BURMA:SANCTIONS BITE HARDER

[moe@xxxxxxxxxxxxx]

Dear Friends and Associates,
                                                         The following
article is from today's Financial Times.

Sincerely,

Julien Moe
-------------------
Tuesday May 5, 1998
BURMA: Sanctions bite harder
The US investment ban is hitting the country's economy, but is failing to
soften the government's stance, writes Ted Bardacke
To the north of Rangoon lies a sprawling new industrial estate where you
can, in the words of the developer who has installed $12m worth of
infrastructure, "just plug your factory in".


But few companies have made the connection since the park opened for
business last year. By the time it was completed the year-old US ban on new
investments by US companies in Burma was in force. Just one small Japanese
factory is making monosodium glutamate, while two other plots have been sold
to Fujitsu to assemble computers and to a Hong Kong company to make
raincoats for export to Europe.


The coincidence of US sanctions over human rights and lack of activity at
Mingalardon Industrial Park is not lost on Khin Shwe, managing director of
Zaykabar, which is developing the site with Mitsui of Japan and the Burmese
military junta. He recently hired Jackson Bain, the Washington lobbyist, to
improve Burma's image with a view to changing the US policy.


The sanctions, combined with the Asian economic turbulence, are clearly
hurting the Burmese economy. The annual inflation rate is almost 50 per
cent. Foreign investment and tourist arrivals have slowed to a trickle. The
regime has so few foreign reserves - reliable estimates say just over $100m
- that it recently banned most imports and stopped accepting investment
proposals from potential exporters which would use a lot of imported raw
materials.


European investors, except oil companies, have generally been scared off by
the political risk associated with sanctions.


Asian investors who were expected, in the aftermath of Burma's admission to
the Association of South-east Asian Nations (Asean), to provide foreign
capital simply do not have the cash to replace US companies.


But sanctions are not just supposed to hurt the economy. They are also
supposed to encourage, or force, Burma's ruling generals to engage in
serious political reform, start a dialogue with opposition leader Aung San
Suu Kyi and clean up their human rights record.


But many US State Department officials doubt the worth of sanctions, and the
department is reviewing their effectiveness.


In the year sanctions have been in effect, Burmese politics have taken a
turn for the worse. Scores of supporters of Ms Suu Kyi's National League for
Democracy (NLD) have been arrested on petty charges and sentenced to long
prison terms.


Alvaro de Soto, UN special envoy, "made no headway whatsoever" with the
junta during a January visit, according to diplomats.


"He was told politics were purely an internal and domestic matter with no
role for the UN," says one diplomat, noting that senior military leaders
rejected the offer by Kofi Annan, UN secretary general, to act as a bridge
for the junta to international institutions provided certain concerns were
addressed.


Last September the junta ousted a number of its own members on corruption
charges and changed its name from the State Law and Order Restoration
Council (Slorc) to the State Peace and Development Council (SPDC), which is
dominated by local army commanders.


The national convention to draw up a new constitution has not met in more
than two years. The last formal contact between the junta and the NLD was
last November. Opponents of sanctions, including some within the regime who
consider them a minor economic problem, argue that the measures have created
a siege mentality which has caused the junta to dig in harder.


The NLD does not have a strategy to topple the regime through a popular
uprising. Instead, Ms Suu Kyi and the NLD argue that because the private
sector elite and their military allies are those most affected by the slump
in foreign investment, economic hardship could result in internal
disintegration, eventual dialogue and political opening. Many thought this
was the case when the Slorc transformed itself into the SPDC. Early
indications are that they were mistaken.


"When they got rid of the corrupt guys that created the potential for
dissension within the institution," says a western diplomat. "But there have
been few overt indications of problems. They appear to have consolidated it
well."


Some former members of the NLD now argue that the democracy movement should
rethink its position on sanctions.


But Ms Suu Kyi will have none of that. "There is little evidence either that
foreign contacts have led to a more liberal attitude on the part of the
authorities or that the juicy fruits of foreign investment are enjoyed by
many outside the small elite who see the concepts of liberty, justice and
equality as a threat to their privileged status," she said recently.


With the US and European lobbies for democratic change in Burma taking their
cue directly from Ms Suu Kyi, the international pressure on the junta is
unlikely to ease. But as a NLD member says: "The regime hasn't responded
yet, but they are nearer to the point where they will be forced to respond."