BURMESE INVESTMENT CLIMATE STILL HOSTILE

UNCLAS RANGOON 001248

SIPDIS

SENSITIVE

STATE FOR EAP, EB
STATE PASS USTR, OPIC
COMMERCE FOR ITA JEAN KELLY
TREASURY FOR OASIA JEFF NEIL
CINCPAC FOR FPA

E.O. 12958: N/A
TAGS: EINV ETRD BM
SUBJECT: BURMESE INVESTMENT CLIMATE STILL HOSTILE

This cable is Sensitive but Unclassified. Please handle
accordingly.


1. (U) As a companion to the recently submitted Burma
investment climate statement, we want to summarize the key
problems that plague the country. The full text of the
investment climate statement will be posted on the National
Trade Data Bank and is available via email from
wohlauerbv@state.gov.


2. (SBU) New U.S. investment in Burma has been illegal since

1997. Burma is a country blessed with extensive natural
resources, low labor costs, and a great potential for
tourism. It is also an ASEAN member. However, even if
sanctions were removed, an extraordinarily hostile investment
climate would hold U.S. investment -- as it has held all
other investment -- to a very low level. In Burma's FY
2001-02, flows of investment dropped nearly 90 percent from
the previous fiscal year to only $17.46 million for seven
projects.


3. (SBU) Burma's investment laws are relatively liberal, but
their implementation is racked, at all levels, with
corruption. The ruling military junta, the State Peace and
Development Council (SPDC),has promised an "open door'
economic policy and urged foreign firms to invest, but
regularly comes out with punitive and capricious regulations,
which make investment for foreigners difficult if not
possible. The regulations are so vague and so conflicting
that it is almost impossible for an investor to be fully
confident that it is doing business "legally."


4. (SBU) Some lowlights of the past year: (1) an oral
directive forbidding renewal of existing trading permits, or
issuance of new ones, for foreign firms; (2) a increasing
disparity between the official exchange rate (6 kyat to the
dollar) and the market rate (1300 to the dollar and falling);
(3) continuing restrictions on the use of foreign exchange
for imports unless the imports are matched by exports; (4)
government expropriation of a foreign firm without
compensation; and, (5) increasing consumer boycotts in the
United States and Europe on products made in Burma.


5. (SBU) Barring significant practical change, we do not
expect Burma's investment climate to improve. We have not
seen any movement toward reform in recent years and expect
none in the immediate future. In fact, if recent events are
any indication, the situation for investors will most likely
deteriorate in the period immediately ahead.
Martinez