By Eric Vandenbroeck and co-workers

Since Myanmar’s military overthrew the country’s democratically elected government in 2021, it has ruled with devastating violence. Junta forces have bombed civilians in a bid to suppress rebellious provinces, killing thousands. Junta-supported paramilitary groups have targeted political opponents and their families. And the regime has furthered an ethnic cleansing campaign against the Rohingya, a Muslim-minority population. Since 2017, Myanmar’s military has killed tens of thousands of Rohingya and exiled hundreds of thousands more to neighboring Bangladesh; in early 2025, the junta cut off food and supplies to the 130,000 Rohingya in Myanmar living in prison-like refugee camps, leading to starvation and disease.

Distracted by crises elsewhere and reconsidering its geopolitical priorities, the United States has mostly ignored the situation in Myanmar. American policymakers have also assumed that the risks of entanglement in the country—which has a long history of periods of military rule—outweigh the rewards. But U.S. passivity has not just contributed to the dire circumstances for civilians in Myanmar. It has also undercut the United States’ position in Asia by creating space for China to exploit Myanmar’s instability. Beijing, willing to back any regime regardless of its ideology or tactics, has stepped into the breach left by Washington’s inaction.

It is not too late for a change in U.S. strategy. Despite years of sitting on the sidelines, the United States has an opportunity to reassert itself in seeking to end the depredations of the junta and advance the cause of democracy in Myanmar. Myanmar’s military junta is struggling financially, even with Chinese support, and the United States has a powerful economic arsenal it can deploy. If the United States has the will to regain its influence in Myanmar and the region, there are straightforward ways it can use economic tools to shape the balance of power in Myanmar.

 

From Beijing to Yangon

China has long had its sights on Myanmar as part of its larger Belt and Road Initiative, a vast infrastructure investment program that seeks to boost China’s growth prospects and political influence. Myanmar’s strategic location between China’s southwestern provinces and the Indian Ocean has made it a priority for leaders in Beijing, who have inked numerous deals for Chinese-backed ports, railways, and pipelines.

One of China’s key projects in Myanmar, the Kyaukpyu port in Rakhine State, along the country’s long western coastline, reveals Beijing’s playbook. The deep-water port will allow large Chinese cargo and energy ships to bypass the Strait of Malacca, the narrow waterway between Indonesia, Malaysia, and Singapore through which China conducts two-thirds of its maritime trade and imports 80 percent of its oil. Port access in Myanmar provides China a way to maneuver around a potential U.S.-led blockade in the Strait of Malacca if conflict arose, for instance, in the Taiwan Strait.

The port and its accompanying special economic zone are estimated to cost $10 billion. Chinese state-owned enterprises are financing the effort and will control the port’s operations. China International Trust Investment Corporation, one of China’s largest such enterprises, will hold a 70 percent stake in the port and will have an exclusive contract to operate it for 50 years, with a possible 25-year extension. Former high-level officials in Myanmar’s deposed civilian government estimate that half the remaining 30 percent stake held by Myanmar is loaned from China, which means that approximately two percent of Myanmar’s GDP is tied up in opaque contracts with Chinese banks.

This project is more likely to trap Myanmar in debt than benefit its economy. The financial terms for the Kyaukpyu port are even less favorable than those of other prominent Belt and Road Initiative projects that have saddled host countries with debt, such as the Hambantota port in Sri Lanka. Chinese banks lent money to Myanmar at commercial rates, rather than offering concessional loans typically used in development projects, and the deal included expansive provisions to use land as collateral. Moreover, the conditions for a massive port project to benefit the local economy do not exist in Rakhine State: most residents are small-scale rice farmers, and roughly 80 percent of the population lives below Myanmar’s poverty line. There is no local economy to support such a large infrastructure investment, which means that the workers to build and run the port will come from elsewhere. In the familiar pattern of BRI projects, those workers will likely be Chinese.

