never get to the top to get things approved.
Didn’t the government just approve the building of four new power plants by private foreign investors?
Yes. But there is a difference between something getting approved and something actually getting built. There was a steady stream of projects approved and implemented during the previous government. We have not experienced this stream during the past two years, and, as a result, we’re now looking at increasing power cuts in the spring and summer.
The government has also recently amended the Companies Act. Wasn’t that a breakthrough for the investment climate?
It is a breakthrough of sorts, but let’s go straight to the core of it. The major change in the Companies Act, which is welcome, is that foreign investors can take up to 35% of a domestic company stock [under the previous 1914 Companies Act, and company with even 1% foreign equity was deemed a foreign entity,] without changing its classification as a Myanmar company. Therefore, this company can enter into business areas that otherwise would be prohibited to foreign investors.
The problem is that, even though the new act introduces shareholder derivative lawsuits and includes certain rights that do not currently exist for minority shareholders, it takes away the administrative remedy available today to shareholders. In the US and other countries, an aggrieved shareholder can petition specific government bodies (e.g. the Securities Exchange Commission in the US) on the administrative side. In Myanmar, that doesn’t exist.
The point is the new law does away with a shareholder’s right to this particular administrative remedy. The result is that a minority shareholder can only file a complaint in court. Unfortunately, Myanmar courts, from our first-hand experience, are ill-equipped to rule on issues involving minority shareholder rights for a number of reasons.
One is because they have no experience with these types of laws, even though the current law was adopted over 100 years ago. They have no guidance from the Supreme Court, or the Attorney General’s Office (AG). And worst of all, some of them have exhibited no ability to break new ground in applying specific sections of the law, as the legal system for the past 55 years is to wait for somebody else to tell you what to do.
With no precedent to follow, no specific training on these issues, lack of guidance from either the AG Office or the Supreme Court, it is a real question whether foreign investors will feel that they have a way to protect their investment in court.
What is another example of a ‘low hanging fruit’ that has yet to be plucked?
The insurance market. It’s not a prohibited sector to foreign investment, and yet foreign insurance firms registered here have not been allowed to operate. [Had they been permitted to enter a well-regulated market] that would have created a dramatic surplus of funds in kyat [since domestic policies are paid in local currency] which could have been invested in government bonds. In Vietnam, for example, the [insurance] market represents 25% of domestic borrowing (in dong) of the Vietnamese government.
Now there are only 11 private local insurance companies, plus state-owned Myanma Insurance. They all operate under the same policy language and same rates, thus, there is pretty much no difference between them. The result is that entire insurance market is estimated to be around US$50 million, while in Vietnam it is US$1.8 billion.
It took Vietnam decades to reform its economy, too.
Reform requires a well-established plan, competent implementation, patience and steady progress – what Winston Churchill called ‘KBO’ – Keep Buggering On. All that takes time, but it also needs a government that is committed to reforms, not just in words but in deeds.