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Cablegate: Gob Encourages Use of Singapore Dollars

VZCZCXRO6392
RR RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHGO #0198/01 0770102
ZNR UUUUU ZZH
R 170102Z MAR 08
FM AMEMBASSY RANGOON
TO RUEHC/SECSTATE WASHDC 7303
RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 1787
RUEHBY/AMEMBASSY CANBERRA 1002
RUEHKA/AMEMBASSY DHAKA 4799
RUEHNE/AMEMBASSY NEW DELHI 4554
RUEHUL/AMEMBASSY SEOUL 8093
RUEHKO/AMEMBASSY TOKYO 5654
RUEHVI/AMEMBASSY VIENNA 0116
RUEHCN/AMCONSUL CHENGDU 1393
RUEHCHI/AMCONSUL CHIANG MAI 1464
RUEHCI/AMCONSUL KOLKATA 0251
RUEAUSA/DEPT OF HHS WASHDC
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC
RHHMUNA/CDR USPACOM HONOLULU HI
RUEHPH/CDC ATLANTA GA
RUCLRFA/USDA WASHDC
RUEHRC/USDA FAS WASHDC
RHEHNSC/NSC WASHDC
RUEKJCS/SECDEF WASHDC
RUEKJCS/JOINT STAFF WASHDC

UNCLAS SECTION 01 OF 03 RANGOON 000198

SIPDIS

SENSITIVE
SIPDIS

DEPT FOR EAP/MLS, EEB/IFD
TREASURY FOR OASIA:SCHUN
PACOM FOR FPA

E.O. 12958:N/A
TAGS: ECON EFIN ETRD PREL BM
SUBJECT: GOB ENCOURAGES USE OF SINGAPORE DOLLARS

REF: Rangoon 197

RANGOON 00000198 001.2 OF 003


1. (SBU) Summary. In a change to its banking policy, the Burmese
Government now permits private companies with foreign export
earnings to open Singapore dollar-denominated bank accounts in three
state-owned banks -- Myanmar Foreign Trade Bank, Myanmar Investment
and Commercial Bank, and Myanmar Economic Bank. According to
bankers, the availability of Singapore dollar accounts encourages
increased trade between Burma and Singapore because companies will
no longer lose profits when they change Singapore dollar earnings
into U.S. dollars before depositing them in a Burmese bank.
Additionally, by using Singapore dollars, the regime can better
circumvent U.S. sanctions and ensure that financial transactions are
not frozen. In the past month, several large trading companies
opened Singapore dollar accounts, although most private companies
prefer to conduct transactions in U.S. dollars because foreign
partners still use dollars. End Summary.

Deemphasizing US Dollars
------------------------

2. (SBU) Although the official currencies of Burma are the kyat and
the FEC (Foreign Exchange Currency) and Burmese law makes it illegal
for Burmese citizens to hold foreign currency, the dollar is widely
used in country for everyday financial transactions. Foreign-owned
companies, including restaurants and hotels, price goods in dollars,
and many Burmese-owned businesses accept dollars in lieu of kyat or
FEC. Since U.S. financial sanctions on Burma went into effect in
2004, the Burmese Government has attempted to reduce the influence
and widespread use of the U.S. dollar. In 2005, it passed a
regulation allowing private companies to use the Euro and other
foreign currencies for trading and financial transactions. However,
companies with foreign export earnings could only open Euro or U.S.
dollar denominated accounts, limiting the use of Singapore dollars,
Chinese yuan, or Thai baht in trade transactions.

Sanctions Disrupting Business Flows
-----------------------------------

3. (SBU) Because Burma's internal policies were not conducive to
trade in non-U.S. dollar denominations, business contacts estimated
that despite the 2005 regulation, more than 90 percent of businesses
in Burma maintain U.S. dollar accounts rather than Euro accounts at
the Myanmar Foreign Trade Bank (MFTB), one of four state-owned banks
that may hold foreign exchange (Reftel). For years, international
trading companies have complained that U.S. financial sanctions make
doing business in Burma more difficult -- because U.S. dollars
cannot be transferred directly to Burmese bank accounts, businesses
had to open accounts in Singapore to make financial transactions.
According to Kanbawza Bank Consultant U Than Lwin, companies pay
heavily for the Singapore bank accounts, since they must hold
Singapore dollars and change them into U.S. dollars at the official
rate or bank rate for each transaction, as well as pay a hefty
exchange fee. Depending on the amount of each transaction, a
company can lose thousands of dollars in exchange fees and currency
price difference, he noted.

