It was 1997, and U Moe Kyaw, a U.K.-raised entrepreneur with a rasping London accent, was in demand. On busy nights he went table to table at restaurants to greet clients of his advertising firm, a joint venture with Bates Worldwide. Like his foreign visitors (whoknew him as Peter, the Cockney adman), he was convinced that isolated, military-run Burma (Myanmar) was finally open for business.

Not so fast. Reverting to type, Burma’s ruling junta swiftly purged its ranks and clamped down on foreign companies and opposition groups. U.S. lawmakers and prodemocracy campaigners quickened the pace with tougher sanctions and consumer boycotts of Western companies in Burma. The final blow was Asia’s financial crisis, which sidelined promarket reformers.

Peter’s multinational clients drifted away, and the shutters came down. Millions of Burmese voted with their feet, migrating overseas to work. “When I came back in 1989, I thought that in one generation we would be like Thailand. Now I think it’s going to be two generations at least,” he says.

It usually pays to be bearish on Burma. But a flurry of initiatives by a new, semi-elected government has raised hopes of a fresh start. Since taking power in March, it has begun tackling barriers to economic growth, such as commodity import cartels and restrictive investment and labor laws. President Thein Sein, a retired general, has pledged to support local entrepreneurship and to attract foreign investors to special economic zones. He’s also tapped independent thinkers as economic advisors and appointed businessmen as ministers. In much of Asia this would be mainstream politics. In Burma it’s almost a Tea Party movement. Even the political standoff that has defined Burma on the world stage–the Lady versus the Generals–appears to have eased with a warm presidential reception on Aug. 19 for Aung San Suu Kyi, the opposition leader. “Things have moved surprisingly quickly,” says a European diplomat. A veteran foreign aid worker concurs: “The political conversation has changed.”

Burma’s political history is strewn with false starts and reversals. The question on everyone’s lips is whether this time is different. Skeptics say Thein Sein has yet to deliver on his reformist rhetoric and faces resistance from political hardliners and conservative bureaucrats, as well as rent-seeking tycoons who thrived under the dictatorship.

This uncertainty, as much as sanctions and boycotts, prevents many Western firms from taking the plunge, says Luc de Waegh, founder of West Indochina, a consultancy in Singapore. “The business environment isn’t friendly to foreign investors yet. It’s challenging to do business there,” he says. Asian manufacturers have also been deterred by high costs for inputs and dilapidated infrastructure, despite a cheap labor pool. Only Burma’s natural resources have attracted significant investment, led by China, though this has proven controversial.

Still, some Western executives are keen to size up a potential market of 54 million people with an estimated GDP of $43 billion. Tourist arrivals rose 23% in the first half of 2011, and not all were vacationers. “The big guys from the big companies are going there for tourism and business curiosity. It’s like the last frontier,” says De Waegh, who used to run British American Tobacco’s Burma operations. Under political pressure at home, BAT exited in 2003.

Burmese businessmen are girding for a return of multinational brands and a more open economy. For Sai Sam Htun, CEO of Loi Hein, a beverage company based in Rangoon, this presents both an opportunity and a challenge. His company has a dominant share of bottled-water and energy-drink markets, and has spare capacity in its factories. It has set a target for $100 million in annual sales as a trigger for a potential IPO, a first for a private company (he declines to give current revenues).

Dr. Sam–a physician-turned-entrepreneur–knows that his local brands would be severely tested by direct competition from the likes of Coca-Cola and Pepsi if sanctions were lifted. “We try to visualize two, three, four years down the road. When all the big guys come in, how should we prepare?” he asks.

This isn’t blue-sky thinking: Western consumer brands are busy dusting off their marketing plans for Burma. Many of their products are already distributed via Thailand and Singapore, as a visit to Rangoon’s new malls reveals. And while U.S. law forbids all investments, European sanctions don’t apply to sodas, shampoos and sauces.

Dr. Sam says he may seek a foreign partner who wants to enter the beverage market. “If we have to join or be bought by a foreign company, I think we have no choice,” he says.

