2

A lot has been written and said about whether economic sanctions in Burma will work or

not. Will they speed up the process towards democracy? Are they an effective weapon?

Do they harm the dictators more than the general public?

As with previous sanctions and boycott discussions, there are believers and nonbelievers.

Economic sanctions are not exact science and their effect can not be easily

measured. Therefore, some will continue to argue that sanctions do more bad than

good, in spite of the very many indications to the contrary in the case of Burma, where,

when one looks at the big picture, they seem to be the right thing to do.

Burma is the only country for which the international trade unions are calling for

disinvestment and sanctions. The situation in Burma is different to that of most other

countries which have been (or are) the target of a boycott, for more than one reason.

Burma has been a dictatorship since 1962. There is an opposition that was elected, but

never allowed to govern. This opposition supports the position that is not yet time for

companies to engage with Burma. Another particularity of Burma is the way in which the

ruling dictators maintain their iron grip on both economy and political life.

International pressure is one way to influence the Burmese junta. The other option -

internal pressure - is much more difficult, given the internal repression in Burma and the

fact that very few people inside the country dare to protest – for good reasons. Over the

last few years, international pressure seems to have been one of very few ways to make

the generals move – a little. Sadly, the few steps forward that came as a result, such as

the promise to work together with the International Labour Organisation (ILO), usually

undertaken or announced before a large international conference took place, or before

some important decision needed to be taken, were almost always undone or discredited

soon after they were announced.

Sanctions are no guarantee for democracy in Burma. It is not a certainty - by no means -

that sanctions will make the regime go away. However, there are other things that are

certain. Given the almost complete grip of the Burmese junta on the formal economy in

the country, it is clear that sanctions do affect the generals’ income, the generals’

families’ income, as well as the generals’ family’s friends’ income.

Someone once sent the following sentence to one of the Burma news e-mail lists:

"Sanctions might not move them right away, but at least sanctions do not allow them to

play the harp while they are destroying the country." This is an essential thought: even if

sanctions do not bring an immediate regime change, they will, at least, have the merit of

decreasing the amount of money - leading to more terror and more personal enrichment

ends up in the hands of the Burmese dictators.

When you are saying "a child on the other side of the world dies of hunger", right at this

moment, the political prisoners in Burmese prisons are being tortured, anguished to death or

mental and the ethnic girls in the minority areas are being gang raped and killed, the under

aged girls and boys of ethnic minorities are being forced to prostitution in border areas not

because of sanctions but because the military robbed their land of farming and the generals

3

are playing harp while the whole country is being destroyed. Sanctions might not move them

right away, but at least sanctions do not allow them to play the harp while they are destroying

the country.

Burma has been ruled by a repressive, authoritarian military regime since 1962. Up until

1988, the Burmese government, i.e. the military, had a philosophy of doing it on its own.

During that period - at the time of the ‘Burmese Socialist Republic of the Union of Burma’

- there simply wasn’t very much interest inside Burma to deal with foreigners.

As of 1988, that changed as the new leadership started to see the possibilities of

attracting foreign investment. It developed a strategy that narrowly redefined ‘attracting

FDI and trade for the good of Burma’ to ‘attracting FDI and trade for the good of Burma’s

rulers’.

The generals keep an iron grip on power, both politically as well as economically. A large

part of this work is being done with the help of the army, consisting of nearly half a

million people, and a system of military intelligence that seems to monitor anything any

Burmese citizen says anywhere in the country. Both instruments have been helpful to

install the current system of terror and military supremacy. In this environment, it was not

too difficult for the junta to establish themselves as the main actors of business life in

Burma, without whom nobody can operate.

A large number of people and organisations have described how the junta keeps its grip

on the economy, in addition to politics.

4

It must be assumed that a high percentage of the profits of the joint venture deals embarked

upon to date must eventually return in one form or another to the armed forces.

Western diplomats in Rangoon have said that the list of owners of the hotel plots at the newest

beach resort, Ngwesaung, reads like a Who's Who of generals and their cronies.

"The local population has benefited little in economic terms but the powerful have enriched

themselves as the environment, and thereby the prospect for future sustainable development,

has been destroyed."

5

To give more specific guidance to foreign investors the Foreign Investment Commission (FIC)

issued a notification in May 1989 giving in detail the type of activities, covering almost all the

economic activities except those reserved to be solely carried out by the State according to the

State-owned Economic Enterprises Law.

However, Section 4 of the said law relaxes the reservation by providing that the Government

may waive the reservation whenever necessary. These activities can be carried out by forming

Joint Ventures between the State Economic Enterprises and Local or Foreign Entrepreneurs

or organizations. Accordingly Myanmar Investment Commission has permitted the exploration

of oil and gas and minerals with the approval of the government.

The Government has the sole right to carry out the following economic enterprises as Stateowned

economics enterprises:-

6

The textile sector is an example of a sector that does not fall under a state monopoly. In

spite of this, here as well, foreign involvement translates into a large amount of foreign

currency income for the junta. The reason for this is that, monopoly or not, the junta and

friends own the sector anyway.

The Myanmar Garment Manufacturers' Association represents about 400 garment factories.

