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DE RUEHGO #0026/01 0151047
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FM AMEMBASSY RANGOON
TO RUEHC/SECSTATE WASHDC 7012
RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHGG/UN SECURITY COUNCIL COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 1657
RUEHBY/AMEMBASSY CANBERRA 0816
RUEHKA/AMEMBASSY DHAKA 4711
RUEHNE/AMEMBASSY NEW DELHI 4362
RUEHUL/AMEMBASSY SEOUL 7907
RUEHKO/AMEMBASSY TOKYO 5468
RUEHCN/AMCONSUL CHENGDU 1296
RUEHCHI/AMCONSUL CHIANG MAI 1316
RUEHCI/AMCONSUL KOLKATA 0163
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC
RUCPCIM/CIMS NTDB WASHDC
RHHMUNA/CDR USPACOM HONOLULU HI
RUEHGV/USMISSION GENEVA 3448
RHEHNSC/NSC WASHDC
RUCNDT/USMISSION USUN NEW YORK 1256
RUEKJCS/SECDEF WASHDC
RUEHBS/USEU BRUSSELS
RUEKJCS/JOINT STAFF WASHDC

UNCLAS SECTION 01 OF 13 RANGOON 000026 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EAP/MLS 
COMMERCE FOR JEAN KELLEY 
PACOM FOR FPA 
TREASURY FOR OASIA:SCHUN 
 
E.O. 12958:N/A 
TAGS: OPIC KTDB USTR ECON EFIN EINV ETRD BM
SUBJECT: INVESTMENT CLIMATE STATEMENT FOR EMBASSY RANGOON 
 
REF: 07 STATE 158802 
 
RANGOON 00000026  001.2 OF 013 
 
 
¶1.  Per reftel, this is Embassy Rangoon's submission for the 2008 
Investment Climate Statement. 
 
Preface:  U.S. Investment Subject to Sanctions 
--------------------------------------------- - 
 
¶2.  On May 20, 1997, by Executive Order 13047, the President imposed 
economic sanctions prohibiting new investment by U.S. persons or 
entities in Burma (Myanmar), based on the determination that the 
Government of Burma had committed large-scale repression of the 
country's democratic opposition.  The Cohen-Feinstein Amendment to 
the Foreign Operations Act of 1997 forms the legal basis for the 
investment ban.  Every six months, the U.S. government reviews the 
sanctions policy.  Since imposing the investment ban, the U.S. 
Government has found no measurable progress toward political 
liberalization in Burma and the sanctions have been renewed at each 
six month interval. 
 
¶3.  Prior to the imposition of the investment ban, many prominent 
U.S. investors had already withdrawn from Burma due to a hostile 
investment climate and disappointing returns.  An active anti-Burma 
consumer movement in the United States and Europe also put 
investors' corporate images at risk.  Current U.S. federal sanctions 
prohibit new investment, but allow companies invested in Burma prior 
to May 20, 1997 to maintain their investments.  Very few companies 
have elected to do so. 
 
¶4.  In 2003, the President signed into law the Burmese Freedom and 
Democracy Act (BFDA), and issued an accompanying executive order 
barring the import of most Burmese products into the United States. 
The 2003 sanctions also prohibited U.S. persons from providing 
financial services to Burma, and seized the assets of certain 
Burmese entities.  The 1997 and 2003 economic sanctions joined 
number of other sanctions the United States imposed against Burma in 
1988, following the military's crackdown against civilian democracy 
activists and 1990, when the military nullified the results of 
democratic parliamentary elections.  The United States opposes the 
provision of international financial institution assistance to 
Burma, prohibits military sales, denies bilateral economic aid and 
commercial assistance programs, bans the issuance of U.S. visas to 
members of the military and senior government officials, and, since 
1990, has downgraded our representation in Rangoon from Ambassador 
to Charge d'Affaires.  In addition, the United States continues to 
engage in vigorous diplomatic efforts to promote political and human 
rights reforms in Burma. 
 
¶5.  U.S. law allows U.S. firms to export to Burma, with some 
exceptions. 
 
¶6.  In September 2007, in the wake of the Burmese government's 
longstanding oppression of the Burmese people and its recent use of 
violence against peaceful demonstrators, the President designated an 
additional 14 senior Burmese government officials as subject to an 
asset block under Executive Order 13310.  In October 2007, the 
President announced Executive Order 13348, which expands the 
authority to block assets to individuals who are responsible for 
human rights abuses and public corruption, as well as those who 
provide material and financial support to the regime. 
 
Openness to Foreign Investment 
------------------------------ 
 
¶7.  To attract more foreign investment, the Burmese government 
enacted the Foreign Investment Law (FIL) on November 30, 1988.  The 
 
RANGOON 00000026  002.2 OF 013 
 
 
priorities for foreign investment, according to the FIL, are: 
 
--promotion and expansion of exports; 
--exploitation of natural resources that require heavy investment; 
--acquisition of high technology; 
--support for production and services requiring large amount of 
capital; 
--expansion of employment opportunities; 
--development of facilities that would reduce energy consumption; 
and 
--regional development. 
 
