160,000 people displaced in conflicts since Suu Kyi took power
* Ties with army tense as Suu Kyi pushes for constitutional reform
* Crackdown on Rohingya sparks international human rights probe
* 160,000 people displaced in conflicts since Suu Kyi took power
* Economic reform sluggish, FDI & growth projection down
* Many senior officials kept on from previous government
By Simon Lewis and Antoni Slodkowski
YANGON/NAYPYITAW, March 28 (Reuters) - At the beginning of this year, Myanmar's leader Aung San Suu Kyi sat down with one of her advisers to go through priorities for the coming months. She began with an apology for the slow pace of economic reform.
"You must be very disappointed," she said. "You know, my plan had been that we would get the peace process done and then I would be able to bring my attention - personally - to the economy."
The remark, recounted to Reuters by the adviser speaking on condition of anonymity, offers a rare insight into Suu Kyi's thinking on what some critics say are the defining issues of her first year in power: continued fighting with ethnic armed groups in the north, sluggish progress on retooling an economy stunted by decades of military rule, and a reluctance to delegate power to others.
Suu Kyi - who had been globally celebrated as a heroine of democracy - took over last April, forming Myanmar's first civilian government in half a century amid soaring hopes among both her backers in Western governments and ordinary voters at home.
A year on things look very different.
Last week, the United Nations Human Rights Council moved to probe allegations of crimes against humanity committed against Rohingya Muslims by Myanmar soldiers on the watch of the Nobel Peace Prize winner.
Suu Kyi's support for the security operation in northwestern Rakhine State, during which about 75,000 members of the stateless Rohingya minority have fled to Bangladesh, has strained relations with the West. U.N. officials have told Reuters more than 1,000 people may have been killed.
Meanwhile, the government's domestic performance has struggled to match the optimism that swept her National League for Democracy (NLD) to a landslide election win.
"Many voters feel frustrated," said NLD lawmaker Myo Zaw Aung, citing pervasive low-level corruption as one source of disaffection among a population who also face ramshackle public services and wages among the lowest in Southeast Asia.
"People had sky-high expectations for NLD, but actually the change can't be that dramatic - they are not seeing an obvious change at the grassroots level."
Suu Kyi's spokesman, Zaw Htay, did not respond to Reuters' questions about the government's first year in office. Requests for an interview with Suu Kyi have gone unanswered or have been rejected over the past year. She has given only two interviews, both to broadcasters overseas, in that time.
"FIGHTING NEVER GOES AWAY"
When she came to power, Suu Kyi said her number one priority was ending the myriad ethnic conflicts involving more than 20 rebel groups that have kept Myanmar in a state of near-perpetual civil war since independence in 1948.
That goal remains as elusive as ever, and some critics say that, mired in complex, on-off peace talks, Suu Kyi has taken her eye off the economy.
Growth, albeit still relatively strong, has slowed since she took power, while foreign direct investment has fallen sharply.
"She had the whole world and everyone at home on her side. And look what happened: she has alienated the ethnics, she has lost the battle over Rakhine ... and has not delivered on the economy," said a recent former senior Western diplomat to the country.
Suu Kyi's defenders say she is hamstrung by a constitution written by the military that - along with disqualifying her from the presidency - left the army in control of key security ministries and much of the apparatus of the state.
Some say they believe she has supported the military because her ultimate goal is to coax the generals into accepting a re-writing of the constitution - over which they wield a veto thanks to the bloc of seats reserved for the army in parliament.
"It might be part of her strategy to change the military's mindset and to lead them into the democratic change," said Myat Thu, chair of the Yangon School of Political Science. "But after one year, many people want to see concrete results."
When she took charge of the peace process Suu Kyi dismantled a peace centre - set up by the previous semi-civilian government - that was leading talks with ethnic armed groups.
Some observers say that was a mistake, because experienced negotiators who had built up trust with ethnic minority representatives were removed.
