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Viewing cable 09RANGOON33, BURMA: 2009 INVESTMENT CLIMATE STATEMENT

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Reference ID Created Released Classification Origin
09RANGOON33 2009-01-14 08:32 2011-08-26 00:00 UNCLASSIFIED Embassy Rangoon
VZCZCXRO6445
RR RUEHCHI RUEHDT RUEHHM RUEHNH RUEHTRO
DE RUEHGO #0033/01 0140832
ZNR UUUUU ZZH
R 140832Z JAN 09
FM AMEMBASSY RANGOON
TO RUEHC/SECSTATE WASHDC 8546
RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHGG/UN SECURITY COUNCIL COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 2154
RUEHBY/AMEMBASSY CANBERRA 1709
RUEHKA/AMEMBASSY DHAKA 5084
RUEHNE/AMEMBASSY NEW DELHI 5187
RUEHUL/AMEMBASSY SEOUL 8783
RUEHKO/AMEMBASSY TOKYO 6355
RUEHCN/AMCONSUL CHENGDU 1674
RUEHCHI/AMCONSUL CHIANG MAI 1991
RUEHCI/AMCONSUL KOLKATA 0522
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC
RUCPCIM/CIMS NTDB WASHDC
RHHMUNA/CDR USPACOM HONOLULU HI
RUEHGV/USMISSION GENEVA 4198
RHEHNSC/NSC WASHDC
RUCNDT/USMISSION USUN NEW YORK 2177
RUEKJCS/SECDEF WASHDC
RUEHBS/USEU BRUSSELS
RUEKJCS/JOINT STAFF WASHDC
UNCLAS SECTION 01 OF 13 RANGOON 000033 
 
SIPDIS 
 
STATE FOR EAP/MLS; EEB/CBA 
COMMERCE FOR JEAN KELLEY AND ERIN SULLIVAN 
PACOM FOR FPA 
TREASURY FOR OASIA:SCHUN 
 
E.O. 12958:N/A 
TAGS: OPIC KTDB USTR ECON EFIN EINV ETRD BM
SUBJECT: BURMA: 2009 INVESTMENT CLIMATE STATEMENT 
 
REF: 08 State 119784 
 
RANGOON 00000033  001.2 OF 013 
 
 
1.  Per reftel, this is Embassy Rangoon's submission for the 2009 
Investment Climate Statement. 
 
Preface 
------- 
 
2.  U.S. Investment Subject to Sanctions:  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.  The U.S. 
government reviews its sanctions policy annually.  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 annually. 
 
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U.S. investors had already withdrawn from Burma due to a hostile 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 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 
who provide substantial support for the regime. 
 
5.  In September 2007, in the wake of the Burmese government's 
longstanding oppression of the Burmese people and its use of 
violence against peaceful demonstrators in the so-called "Saffron 
Revolution," 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.  To date, there are more than 80 
individuals and 100 entities on the targeted U.S. sanctions list. 
6.  In July 2008, the President signed into law the "Tom Lantos 
Block Burmese Junta's Anti-Democratic Efforts" (JADE) Act.  This law 
codified into U.S. statute sanctions and visa bans of the 
above-mentioned Executive Orders and Proclamations.  Additionally, 
the law bans the import of jadeite and rubies mined or extracted in 
Burma, as well as articles of jewelry containing Burmese jade and 
rubies into the United States, regardless of the where the shipment 
originates from. 
 
7.  U.S. law allows U.S. firms to export to Burma, with some 
exceptions. 
 
Openness to Foreign Investment 
------------------------------ 
 
8.  To attract new foreign investment, the Burmese government 
enacted the Foreign Investment Law (FIL) on November 30, 1988.  The 
priorities for foreign investment, according to the FIL, are: 
 
 
RANGOON 00000033  002.2 OF 013 
 
 
--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. 
 
9.  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. 
 
10.  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. 
 
11.  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, who, it is believed, 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 
Myint 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. 
 
12.  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 
Development's Directorate of Investment and Companies Administration 
 
RANGOON 00000033  003.2 OF 013 
 
 
(DICA). 
 