¶8.  According to the State-Owned Economic Enterprises Law, enacted 
in March 1989, state-owned enterprises have the sole right to carry 
out the following economic activities: 
 
--extraction of teak and sale of the same in the country and 
abroad; 
--cultivation and conservation of forest plantations, with the 
exception of village-owned firewood plantations cultivated by the 
villagers for their personal use; 
--exploration, extraction, sale, and production of petroleum and 
natural gas; 
--exploration, extraction, and export of pearls, jade and precious 
stones; 
--breeding and production of fish and prawns in fisheries which have 
been reserved for research by the government; 
--postal and telecommunications services; 
--air transport and railway transport services; 
--banking and insurance services; 
--broadcasting and television services; 
--exploration, extraction, and exports of metals; 
--electricity generating services, other than those permitted by law 
to private and cooperative electricity generating services; and 
--manufacturing of products relating to security and defense. 
 
¶9.  The Myanmar Investment Commission (MIC), "in the interest of the 
State", can make exceptions to this law.  The MIC has granted some 
exceptions in the areas of banking (for domestic investors only), 
mining, petroleum and natural gas extraction, and air services.  As 
with all major political and economic decisions, this discretion 
lies solely with the Cabinet and senior generals of the ruling 
junta. 
 
¶10.  According to the FIL, the MIC must review all potential 
investment, both foreign and domestic.  Due to accusations of 
corruption within the MIC, the ruling State Peace and Development 
Council (SPDC) sharply reduced the MIC's influence in 1999. 
Potential investors must still work through the MIC, but it has lost 
most of its decision-making authority.  Interested foreign investors 
must submit proposals through the MIC, which obtains the final 
approval from either the Cabinet (chaired by Prime Minister General 
Thein Sein, why in turn must also obtain clearance from SPDC 
Chairman Senior General Than Shwe) or the Trade Policy Council (TPC, 
chaired by SPDC Secretary (1) Lt. General Thiha Thura Tin Aung Myin 
Oo).  The Cabinet and the TPC have the same membership, so 
authorities choose the decision-making body on a case-by-case basis. 
 Although the MIC has no power to protect foreign companies, there 
is no evidence that the MIC overtly discriminates against foreign 
investors.  Bureaucratic red tape, arbitrary regulation changes and 
endemic government corruption, however, continue to pose serious 
obstacles for all potential investors. 
 
¶11.  Once the government grants permission to invest, a foreign 
company must get a "Permit to Trade" -- essentially a business 
license -- from the Ministry of National Planning and Economic 
 
RANGOON 00000026  003.2 OF 013 
 
 
Development's Directorate of Investment and Companies Administration 
(DICA).  Since February 2002, the government no longer allows DICA 
to issue new permits or renew existing ones for foreign firms.  This 
decision has halted most new foreign investment and has disrupted 
the business of many foreign investors, forcing the closure of 
several foreign manufacturing firms.  Since 2002, some foreign 
investors have attempted to do business by operating as local firms 
under the cover of Burmese partners, but some have faced legal 
action and difficulties in divesting. 
 
¶12.  Once a company has the "Permit to Trade", it may, in theory, 
use the permit to get resident visa status, to lease cars and real 
estate, and to obtain new import and export licenses from the 
Ministry of Commerce.  The government has had a de facto policy in 
place since the end of 2001 to only issue import licenses to those 
firms that are export earners.  Companies without export earnings 
must purchase "export dollars" from another firm at an inflated 
exchange rate in order to apply for an import license.   Some 
companies fraudulently transfer money between the accounts of export 
revenue earners to facilitate this process.  Companies can also now 
use account transfers from Burmese seamen and other Burmese workers 
in foreign countries for exports.  Since the government taxes these 
overseas remittances at a rate of 10%, many overseas workers remit 
their money home through informal networks.  As of August 20, 2005, 
the high-level Trade Policy Council gives final approval for all 
import and export licenses. 
 
¶13.  In February 2002, a reversal of the government's "open door 
economy" policy came from a verbal directive outlawing the issuance 
of new "Permits to Trade" and renewal of existing permits for any 
trading firms owned by foreigners (or jointly owned by foreigners 
and Burmese).  The government allegedly took this measure to promote 
local trading firms, but it has served only to further distort the 
local marketplace.  The authorities have not published any official 
notice of this directive but they generally enforce it, including 
against foreigners who have tried to evade the directive by listing 
their company under the name of a Burmese colleague or friend. 
 
¶14.  The FIL allows FDI in a wholly foreign-owned venture or a joint 
venture with a Burmese partner (either private or state-owned). 
Sole proprietorships and partnerships are equally acceptable.  The 
FIL requires that at least 35 percent of equity capital in all JVs 
and partnerships be foreign-owned.  The minimum foreign investment 
required in practice, though not specified in the law, is $500,000 
for manufacturing investments, and $300,000 for services in cash or 
in kind.  These minimum amounts include cash-on-hand requirements in 
foreign currency (calculated at the official rate of exchange of 
roughly 6 kyat = US$1, which is roughly 0.47% of the market exchange 
rate) of: 
 
--300,000 kyat (US$50,000) for a services company, 
--500,000 kyat (US$83,000) for a trading company (though the GOB 
does not currently allow trading companies), and 
--one million kyat (US$166,666) for a manufacturer. 
 