He’s also begun to diversify his business, which he founded in 1992 after a stint overseas. He owns Yadanadon Football Club, the current champions of Burma’s soccer league, and is develop ing an upscale condominium project in a Rangoon suburb. “We have to open the door, correct our politics and normalize relations with all the countries in the world, including the West,” he tells FORBES ASIA.

Born into a merchant family in Shan State, near the Chi nese border, Dr. Sam spent 15 years working as a doctor at public hospitals. He left Burma before a failed uprising in 1988 against military rule. When he returned he began trading plywood and timber, using his savings of $20,000 to set up Loi Hein, which is named after his father. In 1994 he switched to manufacturing and distribution after the junta began leasing state-run factories to private operators. “I brought in new ma chinery, new packaging and branding. That’s where I made money for myself,” he recalls.

By 2003 Loi Hein was ready to expand. It built a modern factory outside Rangoon, the commercial capital, and launched Alpine bottled water, which now has 65% market share, according to Dr. Sam. He also licensed Shark, an energy drink from Thailand, and added carbonated sodas. Most of his plants are now fully private, including a former state-owned bottling factory in Mandalay, the second-largest city, and the company’s payroll has swelled to nearly 2,000 workers.

But 2011 has brought an unwelcome jolt for Burmese entrepreneurs: a currency appreciation of 25% against the dollar that has squeezed exporters and depressed farm prices. The government has cut export taxes and agreed to overhaul a Socialistera foreign-exchange system with multiple rates. For now commodity traders are stuck with currency volatility and crops that can’t compete on global markets. “They’re caught between a rock and a hard place,” says a foreign economist.

In an opaque, rumor-driven economy, it’s unclear exactly why the currency, the kyat, has spiked so dramatically since January. Most observers point to a flood of dollars for priva tizations and gem auctions, as well as speculation on real estate and other assets. Burmese allege that Chinese in vestors are snapping up prime sites in major cities, using bribes and local partners to evade bans on foreign owner ship of land.

“People are paying stupid prices for property,” says adman Peter, who is now managing director of Myanmar Marketing Research Development. He names a new mall in Mandalay that is selling ground-floor stores for $1,430 per square foot. “Stupid and insane prices,” he laughs.

This combination of asset inflation and economic stagna tion may reveal the “resource curse” that some economists say is Burma’s greatest challenge. Annual natural gas ex ports to Thailand are already worth $2.5 billion, and Chi nese investment in new energy projects could bring in vastly more revenues. Other lucrative exports are timber and gems, mostly cut and shipped for processing in other countries. These natural resource exports tend to enrich a narrow elite without boosting investment in domestic in dustries. Artificially inflated prices for imported goods such as cars and telephones further deter manufacturers. “It’s the reverse of supply-side economics,” says a Burmese investor.

Some companies did very well under military rule. Burmese conglomerates run by cronies of the regime dominate much of the private economy, including mining, banking, construction, aviation and tourism. Some corpo rate owners and their families are under Western sanctions, including travel and financial service bans, though such measures have failed to dampen their businesses and may have made them stronger, since medium-size companies had to bear higher overheads due to general sanctions.

Dr. Sam isn’t on any sanctions list. “I just returned from Switzerland,” he says. His ownership of a club in a soccer league thick with cronyrun teams may raise eyebrows, not least because the regime allegedly awarded mining conces sions to compliant club owners, according to a leaked 2009 U.S. cable. Dr. Sam says that his invitation came from Zaw Zaw, a friend (and sanctioned crony) who chairs the league, and that Yadanabon so far has earned trophies but no prof its. Burmese state television doesn’t pay clubs for the right to broadcast games.

It falls to the new government to overhaul a sclerotic econ omy that is riddled with corruption. It has to do this without the support of the World Bank and other development agen cies. The IMF is sending a technical team in October to advise on exchangerate reform, but the U.S. vetoes multilateral loans to Burma on political grounds. Economic observers say the IMF mission gives political cover to the president to adjust the exchange rate. But it still leaves his promarket faction largely on its own as it tries to reverse five decades of poorly executed development. “We’re whistling in the dark,” says a well-placed Burmese observer.

