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Part 1 of 4

By Anthony Davis and Bruce Hawke

In the cool, opium-rich hills of Myanmar's northeast, the more things
change the more they seem to stay the same. Back in the early 1970s, Lo
Hsing-han was a celebrated figure in the Asian drug trade. From a
fortified villa in the town of Lasho, the ethnic Chinese warlord ran a
powerful government-backed militia force -- as well  as convoys of opium
from northern Shan state south to heroin refineries along the Thai
border. Across the rugged swathe of the Golden Triangle and as far south
as Bangkok, Lo Hsing han was a name to reckon with.

Twenty-fives years on, it still is. Since his early days as an
opium-running militia boss, Lo has had his ups and downs. He joined the
Shan rebel opposition and turned his turned his guns against the
government; was captured in Thailand and extradited to Myanmar; and then
served time in a Yangon jail. But at 63 he's back again, no less
influential a figure in the tangled skein of business-politics in
northern Myanmar. If anything, he's far more powerful, infinitely more
wealthy, and these days positively respectable politically. From a
gracious home in Myanmar's capital Yangon, Lo runs one of Myanmar's
largest business conglomerates with interests in real estate,
manufacturing, export-import and construction that includes key
infrastructure projects. Serving as an adviser on ethnic affairs to the
military junta's chief. Lt-Gen. Khin Nyunt, his political connections go
straight to the top.

One recent afternoon back in that original villa on a hillside
overlooking Lasho, an expansive Lo held forth on development plans for a
30,375-hectare stretch of hill country north west of the town that is
projected to involve new crops, roads and light industry. "Retired?" he
growled in Mandrain thick with an accent of his native Kokang district.
"I haven't retired! The older I get, the more there seems to do!"

Lo Hsing-han's zest for life and enthusiasm for "agricultural
development"does nothing to reassure foreign anti-narcotics officials
monitoring Myanmar's booming opium crop and the tons of high-quality
heroin refined from it each year. In 1996 the northeastern poppy-belt
produced a potential crop of 2,560 tons of opium sap--compared with a
mere 400 tons when Lo first entered the fray in 1968. And these days the
heroin refineries are no longer only on the Thai border but conveniently
dotted across the hills along the Chinese frontier in the heart of opium
country. "Lo Hsing-han is not the kind of guy you're going to give the
benefit of the doubt to,"says a Yangon-based foreign envoy. "We're very
suspicious of him."

Lo Hsing-han's past and present epitomize much of Myanmar's crisis of
international legitimacy. Many of the shadowy figures long associated
with the drug trade have insinuated themselves into the political and
business fabric of the nation. Heroin production is close to an all-time
high, while narco-profits flood the economy. Given the power and
connections these people wield, Myanmar seems well on its way to
becoming a narco-state -- a country where officialdom, if not directly
involved in trafficking, is certainly providing drug lords tacit
sanction. "Those guys were once beyond the reach of the central
authorities," says an anti-narcotics official. "Now they are right
downtown." A senior Thai drug-suppression official recently expressed
what many have been saying in private -- that a nation with Myanmar's
reputation for drug production should never have been allowed to join


In 1989, the Communist Party of Burma collapsed and set the stage for
Myanmar's insurgents to forsake the hills for the boardrooms of Yangon.
The government's toughest guerrilla foe since the late 1960s, the CPB
splintered along ethnic lines -- Kokang chinese, Wa and Shan -- around
the country's rugged northeastern marches. Desperate to prevent a
link-up between the insurgents and the Burman democratic opposition, the
junta moved swiftly to neutralize the guerrillas.

Enter Lo Hsing-han, who helped junta chief Khin Nyunt reach a swift
ceasefire with the CPB's Kokang Chinese-dominated Nothern Bureau.
Overnight, the Kokang 'Chinese territory, wedged against the China's
border, was transformed into Myanmar's Special Region No.1. Not long
after, the military strongest portion of the CPB, the tribal Wa,
concluded a similar deal, establishing Special Region No. 2 in the Wa
hills to the south. Linking up with another ethnic Wa force on the Thai
border, they set up the 15,000-strong United Wa State Army. In eastern
Shan State, meanwhile, a third CPB component became Special Region No.4
headed by two ex-Red Guards who joined the CPB during China's Cultural

The ceasefire deals soon were extended into agreements with a patchwork
of 12 other ethnic insurgent groups scattered across the north and east.
The agreements stipulated that the insurgents would halt their attacks
on government positions. In exchange they were permitted to keep their
weapons, administer their areas and move into business. It was an
arrangement that suited both sides, particularly the ex-CPB guerrillas
who promptly opened refineries producing NO.4 heroin.  At the same time,
they responded enthusiastically to the government's carte blanche
invitation to participate in the country's newly liberalized but
ramschackle economy.

In 1989, the junta dropped a policy of confiscating bank deposits and
foreign currency of dubious origin. Instead it opted for a "whitening
tax" on questionable repatriated funds levied first at 40% and since
reduced to 25%. Equally significant, in early 1993, de facto
legalization of the black-market exchange rate took place and
narco-runds previously held in Bangkok, Singapore and Hong Kong flooded
back into Myanmar. Construction in Yangon and Mandalay boomed, most
obviously in lavish, international hotels -- most of which now stand
virtually empty. "It's clear it all started with dirty money," says a
diplomat. Equally clear is that "legitimate" businesses in downtown
Yangon also provided ideal conduits for laundering repatriated
narco-funds -- and continue to do so. A retired Myanmar banker reckons
"at least 60% of private business in Yangon is drugs-related."
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POSTMAIL: Dr U Ne Oo, 18 Shannon Place, Adelaide SA 5000, AUSTRALIA
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