Illicit trades imperil Myanmar reforms
By Billy Tea
Under the failed economic policies of Myanmar's previous ruling junta, the country graduated from being of the most promising Southeast Asian country during the British colonial era to one of the United Nations' Least Developed Countries by 1987. During this period, it was widely estimated that the illegal economy was anywhere from three to five times larger than the legal one.
Decades of corruption and mismanagement have resulted in a network of crony officials and businessmen who still illegally trade in the country's natural wealth, ranging from gem stones to timber to oil and gas. The country's weak capacity promotes the continuation of old ways and reinforces the space for non-state
actors to pursue their illegal activities, thereby restraining the country's transition toward democratic governance.
One of the main issues that Myanmar will encounter in its transition towards from direct military rule to democracy is the glaring lack of institutions and qualified personnel to adequately address day-to-day affairs while also trying to implement broad reform orders issued by President Thein Sein's office.
The lack of qualified middle managers has reportedly forced ministers to hold 10-20 meetings each day, detracting from their ability to envision and deal with big picture issues. Consequently, reforms so far have been implemented slowly and imperfectly. Moreover, non-existent infrastructure, such as strong law enforcement, judicial and tax systems, severely hinders the state's ability to respond and properly prosecute illegal activities.
Because senior military officers and their close associates are often involved in these illicit trades, any significant moves to curb to them could destabilize Thein Sein's quasi-civilian regime and ultimately upend his internationally acclaimed economic and political reform programs.
Although Myanmar has recently instituted democratic policies, it still suffers from rampant trafficking of opium, wood, minerals, and people. In 2012, the United Nations ranked Myanmar as the world's second-largest producer of illicit opium. There are currently an estimated 256,000 households involved in the cultivation of opium, which is distributed by more than 50 drug-trafficking organizations. 
Opium from Myanmar enters the markets of neighboring countries such as Thailand, Laos, and China, often for shipment further abroad. Many of the country's most prominent corporations are known to have past and possible present links with the opium trade. In 2011, police in the southern Chinese province of Yunnan seized 13.5 tons of illegal drugs and arrested 17,000 drug smugglers. 
Similarly, the prevalence of the illegal wood trade among crony officials and businessmen also highlights the adverse consequences of a lacking legal infrastructure and poor governance. Environmental groups assert that Myanmar has Asia's most extensive intact tropical forest ecosystems, including the world's only remaining golden teak forests.
It is the largest exporter of timber in Indochina, with precious teak accounting for 60%-70% of the export earnings from forestry products, generating US$309.6 million in revenues in fiscal year 2011-2012, according to official statistics. Illegal deforestation has reduced the amount of land covered by timber from 57% in 1990 to 47% in 2005. The current figure is likely considerably lower with recent rampant deforestation of border areas.
The environmental advocacy group Global Witness warned in a 2009 report that illegal logging was causing rapid destruction of Myanmar's northeastern forests, with most of the timber being smuggled into China's Kunming province. According to the report, one truck carrying 15 tons of illegal logs crossed the China-Myanmar border every seven minutes. The rampant logging of forest areas in Kachin State has been identified as one cause of the area's renewed armed conflict between government forces and ethnic Kachin rebels.
Human trafficking, meanwhile, adversely affects Myanmar society at every level. Men, women and children are trafficked for sexual and labor exploitation in Thailand, China, Malaysia, Bangladesh, South Korea, Macau, and Pakistan.  Myanmar is both a source and transit country for human trafficking.
There are no reliable estimates of the number of persons trafficked annually, although a total of 134 trafficking cases were investigated in 2008 involving 203 victims (153 female and 50 male), and 342 traffickers. Identified cases surely represent only a small fraction of actual trafficking, betraying the enormity of the scale of the problem. UNICEF, for example, estimated in 2003 that 10,000 girls were trafficked every year from Myanmar into Thai brothels alone.
Myanmar is rich in coal, copper, gold, zinc, tungsten, gems and other minerals. The vast majority of high-quality rubies on the world market originate from Myanmar. It is also a top producer of jadeite, the most expensive form of jade.
Gem sales provide significant revenue for the Myanmar government, bringing in more than $3.7 billion between March 2011 and February 2012. The country produced over 13 million carats of rubies, sapphires, spinel and peridot, and more than 43 million kilograms of jade in 2011 and 2012, according to official statistics.
A 2008 Human Rights Watch report said gem mining occurs in deplorable conditions, with rampant land confiscation, extortion, forced labor, child labor, environmental pollution, and unsafe working conditions. HIV/AIDS, drug-resistant malaria, and tuberculosis are common in mining areas, the report noted.
These illegal activities are all symptomatic of state capacity deficiencies. These include weak capacity of law enforcement agencies; patchy cooperation among member states involved in or benefiting from illicit trades; insufficient institutional and procedural safeguards against corruption; a lack of effort and cooperation in recovery of stolen public assets; a lack of adequately strong, independent and fair justice systems at the national level; and inadequate mechanisms to support effective cooperation in addressing transnational organized justice.
There is a strong correlation between Myanmar's weak state capacities and the strength and vitality of its illegal trades.
(The funeral was held in Yangon last week of Lo Hsing Han (78) for decades considered one of the world’s biggest traffickers of heroin. He founded Asia World, Myanmar's biggest conglomerate, now run by his son, Stephen Law (Lo Ping Zhong). A member of the military-backed Union Solidarity and Development Party who attended the funeral was quoted by Irrawaddy as saying Lo Hsing Han "was my teacher. I was very sad for his death. I took one day off from Parliament to come here because I wanted to show my condolences.")
Myanmar does not have the current capacity to prevent, manage, and resolve these crimes because of the lack of trained personnel and institutions and the political risks involved with prosecuting top level military officials. The lack of official state mechanisms and political will allow for the perpetuation of these illegal activities, which have reached the scale of a regional crisis.
As Myanmar looks forward to the next stage of its democratization process, it is critical that it develops state capacities, both in terms of institutions and personnel, to respond to these pressing issues. Until they are addressed and resolved, Myanmar's illegal economy will continue to overshadow and hinder the country's transitional successes.
1. See here
2. Patrick Boehler, "Chinese Drug Busts Shed Light on Burma's Burgeoning Trade," Irrawaddy, March 26, 2012.
3. US Department of State Trafficking in Persons Report, 2011.
Billy Tea is a Research Fellow at the Pacific Forum CSIS. His research interests include conflict prevention, conflict management and regional cooperation; Chinese foreign policy in Asia; and security and defense relations between Asia, Europe and the United States. He holds a BA in Political Science from UMASS Amherst and a MA in War Studies from King's College London.
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