Lifting sanctions may be the key to unlocking Burma’s po tential. But Western opinion, which hardened after the 2007 military crackdown on monkled protests, is unlikely to shift until Aung San Suu Kyi calls for an end to sanctions. Many Burmese recognize the futility of a policy that has left their country poor and isolated, though they also blame the gener als for mismanaging an economy rich in natural resources.

Western powers should also consider their own geopoliti cal interests when sanctions come up for renewal, says a Burmese businessman. “China has embedded itself in our infrastructure and the extractive industries. It’s almost too late–the West has lost,” he says.

North Korean refugees have been arriving in Burma since the 1990s, although the number who have made the arduous journey across China is largely unknown. However, according to a US diplomatic cable leaked by WikiLeaks, at least 50 North Korean asylum seekers have turned up at the South Korean embassy in Rangoon each year, and many have been permitted by the Burmese authorities to board flights for Seoul bearing South Korean provisional passports.

However, a South Korean embassy official quoted in the cable said that this record of cooperation with the Burmese government could change, as Naypyidaw’s relations with North Korea continue to grow closer.

In one case described by the cable, written in 2008, the Burmese authorities refused to release a North Korean refugee jailed for illegally entering the country, telling the South Koreans that approval was needed from the North Korean government before the individual could be freed.

“Normally, embassy officials work with Burmese military intelligence and immigration officials before issuing these travel documents to these refugees so they can fly to South Korea via Thailand,” said a source close to the South Korean embassy in Rangoon.

“Most of these refugees are in terrible shape after coming all the way across China with just a little money and the address of the South Korean embassy in Rangoon. Sometimes they even come with children,” he said.

Adding to the difficulty of the journey is China’s reputation for repatriating North Korean refugees, who typically seek out friendly embassies in the hope of being sent to South Korea, which has accepted refugees from the North since the end of the 1950-53 Korean War.

The embassy source said that more than a few refugees have landed in Burmese jails—especially in Myitkyina and Kentung prisons—on charges of illegally entering the country.

However, as soon as South Korean embassy officials are alerted to their presence, they try to rescue them with the help of Burmese military intelligence and transfer them to South Korea.

Although the Burmese government has often cooperated with the South Korean embassy on this issue, this has been done on an ad hoc basis, meaning that the government could easily reverse its stance, according to the cable.

Relations between Burma and North Korea broke down in 1983, when North Korean commandos attempted to assassinate visiting South Korean President Chun Doo-hwan in Rangoon. But since the two pariah states re-established their relations in April 2007, there have been widespread concerns that Naypyidaw might be seeking help from North Korea with its alleged nuclear programs.

The cable concluded that although possible nuclear cooperation between the two countries remains elusive, sales of artillery, not of missile systems, to Naypidaw from North Korea are confirmed.

“Our government does not have a policy of providing arms to ethnic armed groups on Burma’s side of the border, and we will take drastic actions against anyone supporting or trafficking arms to those groups,” Thailand’s assistant national police chief, Lt-Gen Rapipat Palawong, told reporters in the Thai border town of Mae Sot.

Mae Sot has long been a hotbed of Burmese political dissent, attracting exiles, refugees and armed groups such as the Karen National Union (KNU), an ethnic army that has waged war with the Burmese government for decades.

Sources in Mae Sot said that Rapipat’s warning had sent shock waves through the KNU and other  border-based armed groups that depend on contacts on the Thai side of the border for supplies of food and arms.

“Not just weapons, but even food must now be transported very carefully from Mae Sot to KNU units [inside Burma],” said a local source close to the Karen rebels.

A Thai journalist in Mae Sot said that the police warning came in response to a recent  increase in the number of arms trafficking cases in the town. On Friday, Thai authorities arrested two people in the town on suspicion of trafficking arms and ammunition to the KNU.

Rapipat also instructed local police forces in Mae Sot to clamp down on the smuggling of vehicles into Burma and drug-related issues along the border.

“There are clear indications of a new openness from the government, and the US should be prepared to adjust our policy toward Burma accordingly,” said Senator Jim Webb, referring to the developments in Burma in the recent past, which he argued are positive steps.