China struck many of these deals in the early 2010s, when military generals held the main levers of power in Myanmar. The subsequent democratic government delayed the projects while it investigated their economic viability. After the 2021 coup, however, the junta restored and accelerated these Chinese investment projects. The junta’s leaders, who desperately need foreign assistance, find it difficult to say no to China even if the projects are overpriced and overload Myanmar with debt.

Myanmar has a constitutional ban on the presence of foreign militaries in the country, but China’s leverage over the junta suggests that this will not prevent the Chinese navy from using the deep-water port if it wants. The Chinese navy already makes port calls in Myanmar, but these are brief stays in facilities too primitive to provide naval advantage. Beijing also sells weapons to the Arakan Army, a paramilitary group, which is fighting against the junta in Rakhine State. If the junta’s leaders were to try to prevent China from conducting military activities at Kyaukpyu, China could further seed insurgencies near the port to protect its investments. Supporting opposition groups in Rakhine benefits China by keeping the junta weak—and therefore more likely to comply with Beijing’s demands.

China’s economic leverage over the junta also supports its global dominance of rare-earth elements. Nearly two-thirds of dysprosium and terbium, two key rare-earth elements, come from northern Myanmar. China’s monopoly on processing these elements into magnets has given Beijing a strategic chokepoint in the global economy. In exchange, China has protected the junta by vetoing tougher sanctions at the United Nations and other international forums. Chinese leader Xi Jinping and the junta chief Min Aung Hlaing met in Moscow in May to discuss cooperation, endowing the junta with an air of global legitimacy.

 

Money Woes

The junta’s economic lifelines actively undercut U.S. interests. Its leaders have forged deep partnerships with paramilitary groups, such as the Karen National Army, whose actions harm Americans. Unlike some other ethnic armed organizations leading insurgencies against the junta, the KNA is a pro-junta militia formally folded into the army’s command. The junta works with the KNA on business ventures in mining, utilities, and smuggling, and KNA leader Saw Chit Thu has made high-profile donations to powerful Buddhist leaders with close ties to the junta. In May, the U.S. Treasury sanctioned the KNA as a transnational criminal organization for its role in facilitating exploitative cyber-scams that cost U.S. citizens $3.5 billion in 2023.

The junta has also revived Myanmar’s role as a center of international narcotics trafficking and production. Before being deposed in the coup, the democratically elected government installed X-ray scanners and police along major trafficking routes, which effectively reduced the flow of heroin and methamphetamine into the United States. The junta’s leaders have not only gutted these efforts; they have also repurposed the scanners to search for weapons among their political enemies. Poppy cultivation and fentanyl production in Myanmar have surged, contributing to the devastating opioid epidemic in the United States.

Despite investment from Beijing and money flowing in from illicit activity, however, the junta finds itself in a precarious financial situation. It needs seemingly endless amounts of foreign exchange to support its military operations. To address this, Myanmar’s central bank has printed money on an unprecedented scale. Since the coup in 2021, the central bank has issued 30 trillion kyat—a tenfold increase over the roughly three trillion kyat printed in 2020. The result has been runaway inflation and a collapse in confidence in Myanmar’s currency, which has dropped 80 percent in value since 2021. The regime now relies on remittances and natural resource sales for U.S. dollars to purchase fuel, chemicals, and weapons from China and Russia, which won’t accept payment in kyat.

Myanmar’s central bank has reoriented its monetary policy to support the junta’s access to foreign currency reserves. Since 2021, the central bank has issued more than a dozen directives to further this goal, including forcing migrant workers to convert remittances into kyat, imposing a tiered exchange rate system based on military priorities to more cheaply procure weapons, and revoking foreign exchange licenses from some independent businesses to channel limited foreign currency toward buying arms. The central bank even suspended debt repayments on approved foreign loans, which effectively triggered a state-engineered default and undercut prior efforts to establish Myanmar’s creditworthiness. These central bank policies have boosted the junta’s supply of dollars to bolster its military cache, but they have damaged the country’s exporters and importers and decimated its economic growth potential.