¶15.  In June 2006, the Ministry of Finance and Revenue issued a 
notification for levying tax on profits gained by transferring 
assets of the companies conducting business in oil and gas sector as 
following rates: 
 
Profit       Tax rate 
(a) up to US$100 million                 40% 
(b) Between US$100 and $150 million      45% 
(c) Over US$150 million                  50% 
 
These tax rates remained the same in 2007. 
 
RANGOON 00000026  004.2 OF 013 
 
 
 
¶16.  The Burmese armed forces are involved in many commercial 
activities via the Union of Myanmar Economic Holdings, Ltd. (UMEHL) 
and the Myanmar Economic Corporation (MEC).  To set up a joint 
venture, foreign firms have reported that an affiliation with UMEHL 
or MEC proves useful to help them receive the proper business 
permits.  Nonetheless, entering into business with UMEHL or MEC does 
not guarantee success for foreign partners.  Some investors report 
that their Burmese military partners are parasitic, make 
unreasonable demands, provide no cost-sharing, and sometimes muscle 
out the foreign investor after an investment becomes profitable. 
 
¶17.  In November 2005, the government moved Burma's administrative 
capital to the newly-constructed town of Nay Pyi Taw, located in a 
remote valley about 240 miles north of Rangoon.  All official 
transactions, including import/export licenses, must be approved in 
Nay Pyi Taw.  Although the majority of import/export procedures have 
not changed, several businesses have complained that the time and 
cost of obtaining licenses has increased since 2005.  Currently, it 
takes approximately two weeks for license approval.  The Burmese 
Government, to offset the time lag for import/export approval 
introduced in October 2007 a one-stop service in Rangoon for marine 
products and medicine licenses.  For these products alone, 
import/export licenses are approved in two days. 
 
Conversion and Transfer Policies 
-------------------------------- 
 
¶18.  According to the Foreign Investment Law (FIL), investors in 
Burma have a guarantee that they can repatriate profits after paying 
taxes.  The law also provides that, upon expiry of the term of the 
contract, the investor can receive the amount to which he or she is 
entitled in the foreign currency in which the investment was made. 
Due to the current shortage of foreign exchange in Burma, however, 
foreign investors have encountered difficulties in legally 
transferring their net profits abroad.  The Foreign Exchange 
Management Department of the Central Bank of Myanmar must give 
permission for all transfers abroad of foreign currency. 
 
¶19.  Likewise, Burma's multiple exchange rates make conversion and 
repatriation of foreign exchange very complex, and ripe for 
corruption.  The official rate of approximately 6 kyat to the dollar 
is grossly overvalued.  The government also issues Foreign Exchange 
Certificates (FEC) at a fixed rate of 1 FEC=450 kyat via licensed 
exchange counters, but that rate is still significantly overvalued. 
The market exchange rate as of January 2008 was 1260 kyat to $1. 
Companies generally unload their kyat earnings as quickly as 
possible.  The government requires foreign companies to use dollars 
or FEC to pay rental charges and utility and telephone bills 
(charged at a rate that is often ten times higher than what local 
firms are charged).  The government allows foreign firms to deposit 
dollars in a state bank for later withdrawal as FEC by the company's 
employees. 
 
¶20.  In Burma, only three state banks -- the Myanma Foreign Trade 
Bank (MFTB), the Myanma Investment and Commercial Bank (MICB) and 
the Myanma Economic Bank (MEB) -- are legally permitted to handle 
foreign exchange transactions.  In practice, the MFTB and MICB 
handle most of these transactions.  The MFTB primarily handles 
foreign currency transactions for government organizations, 
businesses, and private individuals, while the MICB primarily serves 
companies and joint ventures.  MEB handles foreign currency 
transactions in the border trade regions. 
 
¶21.  U.S. government restrictions imposed in 2003 on the provision 
of financial services to Burma by U.S. banks severely disrupted the 
 
RANGOON 00000026  005.2 OF 013 
 
 
legal foreign trading system, which had long been primarily 
dollar-denominated.  U.S. banks no longer offer any trade 
facilitation or correspondent banking services, making the use of 
letters of credit denominated in U.S. dollars problematic.  Some 
traders and government banks have shifted to euros or Singapore 
dollars.  As of July 29, 2003, the U.S. Government also froze the 
correspondent accounts of MEB, MFTB, and MICB in the United States, 
along with all other GOB assets and property. 
 
¶22.  Private banks held a large share of domestic banking activity 
until February 2003, when a major banking crisis severely reduced 
the holdings of the private banking sector.  The GOB never permitted 
these banks to deal in foreign exchange.  Although the government 
allowed some smaller private banks to resume operations in 2004, the 
sector remains tightly restricted.  There is no indication that, if 
the private banking system is revitalized, the GOB would give 
private banks the right to deal in foreign currency. 
 
Expropriation and Compensation 
------------------------------ 
 
¶23.  The Burmese Foreign Investment Law (FIL) provides a guarantee 
against nationalization during the "permitted period" of investment. 
 However, the GOB has forced a number of foreign firms in various 
sectors to leave the country because it did not honor the terms and 
conditions of investment agreements.  In the late 1990s, two large 
Japanese firms voluntarily left Burma after they found they were not 
able to operate according to earlier investment agreements. 
Additionally, government has seized the assets of foreign and local 
investors without compensation when the particular investment turned 
out to be very profitable. 
 
