BURMA: 2009 INVESTMENT CLIMATE STATEMENT

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

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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U.S. investors had already withdrawn from Burma due to a hostile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:


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--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

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(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.


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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.

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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

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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
--------------

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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

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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

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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

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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

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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.