Doing good in Myanmar is a murky business for foreign aid groups tied to powerful elites

Staff hired to work with the U.S. government's aid agency in Myanmar are preparing to move out of their office following revelations their landlord is a notorious former spymaster who oversaw the imprisonment and torture of thousands of pro-democracy activists.

The debacle surrounding Development Alternatives Inc., a company contracted by USAID to deliver humanitarian programs, highlights the contradictions ensnaring foreign donors who flocked to the country after reclusive military leaders ended a half-century of iron-fisted rule and self-imposed isolation.

With almost all property in the biggest city Yangon owned by former and current generals and their cronies, much of which was seized during military rule, many organizations find themselves funding a tarnished elite that still holds sway despite elections.

The U.S. government, via its aid proxies, has been lining the pockets of former spy chief Gen. Khyin Nyunt since Washington eased economic sanctions two years ago.

UNICEF, the UN children's agency, pays $87,000 a month to a famously corrupt former minister; the European Union around $80,000 to a conglomerate founded by a drug kingpin; the World Health Organization $79,000 a month, to a mystery owner.

For Development Alternatives, there was only one way to clear its name: Move.

Development Alternatives "failed to take proper account of the political context of Myanmar," said spokesman Steven O'Connor of its 2012 decision to sign a $7,000 a month lease with Khin Nyunt's family.

When President Barack Obama and other world leaders arrive in Myanmar on Wednesday for a regional summit they will have a chance to reflect on reforms implemented immediately after President Thein Sein's 2011 inauguration, many of which have since stalled or experienced a worrying backslide.

The military controls the parliament and is blocking popular opposition leader Aung San Suu Kyi's path to the presidency. Business conglomerates linked to the old guard remain the engines of the economy and the main beneficiaries of more than $10 billion in post-junta foreign investment and aid.

The scandal behind Myanmar's "development aid rush" was revealed by the Irrawaddy news agency earlier this year.

It reported that UNICEF was paying astronomical rent for a three-story house belonging to the family of Nyunt Tin, one of the most corrupt ministers under Gen. Than Shwe's former junta.

Noting its rent was "steep," the agency said it looked at some 40 properties before signing the seven-year lease.

Decades of corruption and mismanagement by military regimes, together with crippling sanctions by the West, turned the country of 50 million from one of the richest in Asia to among the poorest.

Most buildings in Yangon are in a serious state of disrepair, but some experts say international organizations should play a role in saving these crumbling reminders of Myanmar's past.

"You don't have to walk 200 meters in this city to find a property that is not being used," said Lex Rieffel, a non-resident fellow at the Brookings Institution of the magnificent colonial-era buildings threatened by demolition.

"These agencies say they are helping the country develop," said Rieffel, an expert on Myanmar who has worked for USAID, the US Treasury Department and several international NGOs. "Well, one of the ways you do that is take under-utilized space and utilize it."

There are few offices as ostentatious as that now occupied by the World Health Organization, located in a palatial mansion on one of Yangon's busiest thoroughfares, and surrounded by an imposing 8-foot-high concrete wall and cast iron gates.

When asked about allegations it belonged to the family of the country's current commander in chief, WHO's acting country representative Krongthong Thimasarn said "the building is owned neither by General Min Aung Hlaing nor his daughter, but by a landlady whose name is Daw Khin Nwe Mar Tun."

Efforts by The Associated Press and local media organizations to track her down were unsuccessful. Former and current generals and cronies put their assets under the names of relatives to avoid scrutiny.

Thimasarn said the rent came to nearly $1 million a year. That's enough to immunize 30,000 children against diseases such as measles, polio and hepatitis B.

The European Union, which has one of the biggest aid programs in Myanmar at more than $1 billion, described the property debate as one of the "struggles of transition."

It occupies 2 1/2 floors in the Hledan Center, a building owned by Asia World, the country's largest conglomerate. It is headed by Stephen Law, who took over the reins from his father, the late Lo Hsing Han, a former drug king pin. Law remains on the U.S. Treasury's blacklist.

The EU did not disclose its rental, but an official with the property management company put it at round $1 million a year.

The story behind the Hledan Center mirrors that of land grabs nationwide.

Just over a decade ago, it was a 1 1/2 acre plot of land that was home to 68 families, many of whom had lived there for generations, and dozens of barbershops, tailors, teashops, noodle stalls and other small businesses.

When kicked out in 2003, residents received assurances they would be compensated.

While many have been given small, windowless rooms on two floors of the circular eight-story building, they say it's no substitute for what they lost.

"We never wanted to leave," said 54-year-old Cho Cho Mar, who longs for her old two-story, four room house and her once-thriving hot pot business. "But what could we do? We couldn't complain under the powerful military regime."

The EU says it will eventually move into a Yangon heritage building.


Aye Aye Win in Yangon, Matthew Pennington in Washington DC and John Thor-Dahlburg in Brussels contributed to this report.