¶24.  In the 1990s, the GOB forced out a Swiss cement importer and 
distributor ostensibly because the company was not "operating 
according to its permit."  According to most accounts, however, the 
government evicted the company because the Swiss company could sell 
better quality, cheaper cement than its government-owned 
competitors.   In another case in 1999, the government confiscated a 
large brewery that an expatriate businesswoman had made profitable 
and turned it over to the Ministry of Industry (1) to run.  The 
local courts proved unhelpful in resolving the case, and the 
investor never received any compensation from the government. 
 
Dispute Settlement 
------------------ 
 
¶25.  Private and foreign companies suffer major disadvantages in 
disputes with Burmese governmental and quasi-governmental 
organizations.  Foreign investors generally prefer to use the 1944 
Arbitration Act, which allows for international arbitration.  The 
Burmese government usually tries to stipulate local arbitration in 
all contracts it signs with foreign investors.  The military regime 
closely controls the entire legal system in Burma, and courts are 
neither independent nor impartial, so local arbitration is not 
reliable.  Companies facing adverse administrative decisions have no 
recourse.  Burma is not a member of the International Center for the 
Settlement of Investment Disputes, nor is it a party to the New York 
Convention. 
 
¶26.  The Attorney General's Office and the Supreme Court ostensibly 
control the legal system in Burma, but neither body is independent 
of the ruling regime.  Burmese criminal and civil laws are modeled 
on British law introduced during Burma's colonial period, which 
ended in 1948.  Every Township, State, and Division has its own law 
officers and judges.  The regional commanders and military 
authorities at the township, state and divisional level, however, 
 
RANGOON 00000026  006.2 OF 013 
 
 
have supreme de facto authority over judicial decisions at the local 
and state/division level. 
 
¶27.  There is no bankruptcy law in Burma. 
 
¶28.  Foreign companies have the right to bring cases to and defend 
themselves in local courts.  As the military regime controls all the 
courts tightly, foreign investors with conflicts with the local 
government and those whose business has been expropriated, have 
little luck getting compensation. 
 
Performance Requirements and Incentives 
--------------------------------------- 
 
¶29.  Officially, companies covered under the Foreign Investment Law 
(FIL) are entitled to a tax holiday for a period of three 
consecutive years.  Under the FIL, the Myanmar Investment Commission 
(MIC) can extend this tax holiday.  At the MIC's discretion, 
investors are also eligible for a number of other incentives 
including: accelerated depreciation of capital assets, a waiver of 
customs duties and taxes on imported machinery and spare parts 
during the period of construction, or a waiver of duties on imported 
raw materials during the first three years of commercial production. 
 Although the MIC issues the permission, the TPC and the Cabinet 
makes final decisions on these incentives and extensions. 
 
¶30.  There are no official performance requirements for new foreign 
investors in Burma, but the government does require investors to 
purchase local machinery and insurance (fire, marine, and personal 
liability).  Unofficially, before approving an investment, the 
government often requires companies to commit to a certain level of 
exports.  The government then requires compliance reports every 
three months, with evidence of export results or an explanation why 
goals were not met.  There is no evidence that the GOB has taken any 
action against firms that do not meet their initial export targets. 
 
¶31.  There is no requirement that foreign investors buy or hire from 
local sources.  Technology transfer is not generally a pre-requisite 
for investment. 
 
¶32.  Any enterprise operating under the FIL or the Myanmar Companies 
Act must pay income tax at a 30 percent tax rate.  Withholding tax 
on royalties and interest is 15 percent for resident foreigners and 
20 percent for non-resident foreigners.  Tax collection in Burma is, 
in practice, extremely lax, but foreign investors are an easy target 
for cash-strapped tax authorities.  The Burmese fiscal year ends 
March 31; tax returns are due by June 30. 
 
Right to Private Ownership and Establishment 
-------------------------------------------- 
 
¶33.  By law, foreigners may not own land in Burma, and may only rent 
property on a short-term basis, frequently for terms less than one 
year. 
 
¶34.  A private entity can establish, buy, sell, and own a business 
only with the review and approval of the MIC (and, by proxy, the top 
regime leadership). 
 
Protection of Property Rights 
----------------------------- 
 
¶35.  Burma does not have adequate IPR protection.  Patent, 
trademark, and copyright laws and regulations are all deficient in 
regulation and enforcement.  After Burma joined ASEAN in 1997, it 
agreed to modernize its intellectual property laws in accordance 
 
RANGOON 00000026  007.2 OF 013 
 
 
with the ASEAN Framework Agreement on Intellectual Property 
Cooperation.  An IPR law, first drafted in 1994, still awaits 
government approval and implementation.  A Committee for IPR 
Implementation, established in July 2004, has worked toward approval 
of a new law, with assistance from the World Intellectual Property 
Organization.  The World Trade Organization (WTO) has delayed 
required implementation of the TRIPS Agreement for Least Developed 
Nations until 2013. 
 
¶36.  The Government of Burma introduced a Patents and Design Law in 
1946, but never brought it into force.  Thus, the registration of 
patents and designs in Burma is still governed by the Indian Patents 
and Designs Act of 1911, enacted under British colonial rule. 
 