“In reauthorizing this legislation, it should be noted that the 2003 Burmese Freedom and Democracy Act gives the president the authority to waive the prohibitions on any or all imports from Burma if doing so is in the national interest of the United States,” Webb said as the US senate prepared to consider a joint resolution to renew the sanctions in the 2003 Burmese Freedom and Democracy Act, which was passed by the House of Representative by voice vote on July 20.

“I am hopeful that there will be opportunities to closely examine any substantive improvements in our relations during this transitional period, and to take advantage of all of the tools at our disposal to facilitate Burmese economic development, political reconciliation and ultimately greater progress toward democratic governance,” he said.
Webb said that Burma is now in the midst of a key transitional period that has yielded greater opportunities for interaction with government leaders and civil society, and restructuring of government and military institutions.

“The release of Aung San Suu Kyi from house arrest after the election has also been an important benchmark in this process,” he said. “Her repeated interactions with government leaders are a significant step forward in encouraging a democratic process and reconciliation within the country.”

In 2009, Webb was the first member of congress to visit Burma in more than 10 years, and remains the only American official ever to meet with the country’s former junta chief, Snr-Gen Than Shwe. During his Burma trip, Webb met with Aung San Suu Kyi who at that time was under house arrest. He also helped obtained the release of US prisoner John W. Yettaw.

Chiang Mai (Mizzima) – The Kachin Independence Organization (KIO) Battalion No. 3 has blocked traders who supply construction material for the Myitsone Dam project from sending goods to the area.

La Nang, the KIO spokesman, said cement and iron construction material supplied from China via the Waimaw-Kantipai Road located in the eastern area of Kachin State were not allowed to pass through the Lahpai Gate, which is controlled by Battalion No. 3.

“Since the fighting started, we have blocked construction material to be used for the Myitsone Dam. As a result, we heard that the Myitsone Dam construction has been halted because of a lack of material,” La Nang said. Fighting between government troops and the KIO started on June 9.

Electrical Power Ministry No. 1 Minister Zaw Min said in a press conference on Saturday that the Myitsone Dam project had been temporarily halted during the monsoon season and construction work would start again when the monsoon ended.

Many people and groups inside Burma and in foreign countries have called for a halt and a reevaluation of the dam project. Writer Ko Tar, Maung Sein Win (String of Beads), Meteorologist Dr. Tun Lwin and Conservationist Zaw Myint delivered speeches titled “Save the Irrawaddy” last week, saying the Myitsone Dam project should not be carried out.

On the other hand, Minister Zaw Min said in his press conference in Naypyitaw that even the United Nations did not have the right to intervene in the project because it was in Burma’s national interest.

An opposition lawmaker in Parliament this week said that large national projects that could impact the environment should seek approval from the Parliament before the projects are started.

La Nang said that the new government led by President Thein Sein was going against the people’s wishes. The KIO will always oppose the dam, he said, and all Burmese should join it in opposition to the project.

The Myitsone Dam project was started in December 2009. The dam site is 27 miles upstream of Myitkyina in Kachin State. The project is a joint undertaking by the Electrical Power No. 1 Ministry and the China Power Investment Corporation, which is owned by the Chinese-government. China will receive the bulk of the electricity generated by the project.

The cable said a leading Thai businessman who owned more than 100 fishing boats received fishing rights in Burmese water by bribing then Fishery and Livestock Minister Major General Chit Swe with weekly payments.

“Admitting that he personally mules in [brings in] about 50,000 dollars in cash during weekly trips to Burma, the entrepreneur said that perhaps 15 per cent of this money (US$ 7,500) was earmarked for payoffs to senior generals. The remainder goes to the Government of Burma for fishing rights,” said the leaked cable dated May 4, 1992, which was sent to the US State Department in Washington D.C.

Chit Swe was first included in SLORC in 1988 as commander No. 2 in the Bureau of Special Operations. He then became Minister of Fishery and Livestock and was then promoted to Lieutenant General rank in 1990 and was forced to retire in 1997.

“Former minister for fisheries Lieutenant General Chit Swe had long been the ‘prime recipient’. ‘Taught by the Thai,’” said the Thai source quoted in the cable.

