Near the old colonial waterfront in downtown Yangon, Myanmar's capital, groups of squatters dwell on a patch of ragged weeds. In a city famed for its golden pagodas, they build crumbling temporary shelters, beg for kyat (the nearly worthless local currency), and try to avoid police and army soldiers. Across town, another group of ramshackle buildings, belonging to the Department of Atomic Energy, draws considerably more interest from the troops, who maintain a quiet but powerful presence throughout this military-ruled country. Although Yangon can barely maintain its crumbling electricity grid, and the ruling junta spends minuscule amounts on social services for the Texas-sized Southeast Asian country's 42 million citizens, the department is drawing up plans to build a nuclear reactor with Russian help. Russia also is selling Myanmar MIG-29 fighter jets, which will cost the Myanmar regime a total of $130 million—cash that may come from money laundering linked to the extensive narcotics production that the government tolerates.

Such scenes reveal the difficulty of formulating policy toward the complex country formerly known as Burma (the current regime renamed the country in 1989). Myanmar has been an international pariah since 1988, when the United States first censured its government for brutally suppressing pro-democracy street protests. To some, Myanmar's burgeoning economic disaster—the squatters actually are not Yangon's most destitute citizens—and its looming HIVffiaids crisis necessitate increasing aid, even though state mismanagement, more than sanctions, has hindered development. This engagement-oriented view has gained traction among some aid workers, Myanmar citizens, and foreign policy experts in recent months. It has gathered special impetus since the military government and the pro-democracy opposition, led by Nobel laureate Aung San Suu Kyi, have initiated secret talks that might include a discussion between Suu Kyi and the regime about the feasibility of attracting more aid to Myanmar.

For other Myanmar experts, including many representatives of human rights groups, a junta that showers money on arms purchases and dubious nuclear programs while the economy rots, profits from money laundering linked to narcotics, commits monstrous human rights abuses, and breaks its promises to Suu Kyi is incapable of change. Thus, they reason, American sanctions on new investments in Myanmar, as well as less formal U.S., Japanese, and European limits on aid, should remain intact until a change of regime in Yangon appears imminent.

Although politics in Myanmar and international debate about the country have long been stalemated, the United States can foster some limited compromise between these two viewpoints without significantly boosting the legitimacy of the junta, known as the State Peace and Development Council (SPDC). The international community desperately needs a coherent Myanmar policy, before the country's economic collapse and soaring HIV rates combine to produce the worst aids epidemic in Asia. Moreover, although Myanmar is not vital to U.S. interests, its roles as one of the world's largest drug producers, the epicenter of HIV in Southeast Asia, and a source of significant regional instability make it deserving of attention. For more than a decade, Washington has followed a "closed fist" policy toward Yangon, deploying sanctions as the SPDC has refused to conform to international norms. Other foreign states, meanwhile, have adopted diverse policies ranging from the "smart sanctions" approach of the European Union to Malaysia's pro-engagement strategy.

Now the opportunity may exist for the United States and its allies, recognizing that any political change must come from the people of Myanmar themselves, to adopt a unified "two hands" policy that could provide the external framework for reform inside Myanmar. In this coordinated policy, which could serve as a template for dealing with other repressive regimes operating in decimated societies, the key foreign states would have one hand slightly open—and the other tightly gripped around an instrument of leverage. On the one hand, the United States, the EU, and Japan would authorize a limited increase in funding to international aid organizations in Myanmar, although not to groups working on narcotics control. Spending money on counternarcotics is likely to be useless, since many members of Myanmar's military are so dependent on money linked to drug traffickers that the SPDC will never allow foreign officials unfettered access to drug-producing areas. The foreign states also would emphasize that they do not at this time support increasing trade with Myanmar, that assistance is given not as a reward for the regime's actions but in response to socioeconomic crisis, and that Suu Kyi's party should help oversee aid disbursement. With the other hand, Washington would apply pressure on Yangon to help ensure that the SPDC meets tough criteria, that political dialogue in the country includes all important actors, and that the international community retains its stick: the threat of banning all exports from Myanmar.


