BURMA SANCTIONS HITTING THE REGIME WHERE IT HURTS

C O N F I D E N T I A L SECTION 01 OF 02 RANGOON 001076

SIPDIS

SIPDIS

STATE FOR EAP/MLS;
PACOM FOR FPA
TREASURY FOR OASIA:SCHUN

E.O. 12958: DECL: 10/31/2017
TAGS: ECON FIN PGOV PREL BM
SUBJECT: BURMA SANCTIONS HITTING THE REGIME WHERE IT HURTS

REF: A. RANGOON 1048

B. RANGOON 1050

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Classified By: Economic Officer Samantha A. Carl-Yoder for Reasons 1.4
(b and d)


1. (C) Summary. The Burmese regime, concerned about the
latest U.S. economic sanctions, called several key
businessmen to Nai Pyi Taw, including Tay Za and Steven Law,
to discuss how best to deal with the sanctions. According to
business contacts, the senior generals, unhappy with Tay Za
for "flaunting his money," have begun to cut off several of
his business deals. Tay Za's airline, Air Bagan, is also
hurting: last week the company announced that its Singapore
banks severed financial ties because of U.S. sanctions. The
government, which is out of money and has halted remaining
FY07 infrastructure projects, has also informed the
construction companies that built Nay Pyi Taw that it will
pay outstanding bills in kind with import licenses and duty
waivers. Several prominent businessmen expressed concern
that the GOB, in an effort to raise money, will start to
audit companies' financial statements and demand more in
taxes. End Summary.

Regime Warning Businessmen
--------------


2. (C) Anwar Hussain (PROTECT),a prominent businessmen and
member of the Tuesday Breakfast Club (a group of businessmen
who meet regularly to discuss business in Burma) informed us
on October 31 that the regime has noticed the latest round of
U.S. sanctions and fears that more of its crony friends will
be targeted. In the past week, the senior generals have
called up and met with several prominent businessmen,
including Tay Za, owner of Htoo Trading and Air Bagan; Steven
Law, owner of Asia World; Chit Khaing, owner of Eden Group;
and Zaw Zaw, owner of Max Myanmar, to discuss how to deal
with the sanctions. The senior generals warned the cronies
to "watch out" for the next round of U.S. sanctions, and
hinted that they should move their money to secure locations.
They also cautioned that the businessmen should do more to
hide their economic relationship with the government.
Hussain, who spoke to several of the cronies after the trip,
reported that the senior generals were concerned about the
newest sanctions and the potential consequences for the
personal bank accounts of government officials and cronies.

Shame in Flaunting Wealth
--------------


3. (C) On October 25, Htet Tay Za, Tay Za's son, allegedly
sent an email mocking U.S. sanctions. "We're sitting on the
whole Burmese GDP," he allegedly wrote. Most of our Burmese
contacts believe the email to be a hoax, although Tay Za's
son does maintain a Facebook page with pictures of him
sitting in his Ferraris with semi-automatic weapons.
Nevertheless, the senior generals called Tay Za to Nay Pyi
Taw on October 26 to read him the riot act, demanding that he
and his family stop "flaunting their wealth."

Tay Za's Companies Financially Hurting
--------------


4. (C) Tay Za and his companies were hit hardest by the
sanctions, something that did not go unnoticed at the top
levels, Hussain asserted. During a meeting with Air Bagan
last week, top company officials pleaded for Embassy
assistance in removing the company from the sanctions list to
no avail (Ref A). The next day, Air Bagan released a press
statement detailing the impact of sanctions: the company's
Singapore bank partners cut ties, Air Bagan can no longer

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purchase spare parts, and that it will halt flights to
Singapore beginning November 4. The General Manager of Qatar
Airways told us that since sanctions were imposed on October
19, Air Bagan has lost an estimated $400,000 a day, due to
low ticket sales and high costs of plane leases and airport
rental space. On October 22, the Singapore Aviation
Authority informed Air Bagan that it would no longer provide
the airline with credit, and requested that the company pay
its outstanding bill for parking and landing fees. The same
day, Air Bagan announced plans to sell two of its planes.


5. (C) Hussain confirmed that Tay Za's other companies -
Htoo Trading, Htoo Wood Products, and Pavo Trading - have
also been affected. Htoo Trading, the only company the GOB
permits to export rice, just lost its contract to a
competitor for the sale of 20,000 metric tons over the next
three months. Htoo Wood Products, which has a contract with
an Indian company, has an estimated $1 billion in timber
ready for export. The Indian company, aware that Tay Za's
companies are facing financial hardships and greater scrutiny
on the world market, refused to abide by its contract and
offered to pay 90 percent less than the contract price.
Hussain explained that Tay Za, unwilling to sell the timber
at such a low price, was looking for another buyer.

GOB Strapped for Cash
--------------


6. (C) Hussain confirmed reports that the GOB lacked the
funds to pay for the remaining FY07 infrastructure projects
(Ref B). (Note: Burma's fiscal year is from April 1-March
31.) Several construction companies that built Nay Pyi Taw,
including Asia World and Eden Group, have yet to receive
payment for their work. The GOB recently told the companies
that instead of paying the outstanding bills, it would pay
the companies in kind, with import permits and duty waivers
for new cars. Even Steven Law, a government favorite, has
not received payment since April, Hussain explained. Several
prominent businessmen have expressed fear that the GOB, in an
effort to raise money, will begin to scrutinize closely
companies' financial records and demand more in taxes. Many
companies, including Htoo Trading and Asia World, make more
money than they report to the GOB. These companies have the
most to lose, Hussain commented.

Comment
--------------


7. (C) The Burmese Government is clearly facing a cash
crunch, shown by its inability to pay even is favorites. The
latest sanctions have successfully put additional pressure on
both the senior generals and their favored businessmen,
making it difficult for them to do business outside of Burma.
The lack of cash will have ripple effects as businessmen try
to protect their remaining assets and the senior generals
have nothing to buy the loyalty of their subordinates.

VILLAROSA