¶37.  The piracy of music CDs, video CDs, CD-ROMS, DVDs, books, 
software, and product designs is evident nationwide, especially in 
border regions and in the two major urban centers of Mandalay and 
Rangoon.  Most consumers of IT products in Burma, both in the 
private sector and in government, use pirated software.  Given the 
small number of local customers, poor state of the economy, and lack 
of infrastructure (e.g., unreliable electricity for manufacturing), 
piracy does not have a significant adverse impact on U.S. products. 
 
 
¶38.  Burma has no trademark law, although trademark registration is 
possible.  Some firms place caution notices in local newspapers to 
declare ownership of their trademarks.  After publication, the 
owners can take criminal and/or civil action against trademark 
infringers.  Title to a trademark depends on use of the trademark in 
connection with goods sold in Burma.  The British colonial 
government published a Copyright Act in 1914, but has never 
instituted a means to register copyrights.  Thus, there is no legal 
protection in Burma for foreign copyrights. 
 
¶39.  Most real estate transactions in Burma require cash.  Regular 
bank loans are difficult to obtain and are not available directly to 
foreigners. 
 
Transparency of Regulatory System 
--------------------------------- 
 
¶40.  Burma lacks regulatory and legal transparency.  All existing 
regulations, including those covering foreign investment, 
import-export procedures, licensing, and foreign exchange, are 
subject to change with no advance or written notice at the whim of 
the regime's ruling generals.  The country's decision-makers appear 
strongly influenced by their desire to support state-owned 
enterprises and meet the needs of the military-controlled Myanmar 
Economic Corporation and Myanmar Economic Holdings, Ltd., as well as 
wealthy cronies.  Even omens and fortune-tellers can play a role in 
their decisions.  The government regularly issues new regulations 
with no advance notice and no opportunity for review or comment by 
domestic or foreign market participants.  The GOB rarely publishes 
its new regulations andregulatory changes, preferring to 
communicate ne rules verbally to interested parties and often 
efusing to follow up in writing.  The government ocasionally 
publishes selected new regulations and laws in the government-owned 
daily newspaper, "Te New Light of Myanmar," as well as in "The 
Burm Gazette." 
 
¶41.  Burma's written health, environental, tax, and labor laws do 
not impose a majorburden on investment.  However, the unpredictable 
nature of the regulatory and legal situation -- an irregular 
enforcement of existing laws -- makesinvestment in Burma extremely 
challenging withou good -- and well-connected -- local legal 
advic. 
 
RANGOON 00000026  008.2 OF 013 
 
 
 
¶42.  See the Preface and Openness to Foreign Investment section for 
further details of the legal and regulatory system. 
 
Efficient Capital Markets and Portfolio Investment 
--------------------------------------------- ----- 
 
¶43.  Burma has no true equity or debt markets, and the average 
citizen does not have portfolio investments.   Burmese authorities 
have stated in the past that the existence of capital markets is 
essential for the development of a well-functioning financial 
system, and the Myanmar Economic Bank (MEB) and Japan's Daiwa 
Institute of Research Co. Ltd. established a joint venture -- the 
Myanma Security Exchange Centre Ltd. -- to set up a limited stock 
exchange.  However, the exchange is moribund, with only two listed 
companies - a small forestry joint venture and a small 
semi-government bank.  A few Burmese companies sell bonds privately 
on a very small scale.  Private companies, whether foreign or 
domestically controlled, are generally small in size.  Usually, a 
small number of people or entities, often within the same family, 
closely hold the business shares.  There is no securities law. 
 
¶44.  The private banking system in Burma was frozen in February 2003 
after a public scare and a run on private banks, and the subsequent 
decision by the government to avoid any bailouts.  The crisis did 
not seriously affect state-owned banks and partially state-owned 
banks.  Although some banks closed, other private banks resumed 
operations in 2004 with limited functions.  Government restrictions 
have made it impossible for the largest private banks to take in 
many new deposits or to extend significant new loans, and have 
limited the maximum amount clients can withdraw each week.  The GOB 
has fixed interest on deposits at 12%. 
 
¶45.  The Financial Action Task Force (FATF) removed Myanmar from its 
list of Non-Cooperative Countries and Territories in October 2006 in 
recognition of GOB efforts to better enforce its anti-money 
laundering regime, but advised the Burmese Government to enhance 
regulation of the financial sector, including the securities 
industry.  FATF will continue to monitor Burma's progress on 
anti-money laundering in 2008. 
 
¶46.  In April 2004, the U.S. Treasury Department prohibited U.S. 
banks from doing business with Burmese banks or their overseas 
branches because of ongoing concerns of money laundering in Burma, 
specifically at Asia Wealth Bank (the largest pre-crash private 
bank) and Myanmar Mayflower Bank.  The Government of Burma revoked 
the licenses of these two banks in March 2005 and, in August, closed 
a third bank suspected of laundering money, the Myanmar Universal 
Bank, for violations of the Financial Institutions Act.  Currently, 
only six fully private and nine quasi-state banks operate, all under 
tight governmental restriction. 
 
