Arco to End Exploration in Myanmar

After sinking $50 million into a controversial project off the coast of Myanmar, Atlantic Richfield Co. said Tuesday that it is withdrawing from the troubled country, but denied that it was caving into international pressure to punish the increasingly belligerent military regime.

Arco spokesman Al Greenstein said changing investment priorities, “not protests or events inside Myanmar,” influenced the company’s decision not to renew its second of two exploration leases when it expires in October. In June, Arco allowed its other lease to expire.

The withdrawal of one of the last remaining U.S. multinationals from Myanmar, formerly known as Burma, comes at a critical time. The State Peace and Development Council, the government’s newest incarnation, is presiding over an impoverished nation teetering on the edge of bankruptcy because of U.S. economic sanctions and the spiraling Asian financial crisis, which has dried up investment and trade with its hard-hit neighbors.

The only major U.S. firm still in Myanmar is Unocal Corp., which is a partner in a multinational consortium developing a $1.2-billion pipeline. That project is due to begin operation in December.

“The process of Asianization of the Burmese economy has slowed dramatically in the wake of the crisis,” said Mark Mason, a research professor at Georgetown University. “If those [Asian] players are not around, who will save the Burmese economy? It’s not clear that anybody will now.”

Myanmar’s rulers have banned most imports to preserve their precious foreign currency reserves, which have reportedly shrunk to around $100 million. Inflation is running at 50%, and a U.S. dollar buys 350 to 400 kyat on the black market, compared with an official rate of 6 kyat to the dollar.

The economic woes are undermining the government’s credibility at the same time it is under growing pressure from its political opponents. Nobel Peace Prize laureate Aung San Suu Kyi, who is reportedly under virtual house arrest, has set an Aug. 21 deadline for the government to convene a parliament based on the May 1990 election in which her party, the National League for Democracy, won an overwhelming victory.

Arco’s decision was applauded by critics of Myanmar, who have waged an extensive campaign to isolate its military rulers. The Clinton administration last year imposed a ban on new investment in the country. Citizens groups and state and local governments have also used a broad array of tactics--including consumer boycotts, selective purchasing laws and shareholder resolutions--to pressure firms to withdraw from the country.

Simon Billenness, a leading Myanmar critic, said Los Angeles-based Arco was the only U.S. oil company still doing business in Myanmar that was vulnerable to a consumer boycott, because, unlike Unocal, it sells its oil and gas products directly to the public. In addition, the Los Angeles City Council is considering the adoption of a selective purchasing ordinance that would restrict city agencies from doing business with companies involved in Myanmar.

“This could prove to be a smart business decision for Arco,” said Billenness, a senior analyst at Franklin Research & Development Corp., a Boston-based investment firm that specializes in socially and environmentally conscious investing.

However, Greenstein said Arco still believes that punitive economic sanctions end up hurting only U.S. firms that are unfairly kept out of promising markets while their foreign competitors move in. “We believe engagement is preferable to isolation and companies like Arco are a constructive force in poor countries like Myanmar,” he said.

Greenstein said Arco’s acquisition of Union Texas Petroleum Holdings Inc. caused it to rethink its global priorities.

Greenstein said the company spent about $50 million on exploration rights, drilling and research.

Arco shares rose $1 to close at $65.50 on the New York Stock Exchange.

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