Ninety-five percent of the factories are state-owned while the remaining 5 percent are either

joint ventures or wholly owned by foreign companies. (according to Myint Soe, chairman of the

Myanmar Garment Manufacturers Association)

A company that wants to invest in Burma needs the approval of the Burmese authorities

to do so. In those cases where the junta sees a profit for itself, the Myanmar Investment

Commission, through which all investment requests pass, will require the multinational to

enter into a joint venture with a Burmese company. Entering in joint ventures is often the

only way for a foreign company to do business in Burma.

How this works in practice is described below:

The tourism sector also is – for the Burmese government anyway – just another way of

generating income.

Chairman of the Committee Secretary-1 General Khin Nyunt made a speech.

...In doing so, encouragement is being given for the development of the tourism industry that is

a successful business in world countries. In reality, tourism industry is a lucrative business that

earns foreign currency easily and it is the one that can make the reputation of the country

7

famous in the world. It also creates opportunities for obtaining foreign investments as well as

technologies. So, it is a beneficial industry for the State, he pointed out.

It is generally assumed that the top generals have "divided" the economic sectors

amongst themselves. Different generals control different sectors of the economy and

profit from these. This leads to occasional internal struggles amongst the top generals,

who "battle for turf". According to insiders, disputes of this kind even were the main

reason behind the recent removal of Prime Minister Khin Nyunt.

In the week before Khin Nyunt lost his positions, several profitable businesses operated by

military intelligence - including a travel agency holding a concession at Yangon's international

airport - were closed down.

Bagan Cybertech, a joint venture Internet service provider in which military intelligence held an

interest, was taken over by the army soon after Khin Nyunt left his posts. One of the

company's directors had been Dr. Ye Naing Win, a son of the former prime minister.

Deposed Prime Minister Khin Nyunt was also the head of Myanmar's infamous Military

Intelligence (MI) which allegedly controls much of the black market and drug money in

Myanmar.

With the generals struggling to stay afloat in the face of crippling trade embargoes and with

widespread jitters among foreign investors, analysts said those loyal to general number one

Than Shwe had long set their sights on MI's fortunes.

"These fellows (MI) have been acting like the mafia," a source close to Myanmar's military

intelligence told AFP, adding that they had used the unit's elite status to collect a lot of

"unaccountable income." MI corruption is particularly strong along the border areas where the

daily income of a sergeant far outstrips the pay of a mainstream military man, said the source.

Last month the army reportedly became disgruntled when MI began moving into their own

business territory. Soon afterwards, regular army soldiers raided a busy checkpoint at Muse,

some 800 kilometres (500 miles) north of Yangon, where they reportedly arrested dozens of

officials including members of MI and other government officials considered to be working

under Khin Nyunt's sphere of influence. The soldiers seized an unspecified amount of gold

bars, jade, cash and other valuables.

Ceasefire deals have given MI access to the country's gem mines and teak forests, that

environmentalists have warned are being overexploited to the point of eradication. "(MI)

negotiated all the ceasefire agreements with the ethnic minorities, the terms of which saw a lot

of money flowing from these regions into Myanmar banks which thrive on money laundering

and corruption," the head of Thailand's Senate Committee on Foreign Affairs, Kraisak

Choonhavan told AFP.

Diplomats have described the corruption as so entrenched that it is simply viewed as unofficial

taxation or the accepted way of doing business. "They (the junta) run the economy and have a

8

hand in all deals... and a lot of those economic turns are for the army or sometimes a ministry,"

said former Australian ambassador to Myanmar Trevor Wilson.

From karaoke bars to travel agents and newspapers, rivals are carving up the business empire

of Myanmar's sacked prime minister and his once powerful clique. Khin Nyunt's demise has

offered a rare glimpse into how the generals, their families and a handful of businessmen profit

in one of the world's most corrupt economies, analysts say.

…Since then, scores of businesses, including a Yangon travel agency and a plastics maker,

have been closed or have had their assets seized. At least 17 newspapers and magazines

were shut or suspended after Khin Nyunt associates lost control of the censorship bureau.

They included a magazine linked to Khin Nyunt's son, Ye Naing Win, who also runs

Myanmar's sole Internet service provider. Khin Nyunt's circle was involved in everything from

hotels to mining and cash crops to massage parlours. "You name it they did it, as long as it

was profitable. We couldn't do anything without their blessing," said one Yangon businessman,

who declined to give his name.

"But they should not just point fingers at military intelligence. There are many other

government departments where corruption is rampant," he said. John Badgley, a retired

Cornell University professor, says the junta accusing Khin Nyunt of corruption smacks of "the

pot calling the kettle black".

He says competition between the generals and their families has intensified as investment

pours in from China, India and southeast Asian neighbours such as Thailand and Singapore.

Much of that money is funneled into joint ventures with military-run companies or their

business allies.

Yangon has also become adept at "resource diplomacy", analysts say, giving neighbours a

bigger slice of its natural wealth in return for political, financial and military support. The

biggest player by far is China, which has denounced Western sanctions against the regime it

props up with loans while Chinese firms build bridges, roads and factories, and dominate teak

logging near the border.

But Yangon has sought to balance Beijing's influence by offering gas deals to India, which

rolled out the red carpet for Than Shwe on Monday, the first visit by a Myanmar head of state

in nearly a quarter century.

Reliable figures on Foreign Direct Investment (FDI) and trade flows from and to Burma

are not easy to find. There are large differences between the few different figures

available, depending on which organisation provides them.

