International investment may help open societies and bring democratic change in some countries. In Burma, however, foreign trade and investment helps perpetuate the rule of a repressive, unelected junta. Full foreign ownership of companies operating in Burma is forbidden and almost all large investment in Burma is carried out through joint ventures with the military regime. Much is directed through companies owned and operated by Burma's Ministry of Defense, notably the Union of Myanmar Economic Holdings (UMEH). While very few Burmese benefit from foreign investment, the ruling military junta, the State Peace and Development Council (known from 1988-1997 as the State Law and Order Restoration Council, or SLORC) has imported well over $2 billion in weapons since 1989.

Foreign investment in Burma is opposed by growing consumer boycotts that have convinced U.S. and European companies to quit Burma or to not begin doing business there. U.S. federal sanctions enacted in May 1997 forbid new investment by American companies, and the Asian economic crisis of 1997 slashed investment to the region. Selective purchasing laws passed by New York City, over 20 other municipal and local governments, and the state of Massachusetts punishing companies doing business in Burma also convinced many of them not to invest in the country. However, the Massachusetts law, which penalized Burma-invested companies when competing for state contracts, was found unconstitutional in 2000 by the U.S. Supreme Court, as it was deemed an infringement on the federal government's prerogative to conduct foreign policy. Alternative strategies, including divestment from companies doing business in Burma, are being pursued in Massachusetts and by some city governments. In 2001, strong advocacy efforts to restrict imports of Burmese-made garments into the United States evoked pledges from many leading retailers and designers not to buy from Burma.

Burma was for centuries a crossroads of ancient trade routes between China, India, Tibet, and Southeast Asia. The country's main trade partners are still in Asia: Singapore, China, Thailand, and Japan. Conquered as part of the British Empire in the 1800s, Burma was developed mainly as an agricultural producer and became one of the world's leading rice exporters. Port facilities, railways, and roads were constructed in some areas, and investment focused on mining and other extractive enterprises. At independence in 1948, the country was struggling to recover from immense destruction suffered during World War II as Japanese and Allied forces battled over Burma's strategic routes into China and India. Under a democratic government until 1962, Burma made slow but steady economic progress comparable to that of other developing nations. A 1962 army coup put Burma on a very different course. The military-dominated Burma Socialist Programme Party (BSPP) adopted the "Burmese Way to Socialism," which imposed central planning and rejected foreign capital, as the official state ideology for a quarter century. As its Southeast Asian neighbors experienced explosive growth and foreign investment, Burma became isolated, xenophobic, and increasingly impoverished.

This policy nominally changed after the 1988 democracy movement was crushed. The army massacred thousands of peaceful protesters, and the SLORC took direct power. Burma was almost bankrupt, the victim of 26 years of mismanagement and corruption. Needing a quick influx of hard currency, the junta officially abandoned socialism and sought foreign partners to exploit Burma's natural resources. Logging concessions were sold to Thai interests, and great swaths of Burmese rain forest were felled for fast profits. Permission for nearly unregulated commercial fishing in Burmese waters, with devastating results, was granted for up-front fees paid in hard currency.

The junta quickly realized that forests and fisheries are finite resources, however, and sought other foreign investment. In addition to immediate hard currency earnings that the generals receive in signing and license fees and commissions, foreign investments offer a degree of international respectability to a regime with one of the world's worst human rights records. Further, significant Western investment in itself tends to become a factor in foreign policy formulation. The greater the stakes held by American and European companies, the less likely are their governments to take a strong stand against even a cruelly dictatorial regime.

Official figures show over $10 billion in foreign investment approved since 1988, but less than a fifth of that has likely reached the country through 2000 - mostly in hotels and oilfield exploration. Singaporean firms dominate the former, while the American UNOCAL company, France's TOTAL, and Britain's Premier are most important in the latter. In developing infrastructure for both the tourism and petroleum industries, the junta has extensively used forced labor under extremely harsh conditions. Fees and profits from tapping Burma's natural gas resources go straight to the generals.

Some hotel projects are also in partnership with the army, and others are reportedly run by front companies for major heroin dealers who are collaborating with the generals. Foreign-funded garment manufacturing in Burma is a growing area of investment, causing concern. Burmese pay scales are among the world's lowest, and the junta's repression guarantees a docile labor force. Garment exports have grown dramatically over the past few years and are a major source of foreign exchange for the junta.

Foreign investment in Burma is small compared to that reaching neighboring countries. Investing in Burma is economically uncertain and politically contentious. A genuine free market does not yet exist. The regime still dictates many prices, wages, and exchange rates. The military is a major partner in most joint ventures, and individuals with strong connections to drug traffickers are prominent in others. There is little credibility in administrative or legal structures, and corruption is rampant.

Further, a strong international grass roots movement of consumers, students, and corporate shareholders is striving to convince businesses to keep out of Burma. Already many companies, including PepsiCo, Heineken, Carlsberg, Macy's (Federated Department Stores), Levi's, Reebok, Eddie Bauer, and others have pulled out of Burma or decided not to invest there because of consumer pressure. Others, like Apple, Motorola, and Kodak, have quit Burma in the face of selective purchasing laws that inhibit local governments from awarding contracts for goods, services, or construction to companies doing business in Burma. Democracy leader Daw Aung San Suu Kyi backs such sanctions. She argues that foreign investment today benefits just a handful of Burmese. She says also that lack of structural adjustments and rule of law means investors cannot move with confidence into this promising market. Even for businesspeople eschewing politics, this could prove a strong deterrent against early involvement in Burma's still-tenuous economic revival.

Burma: Country in Crisis was prepared by Open Society Institute's Burma project

Content:

• Executive summary

• Introduction

• Brief history

• Human Rights

• Heroin & Drug Trade

• Burma & Asian Security

• Refugees

• Women

• Environment

• Economy

• Foreign Trade & Investment

• Tourism

• Health and Education

• Frequently Asked Questions

Republished with permission from Open Society Institute