Myanmar's stalemate is not new. Since the end of World War II, the country has enjoyed precious few periods of peace. In 1947, thugs assassinated Aung San, founder of the country's independence movement. After this inauspicious start, Burma, as the country was then known, gained independence from the United Kingdom in 1948. A series of civil wars erupted between the central government, dominated by ethnic Burmans, who make up nearly 70 percent of the population, and ethnic minority militias, mostly located in the eastern half of the country. Still, Burma built a fragile democracy and a developing economy based on its abundant natural resources and educated merchant class. Indeed, in the 1950s Bangkok socialites would fly to Rangoon (as Yangon was called at the time) to purchase luxury items. During that same era, the World Bank published a report that argued that Burma was destined to become prosperous. As recently as 2000, an SPDC spokesperson cited this document as proof of Myanmar's promise, apparently untroubled by the fact that the pre-junta era of the report had been the high point of the country's fortunes.

Burma's democracy was shattered in 1962 when Ne Win, the cunning and superstitious commander of the armed forces, took power in a coup. He embarked on an ill-fated push toward socialist totalitarianism in which the army became the center of society. Under Ne Win, the military became convinced that foreigners were trying to destroy Burma, a view that persists to this day and shapes the government's external relations. Ultimately, Ne Win's "Burmese way to socialism" bankrupted the economy and stifled political development. By 1987, Burma had fallen into the ranks of the world's least-developed nations, and its black market had grown to enormous proportions.

But in 1987, the Burmese revolted when Ne Win declared all high-denomination bank notes worthless (he believed shock therapy would neutralize the black market, and he may also have been following the advice of his astrologer). A series of protests developed into demands for political liberalization, and as the number of demonstrators grew, the military fired on protesters, killing as many as 3,000. After the initial bloodshed, demonstrators coalesced around Aung San Suu Kyi, the charismatic daughter of Aung San. Suu Kyi made a series of speeches around the country that drew thousands of admirers who came to hear her call for a democratic Burma. But when Ne Win retired in the summer of 1988, a different military government was formed that declared martial law, renamed the country, and, in July 1989, placed Suu Kyi under house arrest. The junta, which contained many of Ne Win's old aides, promised liberalization and did hold parliamentary elections in 1990. The party Suu Kyi had formed, the National League for Democracy (NLD), won 392 of the 485 seats even with its leader confined to her home. But the regime annulled the poll results and refused to release the democracy activist, who had become probably the most beloved figure in the country.

After the canceled election, the regime tightened its control over society. The junta arrested thousands of NLD members. Suu Kyi was released from house arrest "unconditionally" in 1995 and then re-arrested in 2000 after trying to travel outside Yangon to meet NLD workers. The junta tripled the size of the armed forces between 1988 and 2000 (Myanmar now possesses the second-largest army in Southeast Asia), and the campaigns it launched against ethnic militias often included arbitrary executions and forced labor. Ultimately, some ethnic militias signed cease-fire deals, although the regime refused to allow a truly federal state, and the army continued its policy of depopulation in some ethnic minority areas. The SPDC also formulated a make-drugs-not-war policy that allowed several minority groups that signed cease-fires to produce opium and methamphetamines for a share in the profits. By 2000, there were at least 600,000 displaced people in eastern Myanmar, and the government was spending at least five times as much on weapons as on health and education together.

Yet throughout the decade, Suu Kyi continued to rally her beleaguered party. The democracy leader held covert planning sessions, gave impromptu talks to Yangon residents, and called for sanctions on Myanmar, on the theory that investment and some aid wound up in the pockets of the regime and made it less willing to accept political change. In the process, Aung San's daughter became a confident, media-savvy politician, and her actions won the NLD global support: Suu Kyi was awarded the Nobel Peace Prize in 1991.