13.  If 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 seafarers and other Burmese 
workers in foreign countries for exports, as the government 
considers remittances to be export earnings.  Since the government 
taxes these overseas remittances at a rate of 10 percent, many 
overseas workers remit their money home through informal networks. 
Since August 20, 2005, the high-level Trade Policy Council gives 
final approval for all import and export licenses. 
 
14.  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.  This 
decision has slowed the rate of 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. 
 
15.  The FIL allows FDI in a wholly foreign-owned venture or a joint 
venture (JV) 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 0.50% 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. 
 
16.  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 percent 
(b) Between US$100 and $150 million  45 percent 
(c) Over US$150 million     50 percent 
 
These tax rates remained the same in 2008. 
 
 
RANGOON 00000033  004.2 OF 013 
 
 
17.  The Burmese military uses its two trading companies, the Union 
of Myanmar Economic Holdings, Ltd. (UMEHL) and the Myanmar Economic 
Corporation (MEC), to dominate commercial activities.  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 partners are parasitic, make unreasonable 
demands, provide no cost-sharing, and sometimes force out the 
foreign investor after an investment becomes profitable. 
 
18.  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 up to one month 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 
-------------------------------- 
 
19.  According to the Foreign Investment Law (FIL), investors in 
Burma are guaranteed the ability to 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; it can take 
months for such a permit to be issued. 
 
20.  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 U.S. 
dollar is grossly overvalued.  The government also issues Foreign 
Exchange Certificates (FEC) at a fixed rate of 1 FEC=1 USD, as 
Burmese law prohibits locals to hold U.S. dollars without a special 
license.  Although the official exchange rate exists, it is not 
widely used.  The Burmese Government condones the use of up to eight 
additional exchange rates, which vary by transaction.  The most 
widely used exchange rate is the illicit market rate, which averaged 
1195 kyat/1 USD in 2008.  Although the FEC on paper is equivalent to 
1 USD and thus should be worth the same in kyat, in reality, the 
FEC/kyat exchange rate is lower than the USD/kyat rate.  After 
Cyclone Nargis devastated Burma in May 2008, the FEC/kyat exchange 
rate depreciated by 25 percent compared with the kyat/USD rate due 
to the influx of humanitarian assistance denominated in foreign 
currency.  Only after the Burmese Government intervened in the 
market did the FEC/kyat rate return to near-parity with the kyat/USD 
rate. 
 
21.  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 10 times higher than what local 
firms are charged).  The government allows foreign firms to deposit 
dollars in a state bank, but these firms can only withdraw funds in 
FEC in lieu of U.S. dollars. 
 
RANGOON 00000033  005.2 OF 013 
 
 
 
22.  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 the majority 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. 
 
23.  U.S. government restrictions imposed in 2003 on the provision 
of financial services to Burma by U.S. banks severely disrupted the 
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 Government of Burma assets and property. 
 
24.  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 did not permit 
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 Burmese Government 
would give private banks the right to deal in foreign currency. 
 
Expropriation and Compensation 
------------------------------ 
 
25.  The Burmese FIL provides a guarantee against nationalization 
during the "permitted period" of investment.  Nevertheless, the 
Burmese Government has forced a number of foreign firms in various 
sectors to leave the country during the 1990s because it did not 
honor the terms and conditions of investment agreements.  The 
Embassy has no information on any recent nationalizations or 
expropriations of foreign firms. 
 
Dispute Settlement 
------------------ 
 
26.  Private and foreign companies suffer major disadvantages in 
disputes with Burmese Government and quasi-government 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 on 
the Recognition and Enforcement of Foreign Arbitral Awards. 
 
27.  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, 
have supreme de facto authority over judicial decisions at the local 
 
RANGOON 00000033  006.2 OF 013 
 
 
and state/division level. 
 
28.  There is no bankruptcy law in Burma. 
 
29.  Foreign companies have the right to bring cases to and defend 
themselves in local courts.  As the military regime controls the 
courts tightly, foreign investors with conflicts with the local 
government and those whose business has been expropriated have 
little success obtaining compensation. 
 