Available numbers indicate that there are large fluctuations from year to year, as can be

seen from the table below. One reason for this is that, as there is not that much

investment going into Burma, relatively speaking, a single large investment in Burma

may significantly lift figures for a particular year.

The figures are usually provided as normal FDI figures, but they are, in fact, sometimes

not exactly that. There is, for example, a difference between the FDI that is pledged and

that which actually arrives in Burma. A lot of announced FDI never materializes.

Obviously, the regime likes to quote ‘promised FDI’. Another tactic by the junta is to

release official figures that span a whole decade or more, to make the figures look more

impressive, hereby disguising that virtually nothing came in during the most recent

period.

9

All in all, the conclusion of the figures seems to be that there is not that much investment

in or trade with Burma. Investment and trade levels are much lower than those for

similar, neighbouring countries. In addition, FDI and trade flows into Burma seem to

have dropped significantly since 1997 and, especially, after 1999. The Burmese

government is responsible at least in part for this situation. Many companies decide to

keep out of Burma because operating in Burma is difficult, dangerous, and not very

profitable. Moreover, there is a strong case for arguing that the negative publicity

generated by international pressure campaigns against companies investing in Burma

has not only persuaded many of them to pull out but also kept others from investing in or

trading with the country.

FDI Flows

FDI Flows

Approved FDI flows

Overall, there is very little foreign direct investment going into Burma, certainly when

compared with other countries, as can be seen in the table below.

FDI Burma FDI Thailand FDI Singapore FDI USA

Myanmar accounted for only $123 million of the $13 billion in foreign direct investment in

Southeast Asian countries in 2001. Thailand attracted $3.8 billion that year.

A large part of the FDI to Burma during the 90’s originated with large oil companies.

However, most of these investments have been completed and these projects are now

in operation. The newly discovered gas fields (in the A and M blocks, off the Arakan

coast and in the Gulf of Martaban, respectively), are potentially going to bring fresh FDI

to Burma in the years to come. Companies such as Daewoo, Thai PTTEP and two

Indian companies, GAIL and ONGC Videsh, will be partly responsible for that.

10

Foreign direct investment in Burma is drastically declining. It was reported that FDI dropped by

70% in 2001 from the previous year. In 2002, FDI fell 16.5% from 2001 and about 75% from

2000. In 2002, only 4 countries invested in Burma, as opposed to 10 countries in 2001.

About 60 per cent of the total investment in fiscal 2003-2004 went into the oil and gas sector,

with South Korea investing $32.3 million and Thailand $22 million.

Since the country switched to a market economy in late 1988, it has drawn over $7.47 billion in

foreign investment, of which over 50 percent comes from other Southeast Asian nations.

Situated at Yangon's Mingaladon Industrial Zone, the factory, operated by the Myanmar Asia

Optical International Company Limited, is solely invested by the Asia Optical Company of

Taiwan.

Myanmar Prime Minister General Khin Nyunt and other ministers attended the inaugural

ceremony as the factory is Myanmar's biggest foreign-invested project in most recent years.

According to official statistics, Myanmar absorbed 95.31 million dollars of foreign investment in

2003, bringing the total to 7.54 billion dollars as of the beginning of 2004 since it opened to

such investment in late 1988.

According to statistics published by the Myanmar Ministry of National Planning and Economic

Development, only one foreign company made a major investment in the first half of 2002 -

worth US$1.5 million.

11

Myanmar's foreign trade dropped by nearly 16 percent in the first nine months of 2002

compared to the same period during the previous year, according to official figures published

Friday. Imports during the January-September 2002 period totaled 10.4 billion kyat, a 37

percent decline from the same period during the previous year. Exports totaled 15.3 billion

kyat, up 10.35 percent from 2001.

Burma's foreign trade in the first three-quarters this year was down 17.8 percent with both of

its exports and imports reducing by 26.7 percent and 4.7 percent respectively from the same

period of 2002.

According to official statistics, Burma’s foreign trade volume stood at 5,276.63 million dollars in

2002 with its exports amounting to 2,982.13 million dollars and its imports 2,294.5 million

dollars. That year's foreign trade enjoyed a trade surplus of 687.63 million dollars.

Myanmar's total foreign trade volume in 2003 fell by 4.4 percent to US$4.3 billion from US$4.5

billion in 2002, said a semiofficial report.

The slight fall came after Western nations imposed harsher economic sanctions on the

military-ruled nation following the detention of pro-democracy leader Aung San Suu Kyi.

In a report seen Saturday, the weekly Business Information Group bulletin said exports for

2003 totalled US$2.4 billion, compared to US$2.5 billion in 2002, down 4 percent. Imports,

meanwhile, dropped 13 percent to 1.84 billion in 2003 from 2.12 billion in 2002, it said. Most of

Myanmar's imports came from Singapore.

Myanmar's foreign trade fell by 6.6 percent in the last fiscal year, according to a semi-official

report, but it wasn't clear if the drop was caused by Western sanctions following the ruling

junta's detention of pro-democracy leader Aung San Suu Kyi.

Myanmar's total foreign trade in fiscal year ended March 31 dropped to US$3.42 billion from

US$3.66 billion in the previous fiscal year, said the latest report released Saturday by the

weekly Business Information Group bulletin. It said imports fell 4.8 percent to US$1.99 billion

from US$2.09 billion in the previous year, while exports dropped 8.3 percent to US$1.44 billion

from US$1.57 billion.