“The minister has an exquisite sense as to how to receive a bribe and yet reserve some degree of deniability,” the cable said. “Accordingly, Chit Swe reportedly declined one-on-one sessions with the Thai businessmen, insisting that all discreet dealings be with his son.”

The cable also said that the son of Major General Chit Swe escorted departing Thai businessmen through Burmese customs without the usual checks as part of the family’s services.

“More recently, Chit Swe’s son came to the airport on 20 minutes notice to squire a group of some 60 Thai entrepreneurs through customs,” the leaked cable said.

The Thai businessman said other members of SLORC with whom he dealt included then Army Chief of Staff Tin Oo.

Wikileaks released another US diplomatic cable on August 30, 2011, which said SLORC Secretary 2 Major General Tin Oo and the wife of military intelligence (DDSI) chief Major General Khin Nyunt were involved in bribery cases but that General Than Shwe, who later became the junta leader in Burma, lived austerely.

The cable said Tin Oo had a reputation for “renegotiating deals and [was] otherwise difficult.”

The cable said that ever since his teenage son had received a Mercedes Benz for brokering a deal and had started driving the car around town, Tin Oo had been under close scrutiny by Burmese military intelligence (DDSI) whose agents conducted spot checks at his residence. According to the Thai businessman and another source, intelligence chief Khin Nyunt forced Tin Oo to turn the Mercedes Benz over to the Government of Burma. The leaked cable said Tin Oo, who narrowly escaped a parcel bomb attack in 1997, was killed in a helicopter crash in February 2001 near Hpa-an in Karen State.

The cable said that the Thai entrepreneur noted that several of his peers had dealings with Khin Nyunt’s wife, who had a fondness for jewelry. DDSI (Directorate of Defence Services Intelligence) Chief General Khin Nyunt became Prime Minister in 2003 and was then removed from his post after being charged with corruption and insubordination. He was sentenced to a 44-year prison term, which was suspended, and he was put under house arrest.

The Thai businessman suspected that the promotion of Lieutenant General Than Shwe to chairman of SLORC may have had something to do with allowing “corruption by other generals to increase.”

However, the U.S. diplomat wrote that the Thai businessman said that Senior-General Than Shwe “lived austerely even by Burmese standards and had little use for such Western luxuries as air conditioning.”

Than Shwe held power for more than 19 years as head of the military regime and chief of the Tatmadaw (armed forces). He resigned from his post in 2011 and now lives in Naypyitaw Zabuthiri Township. However, many observers believe that he still controls military affairs from behind the scenes.

The book will also include the signatures of the people who support protection of the river.

Suu Kyi’s open letter on August 11 said: “There is a downside to such projects. The river course is fragmented and the strength of the flow is weakened; there is a decrease in sedimentation that aggravates erosion problems; although the water becomes clearer, there is a greater concentration of impure elements; and during the course of the construction work much industrial refuse is generated, adding to the despoliation of the environment and the pollution of the river.”

Presently, to support the appeal, about 300 signatures of NLD central executive committee members, prominent politicians, students, journalists and writers have been gathered.

“The Irrawaddy River is not only the life of Burma but also the lifeblood of all ethnic people. So, it is not worth it to take the risk. It’s the dignity of our people. It’s the symbol of our people. It’s priceless,” said Ohn Kyaing, an NLD information official.

Suu Kyi’s letter said a particular problem resulting from the weakened flow of water in the Irrawaddy is the intrusion of salt water into the delta which is detrimental to paddy production.

“Since the commencement of the Myitsone Dam project, the perception long held by Kachin people is that successive Burmese governments have neglected their interests,” the letter said.

Similarly, a book titled “We don’t want to yearn for The Irrawaddy” about the 2,170-km-long river by writers, musicians and artists will be published sometime this week.

An anthology, the book will include articles, poetry, photos, news stories and songs by 51 artists including writer Shwe Oo Daung (now deceased), writer Zawgyi (now deceased), writer Paragu (now deceased), film director Maung Wunna (now deceased), singer Htoo Ein Thin (now deceased), singer Khin One (now deceased), singer Lay Phyu and singer Zaw Win Htut.