Although the United States cut off direct financial assistance and blocked much multinational aid to Myanmar after the 1988 bloodshed and barred all future investment in Myanmar in 1997, some Asian companies flocked to Yangon when the SPDC loosened business regulations in the early 1990s. Few made a profit, since the junta fostered an arbitrary business climate in which the government shut down companies that challenged the armed forces' corporation, the Union of Myanmar Economic Holdings. Poor electronic infrastructure did not help; although the state media boasted in 2001 that a new information-technology park in Yangon would rival Silicon Valley, few foreign entrepreneurs were drawn to the complex, since the SPDC prohibited citizens from using the Internet. In the late 1990s, many companies pulled out of Myanmar, leaving primarily Singaporean and Chinese firms in Yangon.


In the past two years, some signs of political movement have emerged. Since autumn 2000, the SPDC and the NLD have been engaged in a secret confidence-building dialogue that many in Myanmar hope will develop into a discussion on political change.

Politics inside Myanmar is always murky, but several factors probably prompted this detente. At the highest levels, the junta's leaders may have become more willing to talk to Suu Kyi out of confidence that a decade of repressing the NLD had diminished the party's allure. Economic pressures may also have played a role. By late 2000, Myanmar's economy was in worse shape than on previous occasions when the junta had abandoned talks with the NLD. The new UN envoy to Myanmar, Razali Ismail, appointed in 2000, helped persuade the regime that only by breaking the political deadlock could it obtain any international legitimacy and rebuild the economy. Ismail's hand was strengthened by U.S. threats to tighten sanctions, the pullout of many foreign businesses from Myanmar, and Asian countries' increasing concerns about the SPDC's economic mismanagement.

As lines of communication between the adversaries have slowly been opened, the junta has freed hundreds of unjustly incarcerated NLD members. The SPDC also has allowed the International Labor Organization (ILO) to install a liaison officer in Yangon and, in May 2002, released Suu Kyi from house arrest.

After leaving her home, the NLD leader demonstrated that she had not lost her rapport with the public, although many people were unaware she had been freed. The junta announced Suu Kyi's release to the foreign media through a Washington public-relations firm, but in Myanmar, the most isolated country in the world save North Korea, most of the government-controlled news outlets ignored their biggest story in years. Nonetheless, thousands of ordinary Yangon residents who had heard rumors of the release crowded near the NLD leader's home to get a glimpse of her. Some were so excited that they ran up and down the road outside her house, occasionally bowling over foreign television reporters.


Yet although the NLD and the SPDC are finally meeting, the junta's graft and fiscal mismanagement and the pullout of foreign businesses have combined to create what many in Myanmar are calling the worst economic period in the country's history. The black-market value of the kyat has plummeted from roughly 300 to the U.S. dollar three years ago to nearly 1,000 to the dollar. Long lines form every morning in Yangon, as people wait for hours outside shops selling subsidized staples. Even the normally gleaming Orwellian propaganda signs omnipresent in Myanmar warning the population to "crush all those harming the country" have fallen into disrepair.

This economic collapse has had severe consequences for Myanmar society. In mid-2001, the Yangon representatives of several international aid agencies cautioned that Myanmar was on the brink of a humanitarian crisis. Indeed, today roughly 40 percent of the country's children are moderately malnourished; the streets of Yangon are crowded with emaciated urchins. Rising drug use, poverty, lack of education about safer sex, increasing internal migration, and the xenophobic junta's willful denial of any health problems have fueled an HIV epidemic. (Yangon officials have told foreign journalists that the country has no serious health problems and that "even the fish die of old age in Myanmar.") The UN has reported that as many as 1 in 50 Myanmar citizens are infected with HIV, and the situation is likely to become much worse. The International Crisis Group says that Myanmar is now at a "tipping point ... at which the critical mass of [HIV] infection becomes so great that the epidemic is self-sustaining in the general population, even if risk behavior in subpopulations with the highest risk ... is significantly reduced."