¶47.  Foreign firms do not have access to bank loans, since the banks 
require collateral of land or real estate, neither of which 
foreigners can own in Burma.  Since mid-2002, the government has 
forbidden the use of gold as collateral.  Loans in kyat are 
available for local companies and individuals from state and private 
banks.  Interest rates are currently fixed at 17 percent per year. 
The U.S. Embassy estimates that the inflation rate in 2007 was 
approximately 40 percent.  Because of negative real interest rates 
and inadequate regulation and supervision, the private banking 
system remains unstable.  Before the 2003 banking crisis, most 
private banks engaged in reckless lending and suffered from high 
levels of non-performing loans.  Now, most are tightly regulated by 
the Central Bank and government regulations force them to be more 
conservative in policy.  While accurate statistics are not 
 
RANGOON 00000026  009.2 OF 013 
 
 
available, businessmen and bankers say that the quasi-government 
banks are regularly asked to bankroll the regime's pet projects and 
personal requirements, and as a result may still have a large 
percentage of non-performing loans. 
 
¶48.  A 1990 banking law permitted foreign banks to open 
representative offices to serve as trade and commercial liaisons for 
local and foreign clients in Burma, but they were not allowed to 
conduct business for the local market.  For a variety of reasons, 
including the 1997-1998 Asian financial crisis, the bad local 
business climate, and the lack of liberalization of the Burmese 
banking sector, only 13 of the original 49 authorized foreign banks 
retain a presence in Burma today.  Under U.S. law, U.S. persons and 
institutions may not provide financial services to Burma. 
 
¶49.  In 2004, in the absence of a government policy, the Myanmar 
Accountants Council issued its own standard accounting system -- the 
Myanmar Accounting Standards -- based very closely on International 
Accounting Standards (IAS). 
 
Political Violence 
------------------ 
 
¶50.  Burma experienced major political unrest in 1988, when the 
current military regime seized power and jailed/killed an 
undetermined number of Burmese citizens and democracy activists.  In 
1990, the military government refused to recognize the results of a 
parliamentary election overwhelmingly won by the pro-democracy 
opposition.  Burma also experienced major student demonstrations in 
1996, and other demonstrations occurred in August and September of 
¶1998.  In May 2003, government-affiliated thugs ambushed a convoy 
carrying pro-democracy opposition leader Aung San Suu Kyi in 
northwest Burma, killing or wounding dozens of pro-democracy 
activists. 
 
¶51.  Political unrest continued in 2007.  Following a sharp increase 
in fuel prices on August 15, 2007, pro-democracy groups began a 
series of peaceful marches and demonstrations to protest the 
deteriorating economic situation in Burma.  The regime immediately 
responded by arbitrarily detaining over 150 pro-democracy activists 
between August 15 and September 11.  On August 28, as popular 
dissatisfaction spread, Buddhist monks began leading peaceful 
marches.  On September 5, security forces violently broke up 
demonstrations by monks resulting in injuries and triggering calls 
for a nationwide response and a government apology.  Beginning on 
September 18, monks resumed their peaceful protests in several 
cities throughout the country.  These marches grew quickly to 
include ordinary citizens, culminating in a gathering of 
approximately 10,000 protestors in Rangoon on September 24.  On 
September 25, the regime tried to stop the protests by imposing a 
curfew and banning public gatherings.  On September 26 and 27, the 
regime violently cracked down, shooting, beating and arbitrarily 
detaining thousands of monks, pro-democracy activists, and onlookers 
in Rangoon. 
 
¶52.  The regime routinely underestimated the number of deaths during 
the crackdown, confirming the deaths of only 10 protestors.  Some 
NGOs estimated the number of casualties to be much higher, and in 
his December 7, 2007 report to the UN General Assembly, Special 
Rapporteur Paulo Sergio Pinheiro stated that there were over 30 
fatalities in Rangoon associated with the September 2007 protests. 
In retribution for leading protest marches, monks were beaten and 
arrested, many monks were disrobed, and several monasteries were 
raided, ransacked, and closed.  In addition to the more than 1,100 
political prisoners whose arrests predate the September 2007 
crackdown, hundreds more continue to be detained due to their 
 
RANGOON 00000026  010.2 OF 013 
 
 
participation in the recent protests.  Additional people continued 
to be arrested in 2008. 
 
¶53.  In April 2005, a bomb exploded in a market in Mandalay, killing 
three civilians.  In May 2005, three bombs exploded simultaneously 
in central Rangoon commercial areas, killing at least 23 civilians. 
No individuals or groups claimed responsibility and, since the 
attacks, the Government has not revealed any results of an 
investigation or offered credible evidence about the perpetrators. 
There have been several small explosions in Rangoon and other 
Burmese cities as recently as January 2008 with few fatalities, and 
authorities regularly claim to discover such devices at various 
locations throughout Burma.  In most cases, no groups claim 
responsibility and no one is arrested after the bombings. 
 
¶54.  For decades, there has been sporadic anti-government insurgent 
activity in various locations, particularly near Burma's borders. 
These areas that surround central Burma have seen sporadic fighting 
between government forces and insurgent groups throughout the past 
50 years.  As a result, popular unrest and violence remain possible 
throughout Burma.  Transparency International rated Burma worst in 
the world in 2007. 
 