Performance Requirements and Incentives 
--------------------------------------- 
 
30.  Officially, companies covered under the 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 make final decisions on these incentives and 
extensions. 
 
31.  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 Burmese 
Government has taken any action against firms that do not meet their 
initial export targets. 
 
32.  There is no requirement that foreign investors buy or hire from 
local sources.  Technology transfer is not generally a pre-requisite 
for investment. 
 
33.  Any enterprise operating under the FIL or the Myanmar Companies 
Act must pay a 30 percent income tax.  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.  Additionally, the Burmese 
Government requires foreign companies and individuals to pay bills 
in U.S. dollars or FEC at the official exchange rate; the government 
uses the official rate as a defacto tax on foreigners.  The Burmese 
fiscal year ends March 31; tax returns are due by June 30. 
 
Right to Private Ownership and Establishment 
-------------------------------------------- 
 
34.  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.   Most real estate transactions in Burma require cash. 
Regular bank loans are difficult to obtain and are not available 
directly to foreigners. 
 
35.  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 
----------------------------- 
 
RANGOON 00000033  007.2 OF 013 
 
 
 
36.  Burma does not have adequate Intellectual Property Rights (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 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 WTO has delayed required implementation of the 
Trade Related Aspects of Intellectual Property Rights (TRIPS) 
Agreement for Least Developed Nations until 2015. 
 
37.  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. 
 
38.  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 Rangoon and 
Mandalay.  Most consumers of IT products in Burma, both in the 
private sector and in government, use pirated software due in part 
to the unavailability of legal software.   Many U.S. software 
companies decline to do business with Burma due to U.S. sanctions. 
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. 
 
39.  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. 
 
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 (MEC) and Union of Myanmar Economic Holdings, 
Ltd. (UMHEL), 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 often 
provides no opportunity for review or comment by domestic or foreign 
market participants.  The Burmese Government rarely publishes its 
new regulations and regulatory changes, preferring to communicate 
new rules verbally to interested parties and often refusing to 
follow up in writing.  The government occasionally publishes 
selected new regulations and laws in the government-owned daily 
newspaper, "The New Light of Myanmar," as well as in "The Burma 
Gazette." 
 
42.  Burma's written health, environmental, tax, and labor laws do 
not impose a major burden on investment.  However, the unpredictable 
 
RANGOON 00000033  008.2 OF 013 
 
 
nature of the regulatory and legal situation -- and irregular 
enforcement of existing laws -- makes investment in Burma extremely 
challenging without good -- and well-connected -- local legal 
advice. 
 
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, although there 
are a number of larger, highly profitable businesses that benefit 
from their close ties to the regime.  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 
Government of Burma has fixed interest on deposits at 12 percent; 
however, inflation ranges between 20-40 percent a year. 
45.  The Financial Action Task Force (FATF) removed Myanmar from its 
list of Non-Cooperative Countries and Territories in October 2006 in 
recognition of the government's 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 2009. 
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, although only to those who hold valid bank accounts. 
Interest rates are currently fixed at 17 percent per year.  Most 
Burmese, who lack collateral and access to banks, turn to the 
informal sector for access to cash, often paying up to 30 percent 
interest a month on informal loans. 
 
48.  UN partners estimate that the inflation rate in 2008 was 
 
RANGOON 00000033  009.2 OF 013 
 
 
approximately 40 percent.  Because of negative real interest rates 
and inadequate regulation and supervision, the private banking 
system remains unstable, forcing the majority of Burmese to save 
their money by buying gold stocks rather than putting their money in 
banks.   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 available, businessmen and 
bankers say that the quasi-government banks are regularly asked to 
bankroll the regime's pet projects and personal demands, and as a 
result may still have a large percentage of non-performing loans. 
 
49.  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 1997-98 Asian financial crisis, the local business 
climate, and the lack of liberalization of the Burmese banking 
sector, only 13 ( four branch offices and nine cooperated 
secretaries) of the original 49 authorized foreign banks retain a 
presence in Burma today.   Only four of these offices are active; 
the others maintain observer status.  Under U.S. law, U.S. persons 
and institutions may not provide financial services to Burma, expect 
for humanitarian assistance. 
 