"Ethnic leaders describe their meetings with her as like a headmistress and her students," said one former negotiator, who was briefed on the talks and whose account was broadly backed up by other observers. "She's always up high, and treats them like they are below her."
Several conflicts have reignited since Suu Kyi took power, displacing an estimated 160,000 more people, according to U.N. data.
Most recently, fighting with Kokang rebels in the hills along the Chinese border sent about 20,000 refugees fleeing to China's Yunnan province.
"This fighting never goes away," said one of those who fled, 75-year-old Tao Xiaoshun, still looking for her son lost amid the chaos. "The Myanmar government is too far away. They don't take care of us."
SPOILT CHILDREN
A criticism of the NLD in power has been the extent to which decision-making is concentrated with Suu Kyi, who rules through the specially created position of "State Counsellor".
"She doesn't have a process in place to tackle several issues at the same time," said the former Western diplomat. "She gets easily distracted and she micro-manages. There's no one driving the smart thinking, no one manages the in-tray."
There are few signs of a new generation of leaders emerging from within the NLD, which has always been run by a narrow group close to the charismatic Suu Kyi. Most are fellow former political prisoners, shut out from government for decades and with little executive or lawmaking experience.
Some advisers said the problem was not with Suu Kyi but with senior civil servants in the capital Naypyitaw who she mostly retained, despite many being former army officers or having close military ties.
"In every sector the bureaucrats are still using the same old tactics ... denying every accusation, stonewalling everything," said Han Tha Myint, one of NLD's leaders, adding that the administration had been trying to foster a more open attitude.
Suu Kyi wanted to run the government "like a mother", he said, bringing everyone on board in the spirit of national reconciliation and treating officials "like her children", but that the loyalties of some remained with the country's former military rulers.
"This style is very dangerous. The children are already spoilt and need more strict measures," said Han Tha Myint. "I think mainly it's a cultural problem, but there are elements of sabotage."
"MOMENT, NOT MOMENTUM"
Suu Kyi made a brief push on the economy in September, courting investors during a visit to the United States where she oversaw the cancellation of Washington's economic sanctions on the country, while moving to finalise a long-awaited investment law.
But rather than generating momentum, another advisor to the government said, the push turned out to merely be a "moment".
Suu Kyi took months to install members to a panel that approves investments. A new Companies Act, to replace an early 20th century law and ease rules on foreign ownership, has floundered in the parliament.
This has meant approvals for projects from overseas in the 11 months to February stood at just $6 billion, compared with almost $9.5 billion in the full fiscal year to March 2016, government data show.
The World Bank says gross domestic product growth will fall to 6.5 percent in the current fiscal year from 7.3 percent a year earlier and 8 percent in 2014-15.
Washington D.C.-based Anthony Nelson, a director at consultancy Albright Stonebridge Group who has accompanied U.S. business delegations to Myanmar, says there was a general understanding that rural development and infrastructure were vital to the country's economic growth.
"But it's important for (the government) to spell that out and lay out what they are going to prioritize," he said. "What's the number one goal here? What's the best way we can do things? It's not as clear as it could be."
Suu Kyi's supporters point to positives - state banks are being restructured, loss-making enterprises shuttered, and the first NLD budget is fiscally stable, with larger allocations for healthcare and education, for years underfunded in favour of military expenditure.
But more needs to be done, said Win Than, a senior member of a parliamentary commission dealing with high-priority reforms. Like many Suu Kyi allies, he argued that economic improvements would aid reconciliation.
"Daw Suu will be getting it wrong until she prioritises business," said Win Than, using a Burmese honorific title. "If the business isn't strong, it will push people to find problems." (Additional reporting by Wa Lone and Yimou Lee in YANGON, Shwe Yee Saw Myint in NAYPYITAW, Timothy McLaughlin in CHICAGO and James Pomfret in NANSAN, China; Editing by Alex Richardson)
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