Currently, virtually none of the HIV sufferers in Myanmar can expect to receive any care at all. The dearth of state spending on health care and the paucity of foreign assistance—Myanmar receives roughly $1 per person per year in aid, compared to more than $65 per person in neighboring Laos—have led the World Health Organization to rate Myanmar's health system as the second-worst in the world. Many public hospitals lack even bandages, while the armed forces operate a separate health-care system for themselves that contains the finest hospitals in the country.

As Myanmar's economy has plummeted, the SPDC has become more dependent on money laundering linked to the drug trade, infuriating Thailand, India, and other Asian states that suffer the ramifications of their neighbor's collapse. In recent months, the regime reportedly has allowed the United Wa State Army (UWSA), a 20,000-strong ethnic militia that now operates virtually unfettered in northeastern Myanmar, to expand its methamphetamine production; it is now the largest armed narcotrafficking organization in the world. This year Myanmar probably will be the world's biggest producer of opium.

The majority of Myanmar's illicit products are shipped to Thailand, China, and the United States: in one study, 60 percent of the heroin on the streets of New York City was found to have originated in Myanmar. Thailand already has more than one million illegal drug users, and as more drugs flow across the Thai border, the number of addicts probably will rise. Thailand, China, and India also are worried that economic collapse in Myanmar will contribute to increased cross-border refugee flows and arms trafficking.

And then there is the reactor: Myanmar's neighbors have expressed grave concerns about the SPDC's plans to build the nuclear plant. Although junta leaders have said the reactor will be used only for research purposes, some policymakers worry that a plant producing fissile material might be used as a bargaining chip with foreign countries, a blackmail tactic North Korea has used in the past.


For some aid workers and policymakers, the scope of Myanmar's humanitarian disaster necessitates a boost in foreign assistance. After Suu Kyi was freed, some EU diplomats said in private that the organization would consider increasing aid to Myanmar. That same month, Japan, which had always been less committed to sanctions than the United States, announced it would provide the Myanmar government with $5 million to renovate a hydroelectric power plant.

Meanwhile, in May the U.S. State Department invited Colonel Kyaw Thein, a senior SPDC officer, to Washington to discuss narcotics control. He was the highest-ranking official from Myanmar to visit the United States in years. Although State Department representatives insisted that the colonel's trip had been planned before Suu Kyi was released, Myanmar experts noted that the more positive political atmosphere in Yangon, the result of the NLD-SPDC talks, was the major reason why the government had been willing to invite Kyaw Thein.

In the wake of the colonel's visit, several Bush administration officials privately argued that the United States should engage Myanmar on narcotics control. Yet Kyaw Thein's own credentials as an antidrug officer demonstrate why the SPDC is incapable of battling narcotics. He works for the Office of Strategic Studies, a government department run by Khin Nyunt, a junta leader with close ties to the drug-smuggling UWSA.

Despite the invitation extended to Kyaw Thein, in the absence of real evidence of the SPDC's intentions it is far too early to move from a "closed fist" policy to an embrace similar to Secretary of State Madeleine Albright's ill-timed visit to North Korea in 2000, which rewarded Pyongyang before it had embarked on real reforms. Instead, the United States, the EU, Russia, and Japan should initiate a coherent, tough "two hands" approach toward Myanmar, the kind of coordinated policy lacking in the past. This policy could become a model for dealing with other repressive regimes that have impoverished their own nations; the approach would set priorities, allow in slightly more aid, and establish tough benchmarks for change. Such a strategy would signal that the international community is united on the best method of helping the people of Myanmar, the only ones who can truly change their country, to push for reform.

