US embassy cable - 05RANGOON333

C O N F I D E N T I A L SECTION 01 OF 02 RANGOON 000333 
 
SIPDIS 
 
STATE FOR EAP/BCLTV, EB 
COMMERCE FOR ITA JEAN KELLY 
TREASURY FOR OASIA 
USPACOM FOR FPA 
 
E.O. 12958: DECL: 03/16/2015 
TAGS: ETRD, ECON, PGOV, BM, Economy 
SUBJECT: MANDALAY: SERVING BURMA'S COMMERCIAL NEEDS FROM 
TAUNGOO TO TAMU 
 
REF: A. RANGOON 321 
 
     B. RANGOON 316 
     C. RANGOON 58 
 
Classified By: COM CARMEN MARTINEZ FOR REASONS 1.4 (B,D) 
 
1. (C) Summary: Mandalay's status as a commercial hub has not 
saved it from the economic malaise gripping all of Burma. 
The usual culprits are to blame -- government mismanagement 
of the economy, a moribund banking system, and low consumer 
purchasing power -- and no fix is in sight.  The hangover of 
Khin Nyunt's ouster is chilling the desire for new 
investment, though border trade with China is rebounding. 
Despite the economic importance of Mandalay, and its 
expanding IT and transport infrastructure, locals complain 
that non-Chinese foreigners rarely look their way for any 
investment or capacity building.  There is a clear 
opportunity for the USG to fill the near vacuum and help 
develop Mandalay's independent civil society.  However, given 
existing pressures on the democratic opposition in Mandalay, 
the best chance to do so may be through the independent 
business community, which could be a source of internal 
pressure on the regime for economic, rule of law, and other 
democratic reforms.  End summary. 
 
Mandalay: Listless Commercial Hub 
 
2. (SBU) Discussions with businesspeople during Embassy 
Rangoon's "American Days in Mandalay" trip, March 8-10 (ref 
A), revealed discontent with the state of the economy. 
Despite Mandalay's position as the hub of Chinese border 
trade and its economic dominance over central and northern 
Burma there were few optimists among the businesspeople we 
met. 
 
3. (C) Mandalay-based traders, IT executives, and shopowners 
complained that the economic situation had declined notably 
in the last couple of years.  Like their colleagues in 
Rangoon, these businesspeople blamed the long malaise, in 
particular, on the lack of a proper banking system, overly 
tight import/export regulations, poor purchasing power of 
most consumers, and rampant corruption.  None volunteered 
U.S. economic sanctions as a particular barrier to business. 
There was not much optimism among traders and retailers that 
things would improve unless there were a major change of 
heart, or change of personality, at the very top of the SPDC. 
 
4. (C) Another common thread, also regularly mentioned in 
talks with Rangoon businesspeople, is the near paralysis of 
new investment since Prime Minister Khin Nyunt was ousted in 
October 2004.  Khin Nyunt's military intelligence (MI) 
apparatus had long played a major "facilitation" role in most 
sectors of the domestic private economy.  Four months after 
Khin Nyunt's and MI's removal, however, no agency or 
individual has yet stepped in to take over this crucial role. 
 The result is a freeze on most new business activity as 
private investors, already starved for investment capital 
with Burma's ongoing banking problems (ref C), await a clear 
sign from the top of who is "in charge."  Without that sign, 
no one dares choose a senior GOB or military patron who might 
subsequently get arrested or toppled from grace -- along with 
his business associates. 
 
Border Trade is Reviving, But Barriers Remain 
 
5. (C) One comparative bright spot in the Mandalay scene is 
border trade.  Though the volume of goods coming from China, 
particularly luxury consumer items, is down, traders blame 
poor purchasing power and domestic economic conditions more 
than any restrictions on the trade itself.  MI had controlled 
border trade through its "Border Supervisory Committee" or 
"NaSaKa," and there was a considerable downturn in border 
commerce in the months following NaSaKa's October 2004 fall. 
It has picked up again, though, since the January formation 
of a new joint Customs-Army border trade agency (the "Border 
Trade Supervisory Body" or "NaKaTha").  Smuggling remains a 
bit difficult, however, since NaKaTha agents are reportedly 
gun-shy to accept large bribes to allow major shipments of 
illegally imported goods to pass down the Muse-Mandalay 
highway.  The SPDC is currently prosecuting former NaSaKa and 
other MI officers on corruption charges.  Nonetheless, 
Mandalay traders report, it is still no problem to bring 
small shipments of illegal goods into the country and larger 
shipments if they come off-road. 
 
Comment: Tired of Getting Crumbs 
 
6. (C) We heard loud and clear from Mandalay businesspeople, 
particularly from the IT sector, frustration that the city is 
being ignored by non-Chinese foreigners, whose focus lingers 
on Rangoon.  Despite Mandalay's nearly pan-Burma economic 
importance, and its clear economic strengths -- a huge, 
modern, and almost totally unused international airport (a 
few flights a week to Chiang Mai), access to broadband 
Internet, a better cell phone network than Rangoon, and good 
road connections to China -- brain drain from Mandalay to 
Rangoon continues.  Local businesspeople are hungry for 
foreign, and particularly American, attention -- especially 
English language and economic outreach programs.  There is a 
clear opportunity for the USG to fill the near vacuum and 
help develop Mandalay's independent civil society.  However, 
given existing pressures on the democratic opposition in 
Mandalay (refs A and B), the best chance to do so may be 
through the independent business community, which could be a 
source of internal pressure on the regime for economic, rule 
of law, and other democratic reforms.  End comment. 
Martinez