“All of us are concerned for the survival of the historic Irrawaddy River,” said Yin Tun. The Yin Myo printing house will release the book.

The book, with more than 250 pages, will be the size of an ordinary magazine and is intended to be an historic collector’s item.

“Now, we can’t see [ancient] Bagan. But, we can see [ancient] Bagan by reading books written by writers including Dr. Than Tun. Similarly, if the Irrawaddy River is extinct, by reading our book, a new generation of Burmese can know about the Irrawaddy,” said Daewi Thant Zin, who helped organize the artists for the book.

The government has plans to build eight dams across the Irrawaddy River to generate electricity. The largest is Myitsone Dam, which will generate 6,000 megawatts of electricity. For the Myitsone Dam project, five embankments need to be built along the Maykha River and two embankments along the Malikha River. The area of the Myitsone Dam project is 18,000 square miles.

The height of the dam is 152 meters (500 feet) and the height of the upper reservoir is 299 meters (980 feet), according to the Kachin Development Networking Group.

No. 1 Electrical Power Ministry Minister Zaw Min said in a press conference in Naypyitaw on Sunday that the Myitsone Dam project would be continued and urged Burmese to support the project in the national interest.

“Disrupting the project by citing environmental issues will bring nothing but loss to the national interests of our country. That’s simple,” said Zaw Min.

Despite the move, interest rates in Burma remain the second highest in the region, behind Vietnam. Moreover, Burmese are likely to retain a widespread lack of confidence in the country’s banking sector, according to Australian economist Sean Turnell.

“In the last day I have received two complaints from business people I know with respect to deposit rates,” he told DVB.

Interest rates on deposits were reduced to 10 percent, while for loans they were lowered from 17 to 15 percent. A government announcement said the latter meant that “entrepreneurs who are willing to do more business can take out loan with low interest rate”.

Yet a Burmese economist who spoke to DVB on condition of anonymity said that the continuing five percent gap between interest on deposits and loans would mean banks still make hefty profits, likely to the detriment of others.

“This is only going to hurt elderly people and pensioners who deposit their savings in the banks as they are now receiving two percent less interest while commodity prices remain the same,” he added.

Economic analyst Aung Thu Nyein believes that the country’s high interest rates are a result of the previous banking crisis in 2002-03 when banks collapsed because of a lack of capital, so the government insisted on high interest rates to ensure suitable capital was kept in banks.

However several major changes have been enacted by the Burmese government as it grapples with a strengthening domestic currency, the kyat, a result of massive inflows of money into the energy sector. Prior to the drop in interest rates, it had embarked on a mission to phase out foreign exchange certificates in an effort to streamline Burma’s complex currency system.

Given the widespread distrust of the banking sector, which is rife with corruption and often marred by high inflation, Burmese tend to either horde money in their homes, or stockpile commodities such as gold.

However it has been rumoured that expatriate Burmese and even Chinese have taken advantage of Burmese banks’ high interest rates, which compare favourably to China’s, which hovers around the relatively high rate of six percent as that country seeks to settle rampant growth. US interest rates are closer to one percent.

While the lowering of interest rates would stimulate spending in a “normal” economy, says Turnell, Burma is a different kettle of fish.

“First up, the banks don’t really lend to business. They do supply certain financial facilities – payment services primarily – but they do not engage in long term lending,” he said, adding that “the environment is too risky, and the collateral requirements too strict”.

To mitigate a complete lack of transparency the government has insisted on collateral for bank loans to be set at 100 percent, thereby seriously impeding lending and liquidity.

Transparency is therefore the number one issue facing the Burmese economy as it is perilously stuck between massive inflows of foreign direct investment (FDI) jumping to some 40 percent of GDP in the last year, and a complete lack of measured economic management on the other, from years of military rule.

“Land tenure arrangements are extremely problematic,” notes Turnell, whilst the President’s chief economic advisor, U Myint, lamented at a recent economic forum that there is “no proper accounting system for business firms and rampant corruption both on the part of the business tax payer and the government tax collector”.