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Is Myanmar ready to end its discrete relationship to North Korea?

An extensive but discrete relationship emerged over the next two decades as Myanmar exported rice, timber and rubber in exchange for North Korean arms, missile technology and tunnelling support

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The growing pressure on the international community to adhere to and enforce UN-mandated sanctions on Pyongyang has once again revealed the persistence of clandestine military ties between Myanmar and North Korea.

Relations between the two resumed in the 1990s after nearly a decade of estrangement following North Korea’s 1983 attempted assassination of the South Korean president in Myanmar’s then capital Yangon.

This rapprochement was a pragmatic one, as both states faced similar geopolitical positions. They were pariahs that had become increasingly isolated and sanctioned, they were fearful of US regime change proclivities and they were searching for new partners to escape overreliance on China.

An extensive but discrete relationship emerged over the next two decades as Myanmar exported rice, timber and rubber in exchange for North Korean arms, missile technology and tunnelling support to construct underground facilities.

This emerging ‘marriage of convenience’ reached its zenith with the re-establishment of full diplomatic relations in 2007 as well as a high profile visit by then lieutenant general Thura Shwe Mann (the third-highest ranking member of the junta at the time) to North Korea in 2008. The United States classified Myanmar–North Korea ties as a threat to the region following speculation (but never decisive evidence) that Pyongyang supported a nuclear weapons program in Myanmar.

Rather than continue existing policy to isolate and sanction, the Obama administration enacted the ‘pragmatic engagement’ strategy with Myanmar (a strategy that promised US normalisation of relations if Myanmar continued to democratise). The junta’s transition towards a ‘disciplined democracy’ was motivated in part by the desire to break their dependence on China by diversifying Myanmar’s foreign relations.

Despite Myanmar’s transition to a quasi-civilian government and despite its ameliorating relations with the international community, military ties with North Korea were maintained. This was indicated by the 2013 US sanctioning of Lieutenant General Thein Htay for conducting arms sales with North Korea, by the allegations that prominent businessmen Tay Za facilitated illegal financial transactions with Pyongyang and by reports of North Korean technicians at suspected missile factories in Myanmar.

Beginning in 2016, a number of decisions by both the outgoing Thein Sein administration and Aung San Suu Kyi’s National League for Democracy (NLD) government indicated that Myanmar may have finally turned its back on North Korea. Myanmar’s government has condemned North Korean nuclear and missile tests. It expelled two North Korean diplomats accused of involvement in arms sales and other sanctioned activities. In October, Naypyidaw submitted its first official report of compliance with UN sanctions against Pyongyang.

These efforts are heavily influenced by growing US pressure on Myanmar: Washington has threatened the re-imposition of sanctions if Naypyidaw does not end military relations once and for all.

The re-sanctioning of the Directorate of Defense Industries (the Tatmadaw’s military procurement company) in March 2017 and reports of North Korean instructors at military academies hints at continued military ties, though to what extent is unknown. Myanmar’s Ministry of Foreign Affairs insists that they have only ‘normal’ diplomatic relations with North Korea, although they do acknowledge that ‘vestiges’ remain from the previous relationship.

This appears to suggest that the real issue is not the NLD government’s reluctance to terminate such a state of affairs. The real issue is that the decision lies with the Tatmadaw.

In constructing the current political system, the Tatmadaw ensured that they remain a powerful and autonomous agent — regardless of the ruling party — by keeping security portfolios under their complete and exclusive purview. Much like the situation that faced her predecessor Thein Sein, it is unclear how much Aung San Suu Kyi really knows about (let alone has the capacity to influence) the Tatmadaw’s activities.

While the NLD government does have some leverage in rolling back relations (such as in its capacity to expel North Korea’s diplomats), Aung San Suu Kyi must balance international pressure to isolate Pyongyang against the NLD’s functional relations with the Tatmadaw. Extinguishing military relations with North Korea may become a new dividing line between the civilian government and those in uniform, so Aung San Suu Kyi will most likely tread carefully to avoid direct confrontation with the Tatmadaw (much like in the ongoing Rohingya crisis). Any attempt to terminate the relationship may be seen as…

Author: Adam P MacDonald, Halifax

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Hong Kong

Hong Kong’s Star is Fading – Where Will Asia’s Next Financial Center Be?