 

Sanctioning Change

When the United States has, on rare occasions, exercised its influence in Myanmar, its efforts have had an impact. In 2023, for instance, the United States sanctioned the Myanmar Foreign Trade Bank, the primary vehicle for official foreign exchange. The effect was immediate: international transactions involving the MFTB fell from more than $500 million in the first quarter of 2023 to just over $80 million in the second quarter of that year. But the regime quickly adapted, shifting banking operations to the state-owned Myanmar Economic Bank, which saw the value of its transactions grow from less than $80 million to $495 million.

The United States should not only sanction the Myanmar Economic Bank; it should also target the central bank, which controls the MEB and other state-owned financial institutions. Policymakers should mark the central bank as a Specially Designated National under the Burma Sanctions Program administered by the U.S. Treasury. This would effectively cut off Myanmar’s state-owned oil and gas company from foreign markets and prevent the junta’s defense ministry from purchasing arms from China and Russia, which often insist on being paid in U.S. dollars for military equipment.

The United States should use its economic weapons not only to disempower the junta but also to support its replacement. Fortunately, Myanmar already has a viable political alternative—the National Unity Government, the coalition of democratically elected lawmakers ousted in 2021. The United States should formally recognize the NUG and amplify the impact of central bank sanctions by repurposing frozen funds held at the U.S. Federal Reserve. The New York Fed currently holds more than $1 billion in frozen funds belonging to Myanmar’s central bank. The U.S. Treasury could redirect the interest earned on these immobilized assets to the NUG, as it has done with Russian funds to support Ukraine.

Additionally, the United States should provide technical assistance and credit guarantees to support alternative financial infrastructure in Myanmar, such as the NUG-controlled online Spring Development Bank, which provides banking services to workers and refugees around the world. The U.S. State Department could also put pressure on Thailand, a close U.S. ally, to crack down on increasing arms trafficking to Myanmar. U.S. and UN pressure on Singapore reduced weapons transfers through the city-state to Myanmar by 83 percent between April 2023 and March 2024. The same can work in Thailand alongside the threat of secondary sanctions on private Thai financial institutions.

By cutting off the junta’s means of purchasing weapons, these economic measures could force the junta to accept concrete concessions, including agreeing to cease-fires with insurgent groups, increasing humanitarian aid for civilians, and establishing a road map to repatriate and protect the Rohingya. Ideally, U.S. pressure would also push the junta’s leaders to transition back to a more democratic political system. Short of these goals, however, U.S. economic measures could still improve the situation in Myanmar. They could increase the cost of the junta’s weapons purchases and deter international banks, insurers, and transportation companies from abetting Myanmar’s military deals. And these actions would signal U.S. resolve to get involved in the region, which would encourage regulators and private-sector compliance teams to more strictly monitor illegal activity.

The potential benefits for, among others, the United States are high, but the costs are relatively low. Sanctioning financial institutions in Myanmar will damage the junta’s ability to buy weapons overseas but will inflict only minimal harm on the broader population, which, following repeated crises, mostly steers clear of banks. These measures are also unlikely to drive Myanmar closer to China. The junta is already dependent on China, which will remain Myanmar’s biggest lender and export market. Sanctions cannot undo this close relationship, but along with targeted diplomatic efforts, they can raise the costs of the junta’s overreliance on Beijing and encourage its leaders to consider reforms that are more in line with U.S. interests.

Although Beijing has outcompeted Washington in Myanmar up to this point, the junta’s woefully incompetent management of its currency and foreign reserves presents an opportunity for the United States to recalibrate its approach to the country. The United States has the financial tools to hobble the junta, push back on China’s influence in the region, and improve the future for the people of Myanmar. If it fails to do so, it risks further empowering the junta and solidifying China’s powerful hold over the region. Such an outcome would be a moral and strategic disaster for the United States.

 

 

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