Given the possibility of a total socioeconomic collapse in Myanmar, key foreign states should approve a limited increase in aid while emphasizing that funds will not be used to reward actions taken by the regime. Using aid as a reward sets a poor precedent for dealing with other dictators. Moreover, the SPDC itself has at times rejected the idea of trading assistance for political concessions. Aid should be focused not on large infrastructure projects such as hydroelectric plants, which can be controlled by the government, but on community-level programs such as those for combating HIV or malaria. Moreover, any aid would have to be well targeted, so that it could not be diverted by the SPDC. These strategies would set a standard for assisting other nations in which governments attempt to siphon off aid money. The assistance also should be given with the understanding that truly eradicating malnutrition and other problems probably will require regime change. Keeping initial disbursements small and channeling the funds to international groups already working in Myanmar or along the country's borders would help donors keep tabs on the money.

If the money is to be used effectively, international aid organizations operating inside Myanmar must protect the people they serve and speak out about the country's humanitarian disasters. In the past, aid organizations operating in Yangon have been reluctant to express concerns such as their belief that the SPDC's emphasis on defense spending comes at the expense of social services. Sometimes, aid workers fear being reprimanded by higher-level bureaucrats at their home offices, and those who have voiced such opinions have had their contracts terminated by the regime. Moreover, some UN agencies refuse to rehire workers who have been kicked out of a country. Meanwhile, monitoring groups such as the ILO have on occasion conducted interviews with ordinary citizens without ensuring the secrecy of these conversations.

Most important, the foreign powers with influence in Yangon, such as Malaysia and Japan, should push for greater oversight of aid disbursement. To watch over funds used by UN agencies in Myanmar, mid-level government officials, ethnic minorities' representatives, NLD members, and aid workers could set up a joint council that would monitor and regulate spending. The NLD representatives ought to be tasked with ensuring that aid is distributed equitably and not stolen by the military, while the other representatives would formulate specific methodologies for using the assistance. In the long run, if Suu Kyi's party gained more freedom, the NLD would have to create a comprehensive aid plan that identified critical needs and suggested ways in which assistance could be distributed.


Even as the United States, the EU, and Japan consider providing slightly more aid, foreign states should continue criticizing Yangon and should establish formal and formidable benchmarks for analyzing the pace of change in Myanmar, benchmarks that could be used to assess whether to provide Yangon with carrots other than aid. Continuing outside criticism of the regime is necessary, since ordinary citizens are deprived of ways to critique their government.

Benchmarking is important because the SPDC has a poor track record of keeping its promises and remains intensely worried that national reconciliation will spiral into a process of change beyond its control. According to sources close to the talks, the SPDC-NLD dialogue has not yet broached any critical issues. In addition, more than 1,500 political prisoners remain in Myanmar jails, and the army and its drug-trafficking allies are waging a low-level border war with Thailand. This warfare, which began decades ago, has poisoned relations between Bangkok and Yangon, to the point that both countries now take nearly every opportunity to slight the other: in June, Myanmar even refused to send swimmers to an international competition in Thailand. Overall, the Myanmar military, unlike the Chinese government or even the Vietnamese communists, has not yet demonstrated its willingness to push reform of any kind. Despite its massive loss in the 1990 elections, the army still sees itself as the primary guarantor of the country's well-being. Unsurprisingly, many citizens fear the regime will use talks with the NLD to draft a new constitution that will guarantee the military supremacy in national politics.

Given these fears, benchmarks must reflect irreversible changes. Releasing Suu Kyi from house arrest does not meet this criterion. The SPDC freed the Nobel laureate in 1995, only to lock her up again. Announcing a general amnesty for all political prisoners, the first benchmark for change, does meet the standard of irreversibility—rounding up all those freed and re-incarcerating them would be an enormously difficult process.

Several other yardsticks can determine the course of U.S.-Myanmar relations. Has the junta allowed the NLD to reconstitute itself as a viable party and communicate with the public via a newspaper or truly unfettered access to Yangon's broadcast media? In addition to the NLD, are other political parties allowed to operate? Can political activists who have fled the country return without fear of harassment?

