Thailand - The rubbish dump outside the Thai town of Mae Sot steams with rancid rotting fish and other debris, a squalid haven for hundreds of refugees from Myanmar that aid groups say could swell in size this year.

Aid groups are bracing for a rise in refugees from military-ruled Myanmar into neighbouring Thailand and China ahead of its first parliamentary elections in two decades this year, potentially straining ties with its neighbours and worsening crowded refugee camps in Thailand.

Some who fled to Thailand are living in dire conditions. In one settlement, about 300 migrants who crossed illegally into Thailand have taken refuge next to mounds of garbage outside Mae Sot, about 5 km (3 miles) from the border.

Life amongst the rubbish beats what they had back home, they said. Some ethnic minorities have faced a military campaign marked by murder, forced labour, rape and the razing of villages.

I want to stay here and save some money because I can keep what I earn and no one harasses me, even if the job is hard and dirty, said Sen Sen, a 38-year-old ethnic Karen.

People run out of makeshift shacks and line up neatly whenever garbage trucks arrive, waiting to dig through the rubbish as it is unloaded in search of goods for recycling. Barefoot boys and girls sort through piles of trash, occasionally distracted by the broken toys and mud-caked dolls they uncover.

Sen Sen earns about 100 baht ($3) a day selling plastic, which she said was enough to live on. In Myanmar she had to give almost all the money she managed to earn to military officers as protection money and taxes.

The Myanmar junta has long been accused of persecution of the country's ethnic minorities, sparking a continuing exodus. Some 140,000 refugees live in official camps along the Thai-Myanmar border, according to the U.N. refugee agency.

An estimated 37,000 fled into China in August after government forces routed fighters loyal to a Chinese-speaking Kokang ethnic group, earning Myanmar's generals a rare rebuke from China, a crucial ally and investor.

Thousands fled into Thailand in June when the army clashed with the Karen National Union (KNU), a rebel group that has been seeking independence in the eastern hills bordering Thailand for the past 60 years.

REBEL FIGHTING

Aid workers say the number of refugees from the former Burma has slowed in recent months but the situation is delicate, with continued low-intensity fighting between KNU rebels and the Democratic Karen Buddhist Army (DKBA), aligned with the military.

The fighting, they say, suggests little progress in resolving one of the world's longest-running insurgencies, raising the prospect of more instability and more refugees. It also underscores the fragility of the government's ceasefire agreements with more than a dozen armed ethnic groups.

Up here there is fighting every week, said David Eubank, a relief worker in Myanmar's northern Karen State and director of the Free Burma Rangers, a Christian group that helps refugees inside Myanmar. He said there were no large-scale offensives yet but that Myanmar's military was re-supplying its camps.

Aung Din, executive director of the U.S. Campaign for Burma, an exile group in close contact with Myanmar's ethnic leaders, said forces loyal to the government were also building up supplies after deadly clashes last month.

The regime's troops in Karen State are gathering food and other supplies, he said.

According to his sources, KNU troops ambushed a regime battalion on Dec. 16, killing a tactical commander and 14 solders and wounding 17. This could not be independently verified.

Three days later, two government soldiers were killed and four wounded in clashes in a rebel-held area controlled by the KNU's sixth brigade.

ELECTION CRITICISED

Myanmar is to hold its first parliamentary election in two decades this year but critics already dismiss it as a ploy to legitimise and extend almost 50 years of military rule.

The regime wants ethnic groups to take part, and their support would help the junta claim the country was fully behind its elections. Critics also say the regime is trying to forcibly recruit rebel fighters for an army-run border patrol force.

They say Myanmar's army is seeking to neutralise the Karen and other ethnic minorities, in part to seize rich natural resources for logging and mining, a crucial revenue source for the impoverished country, Southeast Asia's second largest.

Many of the ethnic groups, including predominantly Christian Karens, do not trust the military and its ethnic Burman leaders who they have long resented and feel they have nothing to gain by taking part in the electoral process.

If they disarm and surrender hard-won autonomy, they could lose control over lucrative trade in natural resources and, in some cases, in opium and methamphetamines.

The situation at the borders is expected to get worse as pressure will be on the ceasefire groups to transform before elections, said Sally Thompson, deputy director of Thailand Burma Border Consortium, an aid agency that works at Thai government-run refugee camps.

With the deadline looming for establishing border guard forces, we expect to see an increase in new arrivals of refugees.

Tens of thousands of refugees from Myanmar have been resettled in third countries in recent years.

About two to three million migrants from Myanmar live scattered across Thailand, many working illegally in low-paid jobs. Many may qualify for refugee status, aid groups said.

Some are simply trying to escape grinding poverty.

Things are bad there. They would rather live in Thailand on a rubbish dump than return, said Ashin Sopaka, a monk who raises money to help migrants at the border. Sound sleep here, but not in Burma. (Additional reporting by Ambika Ahuja; Writing by Jason Szep; Editing by Sugita Katyal)

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