In the wake of Burma's current tragedy, a disturbing misconception has been circulated: that a decade of economic and financial sanctions from the United States and European Union has born bitter fruit in the form of cyclone Nargis. If only - the argument goes - Burma's ruling State Peace and Development Council (SPDC) and military had been free to dispose of the revenues denied to it by sanctions, then the Irrawaddy delta would today be replete with Burmese aid workers and recovery teams, equipped with sophisticated logistical support. Indeed, if only more foreign investment had been made in Burma's resources sectors, their capacity would have been all the greater due to the high quality of the local infrastructure that the regime would have built.

Wylie Bradford is senior lecturer in economics at Macquarie University, Sydney. He writes for Burma Economic Watch

This anti-sanctions case rests on evasion of an unpleasant truth: that it is not sanctions that have crippled the Burmese economy, but the military - the same military that has transferred billions of dollars accrued from overseas sales of Burma's gas, fishing and mining assets into their private bank accounts, rather than to the government's budget.

Two economies, two worlds

In 1962, the year the military took power, Burma's per-capita GDP was around 25% of that of Thailand. By 1997, the year that significant sanctions were first imposed, the ratio was around 12.5% (at best, given that Burma's official growth rates are wildly overstated). That growing disparity was the result of over three (largely sanctions-free) decades of military rule. The self-imposed isolationism of the regime in this period included isolation from rational economic policies. The choices it made instead - uncontrolled money-printing, arbitrary changes to the currency's denomination, diversion of fiscal and other resources on infrastructure to serve purely military needs, arbitrary seizure of property, the use of forced labour, bizarre and capricious changes to taxes - were, singly and in combination, responsible for destruction and wastage on an enormous scale.

Also in openDemocracy on Burma:

Kyi May Kaung, "Burma's struggle, Aung San Suu Kyi's role" (8 August 2006)

Nick Cumming-Bruce, "Burma and the ICRC: a people at risk" (15 December 2006)

Kyi May Kaung, "A reality-check in Burma" (10 November 2006)

Karen Connolly, "The Lizard Cage" (22 February 2007)

Aung Zaw, "Burma's question" (26 September 2007)

Robert Semeniuk, "A chronic emergency: on the Burma-Thailand border" (10 October 2007)

Joakim Kreutz, "Burma: protest, crackdown - and now?" (12 October 2007)

Meenakshi Ganguly, "India and Burma: time to choose" (14 January 2008)

Aung Zaw, "Burma: the cyclone and the referendum" (6 May 2008)In this light the unwillingness of the regime to aid the victims of Nargis is more than an outrage in itself: it is rooted in the character of Burma's regime and ruling system. Their wholesale indifference towards Burma's people is connected to the way that they have traduced what could and should be a prosperous economy to the point that the institutional capability to deal with the cyclone's aftermath is practically nil.

The economic incompetence of the SPDC has produced a situation in which rescue-boats run out of fuel before they reach the victims; and only the modest assistance provided by Burma's own citizens and the few foreign-aid agencies able to operate in the country can alleviate the suffering of survivors.

It is vitally important now that the efforts of Burmese people and of the external aid organisations to protect lives and restore a minimum of security in the devastated landscape are supported. But to restore Burma's economy so that it can provide the foundations of sustainable livelihood is a long-term task that can only be accomplished by a range of policy responses - of which sanctions are one - designed to break the regime's hold on power.

The principal impact of sanctions is not on ordinary Burmese, a fact that reflects the existence of two economies in Burma. The first is comprised of small-scale, low-tech businesses typically centred around extended families involved only in the domestic market. The second is composed of larger-scale, more modern enterprises that benefit from trade and investment with the outside world.

The overwhelming majority of Burmese operate within the first sector. The second sector is dominated by the military, both in terms of direct involvement in the ownership and management of firms and by its controls over private businesses (which are obliged to deal with the rest of the world through military-run "holdings corporations". Trade sanctions impact on the military-controlled sector and thus directly affect the junta's core interests, with relatively little negative economic effect on the everyday Burmese person - an effect that in any case would be far outweighed by the regime's economic vandalism).

That is why sanctions are in place - to restrain the extent to which the SPDC can profit from its oppression of the Burmese people, to reduce the pecuniary lure of authoritarianism. This is especially so for the recently imposed and personally targeted financial sanctions which by definition hurt only the regime and its cronies.

No one in Burma except the junta and its close beneficiaries can access any foreign exchange (FX) sent by their families or earned from honest business. All FX is kept by the regime. For Burmese even to obtain the local-currency value of any FX receipts they must deal with one of the three money-exchange centres owned personally by upper-echelon members of the SPDC. Even then the junta takes, providing less than the market-exchange rate equivalent in the local currency. The regime may indeed care little for the salons of Europe, but the same certainly cannot be said for the banks and other economic agencies of the west.

A single viewing of the YouTube wedding video of Than Shwe's daughter is enough to show what personal integration with the world economy means to Burma's rulers - a personal line of credit to be splurged on obscene opulence at the expense of the suffering millions (see Kyi May Kaung, "A reality-check in Burma", 10 November 2006). If anything, these sanctions should be tightened to close remaining loopholes and extended to prevent (to take just one example) senior regime figures using assets that by right belong to Burma's people to enrol their children in foreign universities.

A strategy of denial

The nature of Burma's divided economies means that external investment will not transform the way the country is ruled. The regime and its control over the lucrative sources of income in Burma is the problem - so giving more opportunities to the country's rulers to extract wealth from people, without any political change, would be like supplying even more drugs to an addict.

Moreover, the liberalising effect of openness to trade and investment can easily be exaggerated. After all, the fantastic enrichment of the House of Saud has not notably diminished its taste for oppressive Wahhabism. Nor is it clear that lifting sanctions will necessarily lead to a flood of inward investment. Burma has attractive primary resources that are already the subject of outside interest (and activity); but the economic environment with its rampant corruption, dysfunctional financial system, poor infrastructure and unreliable energy supplies is hardly attractive in a wider sense.

The environment in Burma will be favourable to foreign investment when property rights are respected, the rule of law is in place and rationality has returned to policy-making. In other words, the benefits from increased foreign investment will become available only after the SPDC is gone. Until such time, the long-term interests of the people of Burma demand that it should be denied succour. Sanctions are an integral part of such a strategy of denial, and must be sustained so that the immense tragedy of cyclone Nargis becomes the prelude to real change in Burma and not to a reinforcement of a pitiless regime's power.