There is a trend in Burma towards less import and more export (of which a large part

seems to be gas to Thailand). According to the figures, 2002 was the first year where

Burma exported more than it imported. The explanation for this seems to lie in the fact

that imports saw a sharper decline that exports.

12

One particular action has had a very noticeable effect on trade: the US sanctions, which

prohibit imports from Burma.

The State Department estimates that Myanmar lost about US$200 million in the first year of

the ban on imports to the United States.

Textile exports to the United States last year were worth about 350 million dollars.

This paper has made the distinction, as most commentaries do, between Burma's 'stateowned'

and 'private' banks. It's a not unreasonable distinction usually, but in Burma matters

are never so simple. The issue here is simply that a sizeable number of Burma's private banks

(indeed precisely half) are owned or controlled by members of the ruling military clique. Clearly

they are not 'state banks' in the traditional sense, but nor are they purely private in that they

are not entirely independent of government.

As for the financial sector in Burma, SWIFT, a company based in Belgium but operating

worldwide, plays a very important role at the international level. SWIFT is a company

that hosts a network which enables high street banks and other financial institutions to

make transactions with one another on a daily basis.

13

Fiscal Practices in Selected Oil and Gas Producing Countries and Regions

Myanmar: Non-disclosure of payments to government required of oil and gas companies?

Answer: Yes

Partly because of the opacity of the Burmese economy, different people and different

organisations quote different figures when trying to identify the share of the income that

directly goes to the junta. For some sectors and items, however, some clearer figures

are provided. The numbers here below are usually based on ‘official’ contributions and

money flows. It is reasonable to assume that, in most cases, the real income for the

junta will be much higher than the figures below suggest, owing, for example, to

corruption, other taxes, or the fact that the junta (directly or indirectly) also owns the

companies in question.

Burma's regime completely controls the garment sector and derives considerable revenue

through its exports, including a 10% export tax.

According to the U.S. Department of Commerce, the SPDC Ministry of Finance and Revenue

have placed a 10% tax on exports in foreign exchange.

Minister for Hotels and Tourism, Maj-Gen Saw Lwin, admitted that 12% of the earnings of

private tourist enterprises fund the regime.

14

More than 9 per cent of Myanmar’s legal foreign earnings came from logging in 2002,

according to official data. But the actual amount of timber revenue is believed to be more than

twice the official figure, with huge amounts of the logging trade illegal or unrecorded.

There are a few figures available on how much money the junta makes from individual

projects or particular investments by certain companies. Here again, these figures vary

from source to source. (for comparison purposes, the total GDP of Burma is estimated

somewhere between 6 and 10 billion US$)

Many speculate that the Shwe Project could generate between $800 million to $3 billion U.S.

dollars in annual revenues.

Le contrat porte sur plus d'un milliard de dollars, et, depuis sa mise en service, le gazoduc

rapporterait selon les estimations entre 150 et 400 millions de dollars par an au régime.

In October 2000, the Yadana gas field started supplying gas to Thailand and will

earn for Myanmar a foreign exchange of 300 million dollars annually.

15

From: "Chinese, Myanmar companies sign petroleum exploration contract", Xinhua, September 3,

2004

The statistics also show that Burma produced 7.2 million barrels of crude oil in 2003. Gas

export during the year earned 655 million dollars, while crude oil import worth 27.85 million

dollars the same year.

The State Department estimates that Myanmar lost about US$ 200 million in the first year of

the ban on imports to the United States.

Ivanhoe's Monywa partnership provides the SPDC with roughly US$ 800,000 in annual

royalties--an amount set to increase dramatically once construction loans have been repaid.

The Burma Campaign UK estimates that the joint venture (BAT) earns the regime £ 400.000 a

year.

Burma is a country where ordinary tax income is rather low, given the general

population’s extreme poverty. As is the case in many developing countries, foreign

investment is, therefore, very important in Burma, given that taxation on FDI may be a

large and reliable source of income for the state. The same applies to trade with Burma,

with custom duties being equally important for the State’s finances.

Other sources of income for the junta are the various taxes that are being charged by

the Burmese army, sometimes for the strangest of reasons. This alternative ‘tax system’

is, obviously, closely linked to the widespread corruption in Burma.

16

Victims are usually ordinary civilians, who are often forced to pay taxes for something

nobody should pay any taxes for. Other victims are merchants and business operations

that need to transport goods, thereby passing a number of checkpoints.

Prices for some export products, bought by foreign companies, therefore already are

artificially high, as they include bribe money that goes to the military.

http://www.icftu.org/www/pdf/brief_BirmanieEN.pdf

And then there are all these taxes that the local authorities are continually inventing and which

push us ever further into poverty. For example, in January 2002, every family had to give

10,000 kyats (around USD 10) for building a road. And if you have a visitor in your home, you

need to pay 50 kyats per day if it’s a child, 100 kyats if it’s an adult. There is a fine of 500 kyats

for not reporting the visit to the authorities. I even had to pay for my own mother’s visit!

The current price of a 2000 Toyota Landcruiser or Mitsubishi Pajero is more than one billion

kyat (about US $109,000), he said. Those vehicles are categorized in the seventh tax group

and incur the highest tax burden, almost 10.5 million kyat (about US $11,500).

