The US government has eased its Myanmar sanctions, but experts are dubious about the impact on trade.

In an effort to support the fledgling National League for Democracy (NLD) government through galvanising trade, state-owned banks have been removed from the US’ sanctions list, as have seven state-owned companies in the timber and mining sectors.

Perhaps most importantly, the temporary sanctions exemption for banks financing shipments through Myanmar ports has been extended indefinitely. This is despite the fact that six additional companies affiliated with Asia World, the ports’ parent company, and its owner Steven Law, a sanctioned individual, have been added to the list of Specially Designated Nationals (SDN).

“The US approach – relax sanctions on the state, maintain or increase them on the military and its ‘cronies’ – means that trade and access in some sectors will remain particularly challenging for foreign firms, bringing considerable compliance, reputational and political risks,” Tim Powdrill, associate director, intelligence and analysis Asia Pacific at the Risk Advisory Group, tells GTR. 

The Myanmar sanctions situation has perplexed many western banks. The complex ownership structure of certain companies and facilities, accentuated by the lack of transparency in the market, has deterred most US banks from financing trade in the country, despite the bullish economic outlook of many analysts.

The latest move is designed to allay these fears and to instigate the flow of finance. However, given the revised risk profile such banks now have, it’s doubtful whether this will happen. Some US banks have retrenched even from the most stable of Asian markets.

“We are not even looking at Myanmar,” a senior trade credit insurer told GTR this week. “It’s beyond us. If it’s beyond us, that means it’s beyond most others too.”

“My feeling is that any substantial growth in trade is likely to continue to be financed regionally,” Janet Hyde, ADB

Janet Hyde, who runs the Asian Development Bank’s trade finance programme in Myanmar, says that it’s likely that trade growth will be funded regionally. Singaporean and Thai banks and companies in particularly have been flooding into Myanmar, stealing a march on their western rivals.

For those organisations, the latest move from OFAC should, if nothing else, alleviate any doubts they have about settling Myanmar business in US dollars.

“I do not foresee any change in response from potential investors and banks who have so far withheld from working with such individuals and entities,” Hyde says.

She adds: “Sanctions against seven state-owned enterprises involved in mining, gems and timber were removed from the SDN list. But as jade and rubies are still sanctioned activities, I feel banks and investors will err on the side of caution here, too. My feeling is that any substantial growth in trade is likely to continue to be financed regionally.”

As Myanmar moved towards its first democratic elections in half a century, the US began to ease sanctions in 2011, followed by the EU in 2012. Since then, a number of high-profile international companies have moved into the country, including Coca Cola, which opened a US$200mn bottling plant in 2013.

The latest move, removing some sanctions while adding others, is representative of the US government’s cautious approach to the country, Powdrill says. Despite the recent elections, the former military still hold positions in parliament and own billions of dollars worth of assets in the country.

“This slight easing of Myanmar sanctions by the US is an acknowledgement of its political transition, but the reluctance to go further shows Washington’s concerns over the progress of future reform. Washington doesn’t want to throw all its leverage away just yet. Relaxing sanctions on state-owned firms and maintaining, or even increasing, measures against military businesses and military-linked individuals also shows careful political calculation,” he explains.