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Far Eastern Economic Review
Issue cover-dated November 2, 2000 BURMA - Mandalay Migraine The Rangoon junta's seizure of a joint-venture brewery could test Asean's resolve and its ability to protect foreign investors -------------------------------------------------------------------------------- By Shawn W. Crispin/BANGKOK and Bertil Lintner/CHIANG MAI -------------------------------------------------------------------------------- SINGAPORE BUSINESSWOMAN Win Win Nu has spent the past two years vainly
battling in Burma's courts over the government's seizure of her investment in a
thriving joint-venture enterprise in her former homeland.
Her calls for help to the Association of Southeast Asian Nations, or Asean,
have been met with silence. How her case is resolved, if at all, will speak
volumes about Asean's ability to protect foreign investment in the region
through its untested dispute-settlement mechanism.
The case, if taken up by Asean, could also serve as a test of Burma's
commitment to the organization. Burma first saw Asean as a ticket to
participation in the region's economic growth of the mid-1990s. Since then,
however, it has come to regard membership as a liability because it helps to put
the ruling military's repressive policies under the spotlight.
Win Win Nu's case is a compelling one. When Burma opened its doors to
foreign investment in the early 1990s, she spotted a good business opportunity.
Helped by influential contacts in the ruling State Peace and Development
Council, including intelligence chief Lt.-Gen. Khin Nyunt, Win Win Nu forged a
joint venture between her Singapore-based company, Yaung Chi Oo Trading, and the
government's Ministry of Industry No. 1 in 1993 to bring the bankrupt Mandalay
Brewery bubbling back to life.
Win Win Nu, who took a 45% stake in the venture, was in charge of
operations and marketing while the ministry handled the books. Profits would be
shared.
The fresh infusion of modern management, technology and capital worked
wonders. In six months, output increased 10-fold, salaries leapt 20-fold and
cash flows soared. Mandalay Beer became a recognized brand name after the
brewery opened more than 40 pubs nationwide. The company also became one of the
country's largest domestic taxpayers.
Burma's experiment in opening to foreign investment was paying off
handsomely, stimulating local economic activity while generating revenues for
the depleted state coffers.
But the joint venture came to an abrupt halt on November 11, 1998, when
armed soldiers and police seized the brewery on the orders of SPDC Chairman Gen.
Than Shwe. Win Win Nu says her local bank accounts were frozen and claims she
was threatened with arrest for misappropriating funds, which she denies. She
fled the country as the junta took over operation of the brewery just three
months after the final payment of her pledged $6.3 million initial
investment.
"Because we were so successful, the brewery became an easy target for
greedy soldiers and bureaucrats," Win Win Nu says. "We fell on the wrong side of
the power struggle and as a result lost our business. Unfortunately in Burma
that's what matters--political connections, not law."
Burmese law explicitly bars nationalization of foreign investments. But
after fighting her case unsuccessfully through the local courts for 18 months,
Win Win Nu was forced to liquidate her share in the company.
Court papers indicate she was facing an uphill battle by going through
Burma's murky legal system. The first team of liquidators was not even led by a
lawyer but by local tycoon Steven Law, whose family runs Burma's largest
privately owned business group. The junta most probably enlisted the services of
the Laws because of their perceived business acumen, a rare commodity in
military circles in Burma.
Win Win Nu is now lobbying to have her case put before Asean's untested
dispute-settlement mechanism on the grounds that Burma's seizure of Mandalay
Brewery directly violates the commitments to protect foreign investment that it
entered into upon joining Asean in 1997.
Asean Secretariat officials in Jakarta say they would be charting new
territory if they took on the case. So far, the regional body, which has shown
consistent impotency in mediating regional disputes on both political and
economic fronts, has failed to respond to appeals for arbitration sent by Win
Win Nu's Singapore lawyers. An Asean official claims the complaint was not filed
through the "proper channels."
Under normal circumstances, the businesswoman should have grounds for
confidence, judging by the results of an independent report into her case
commissioned by the government's Myanmar Investment Commission and released in
June last year. Local PricewaterhouseCoopers representative U Hla Tun found the
takeover was conducted "without legal sanction" and that the charges of
misappropriation of funds against Win Win Nu were unsubstantiated, according to
a copy of the confidential report seen by the REVIEW. The investigation also
warned that the takeover could "tarnish the 'open market economy' policy
declared and prescribed by the government of the Union of Myanmar."
While Win Win Nu seems to be the first foreign investor to have been
targeted for de facto nationalization, Burma's reputation as an attractive
destination for foreign investment had already started turning sour. Ever since
the mini-boom of the mid-1990s, red tape, bureaucratic hassle and enduring
worries of political instability have slowed foreign investment to a trickle.
Now, the SPDC's apparent unwillingness to abide by both its own and
international laws protecting foreign investment could further dampen potential
investors' spirits.
"Although the policies on the books are unchanged, the SPDC attitude
towards small-scale foreign investment has changed 180 degrees since the
crisis," says a Bangkok-based lawyer who has clients with investments in
Burma.
CLOSING DOOR
The takeover of Mandalay Brewery gives more ammunition to those who argue
that the junta is moving away from its flirtation with economic openness, a
position Khin Nyunt once trumpeted, to the chagrin of army commander Gen. Maung
Aye. When the local currency, the kyat, plunged during the Asian Crisis, the
Maung Aye group seemed to prevail with their argument that too much openness,
too fast, was a threat.
Until now, many looked at SPDC leader Than Shwe as the moderating force
that kept these two power bases from breaking into factions. But Than Shwe's
order to seize Mandalay Brewery may signal that the ailing chairman will give
his blessing to Maung Aye regarding economic openness.
Win Win Nu says Than Shwe ignored numerous warnings from Khin Nyunt's
office about the negative international fallout that nationalizing the brewery
might incur. (Burma's Investment Commission, the Ministry of Economic Planning
and Economic Development and Than Shwe's office didn't reply to faxes and phone
calls from the REVIEW.)
Meanwhile, Asean's reputation and overall viability have continued to sag.
Investment in the region has almost ground to a halt since the crisis,
particularly in Burma. Asean has worked to restore investors' confidence in the
region by sending promotion missions to the United States, Japan and Europe in
recent months, while also pushing to enhance the transparency of member nations'
investment regimes.
So far, though, that has been a hard sell against the political
uncertainties in Indonesia, the Philippines and even Thailand. And without a
firm response to the junta's takeover of Mandalay Brewery, that sell could
become even harder as perceptions grow that investment protection codes are only
so much unenforceable parchment.
But perhaps one clear lesson from the Mandalay Brewery case is the
pervasive influence of nepotistic policies and an arbitrary legal system on the
success or failure of any foreign business in Burma.
"If rules and regulations are not enforced for the layman, that is bad for
Asean, bad for me, bad for everyone," says Win Win Nu.
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