Rising concerns over the interventionist policies of the Chinese government have led to Hong Kong losing its luster

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Not too long ago, it was universally agreed among the traders and bankers of the world that the city-state of Hong Kong was the place to do business in Asia.

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Korea

South Korea’s economic reform agenda takes flight

The key concept that governs the economic reforms of Moon’s administration is income-led growth to create a virtuous circle among wage, consumption, investment, productivity and employment

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In the aftermath of former president Park Geun-hye’s impeachment, a presidential election was held in May 2017 — much earlier than originally planned. This election saw the key economic priorities of the former government (deregulation and innovation) give way to a new regime focused on values of fairness and mutual prosperity.

It is true that South Korea has tended to close its eyes to fairness and social values in its striving for economic growth. But fairness is a necessary value for providing the right incentives, social stability and harmony for economic prosperity. The pursuit of social value eases failures in coordination and leads to a better equilibrium for society.

These values are reflected in the slogans ‘fair economy’ and ‘social economy’ that have been promulgated by new President Moon Jae-in’s administration. The new government has focused on income-led growth strategies as well as intensified checks on unfair trade practices and chaebols. But these policies are not without risk.

The key concept that governs the economic reforms of Moon’s administration is income-led growth. This strategy seeks to create a virtuous circle among wage, consumption, investment, productivity and employment by boosting wages and in turn boosting domestic demand. The key driver of income-led growth is increased consumption that is backed by wage growth.

A major focus in implementing Moon’s income-led growth agenda has been increasing the minimum wage. The South Korean government has mandated the minimum wage since 1989 and reviews its appropriateness every year. But this year’s raise reached historic levels — an increase of 16.4 per cent from 6470 won (US$6) to 7530 won (US$7) an hour. The Moon administration aims to increase the minimum wage further to at least 10,000 won (US$9.20) by 2020.

Although the minimum wage affects only around 10 per cent of workers directly, advocates believe that it will have a spillover effect, shifting the overall wage distribution upwards.

But with the minimum wage set to soar over the next year, the complaints and fears of small business owners who are directly exposed to minimum wage and near-minimum wage employees are emerging. They argue that it will severely harm their profitability. Classical economic theory predicts that employment will shrink as the minimum wage rises, as those who are relatively less productive will be ousted from the labour market.

Empirical evidence on the effect of the minimum wage rise on employment is mixed. Admittedly, increasing the minimum wage is a relatively easy and cheap policy, as it transfers most of the accompanying costs to companies. But some experts suggest that there are more direct and potentially better measures to address poverty and a skewed income distribution, such as the Earned Income Tax Credit (EITC).

In addition, the government is set to increase spending substantially to expand welfare, to create public jobs and to enhance job security. Examples include widening the coverage of health insurance, significantly increasing public employment — such as firefighters and police — and converting non-regular workers into regular workers in public institutions.

The intentions of the Moon administration are good, but the financial burden they will create is a significant problem. Currently, South Korea is in a healthy economic situation in terms of tax revenue. But South Korea should watch out for expanding national debt. A recent Korea Development Institute study warned that — given the aging population and sluggish growth trends — if the current fiscal spending and economic growth rate continue, the tax burden will rise significantly to meet the growing national debt ratio. Balancing the current boost in welfare and employment against the financial burden on future generations will be a challenge.

Moon has also appointed Kim Sang-jo as the new chairman of the Korea Fair Trade Commission. Kim is pushing hard to eradicate prevalent unfair trade practices, particularly in franchises, agents, distributors and subcontractors. The unbalanced relationship between small and large companies has been pointed out as a chronic problem. Kim, a corporate governance expert, is also strengthening regulations on large business groups. For example, he has established the Business Group Bureau dedicated to chaebol investigation and monitoring internal transactions.

In his inaugural speech, Kim declared that he would wipe away the tears of the ‘weak’. By the ‘weak’, he was referring to small and medium businesses rather than consumers. This seems to offset the…

Author: Hwa Ryung Lee, Korea Development Institute

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Korea

There Is Still Time to Develop a Solution to the North Korea Crisis

This isn’t the first time an unpleasant, hostile, and threatening government acquired weapons of mass destruction and the means to attack the United States.

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North Korea conducted its highest missile test yet. So much for the Trump administration’s forlorn hope that Pyongyang’s two-month pause of missile tests indicated that the Kim regime was prepared to negotiate terms of surrender with Washington. (more…)

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