Arbitrary taxation and other forms of extortion are common practices throughout Burma.

These informal taxes range from travel or work permits, paddy taxes and cattle registration

fees to a multitude of contributions to be made to the authorities in cash, goods or services.

The tactic of arresting people for minor offences or under suspicion of being an informant for

an insurgent group and demanding high bribes in return for their release is also widespread

in ethnic areas throughout Burma.

17

In Pa-an District in Karen State, SPDC soldiers planted landmines on cattle paths. If animals

stepped on the landmines and died, SPDC soldiers would keep the meat for themselves and

force the cattle owner to pay for the landmine. The price of a cow or buffalo ranges between

80,000-200,000 kyat (2000-5000 Thai baths). The price of a landmine can be up to 5000

Kyat.

A separate - but related - and less known issue is that of the exchange of foreign

currency. Companies, as well as organisations that deal with Burma and operate inside

the country, at times, have to exchange foreign currency into local Kyat.

There is an enormous difference in Burma between the official exchange rate (which is

set at 6 Kyat to the dollar) and the going rate in the street, which is usually somewhere

between 800 and 1100 Kyat to the dollar.

Tourists can usually get away with exchanging (nearly) all of the money they need

through moneychangers in the street, using the black market rate. At the business level,

on the other hand, most companies presumably do not have that option, as much larger

amounts are involved and these companies need to follow, at least partly, the official

route. Although very little is known about how this works in practice, indications are that,

in most of these cases, the exchange rate is ‘negotiated’ with representatives of the

State. Reportedly, this results in an exchange rate somewhere between the official and

the black market one.

When considering the concrete example below, where a rate of 400 Kyat to the dollar

was reportedly used, this would mean that about half of what the amount is worth is lost

just by exchanging it into Burmese currency. This translates into a rather large profit for

the Burmese authorities, something for which they have to do very little. The same

applies to trade with Burma, though it is unclear what percentage is lost in those cases

where currency exchanges are involved.

Meanwhile, humanitarian workers in Rangoon independently claim the UN accepts a rate

approximately 40% lower than the market rate; currently 400-450 kyat. (At the time of printing

the exchange rate is approximately 1,100 kyat to the US$.)

In a further blow to importers, a finance ministry official said duty would now be calculated

using a value of 450 kyat/dollar on all goods, rather than a previous staggered rate of 100

kyat/dollar for consumer goods, 150 for televisions and 180 for roofing sheets.

Previously, imported goods were taxed at an exchange rate of 180 kyat to the US dollar. But

the Ministry of Finance and Revenue changed the exchange rate to 450 kyat on June 15. On

the Chinese border, however, goods were valued at a rate of 850 kyat per dollar until last

week. The current black market price in Rangoon is 925 kyat per dollar.

Another problem is that of exporting profits earned by foreign companies. In Burma,

companies can not, due to exchange regulations, exchange local money into hard

currency. This sometimes leads to strange situations, as is shown in the example below,

involving export of earnings through barter trade rather than currency.

18

Burma’s military regime continues to outlaw, for example, the conversion of Kyat into foreign

currency. This means that the repatriation of profits from Kyat denominated income is difficult.

Obviously, there would not be that much of a problem if Burma were an ordinary country

where income is used wisely and put to good use. Whereas most countries have

priorities such as education, health or culture, in Burma, income, if not used for personal

enrichment, seems to be preferentially spent on military issues.

The Burmese junta doubled the size of its army during the nineties and uses it as a tool

to hang on to power. The army carries the main responsibility for egregious human

rights’ abuses, such as forced labour, population displacements, arbitrary detention,

torture, etc.

Forced labour often means forced portering for the army, in some cases in combat, with

frequent deaths of porters from exhaustion, disease, deprivation of food, water, rest and

medical care or by sheer murder. Other cases of forced labour include forced road

clearing and building, construction and maintenance of army installations, confiscation of

land and forced agricultural work on this land for the army’s benefit or profit, compulsory

supplies of construction materials, food (including rice, meat, fish, vegetables and fruit)

and alcohol, forced labour in army-owned brick kilns and forced supply of firewood, as

well as random and arbitrary tax collection.

The Burmese generals have a long history on spending money on those issues that help

them cling on to power, instead of on issues which would further the interests of its

population.

The United Nations Human Development Report of 2003 estimates that over 40% of Burma’s

national budget is dedicated to military expenditures, while 0.4% of GDP is spent on health

and education.

"Defence spending is currently taking the lion-share of public spending, and was estimated at

46% of total expenditures between 1989 and 1994.

19

The government's annual health budget is about 24 cents per capita, with only one country,

Sierra Leone, spending less, the World Health Organisation says.

Government expenditures for civilian health care in 1998-99 were equivalent to only 0.3

percent of GDP. In 2001, official studies sponsored by U.N. agencies found that, on average,

109 of 1,000 children died before reaching the age of 5 years, and that only 1 out of 20 births

in rural areas was attended by a doctor. A joint Ministry of Labor and United Nations

Populations Fund (UNFPA) study in 2001 indicated that, among children under 5 years of age,

7.9 percent were severely malnourished. A joint Ministry of Health and UNICEF report in 2000

indicated that on a national level 35.3 percent of children under 5 are moderately to severely

underweight, 33.9 percent are moderately to severely underdeveloped, and 9.4 percent are

moderately to severely emaciated.

