Thursday, July 24, 2008

Fifth of Burmese aid cash lost to exchange rate trick

International aid agencies helping the victims of the devastating cyclone in Burma are losing as much as a fifth of the money that they bring into the country because of arbitrary foreign exchange rules imposed by the military dictatorship.

Foreign non-governmental organisations and United Nations agencies, such as the UN Development Programme and the World Food Programme, are compelled to exchange US dollars for convertible vouchers known to expatriates as “Monopoly money” before they are changed into local currency for as much as 20 per cent below the market rate. The money lost in these transactions could otherwise have been spent on the millions of people who lost homes and livelihoods in Cyclone Nargis, which killed about 138,000 when it struck the Irrawaddy Delta on May 2.

The UN humanitarian chief, Sir John Holmes, raised the matter with the ruling generals yesterday but reached no agreement. “We need a solution and we need a solution quickly,” he said in the main Burmese city, Rangoon. “They did not say exactly how but they said they would try to find ways by which we could get round the problem.”

This week a joint report by the Burmese Government, the UN and South-East Asian governments said that $1 billion (£500million) one billion US dollars would be needed over the next three years to recover from the cyclone.

In the early weeks the generals were reluctant to allow foreigners to enter the disaster zone. The situation has eased, and hundreds of millions of dollars have been spent by the UN agencies, including $54 million (£27 million) from the British Government. Most of that does not need to be converted into Burmese kyats because it is spent outside the country on imported food, medical supplies and blankets. However, as the aid operation progresses from emergency relief to recovery, agencies will increasingly have to source their supplies locally.

The official exchange rate is six kyats to a dollar but this is a fiction used only in government accounting. The black market rate varies around 1,200 kyat to a dollar, and although this is the rate used in day-to-day transactions, Burmese are not allowed to hold dollars and changing them on the black market is illegal. Aid organisations are compelled to purchase foreign exchange certificates, the so-called “Monopoly money”, printed by the Burmese Government and exchanged at a rate of one dollar for one FEC. When these are changed into kyat at the government-controlled Myanmar Foreign Trade Bank, they are bought at an exchange rate significantly below the market rate for the dollars that were used to purchase them.

On July 9, according to information supplied by foreign diplomats, the dollar-to-kyat rate was 1,185 but the FEC-to-kyat rate was 980, a gap of 17.3 per cent. At other times the fluctuation in the FEC price has widened the gap even further. “It's a major problem and a huge concern for all of us, affecting all of the donor community,” the head of the World Food Programme in Burma, Chris Kaye, told The Times. “But the solution is not going to be easy, because the FECs are an important part of the way the government structures its economy.”
--Source: Times Online