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Cablegate: Burma's Gas Exports Fuel a Record Trade Surplus

VZCZCXRO1219
RR RUEHCHI RUEHDT RUEHHM
DE RUEHGO #0563/01 1620911
ZNR UUUUU ZZH
R 110911Z JUN 07
FM AMEMBASSY RANGOON
TO RUEHC/SECSTATE WASHDC 6160
INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS
RUEHBJ/AMEMBASSY BEIJING 1446
RUEHBY/AMEMBASSY CANBERRA 0337
RUEHKA/AMEMBASSY DHAKA 4556
RUEHLO/AMEMBASSY LONDON 1956
RUEHNE/AMEMBASSY NEW DELHI 3885
RUEHUL/AMEMBASSY SEOUL 7432
RUEHKO/AMEMBASSY TOKYO 4984
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 RANGOON 000563

SIPDIS

STATE FOR EAP/MLS; EB/TPP

SIPDIS
SENSITIVE

E.O. 12958: N/A
TAGS: ECON ETRD EFIN PGOV BM
SUBJECT: BURMA'S GAS EXPORTS FUEL A RECORD TRADE SURPLUS

1. (U) Summary: Burma's total trade reached approximately
$8 billion in 2006-07, a record high. The country's rich
natural resources, especially natural gas, dominated
exports, while domestic fuel demand made diesel the top
import. Government-owned enterprises dominated both
sectors, controlling two thirds of exports and over a third
of imports during the last fiscal year. Burma's major
trading partners were Thailand, China, and Singapore. The
GOB achieved recent trade surpluses by restricting imports,
controlling lucrative sectors, exporting natural resources,
while hobbling private sector efforts to grow. End
summary.

2. (U) At the start of the fiscal year in April 2006, GOB
officials projected that Burma's foreign trade volume would
reach $7 billion in 2006-07. A Commerce Ministry report
quoted in the local press on May 21 listed Burma's exports,
led by natural gas, at $5.01 billion, and imports at $2.92
billion, totaling $7.93 billion in overall trade. This
represents a 43% increase over last fiscal year's official
performance of $5.54 billion, and a record high since the
regime took power in 1989. A local private research
company Business Information Group (B.I.G.) estimated that
foreign trade was slightly higher, at $8.29 billion.
B.I.G. uses figures from Customs officials, who report
actual trade figures, whereas Commerce officials use totals
listed on licenses they issue.

RESOURCES OUT, MUCH LESS IN
---------------------------
3. (SBU) Another Customs report stated that the Myanmar Oil
and Gas Enterprise (MOGE) earned $2.16 billion in fiscal
year 2006-07, more than double the 2005-06 figure. MOGE
revenues, divided with international partners, came mostly
from natural gas exports to Thailand. An Energy official
was quoted as saying last year's increase came not from
greater volume, but from higher prices for gas exports.
One industry source, however, refuted the claims of a 100%
revenue increase from gas exports. He said the volume of
gas exported was up about 5% and revenues rose only about
15% in calendar year 2006.

4. (U) Other top exporters include Myanmar Timber
Enterprise (which earned $519 million), Myanma Gems
Enterprise ($296.6 million), Myanmar Ivanhoe Copper, a
joint Canadian - Ministry of Mines venture($106.6 million),
and Htoo Trading, owned by crony Tay Za and involved
heavily in timber and construction industries ($65.1
million). State enterprises generated 61% of export
income.

5. (U) The private sector accounted for 64% of all imports,
but most importers are small and only one private firm,
Rothmans of Pall Mall, was among the top importers. The
leading state-owned importer, Myanmar Petrochemical,
brought in $676.3 million in diesel and petroleum products
for domestic consumption. MOGE was second with equipment
imports to support the oil and gas industry. The U.S.
Embassy is listed as the country's tenth largest importer
($20.7 million), thanks to materials imported for
construction of the new embassy compound.

6. (U) According to B.I.G, Burma's primary export products
were natural gas, agricultural products, timber and forest
products, precious and semiprecious stones, marine
products, textiles and garments, mineral products, and
animal products. Major imports include diesel and oil,
machine parts, steel, iron, cars, food and beverages,
plastic, medicines, palm oil, cement, and tires.

7. (U) The Commerce Ministry report lists Thailand as
Burma's top trading partner with $2.66 billion in bilateral
trade, followed by China ($1.27 billion), Singapore ($1.22
billion), and India ($895 million). Thailand, India, Hong
Kong and China are the top export markets. Singapore,
China and Thailand are leading sources of imports.

BORDER TRADE REACHES $1 BILLION
-------------------------------
8. (SBU) The overall figures include border trade
transactions. Most border trade has traditionally been

RANGOON 00000563 002 OF 002


conducted outside the banking system. According to a
Department of Border Trade (DBT) official and several
business sources, authorities plan to normalize border
trade at all eleven border crossing points by conducting
transactions with Letters of Credit (LCs) and electronic
transfers. DBT officials and business contacts said that
some transactions for container-sized shipments now go
through the formal banking sector. One businessman told us
that, despite Burmese urging to formalize trade, Chinese
trading partners are reluctant to conduct business through
banks, fearing the effect of Burma sanctions on their
relationships with American banks.

9. (U) Although no official statistics for border trade
exist, the Weekly Eleven journal, quoting a Ministry of
Commerce source, released border trade figures for 2006-07.
These figures do not include the significant amount of
black market trade that flows across Burma's porous
borders.
(US$ million)
Export Import Total Trade
------ ------ -----------
Burma - China 423 298 721
Burma - Thailand 160 88 248
Burma - Bangladesh 24 1 25
Burma - India 11 6 17
------ ------ -----------
Total 618 393 1,011

TRADE SURPLUS DOES NOT MEAN A BOOMING ECONOMY
---------------------------------------------
10. (U) The government attributed the $2.09 billion trade
surplus to its "export first" policy. Importers must prove
they have earned an equivalent amount from exports before
they can receive an import permit. The government-run
Central Statistics Organization's (CSO) figures for 2005-06
show trade volume of $5.54 billion, with $1.57 surplus, and
in 2004-05 trade volume of $4.90 billion, with $935 million
surplus. IMF figures from Article IV consultations for
import and export totals closely track those published by
CSO, while B.I.G. figures are approximately 10% higher.

11. (SBU) In February, Economic Minister Soe Tha claimed
that Burma's trade surplus indicated that the country's
economy was booming. Senior local economists disagree.
They note that Burma exports natural resources, not
commercial, manufactured or industrial goods, and Burma
does not import capital inputs to develop productive
industries. Moreover, the GOB's "export first"
restrictions on import permits guarantee a trade surplus
because import volume can not exceed export volume.

12. (U) Government restrictions keep the private sector
from starting or expanding potentially successful import or
export businesses. One contact described some of the most
challenging difficulties faced by private business
representatives who are not among the crony elite: the
government won't issue import permits for advanced
machinery; issuance of export permits is unpredictable and
slow; official permission to travel for training abroad is
rarely given; no reliable power, communications or
transport infrastructure exists in the country; the
government controls the most lucrative sectors; currency
depreciation coupled with bureaucratic delays make pricing
difficult; and the unattractive business climate keeps
potential international partners away.

13. (SBU) Comment: These trade figures reveal how revenues
from export of Burma's resources keep the generals rich and
in power. Sadly, little trickles down to the people. The
regime's efforts to maximize export earnings include
stifling development of the country's manufacturing,
industrial or service sectors. Burma suffers the resource
curse. End Comment.

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