Policymakers must also closely monitor the continuing political dialogue, while recognizing that foreign states cannot influence the specific details of the SPDC-NLD talks. The involvement of ethnic minorities in the dialogue is especially important, since without the accommodation of minorities Myanmar will never achieve peace and stability. Suu Kyi seems to have recognized the importance of ethnic pluralism: shortly after being released, she held several high-profile meetings with minority leaders.


At the same time, it will be essential for the United States and its allies to maintain as much leverage as possible over the Myanmar regime, demonstrating to nations in favor of full engagement with Yangon that leverage can prove useful. The United States could use its limited influence over some Asian countries to minimize future investment in Myanmar that would undermine U.S. sanctions. Singapore and Taiwan, for instance, currently invest in Myanmar but also want to be major players in the U.S.-led war on terrorism. The Pentagon also could increase the number of U.S. special forces operating near the Thailand-Myanmar border to help the Thai military battle the UWSA.

Most important, Congress should consider legislation that would ban all imports from Myanmar. Although the American government has prohibited new investment in Myanmar since 1997, the United States remains one of Myanmar's five major trade partners. Many U.S. retailers still purchase garments manufactured in Myanmar by South Korean or other Asian textile companies. In fact, between 1994 and 2000, Myanmar's exports to the United States—primarily textiles made in Asian-owned factories outside Yangon—rose by roughly 800 percent, providing the junta with ready sources of cash, since some garment manufacturers have close ties to government holding companies. In 1999, Myanmar's apparel exports to the United States were roughly equal to all of Israel's exports to America, and last year the vice chair of the Myanmar Garment Manufacturing Association said that American companies purchase approximately 65 percent of the apparel produced in Myanmar. In addition, California-based oil giant Unocal, together with several international companies, has invested more than $1.2 billion to develop natural gas fields off the coast of Myanmar.

Given continuing U.S. economic ties to Myanmar, keeping open the possibility of a congressional ban on imports would send a signal that the United States could initiate harsher sanctions at any sign of significant backsliding in Myanmar's political process. Sanctions also contribute to deterring tourism, a vital source of hard currency for the regime, which has energetically promoted Myanmar's attractions and has invested in numerous hotels around the country.

Leverage can work. Myanmar experts, such as Georgetown University's David Steinberg, believe that the U.S. threat to tighten sanctions, as well as the recent refusal by more than 30 foreign companies to purchase textiles made in Myanmar, helped force the SPDC to talk to Suu Kyi. More generally, pressure from the international donor community contributed to developments including the release of Suu Kyi and the regime's willingness to allow the International Committee of the Red Cross to monitor some of the country's prisons.


If these irreversible benchmarks are met, then the United States and its allies could consider offering inducements for political change. Carrots could include sending an ambassador to Yangon (where since 1990 the United States has had only a charge d'affaires), encouraging Myanmar's neighbors to recognize the country's territorial integrity (Myanmar and Thailand constantly squabble over border demarcation), deferring UN sessions on human rights in Myanmar for a year, and inviting more leaders from Myanmar to Washington to consult directly with U.S. officials. These consultations would provide the type of international legitimacy that both the military and the NLD desire.

In the long run, if the NLD-SPDC confidence-building process leads to a road map for reconciliation, political transition, and reconstruction of civil society—a moment that seems far in the future—the United States might reduce sanctions on investment in Myanmar. By that point, Suu Kyi and the junta probably would have reached some agreement on a new constitution that enshrined a short-term role for the military in politics, included the ethnic minority groups, and ultimately set the stage for a federal state less threatening to its neighbors. Given Myanmar's brutal history, getting to such a point could entail years of protracted and possibly violent conflict. But if this stage is reached, the people of Myanmar, whose traditional "five enemies" include fire, floods, thieves, malevolence, and the government, might have only four to worry about.

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