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Cablegate: Burma's Kyat On the Rebound?

This record is a partial extract of the original cable. The full text of the original cable is not available.

140346Z Nov 05

UNCLAS SECTION 01 OF 02 RANGOON 001297

SIPDIS

STATE FOR EAP/MLS; EB/TPP
TREASURY FOR OASIA; AJEWELL

SENSITIVE

E.O. 12958: N/A
TAGS: ECON ETRD PGOV BM
SUBJECT: BURMA'S KYAT ON THE REBOUND?

REFS: A)RANGOON 1203, B)RANGOON 1139

1. (U) Summary: From a record low of K.1360/$1 on September
30, the Burmese kyat appreciated 8.1% to K.1250/$1 on
October 31, 2005. Local moneychangers forecast that it will
continue to appreciate through tourist season (until May
2006). Despite the kyat's appreciation, prices of consumer
goods and the inflation rate continued to increase in
October. End Summary.

KYAT VALUE UP
-------------
2. (U) After hitting a record low of K.1360/$1 on September
30 (Ref B), the kyat started appreciating in October,
reaching K.1250/$1 on October 31, a gain of 8.1 percent.
Moneychangers in Rangoon expect that the kyat will continue
to appreciate until May 2006, by perhaps as much as 5-10
percent, unless there is an unexpected local demand for US
dollars.

3. (U) One reason for the kyat's gain is the arrival of the
traditional tourist season, which brings in U.S. dollars and
increases the demand for kyat. The currency also received a
boost from increased public demand for kyat to pay higher
fuel prices, which is adding about K.1 billion (US$850,000)
to the government's coffers daily, according to Embassy
calculations. Also, the demand for dollars usually lessens
at holiday time because trade activity declines.

GEM SALES UP
------------
4. (U) Another boost to the kyat came from an inflow of
dollars spent by over 1,200 foreign gem merchants who
visited the Mid Year Gems Emporium held in Rangoon from
October 12 to 16. The gems merchants make both formal and
informal purchases of gems from local traders inside and
outside the official Gems Emporium. Official purchases at
the Emporium are made through bank transfers in euros. A
source from Myanmar Gems Enterprises said that, although the
attendance was about the same, gem sales were much higher
this year than last year.

5. (SBU) The increased sales at the Gems Emporium may be
attributable to a new GOB regulation forbidding the
previously-allowed sale of lower quality jade directly
across the Chinese border. Now all gems are supposed to be
sold in the Emporium. Some contacts in the mining industry
say small miners are happy to do so because they earn credit
from formal exports that they can use later to import goods.
Others in the industry say that sellers have lost income
formerly earned by under-reporting the value of their gem
exports to the GOB and collecting the difference in Chinese
bank accounts.

PRICES UP TOO
-------------
6. (U) The kyat's appreciation in October did not
significantly affect rapidly rising consumer prices. The
prices of many consumer goods and most transportation jumped
after the GOB increased the official price of fuel in
October (Ref. A). The total cost of the Embassy's basket of
low income sector goods increased 5.9% in October from
September. That is the highest month-to-month increase
since August 2002.

7. (SBU) The inflation rate, based on the total Consumer
Price Index of the Embassy's basket for the previous 12
months, was almost 14%. The Embassy's informal estimate of
the inflation rate for all sectors, including clothing,
fuel, education, health, transportation and rental charges,
is between 40% and 50% for the same period. The GOB's
official inflation rate (which is considered classified
information in Burma), was just 6.3% for 12 months up to
September.

COMMENT: BENEFITS FLOW TO THE CENTER
------------------------------------
8. (SBU) Unfortunately for Burma's poor, the benefits of a
stronger kyat, such as cheaper imports, are more than offset
by higher local food and transport costs. The influx of
dollars from foreign gem merchants and tourists does not
improve the economic situation of the average citizen, since
the majority of gem resources and tourism facilities are GOB-
owned. There will be some residual gains for small and
medium private businesses that support the tourism industry,
but the main beneficiary of the season's increased flows of
foreign currency and tourists will continue to be the ruling
regime.
Stoltz

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