By the late 1990s, the regime's expenditure on civilian education equalled only 1.2 % of the

country's Gross National Product - compared to 3.8% for developing countries - and had

declined 70% in real terms since 1990.

According to the World Bank, the government only spends 28 cents a year per child in public

schools. Almost 40% of children never attend school.

Almost 75% fail to complete primary education in Burma. 98% of schooling children have

never finished basic high school.

Yet, spending on arms increased by 700% between 1988-1999 and public expenditure has

decreased more than 50% during their reign.

The UNDP Human Development index of Burma has been dropped from 118 in 2001 to 132 in

2004.

The government spends 40 % of the national budget on the military, while spending on health

care and education is one of the lowest in the world at under 1% (US$ 0.60 and US$ 0.28 per

capita respectively).

The World Health Organisation's (WHO) 2000 report graded Burma 190th overall in the health

system of 191 surveyed.

The role of the Burmese army:

20

Life in hiding after forcible relocation

Several Shan interviewees had been in hiding for months or even years after having been

forcibly relocated by the tatmadaw to relocation sites away from their home villages, fields and

food supplies. At the relocation sites they generally had no means to make a living, as they

could not farm their land, and there was little or no employment for them. When they could no

longer survive in the relocation sites, they often went into hiding. While they were not at risk of

being taken for forced labour in hiding, they did face other dangers which eventually caused

them to flee to Thailand. They lived in small settlements in the jungle and tried to grow some

food, but often had little to eat. Shan civilians also risked being shot on sight by tatmadaw

troops on patrol as they searched for SSA-South soldiers.

A 35-year-old widow from Keng Kham village tract, Kunhing township, had been in hiding for

four years before fleeing in early February 2002 to Thailand. She and her family could not

make a living in Ka Li relocation site so they hid near their original village, but tatmadaw troops

burned their hiding places several times, forcing them to move yet again. Her husband

became weak and died, apparently from lack of food, in late 1999. Aged 32 at the time of his

death, he was very healthy before they went into hiding.

Another young man, Naing Win, said he was 16 when he was ordered into a nasty fire fight.

To fuel the soldiers, he said, the commander made them take amphetamines, washed down

with whiskey. The troops, Naing recalled, "got very happy."

In the encounter, each soldier was ordered to lob five grenades at the enemy. Naing, whose

forehead bears a shrapnel scar, said he was sufficiently high on the drugs that at one point he

was throwing stones. With one grenade, he forgot to remove the pin that allows it to explode.

Then he was ordered to run forward exposed to enemy fire, retrieve the grenade, take out the

pin and throw it again. The battle killed his best friend, 15.

Another time, after his unit had won a battle against ethnic Karenni rebels, his commander

wanted the area cleared of mines. About 40 Karenni villagers were made to walk through the

mined zone, he said. In the ensuing explosions, some died and some lost their legs. Those

who survived were lined up. Naing said he and several other soldiers were ordered to shoot

them. They did.

"I'm very sorry," he said.

In Myanmar there was little if any progress in ending child soldiering, with an estimated 70,000

children in the government armed forces. Exiled children told of being abducted by

government forces and taken to military camps where they were subjected to beatings, forced

labour and combat.

In addition to moral and ethical arguments, there are also a number of economic

arguments why investing in Burma is not such a good idea. Most of these arguments

centre on decreasing general economic indicators, on the closed business environment,

on corruption and on drug problems.

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The government doesn't issue detailed economic statistics and independent verification of the

figures it gives is difficult. Most economists believe the government's figures are exaggerated.

Inflation is estimated to have averaged around 20% in 2001. It had averaged over 25% a year

for more than a decade.

Corruption is perceived to be most acute in Bangladesh, Haiti, Nigeria, Chad, Myanmar,

Azerbaijan and Paraguay, all of which have a score of less than 2.

Burma has been singled out for this reason by a number of organisations. One such

organisation is the FATF (Financial Action Task Force, an intergovernmental

organisation linked to the Organisation for Economic Cooperation and Development,

OECD), which has developed a list of countries and territories that are seen as havens

for money laundering.

The FATF continues to use the NCCT (non-cooperative countries and territories) list to call on

financial institutions to scrutinize transactions with persons, businesses, or banks in listed

countries or territories with inadequate anti-money laundering infrastructures. The current list

of NCCT countries is: Cook Islands, Indonesia, Myanmar, Nauru, Nigeria and the Philippines.

Another reason why doing business in Burma doesn’t make much business sense is the

long list of restrictions on business in the country. This is in addition to the system of

bribes that is the order of the day.

Hong Kong remains the world's freest economy but it could jeopardise its position if it goes

ahead with a goods and services tax, U.S. think-tank the Heritage Foundation said on

Tuesday. The countries with least economic freedom, according to the foundation, were

Myanmar and North Korea.

The widespread corruption in Burma creates the perfect environment for laundering of

drug-related money. Burma is one of the world’s leading exporters of illegal drugs. A

number of industrial sectors are concerned with drug-money laundering.

An article in the Irrawaddy Magazine asserted that, "Increasingly, the garment industry has

become the investment of choice for distributors of narcotic substances, as it provides not only

a profitable industry for laundering ill-gotten gains, but also the ideal cover for large shipments

of drugs. It is widely known that some of the world's most notorious drug kingpins, including

Khun Sa and Lo Hsing Han, are key business partners of the regime and are also involved in

the garment industry.

