KACHIN ETHNIC BUSINESSES: JADE, GOLD, AND LIQUOR

C O N F I D E N T I A L SECTION 01 OF 02 RANGOON 001571

SIPDIS

STATE FOR EAP/BCLTV, EB
COMMERCE FOR ITA JEAN KELLY
TREASURY FOR OASIA JEFF NEIL
CINCPAC FOR FPA

BEIJING PASS CHENGDU

E.O. 12958: DECL: 12/09/2012
TAGS: ECON EMIN PINS BM
SUBJECT: KACHIN ETHNIC BUSINESSES: JADE, GOLD, AND LIQUOR

Classified By: COM CARMEN MARTINEZ FOR REASONS 1.5 (B,D)


1. (C) Summary: Ethnic Kachin cease-fire groups have
benefited significantly from semi-autonomous economic control
of their areas of influence. The commercial arms of these
armies turned political groups are involved in everything
from jade and gold mining to sugar milling and liquor
production. Unfortunately, to date little of this economic
windfall has trickled down to the poor residents of the
cease-fire groups' remote areas of control. However, with
some political changes afoot, this imbalance may start to
change. End summary.

Background


2. (SBU) Two Embassy staff recently visited Myitkyina, the
capital of Kachin State. Kachin State is located in the far
north of Burma, bordered on the east by China and on the
northwest by India. For more than 40 years, the state was
caught up in the turmoil of civil war, with a cease-fire
agreement between the government and the predominate Kachin
Independence Army (KIA) signed only in 1994. On the economic
side, Kachin State is mountainous and very rich in natural
resources, containing the world's only pure jadeite mines as
well as gold, timber, and other mining. Despite these
riches, the people remain very poor and the economy quite
undeveloped. The riches gained from the jade and gold mines
do not trickle down very far, and according to one Kachin
leader in Rangoon, the SPDC has put little or no development
funding into the state since 1994 (though it has granted NGOs
access to the area). Increasing Chinese economic influence
in the state has further intensified local people's concerns
that their state's wealth is being exported.


3. (SBU) Since the cease-fire, the armed groups have begun to
focus on political and economic matters within their zones of
control. The Kachin Independence Organization (KIO; the
political wing of the KIA),and, to a lesser extent, the New
Democratic Army - Kachin State (NDA-K),both have corporate
arms which occupy themselves primarily with earning revenue
from natural resource extraction and some customs collection.
The KIO, through its commercial arm, Bu Ga Co., Ltd, has the
widest economic interests including a sugar mill and a rum
distillery.

A Smorgasbord of Natural Resources...


4. (C) According to Bu Ga, and other Kachin business leaders,
under the terms of the 1994 cease-fire agreement, the KIO and
NDA-K have some autonomy in the development of the natural
resources within their "territories." If the SPDC wants to
offer for bid areas for timbering or mining within the KIO
zone, there has to be an agreement struck between the SPDC,
the KIO, and the investor. The details are unclear of how
these agreements are structured. The lack of such an
agreement can lead to violence. We heard one tale of a KIA
attack several years ago on a Chinese firm that signed an
agreement with the SPDC to mine coal in a KIA-controlled area
without consultation with the Kachin group.


5. (SBU) For plots not put up for bid by the SPDC, the KIO
says it is free to negotiate directly with private firms.
Non-KIO Kachin jade miners and businessmen told us that
dealing with the KIO is often easier than negotiating with
the SPDC because the smaller bureaucracy means fewer bribes.
The sections of the Irrawaddy River that run through KIO
territory can be dredged for gold without government
approval. For portions of the river within SPDC-controlled
territory, mining is only possible in a joint venture with
the corporate front of the Burmese army's powerful Northern
Command.


6. (C) However, according to Kachin sources, neither the
local Kachin-owned jade mining firms, nor Bu Ga, have the
capital to invest in the heavy machinery needed for serious
mining. For that equipment, local firms grudgingly link up
with the military's Union of Myanmar Economic Holdings, Ltd,
with overseas Chinese who are prevented by Burmese law from
directly investing in jade mining, or with companies tied to
Wa, Kokang, and Pa-O ethnic cease-fire groups in Shan State.


7. (C) There are conflicting tales on logging. In theory,
the KIO political leadership asserts, there is a KIO ban on
logging in its cease-fire zone. Only under very special
circumstances, and with the agreement of the government, can
some logging be undertaken. An example of such an exception
is some teak logging that was permitted by the KIO and SPDC
in order to clear land for expansion of the Myitkyina-Bhamo
road. In reality, Bu Ga is still involved in the logging
industry, both buying whole logs from the government for
processing and export, and cutting trees illegally for sale
over the Chinese border. Bu Ga told us the logging in the
KIO regions is constrained more by the depletion of good
trees than by political mandates.

...And A Few Non-Traditional Ventures


8. (SBU) Through a quirk of the cease-fire accord, the KIA
(through Bu Ga) was forced by the SPDC to take over a
decrepit and money-losing sugar mill near Myitkyina. The
mill, circa 1956, suffers from a lack of raw materials (most
local farmers would rather pan for gold than grow sugar
cane),chronic spare part shortages (due to government import
controls),and poor quality control. One way Bu Ga is trying
to make up for these shortcomings is by turning the sugar
cane into rum for sale locally.


9. (SBU) Another good source of income for the KIA is customs
revenue. The KIA, which controls most of the Burma-China
border in Kachin State, maintains good relations with local
Chinese frontier officials. The KIO seems to have the
primary right to collect customs on trade that comes through
the controlled border areas.

Regional Development Misses the Gravy Train


10. (SBU) It is difficult to get a clear picture of whether
the KIA's economic benefits are being transmitted in a
meaningful way to the grassroots level. We did not travel to
the KIA zone, but NGOs in Myitkyina told us that the areas
around the Chinese border are the poorest and least developed
in the State. Likewise, KIO leaders were not able to point
to any concerted effort to turn a portion of the revenue
earned by the KIA and its commercial arm into community and
economic development. The one exception is the Kachin
Baptist Convention, a group closely affiliated with the KIO,
which has been working independently and with other community
and religious groups on health education and community
development projects in some remote villages.


11. (C) Comment: Despite significant economic benefits that
have come the way of the cease-fire groups and their
affiliated businesses, until now, regional economic
development has not been a priority of the Kachin ethnic
leadership. However, there is some optimism that this may
change. The KIO is under new, younger leadership (as of
January 2002),which has dedicated itself to more "openness"
and a better "connection with the masses." KIO leaders also
told us they would like to attract more tourism and foreign
investment in infrastructure in its area. Likewise, the KIO,
the NDA-K, and the smaller Kachin Democratic Army (operating
in northern Shan State) have apparently unified politically
under the Kachin National Consultative Assembly (KNCA). The
KNCA is asserting that two of its primary goals are economic
development and improved education for all Kachin people.
End comment.
Martinez