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Is Myanmar about to rejoin the world?

One of the three most closed and isolated countries in the world is opening up. The long-repressed Burmese say it's unbelievable - but they want to believe in a new Myanmar.

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Myanmar is rich in natural resources, though. It has oil and gas reserves, huge stands of tropical timber, gems, jade, and precious metals. It also has a population of 60 million people, making it the second-largest market in Southeast Asia, and the lobbies of Yangon's handful of smart hotels are full of foreign businessmen who sniff profits on the winds of change.

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Myanmar's own citizens have not yet seen any economic benefit from the new government, aside from pensioners and civil servants whose incomes were raised last year. But the authorities are drawing up a new foreign investment law and a new Special Economic Zone regime that they hope will encourage job creation by international companies.

Even if Western sanctions are lifted soon, though, allowing US and European companies to invest in Myanmar and allowing its banks to carry out international financial transactions, "we will not see an overnight El Dorado," cautions one Western diplomat.

"The most important thing is that the foreign investment climate be transparent and predictable," says one local economist with inside knowledge of policymaking who asked not to be identified by name. "This means that we have many problems to solve. All the systems we have used for 60 years need to be changed."

The government has made a start on economic reforms by unifying the exchange rate. But it has yet to tackle the antiquated and isolated banking system – most of Myanmar's economy works on cash – let alone start building the sort of independent judiciary that could rule in contract disputes or challenge the interests of the small group of crony capitalists who dominate the economy, amassing huge fortunes thanks to their close ties with the military.

Daunting practical problems confront would-be businessmen as well: Mobile phones work only intermittently, Internet connections are impossibly slow, power outages are frequent, the roads are often almost impassably potholed, and most of the railroads, built more than 100 years ago, are in disrepair.

Perhaps even more seriously, the country's workforce suffers from an acute shortage of skills and education.

"Everyone is talking about democracy and change, but we don't have the institutions we need, and we don't have the knowledge," complains the economist. "We should have an advantage as a latecomer, being able to learn from other countries' mistakes. But we can take that advantage only if we know what happened in other countries, and almost nobody here does know."

"There is a danger that the reforms will founder because the capacity to conceive and implement them is so limited," agrees Steinberg. "That, rather than opposition to reform, could be the real danger to the country."

An 'unbelievable' tipping point

Opposition to the reforms does undoubtedly lurk in high places; hard-liners in the military are keeping their counsel at the moment, but how long will that last? The generals might accept that the opposition's landslide victory at the recent by-elections was the price the country had to pay for rapprochement with the West, but if future economic reforms strike at corruption and threaten the military's economic interests, will they be prepared to pay that price, too?

The 2008 Constitution gives the Army the legal right to take the national reins again in the event of an ill-defined "emergency," but for the time being, that possibility seems remote.

"We've reached the tipping point," says Khin Zaw Win. "It would be very costly for anyone who tried to turn the clock back now, and I don't think it is in the realm of the possible anymore."

Looking back on a year of reforms, and forward to the further liberalization that the government has promised, one young journalist captures the mixture of bewilderment and hope that the changes have stirred in so many of her fellow citizens: "It's unbelievable," she says. "But I believe it."

[Editor's note: Our correspondent in Yangon could not be identified for security reasons.]

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