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"Drug traffickers have invested in logging to launder money, and logs have been hollowed out

to conceal drugs," the report said, adding that some drug eradication schemes have been

used to justify large-scale logging by providing farmers with alternative income.

"Furthermore, there is reason to believe that money laundering and profits from the narcotics

traffic play an important role in the overall economy. According to a 1999 US State Department

report, family members of current and past drug traffickers have invested heavily in

infrastructure projects, such as roads, port facilities, hotels and real estate. The large number

of political and economic constraints on legal capital, the underdeveloped banking system and

the lax enforcement of measures against money laundering have created a business and

investment climate in which drug money has become the seed capital for many legitimate

enterprises.

Investment in Burma is not only just a matter of money. Politics and power are also

involved. Some people - or some governments, or companies linked to them - invest

because of politics. In addition, in those cases where the foreign investment was there

first, the home country’s policies are subsequently often less critical towards Burma,

owing to investment concerns.

As Burma is part of a regional power play, many of its neighbouring countries seem to

have changed their approach towards Burma over the last years.

China continues to be interested in Burmese business (China has always been a good

friend of Burma – both countries have similar opinions on the need for freedom of

speech, freedom of association and other fundamental human rights). Many Chinese

state enterprises operate in Burma and the Chinese government is willing to support the

Burmese junta, including financially, without asking too many questions.

The bilateral economic and trade relations between Myanmar and China continued to develop

in recent years, attributing to being deepened by China's policy of good neighbourly and

friendly cooperation with its neighbours including Myanmar.

According to official statistics, Myanmar-China bilateral trade, including border trade,

exceeded 1 billion US dollars in 2003 with Myanmar's exports to China amounting to about

170 million and its imports from China 900 million.

Especially during Myanmar top leader Senior-General Than Shwe's visit to China in early

January 2003, an agreement on economic and technical cooperation, which is one of the

three, is for China to provide a 50 million yuans of aid to Myanmar and a largest ever

preferential loan of 200 million dollars at low interest rate for carrying out Myanmar's 790-

megawatt Yeywa hydropower project.

China’s strong interest in Burma (most recently demonstrated by China’s announcement

of plans to build a pipeline across Burma) is not being lost on other regional powers.

India has also decided to increase cooperation with Burma. So have a number of

ASEAN countries. This partly explains the soft approach by most of the countries in the

region towards Burma. Large business interests are often presented as a reason for

these countries to express only mute criticism of Burma’s policies and style of

government, at best.

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In addition to that, some personal interests are also at stake. A company closely linked

to Thailand’s Prime Minister Thaksin Shinawatra, for example, has large business

interests in Burma. His counterpart in the business deal was reportedly the son of the

recently ousted Burmese Prime Minister Khin Nyunt.

The state-run Myanma Posts and Telecommunications inked a deal for international roaming

services with Shin Satellite Public Co. Ltd., owned by the family of Thai Prime Minister Thaksin

Shinawatra. In May 2002, the company signed a US$12 million deal with Myanmar to provide

telephone service to villages in remote parts of the country.

Speaking in the US Senate on Tuesday, McConnell charged that Thaksin’s policy towards

Burma may have been shaped by his family’s investment in the country.

"Some suspect that the raison d’etre can be summed up in a single word: iPSTAR," McConnell

said. iPSTAR is a US$350 million (Bt14 billion) broadband satellite owned by Shin Satellite

and Shin Corporation, a holding company founded by the Thai Prime Minister who owns 53

per cent.

Singapore, however, has urged the EU not to focus on the Burma issue at the cost of

damaging economic ties with Asean. Lee Kuan Yew, modern Singapore’s founding father, is

on the international advisory board for Total, the French oil group that is largest EU investor in

Burma.

Thailand’s Export-Import Bank, citing the "uncertain situation", temporarily closed a 4bn baht

($97m) credit line designed to help Burma buy Thai telecommunications equipment. Shin

Corp, founded by Mr Thaksin, has a telecoms joint venture with a company owned by Gen

Khin Nyunt’s son.

There are other examples of conflicts of interests. Consider Mr. Razali, the UN Special

Envoy for Burma, who visits Burma from time to time, in an effort to promote a

democratic process. Mr. Razali is Chairman of a company – IRIS Technologies – that is

involved in selling electronic passport technology to Burma.

It's interesting to note that IRIS Technologies is partly owned by the UN special envoy to

Myanmar, Razali Ismail. He also heads up Leader Universal, another tech firm looking to

expand into Myanmar, and is on the board of Wah Seong, a Malaysian engineering firm with

interests in Yangon.

Politics and business also mix in Europe, where France (Total is a large investor in

Burma) is not always sure what to do either. When Europe discussed whether or not to

take more action (sanctions) towards Burma, in September 2004, the consensus opinion

was towards more biting sanctions. France objected.

European Union plans to impose new sanctions on Burma have been challenged by France,

which has yet to be convinced of the need for such a step. Like all other EU countries, Paris

wields a veto over EU foreign policy.

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At an EU officials' meeting in Brussels yesterday, France made clear it needed to be

persuaded of the need for additional sanctions. TotalFinaElf, France's oil giant, is active in

Burma. EU foreign ministers will discuss the issue at a meeting early next week.