Corruption 
---------- 
 
¶55.  Corruption is endemic in Burma.  Economists and businesspeople 
consider corruption the most serious barrier to investment and 
commerce in Burma.  Because of a complex and capricious regulatory 
environment and extremely low government salaries, rent-seeking 
activities are ubiquitous.  Very little can be accomplished, from 
the smallest transactions to the largest, without paying "tea 
money."  As inflation increases and investment declines, this 
problem appears to be worsening. 
 
¶56.  Since 1948, corruption is officially a crime that can carry a 
jail term.  However, the ruling generals apply the anti-corruption 
statute only when they want to take action against a rival or an 
official who has become an embarrassment - most notably in October 
2004, when the SPDC arrested then-Prime Minister General Khin Nyunt 
and many of his colleagues and family members for corruption.  In 
2006, authorities arrested over 300 Customs officials, charging them 
with corruption.  Most citizens view corruption as a normal practice 
and requirement for survival.  The major areas where investors run 
into corruption are when seeking investment permission, in the 
taxation process, when applying for import and export licenses, and 
when negotiating land and real estate leases. 
 
Bilateral Investment Agreements 
------------------------------- 
 
¶57.  Burma has signed several bilateral investment agreements, also 
known as "Protection and Promotion of Investment" agreements, with 
the Philippines, China, Lao PDR, and Vietnam.  These agreements have 
had little impact on enhancing incoming investment from other 
countries in the region.  Investment treaty discussions are underway 
with Thailand and Singapore. 
 
OPIC and Other Investment Insurance Programs 
-------------------------------------------- 
 
¶58.  Due to U.S. law, OPIC programs are not available for Burma. 
Burma is not a member of the World Bank's Multilateral Investment 
Guarantee Agency (MIGA). 
 
Labor 
 
RANGOON 00000026  011.2 OF 013 
 
 
----- 
 
¶59.  In 1989, the United States withdrew Burma's eligibility for 
benefits under the Generalized System of Preferences (GSP), due to 
the absence of internationally recognized worker rights. 
Independent labor unions are illegal in Burma.  Workers are not 
allowed to organize, negotiate, or in any other legal way exercise 
control over their working conditions.  In some instances workers 
have gained minor benefits through direct work actions, especially 
for wage increases at private enterprises following a significant 
pay increase for civil servants in April 2006. 
 
¶60.  Although government regulations set a minimum employment age, 
wage rate, and maximum work hours, managers do not uniformly observe 
these regulations, especially those in the private sector.  The 
government often uses forced labor in its construction and 
commercial enterprises and for porterage and military building. 
These labor practices are inconsistent with Burma's obligations 
under ILO Conventions 29 and 87.  The ILO imposed sanctions against 
Burma in 2000 and has critically reviewed the forced labor situation 
in Burma at subsequent ILO Conferences and Governing Body meetings. 
In 2006 and 2007, the ILO Governing Board raised the possibility of 
bringing Burma to the International Court of Justice for its refusal 
to address forced labor.  The ILO continues to work with the Burmese 
Government on forced labor issues under the Supplementary 
Understanding on Forced Labor, which was signed in February 2007. 
The United States strongly supports ILO action against Burma. 
 
¶61.  Burma's labor costs are very low, even when compared to most of 
its Southeast Asian neighbors.  Burmese over the age of 40, 
particularly those over 65 years of age, are generally 
well-educated, but the lack of investment in education by the 
military regime and the repeated closing of Burmese universities 
over the past 20 years have taken a toll on the country's young. 
Most in the 15-39 year old demographic group lack technical skills 
and English proficiency.  Many older educated Burmese studied 
English in mission schools during the British colonial and early 
independence period.  The military nationalized schools in 1964 and 
discouraged the teaching of English in favor of Burmese. 
 
¶62.  The government does not publish any unemployment figures. 
Anecdotal evidence and recent divestment by many foreign companies 
indicate a very high level of unemployment and underemployment in 
formal, non-agricultural sectors.  The minimum wage is 500 kyat 
(roughly $0.40) per day.  An average worker in Burma earns about 
500-1000 kyat (roughly $0.40 to $0.80) per day. 
 
Foreign-Trade Zones/Free Ports 
------------------------------ 
 
¶63.  The government has set aside 19 "industrial zones," large 
tracts of land surrounding Rangoon, Mandalay, and other major 
cities.  These areas are, however, merely zoned for industrial use. 
They do not come with any special services or investment incentives. 
 The GOB has developed a draft industrial zone law, which has yet to 
be approved. 
 
¶64.  There are no free trade zones in Burma. 
 
Foreign Direct Investment Statistics 
------------------------------------ 
 
¶65.  Note:  Investment figures compiled by the Burmese government 
include only investments approved by the Myanmar Investment 
Commission (MIC), only a fraction of which go forward. No statistics 
exist as to disinvestment.  The figures do not include investments 
 
RANGOON 00000026  012.2 OF 013 
 
 
outside of MIC's purview, such as many small and medium 
Chinese-financed projects.  Since the end of 2003, the MIC has 
stopped making its investment figures available publicly.  The 
Embassy calculates the current figures based on Monthly Economic 
Indicators published by the Central Statistical Organization (CSO). 
 
