* Cautious reforms gather pace ahead of Asian summit
* New economic adviser close to Suu Kyi, bridging divide
* Myanmar seeking IMF help to sort out forex system
* Cronies and elite poised to benefit from investments
* Dam suspension shows govt's new responsiveness to people
By Aung Hla Tun and Jason Szep
YANGON, Oct 14 In a remote prison in Myanmar's
northernmost state, comedian and dissident Maung Thura nearly
lost touch with the world. His parents died. He was forbidden
contact with relatives for more than a year.
So when guards startled him awake at 5:30 a.m. on a cool
Wednesday morning to free him and about 200 other political
prisoners in a rare amnesty, he was ecstatic. He could see his
two children again. One of the world's most reclusive and
autocratic states may finally be changing, he thought.
But his excitement soon gave way to anger, he said. Nearly
2,000 fellow activists remained in jail in the former British
colony also known as Burma, including 18 in his prison in the
city of Myitkyina.
"If they really want national reconciliation, they should
release all political prisoners," said Maung Thura, better known
by his stage name Zarganar, in an interview in Yangon after
reuniting with his family about 1,480 km (920 miles) south of
Is Myanmar really opening up, he asked, echoing a question
asked widely of an authoritarian state at the strategic
crossroads of Asia, which shows signs of ending a half-century
The answer, according to diplomats and lawmakers close to
Myanmar's leadership, appears to be yes. Reforms that gathered
speed this year are likely to continue and possibly accelerate,
even if this week's release of prisoners was disappointingly
Recent overtures by the government have included calls for
peace with ethnic minority groups, some tolerance of criticism,
an easing of media controls and more communication with Nobel
Peace Prize laureate Aung San Suu Kyi, who was released last
year from 15 years of house arrest.
"We talk to them privately and encourage them to continue
with reforms but we also suggest they do so at a realistic
pace," said a foreign minister of a Southeast Asian nation who
communicates with Myanmar's leaders regularly under the ASEAN
"If they go too fast and change too much at once, there is a
risk that it could backfire, and all the changes that they have
made would be unwound," said the minister who declined to be
identified by name or nation due to the sensitivity of
diplomatic communications with Myanmar.
He and other Southeast Asian diplomats expect the 10-member
Association of South East Asian Nations to approve at their
summit next month in Bali Myanmar's bid to take its rotating
presidency in 2014, two years ahead of schedule, giving the new
government some long-sought international recognition.
NEW ECONOMIC ADVISER
Reasons behind the wave of reforms are varied.
A local currency crisis is forcing the government to seek
urgent help from multilateral institutions. Populist anger is
rising over neighbour and historic rival China's expanding
economic influence. And Western sanctions are no longer merely a
nuisance. They have begun to bite.
The government, say those familiar with its thinking, has
begun to covet U.S. and European investments as a counterweight
to billions of dollars of Chinese money flowing into its energy
industry -- from natural gas to hydro-power and pipeline
projects that cater almost exclusively to energy-thirsty China.
Sanctions, they add, also keep some of the Burmese elite's
children out of American schools -- a frustration that has grown
more acute among a new generation.
And, crucially, since the army nominally handed over of
power to a civilian parliament in the first elections in two
decades, President Thein Sein has defied sceptics by reaching
out to pro-democracy leader Suu Kyi, daughter of assassinated
independence hero General Aung San.
Thein Sein, a retired general and first civilian head of
state in half a century, surprised Suu Kyi's supporters by
appointing one of her friends, U Myint, as chief economic
adviser, a step that more than any other could yield reforms in
months ahead, say economists who track the country.
U Myint is a dramatic break from decades of staid autocrats
and policy blunders by military juntas since a 1962 coup.
The former senior U.N. economist has been openly critical of
the former junta, and is a colourful personality, singing and
strumming guitar at a World AIDS Day performance in December at
Suu Kyi's party headquarters.
The 73-year-old reformer is well regarded on both sides of
the political divide, a bridge between pro-democracy forces and
conservative former generals who dominate parliament. Recently
he called for a crackdown on graft, a bold step in a country
ranked second on Transparency International's 2010 list of most
corrupt nations, worse than Afghanistan.
His views on Myanmar's currency, the kyat, offer a glimpse
into a nation desperate for help. They alone form perhaps the
strongest argument for why more reforms are likely.
While the currency is pegged at six kyat to a dollar,
it changes hands unofficially at about 850, up about 15 percent
this year on sales of natural gas, jade and gems, a surge of
foreign investment from China and swelling private capital from
neighbouring countries and the Middle East.
SEEKING IMF HELP
U Myint sees trouble ahead if the largely Chinese-investment
fuelled black-market rate keeps rising. In a paper presented to
the government in June, he warned it could destabilise Myanmar
and urged the government to reach out to the International
Monetary Fund for help.
"If the exchange rate continues to appreciate unchecked, a
stage will be reached when earnings from exports in local
currency are no longer able to cover costs of production, huge
losses are incurred, and enterprises have to close down," he
wrote, according to a translation of his paper seen by Reuters.
Workers could lose jobs, farmers and fishermen will struggle
to sell produce, he said. "The economic, social and political
consequences of this chain of events can be serious," he added.
Bread-and-butter issues have been known to turn violent in
Myanmar. The biggest and bloodiest uprisings against military
rule, in 1988 and 2007, were sparked by discontent over soaring
inflation and fuel prices.
The IMF and World Bank cut ties to Myanmar years ago in
response to rights abuses. An IMF team will visit this month to
study how to unify the official and unofficial exchange rates.
But more reforms -- economic and social -- are likely to be the
price of their full support.
"The key event will be the re-engagement of the World Bank
and the multilateral organisations," said Douglas Clayton, a
former hedge fund manager who is now chief executive and
managing partner of Leopard Capital, a private-equity fund
focused on emerging Asian markets and backed by overseas
"At some point it will be very hard for the West to justify
continuing economic sanctions against a country that is
undergoing reform," said Clayton.
He sees opportunities "in almost every sector" if sanctions
come down -- from manufacturing to infrastructure and
agriculture in a country that just over 50 years ago was one of
Asia's rising stars, the world's top rice exporter and a major
energy producer with a well-educated workforce.
Government sources say U Myint is set to roll out more
financial reforms, including allowing some private and
semi-government banks to handle foreign currencies, reviewing
foreign investment laws and clearing the way for three
state-owned banks to open overseas branches.
The pricier currency also points to deeper changes
Mynamar's wealthy converted dollars into kyat