50.  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 
------------------ 
 
51.  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. 
52.  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.  While these marches were 
quickly suppressed, as popular dissatisfaction spread, Buddhist 
monks began leading peaceful marches in several cities throughout 
the country.  These marches grew quickly to include ordinary 
citizens, culminating in thousands of protestors in Rangoon on 
September 24.  On September 25, the regime tried to stop the 
protests by imposing a curfew and banning public gatherings. 
Beginning on September 26, the regime initiated a violent crackdown, 
shooting, beating, and arbitrarily detaining thousands of monks, 
pro-democracy activists, and onlookers. 
53.  The regime confirmed the deaths of only 10 protestors, but some 
non-governmental organizations (NGOs) estimated the number of 
casualties to be much higher.  In his December 7, 2007 report to the 
UN General Assembly, Special Rapporteur for Human Rights 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 
 
RANGOON 00000033  010.2 OF 013 
 
 
closed.  In addition to the more than 1,100 political prisoners 
whose arrests predate the September 2007 crackdown, another thousand 
or more were detained due to their participation in the recent 
protests.  Activists continued to be arrested through December 
2008. 
54.  There have been several explosions in Rangoon and other Burmese 
cities as recently as September 2008, normally with few fatalities. 
Authorities regularly claim to discover such devices at various 
locations throughout Burma.  The most serious incident took place in 
May 2005 when three bombs exploded simultaneously in central Rangoon 
commercial areas, killing at least 23 civilians.  In the past, the 
government has publicly blamed insurgents and opposition activists 
for some of these bombings, although officials have not produced any 
credible evidence to back up these accusations.  In most cases, no 
groups claim responsibility and no one is arrested after the 
bombings. 
 
55.  Sporadic anti-government insurgent activity continues 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. 
 Popular unrest and violence remain possible throughout Burma. 
 
56.  In November 2008, the government began sentencing many 
political prisoners it had arrested over the course of the previous 
year to lengthy prison terms, in some cases up to 68 years.  By 
year's end over 120 persons had been sentenced to prison including a 
leading monk activist and several human rights and pro-democracy 
activists.  Most prisoners were sentenced to terms of imprisonment 
of several decades based on accusations of unlawful association, 
illegally distributing print and video media, and allegations of 
destabilizing public security and the security of the state. 
 
Corruption 
---------- 
 
57.  Corruption is endemic in Burma.  Transparency International 
rated Burma worst in the world in 2007 and second only to Somalia in 
2008.  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. 
 
58.  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 
confront 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 
------------------------------- 
 
59.  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 
 
RANGOON 00000033  011.2 OF 013 
 
 
countries in the region.  The Government of Burma continues to 
discuss the possibility of investment treaties with Thailand and 
Singapore. 
 
OPIC and Other Investment Insurance Programs 
-------------------------------------------- 
 
60.  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 
----- 
 
61.  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. 
 
62.  Although government regulations set a minimum employment age, 
wage rate, and maximum work hours, managers do not uniformly observe 
these regulations, especially 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 and 
renewed for one year in February 2008.  The United States strongly 
supports ILO monitoring in Burma. 
 
63.  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 younger generations. 
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. 
 
64.  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 and the per capita 
GDP is $334, according to the Economist Intelligence Unit. 
 
Foreign-Trade Zones/Free Ports 
------------------------------ 
 
65.  The government has set aside 19 "industrial zones," large 
tracts of land surrounding Rangoon, Mandalay, and other major 
 
RANGOON 00000033  012.2 OF 013 
 
 
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. 
 
66.  There are no free trade zones in Burma. 
 
Foreign Direct Investment Statistics 
------------------------------------ 
 
67.  Note:  Investment figures compiled by the Burmese Government 
include only investments approved by the Myanmar Investment 
Commission (MIC), only a fraction of which are realized. No 
statistics exist as to disinvestment.  The figures do not include 
investments 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. 
 