 
¶66.  According to government figures, at the end of November 2007, 
cumulative foreign investment approved by the MIC totaled 417 
projects, valued at $14.7 billion.  This is 5.7 percent higher than 
the cumulative total listed at the end of October 2006. 
 
¶67.  Extrapolating from the latest government statistics on FDI flow 
for Burmese FY 2006-2007 (April-March), the U.S. Embassy estimates 
an 88 percent year-on-year decrease in the value of new FDI 
approvals ($752 million) compared with total new investment 
approvals in FY 2005-2006 ($6.066 billion).  FY2005-2006 proposed 
investments from Thailand ($6.034 billion in power and oil and gas), 
India ($30.58 million in oil and gas) and China ($0.70 million in 
mining) received approvals.  The amount of FDI investments approved 
in FY 2005-06 were the highest-ever reported.  The approved FDI 
amount significantly rose in March 2006 with Thailand's planned 
investment of $6 billion in the Ta Sang hydropower project.  In 
2006-07, the Burmese Government approved $752.7 million in new 
investments; Chinese companies pledged $281.22 million, U.K. firms 
(which include companies from the British Virgin Islands and 
Bermuda) pledged $240.68 million, Singaporean companies pledged 
$160.8 million, Korean firms pledged $37 million, and companies from 
the Russian Federation pledged $33 million. 
 
¶68.  The vast majority of approved new investment since 1997 has 
come from Asian countries.  Western countries have largely stayed 
away from the Burmese market, largely due to the abysmal investment 
climate, including an absence of rule of law, economic 
mismanagement, and endemic corruption.  New U.S. investment ceased 
in 1997 when the U.S. government imposed an investment ban. 
 
¶69.  According to GOB statistics, in stock terms, the United States 
is the eighth largest foreign investor in Burma, with 15 approved 
projects totaling $244 million.  U.S. investment approved prior to 
May 1997, which was grandfathered under U.S. investment sanctions, 
is largely concentrated in oil and natural gas exploration. 
 
¶70.  Major non-U.S. foreign investors in Burma are concentrated in 
resource extraction and include: Petronas (Malaysia), Total 
(France), PTTEP (Thailand), Shin Satellite (Thailand), Keppel Land 
(Singapore), Daewoo (South Korea), China National Construction and 
Agricultural Machinery Import and Export Co. (PRC), and the China 
International Trust and Investment Corporation (PRC). 
 
¶71.  Government statistics do not report external investments made 
by Burmese companies.  However, there is anecdotal information that 
some wealthy Burmese individuals and small family businesses have 
made investments in China and in neighboring ASEAN countries. 
 
--------------------------------------------- -------- 
          FOREIGN INVESTMENT APPROVALS 
               AS OF 11/30/2007 
                  BY SECTOR 
       (Millions of US Dollars) 
--------------------------------------------- -------- 
         No. of   Approved     % of Total 
Sector          Projects   Amount  Approved Amt 
 
Power          2    6,311.000      42.83 
Oil and Gas        85    3,242.478       21.32 
 
RANGOON 00000026  013.2 OF 013 
 
 
Manufacturing       154    1,629.128      11.06 
Real Estate        19    1,056.453          7.17 
Hotels and Tourism   43    1,034.561       7.02 
Mining             58      534.890       3.63 
Livestock/Fisheries   25      324.358       2.20 
Transport/Comms       16      313.272       2.13 
Industrial Estates    3      193.113       1.31 
Construction         2       37.767       0.26 
Agriculture         4       34.351       0.23 
Other Services         6       23.686        0.16 
--------------------------------------------- ------- 
Total            417   14,736.279      100.00 
 
--------------------------------------------- ------- 
       CUMULATIVE FOREIGN INVESTMENT APPROVALS 
                AS OF 11/30/2007 
                  BY COUNTRY 
         (Millions of US Dollars) 
--------------------------------------------- ------- 
No.    Country     No. of Projects   Approved Amount 
--------------------------------------------- ------- 
¶1.   Thailand           58           7,391.843 
¶2.   U.K.*           50           1,860.954 
¶3. Singapore           70            1,515.213 
¶4. Malaysia           33             660.747 
¶5. Hong Kong           31             504.218 
¶6. China           27             475.443 
¶7. France            2             469.000 
¶8. U.S.A.           15             243.565 
¶9. Republic of Korea   37             243.308 
¶10. Indonesia           12               241.497 
¶11. The Netherlands      5               238.835 
¶12. India                7               219.575 
¶13. Japan               23               213.004 
¶14. Philippines          2               146.667 
¶15. Australia           14                82.080 
¶16. Austria              2                72.500 
¶17. Canada              14                39.781 
¶18. Cyprus               2                38.250 
¶19. Panama               1                29.101 
¶20. Germany              2                17.500 
¶21. Denmark              1                13.370 
¶22. Macau                2                 4.400 
¶23. Vietnam              1                 3.649 
¶24. Switzerland          1                 3.382 
¶25. Bangladesh           2                 2.957 
¶26. Israel               1                 2.400 
¶27. Brunei Darussalam    1                 2.040 
¶28. Sri Lanka            1                 1.000 
--------------------------------------------- ------- 
 Total          417            14,736.279 
 
*Inclusive of enterprises incorporated in British Virgin Islands, 
Bermuda, and the Cayman Islands. 
 
VILLAROSA