Given the chance to protect corporate interests, the Bush administration is predictably happy

to take it. Ditto for the prospect of undermining international justice. But it's not every day that

the opportunity arises to accomplish both objectives at once. It takes a case like John Doe I v.

Unocal Corp., a civil damages action currently pending in U.S. federal court.

In a brief recently filed in the Unocal case, the administration -- in the person of Attorney

General John Ashcroft -- sets out to defend an oil company, reaffirm the president's

untrammeled power over foreign policy, and eviscerate a law that has provided a modicum of

justice to victims of rights abuses from around the world.

The plaintiffs in the Unocal case are Burmese villagers who claim that they were subjected to

forced labor, murder, rape, and torture during the construction of a gas pipeline through their

country. Soldiers allegedly committed these abuses while providing security and other services

for the pipeline project.

Except for a token acknowledgment of the Burmese government's human rights abuses, the

Justice Department's brief ignores the facts of the case. Rather than attempting to defend

Burma and Unocal on the factual record, it instead aims to destroy the legal basis of the

villagers' suit. In its brief, the Justice Department embarks on a wholesale attack on the Alien

Tort Claims Act (ATCA), the law underlying the villagers' claims.

Many multinational companies immediately go into defence mode when faced with the

request to sever their links with Burma because of forced labour issues. In most cases,

the reaction is one of: ‘we are not using any forced labour, and we are making sure that

we will never be’.

It is not genuinely believed that many foreign companies actively engage in using forced

labour. The army is responsible for the lion’s share of that practice. Possibly also partly

because of the lack of transparency in Burma, there are not that many known instances

where forced labour is used directly by operations that are linked to foreign enterprises.

However, one noted and important exception is the large infrastructure projects, such as

the building of pipelines.

The main reason why foreign enterprises should not engage in investment in or trade

with Burma is because of the financial benefits that the junta reaps from their activities,

which contribute to allowing the military to remain in power and perpetuate their criminal

rule over the country.

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However, there are also some direct consequences of the operations of companies in

the area of forced labour. Even though companies may not often use forced labourers

themselves, in some cases, there exists at least some measure of forced labour related

to their presence. This applies, for example, to the tourism sector.

Furthermore, infrastructure is often being built because of pledged investment, or in the

hope of attracting it. And forced labour is often used in this infrastructure building.

Examples are roads to certain facilities, airports, helicopter pads, etc.

Similarly, tens of thousands of villagers are believed to have been forced by the Burmese

military - many of them repeatedly - to help construct the Yadana-Yetagun Pipeline between

1996-1998. These figures do not include the estimated 36,000 who were forcibly relocated

without compensation to secure a corridor for the project. Nor do these figures count the

victims of other abuses, including: rape, torture, and summary executions.

Ko Khet Lwin - 46 years old mine worker from Ivanhoe Mine company was sentenced by

Bahan Court for 7 years with hard labor for escorting a visitor, Andrew Michael, to the

compound of Daw Aung San Suu Kyi in December 2003. He was transferred to Taungdwingyi

Forced Labour Camp.

There also were reports that the Government used forced labor to construct infrastructure to

support tourism. According to credible sources, in February 2000, the SPDC announced plans

to develop the Karen hill town of Than Daung Cyi as a tourist "hill resort." Immediately after the

announcement, new army battalions moved in, land was confiscated from the town's residents

and surrounding villages and persons began forced labor on a road to the hot springs at Ker

Weh.

According to two eyewitness accounts, forced labor was used to develop the Hlaingthaya

Industrial Zone in Rangoon in 2000.

Forced Labour on the Taninthari- Boatpyin motor road.

ITD company of Thailand was awarded a contract to pave the road between Taninthri and

Boatpyin with stones. In June, 2004 to pave the earthen road with stones between Taninthari

and Boatpyin, Center of Strategic Command (4) Col: Soe Thet has started using forced labour

everyday. The following numbers of villagers from the mentioned villages have to take turns to

go and work on the mention road up to this day.

1. Kaw-yun village 30 persons

2. Nyaungbin Kway village 30

3. Chaungla Mu 35

4. Banla Mu village 30

5. Manaw Yone village 28

6. Yawr Thar Yar village 27

7. Inn Peh village 20

8. Tha Baw Lake village 30

9. Thane Kaw village 30

10. Ton Kar village 35

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I am often asked about effect of sanctions on the Burmese people. First, it is important to

understand that all major industries are dominated by the military. It is very difficult to get a job

in a military run factory or business unless you are a part of the junta's military or political

apparatus. They take care of their own. They also demand kickbacks for employment

opportunities. It is impossible to start a business unless you have the express approval of the

regime, foreign joint-ventures are instructed to partner with specific military officers.

Owing to the nature of the regime, Burma’s people can hardly be expected to express

their feelings about economic sanctions. Those that dare, in fact, tend to end up in

prison. It is thus tempting to listen to what the democratic opposition has to say on the

subject.

Hence, strong economic pressure against the junta has the support of the political party

that won over 80% of the parliamentary seats, the National League for Democracy, or

NLD. The two last quotes, therefore, are from Aung San Suu Kyi herself:

"I have to say quite frankly that the people of Burma, in general, do not depend on tourists and

foreign visitors to bring them information."

Daw Aung San Suu Kyi said, "There is no evidence that sanctions have caused harm primarily

to the Burmese people.

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