WASHINGTON (AP) — When Secretary of State Hillary Rodham Clinton visits Myanmar this week, she'll see a country that has made some progress on democracy, but has even farther to go to fix the corrupted economy and ethnic conflicts that stem from decades of military rule.
After staging elections last November, Myanmar has begun to release political prisoners and work with opposition leader Aung San Suu Kyi. That has earned political rewards, such as Clinton's visit starting late Wednesday, the first by the top U.S. diplomat in 56 years.
But the new government, still dominated by the military, has scarcely begun to fix the mistakes made since it took power in 1962, and fighting between the army and ethnic minorities who want more autonomy has intensified since the elections.
While Myanmar's nascent political reforms hold promise, economic changes will be just as important to arrest the decline of what was one of Southeast Asia's most prosperous countries but now rated on a key U.N. index as the region's least developed.
The military began opening the economy in the 1990s, after the 26-year socialist rule of the late dictator Ne Win, but the investment it has attracted has mostly been for its own benefit — including to build a remote and opulent new capital city where the government relocated to in 2005.
Ne Win's eccentricities extended to issuing currency notes divisible by the supposedly auspicious number nine, and Myanmar retains a Byzantine exchange rate system. The official rate of the kyat currency is about 12,000 percent over market value.
That has helped a kleptocracy to flourish. By accounting exports of natural gas and other resources at that rate — which is largely ignored in day-to-day transactions — the government is believed to have underreported billions of dollars in revenues.
In the past two years, the government has accelerated its privatization of state enterprises and assets, but liberalization has not translated into a level playing field. Buyers of key holdings have been military-run corporations and government cronies.
Transparency International, a Germany-based private group that campaigns against corruption, ranked Myanmar 176 out of 178 countries in its 2010 global index on graft — equal with Afghanistan and one place above last-placed, lawless Somalia.
In his inaugural speech in March, President Thein Sein, promised tax and financial reforms to promote small and medium-size enterprises and to narrow the gap between rich and poor.
There has been little substantive change so far, but a team of International Monetary Fund advisers visited in November, to discuss plans to unify the exchange rate regime and lift restrictions on current international payments and transfers. A follow-up mission is expected early next year.
Sean Turnell, an expert on Myanmar's economy at Macquarie University in Sydney, Australia, said adopting the market exchange rate as the sole rate would have profound implications for the country by making the foreign exchange earnings of state-owned enterprises transparent.
"It is not just a technical issue, but could be seen as a fundamental reform of the country's political economy," he said.
Implementing such reforms would be a complex business and would likely require support from international financial institutions, currently blocked by Western sanctions.
But solving Myanmar's economic problems could pale next to the challenge of its ethnic conflicts.
Minorities scattered around Myanmar's western, northern and eastern frontiers make up nearly one-third of the 55 million people. Various splinter groups representing an array of ethnicities — the Karen, Shan, Kachin, Mon, Chin, Arakanese, Wa, Karenni, Paluang, Pa-O and Lahu — have all taken up arms at some point.
Some of the rebellions have endured even longer than military rule. Some the groups have reached cease-fires with the military, but none have won political power.
Last year's elections offered a glimmer of hope. Myanmar now has local assemblies, and ethnic parties are represented in them and to a small degree in the federal parliament.
But a ham-fisted attempt to get ethnic armies to become government-led border guards led to the collapse this year of long-standing cease-fires with two key groups, the Shan State Army-North and the Kachin Independence Army. The fighting has displaced tens of thousands of people. Clashes continue in Kachin State in the country's far north.
That has compounded a humanitarian blight that has sent 140,000 minority refugees into neighboring Thailand since the 1980s and uprooted many more. Reports of horrific military abuses — the burning of villages, rape by soldiers and using civilians as minesweepers — have seeped out of the isolated country's borders for years, and fueled calls for a U.N.-backed commission to investigate possible war crimes.
Frustrated by the government's failure to offer serious negotiations, a number of the traditionally fractious armed groups this summer formed a coalition to strengthen their hand.
Ahead of Clinton's visit, a government delegation held peace talks with representatives from five armed groups, including the once-powerful Karen National Union and the Shane State Army-South.
Whether they will lead anywhere remains to be seen. Previous talks and cease-fires have foundered, and the military would be reluctant to grant the autonomy within a federation the minorities want.
EDITOR'S NOTE — Matthew Pennington covers U.S.-Asian affairs for The Associated Press in Washington.