4. (SBU) The government's recent announcement permitting companies
with foreign exchange earnings to open Singapore dollar-denominated
accounts addresses business complaints, U Than Lwin declared. Since
businesses can now transfer Singapore dollars directly to MFTB
without changing them to U.S. dollars or Euros, they save on the
exchange fees, he explained. Although the government provided no
justification for its recent policy change, U Than Lwin commented
that in addition to making it easier for businesses to trade with
Singapore, it may reduce the amount of U.S. dollars entering Burma
and perhaps the overall use of dollars. Additionally, the policy is

RANGOON 00000198 002.2 OF 003


another way for the government to circumvent U.S. sanctions, showing
that it does not need to use U.S. dollars to trade internationally.


Encouraging Trade With Singapore
-------------------------------

5. (SBU) Singapore is Burma's largest trade partner, accounting for
29 percent of imports and 6 percent of exports in 2007. Burma
primarily imports finished products from Singapore, such as food
products, chemicals, and machine parts, while it exports
commodities, particularly agricultural products, to the
island-nation. While trade between the two countries has increased
in the past five years, Burma continues to have a large trade
deficit with Singapore, worth $464 million in 2007.

--------------------------------------------- -------
Burma Trade with Singapore, 2005-2007
In U.S. Dollars
--------------------------------------------- -------
Year Imports Percent Exports Percent
From Spre Change to Spre Change
--------------------------------------------- -------
2005 602,985,615 -- 257,662,576 --
2006 813,883,761 34.97 189,946,153 26.28
2007 811,293,513 - 0.32 347,141,440 82.76
--------------------------------------------- -------
Source: BIG, 2008

6. (SBU) According to businessmen, the Burmese Government
continues to encourage trade with Singapore and the new banking
policy reinforces how important trade with Singapore is to Burma.
In the past month, several large trading companies, including Htoo
Trading, have opened Singapore dollar accounts and have begun
trading using Singapore dollars instead of U.S. dollars. However,
many of the businessmen we spoke to said that companies in Burma
prefer to use the U.S. dollar for international transactions because
their trading partners, particularly the Chinese, Japanese, and
Koreans, price in U.S dollars and have mechanisms to accept U.S.
dollars rather than other foreign currencies. U Than Lwin opined
that companies such as City Mart (Burma's largest grocery store),
which does the majority of its business with Singaporean companies,
may open up Singapore dollar accounts, but companies that deal with
multiple international partners may stay with U.S. dollar accounts.


7. (SBU) Another barrier to opening Singapore dollar-denominated
accounts is that there is a nascent informal exchange market for
Singapore dollars in Burma. MFTB will exchange Singapore dollars
for kyat at the official rate of 3.83 kyat per 1 Singapore dollar.
Only a few local money traders will accept Singapore dollars and
sell kyat for 800 kyat for 1 Singapore dollar. We know several
businessmen who engage in arbitrage, selling Singapore dollars for
U.S. dollars at the rate of 1.25 Singapore dollars per $1 and then
purchasing kyat at the market rate of 1100 kyat per $1. As the
market for Singapore dollars expands, businessmen predict that
financially savvy Burmese will attempt to make a profit on the
foreign exchange market.

Comment
-------

8. (SBU) Despite GOB efforts to encourage the use of Singapore
dollars, the U.S. dollar remains king in Burma. If the U.S. dollar
continues to depreciate against world currencies, more businessmen
may turn to alternate currencies, although they are more likely to
choose the Euro over the Singapore dollar. Businessmen in general

RANGOON 00000198 003.2 OF 003


are not interested in dealing with niche currencies and prefer to
use the U.S. dollar, since it is the most widely accepted currency.
Those businessmen looking to avoid U.S. sanctions, like Tay Za or
even the senior generals, may opt for the Singapore dollar, but the
majority of Burmese still prefer the greenback.

VILLAROSA

© Scoop Media

 
 
 
 
 
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