Pressure is mounting on Burma's repressive military government to allow reform and modernisation. BBC News Online examines the issues behind secret talks that could shape the country's future.

Why is Burma in the headlines now?

Burma's military government has been holding talks with opposition leader and Nobel peace prize winner Aung San Suu Kyi for 18 months, raising hopes of reconciliation. The two sides have been at loggerheads since the military refused to recognise the 1990 election result which would have put Aung San Suu Kyi's democratic party in power. She has been under house arrest for nearly two years.

In recent weeks, rumours have started spreading that the two are close to a breakthrough. Aung San Suu Kyi could even be released - paving the way for widespread political change. However, some analysts believe that the government is not serious about reform and is drawing out the talks as a way to stifle international criticism of its human rights record which is one of the worst in Asia.

Sceptics point out that although the government has freed 258 political prisoners since the existence of talks were first made public in January 2001, more than 1,000 remain in jail.

Either way, pressure is mounting on both sides to make progress. UN envoy Razali Ismail, who has visited Rangoon since October 2000 to keep the talks going, has hinted he may otherwise resign. Diplomats warn that unless the government agrees to major concessions soon, the talks could unravel.

The US, EU and Japan, which have so far given Burma's rulers the benefit of the doubt, would then come under pressure to impose further penalties and trade sanctions on the already impoverished nation.

So how did Burma's problems get so serious?

Burma was a British colony until 1948 when it was one of the world's biggest rice exporters and one of South East Asia's wealthier countries. But since 1962 it has been ruled by a repressive military regime. The first military leader, General Ne Win, put in place nominally socialist policies which nationalised the economy and discouraged foreign investment.

By 1988, rice shortages and anger at repression led to street protests which, on 8 August, saw soldiers firing on unarmed crowds and killing thousands. A month later, a group of generals styling themselves as the State Law and Order Restoration Council (SLORC) took over and crushed the pro-democracy movement. Surprisingly, the generals did agree to hold elections, and in May 1990 Burma voted in a free general election.

Aung San Suu Kyi, daughter of assassinated nationalist leader Aung San, saw her National League for Democracy (NLD) win more than 80% of the contested seats. But the military government, perhaps stunned by the scale of the opposition victory, refused to recognise the result. It said the elections were not to decide who took power, but who drew up a new constitution. Twelve years later, that constitution has still not been completed and political reform remains on hold.

What have the latest talks been about?

The talks are believed to have started in October 2000, a month after Aung San Suu Kyi was placed under house arrest after trying to travel out of Rangoon. But it was only in January 2001 that the UN envoy to Burma, Razali Ismail, was able to reveal that the talks had in fact got under way, though very few details have leaked out.

Most of the meetings have been between Aung San Suu Kyi and a military intelligence liaison officer, though there were rumours in January that Aung San Suu Kyi had met with head of state General Than Shwe, the military government's all-powerful leader.

The UN has been pressing the government to make a number of key concessions. These include Aung San Suu Kyi's immediate release, freedom for political parties to operate, and moves towards power sharing. In return, the government is thought to be looking for increased international aid, foreign investment, and a lifting of trade restrictions. There have also been reports that Aung San Suu Kyi is preparing to make some concessions herself, in order to ensure a breakthrough.

Judging how far she should go will be extremely difficult. She will face fierce criticism from inside the NLD and from international human rights groups if she is seen to be appeasing the military government.

What is life like for most Burmese?

For the privileged families and friends of the military government, the past decade has brought increased wealth, imported cars and a property boom. But for most of the country's 42 million people, life remains difficult.

More than 40% of government spending goes to the military, while health and social programmes suffer. Inflation has averaged more than 25% and unemployment is very high in the cities. There are regular power cuts and fuel shortages, and import restrictions keep some foreign goods out of the shops. In rural areas, farmers are forced to sell part of their rice to the government at below-market rates. A UN report estimated that one in three children is undernourished.

If there is a breakthrough, what are the priorities to address?

There are almost too many to list but the international community would be hoping for meaningful political reform. With no democratic tradition, there are no legal checks on the military government, which has been accused of using policies including torture, rape, political imprisonment and forced labour.

There is also a problem with refugees. Military action against ethnic groups like the Karens, and relocations within Shan State, has forced about 155,000 people into refugee camps in Thailand and Bangladesh. A further million Burmese live in neighbouring countries but not in refugee camps - including 700,000 in Thailand.

There are also serious problems with drugs and Aids. Despite government pledges of a crackdown, Burma is one of the world's biggest producers of opium, the base for heroin, and methamphetamines. Although the figures are unreliable, Burma is itself estimated to have 500,000 heroin addicts. Because of a shortage of needles, they are believed to be spreading the HIV virus which can lead to Aids. Some health officials warn that Burma is facing an Aids epidemic that could eclipse the worst seen in Africa.