68.  According to government figures, at the end of November 2008, 
cumulative foreign investment approved by the MIC totaled 422 
projects, valued at $15.7 billion.  This is 6.6 percent higher than 
the cumulative total listed at the end of November 2007. 
69.  Extrapolating from the latest government statistics on FDI flow 
for Burmese FY 2008-2009  (April through August 2008) published by 
the Central Statistical Office (CSO), the U.S. Embassy estimates a 
462 percent year-on-year increase in the value of new FDI approvals 
($969.996 million) compared with total new investment approvals in 
FY 2007-08 ($172.720 million).  FY2008-09 proposed investments from 
China ($855.996 million in mining), Russia ($94 million in oil and 
gas), and Vietnam ($20 million in oil and gas) were approved by MIC. 
 The approved FDI amount significantly rose in July 2008, with the 
announcement of China's planned investment of $855.996 million in 
the mining sector. 
70.  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, endemic corruption, and U.S. and EU sanctions 
limiting investment.  New U.S. investment ceased in 1997 when the 
U.S. government imposed an investment ban. 
 
71.  According to GOB statistics, in stock terms, the United States 
is still counted as the eighth largest foreign investor in Burma, 
with 15 approved projects totaling $244 million predating the 1997 
investment ban.  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. 
 
72.  Major non-U.S. foreign investors in Burma are concentrated in 
resource extraction and include: Petronas (Malaysia), Total 
(France), PTTEP (Thailand), Danford (Australia), Chinese National 
Petroleum Corporation (CNPC) (PRC), China National Offshore Oil 
Corporation (CNOOC) (PRC), Shin Satellite (Thailand), Keppel Land 
(Singapore), Daewoo (South Korea), Ivanhoe Copper Mining (Canada), 
China National Construction and Agricultural Machinery Import and 
Export Co. (PRC), and the China International Trust and Investment 
Corporation (PRC). 
 
73.  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 
                   11/30/2008 BY SECTOR 
 
RANGOON 00000033  013.2 OF 013 
 
 
                     (US$ million) 
 
    Approved   In percent of     Total 
Sector No.     Amount   Approved Amount 
 
Power            2 6,311.222      40.17 
Oil and Gas 88  3,357.478  21.37 
Manufacturing 154 1,629.128 10.37 
Mining 60 1395.886 8.88 
Real Estate 19 1,056.453 6.72 
Hotels and Tourism 43 1,034.561 6.58 
Livestock/ Fisheries 25 324.358 2.06 
Transport/Comms 16  313.272 1.99 
Industrial Estates 3 193.113 1.24 
Construction 2 37.767 0.25 
Agriculture 4 34.351 0.22 
Other Services 6 23.686  0.15 
Total 422  14,736.279   100.00 
 
 
CUMULATIVE FOREIGN INVESTMENT APPROVALS AS OF 
11/30/2008  BY COUNTRY 
 
   (US$ Million) 
Country No. Approved Amount 
 
Thailand 58 7,391.843 
U.K.* 50 1,860.954 
Singapore 72  1,553.213 
China 28 1,331.439 
Malaysia 33 660.747 
Hong Kong 31 504.218 
France 2 469.000 
U.S.A. 15 243.565 
Republic of Korea 37 243.308 
Indonesia 12 241.497 
The Netherlands 5 238.835 
Japan 23 213.004 
India 5 189.000 
Philippines 2 146.667 
Russia 2 94.000 
Australia 14 82.080 
Austria 2 72.500 
Canada 14  39.781 
Mauritius 2 30.575 
Panama 1 29.101 
Vietnam 2 23.649 
Germany 2 17.500 
Demark 1 13.370 
Cyprus 1 5.250 
Macau 2 4.400 
Switzerland 1 3.382 
Bangladesh 2 2.957 
Israel 1 2.400 
Brunei Darussalam 1 2.040 
Sri Lanka 1 1.000 
Total 422  15,711.275 
 
*Inclusive of enterprises incorporated in British Virgin Islands, 
Bermuda, and the Cayman Islands.   Actual Foreign Direct Investment 
from the UK proper totaled USD 0.00 through November 2008.