US embassy cable - 02RANGOON1571

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, Economy, Ethnics 
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