Wednesday, 9 July 2008

Junta Profits from Growing Gap in Value of Cash and FECs

The Irrawaddy News

The growing gap between the value of the US dollar and Burmese foreign exchange certificates (FECs)—introduced in 1994 to ensure that most hard currency that enters the country ends up in government hands—is turning Cyclone Nargis relief efforts into a major cash cow for Burma’s ruling junta.

All international aid agencies working in Burma are required to deposit money for operating expenses in accounts at the Myanmar Foreign Trade Bank (MFTB). These deposits—usually made in US dollars—can only be withdrawn in FECs, which are technically equal in value.

However, since Cyclone Nargis struck on May 2-3, the actual value of the FEC has fallen considerably, from slightly lower than the US unit to just over 80 percent of the dollar’s black market exchange rate.

According to members of Rangoon’s business community, FECs now fetch just 965 kyat per unit, while the dollar is worth around 1170.

Businessmen say the price of FECs started to fall in the wake of Cyclone Nargis, as Burmese living overseas began to transfer large amounts of cash into MFTB accounts to support the relief effort.

After the junta finally decided to allow major international aid agencies to enter the country in late May, the FECs dropped further.

“The demand for FECs [from international relief groups] increased, so the government just printed more,” said a Rangoon-based economic observer. “This drove down their value, because now the currency market is flooded with FECs.”

Besides international organizations and foreign-owned businesses, Burmese employed abroad are also required to hold MFTB accounts to send remittances to their families in Burma.

“I have to transfer my dollar salary to my MFTB account, but when my family withdraws the money in FECs, it’s worth a lot less,” complained a Burmese engineer working in South Africa. “Nowadays we lose at least 200 kyat on the dollar.”

A Burmese relief worker said that the more aid that flows into country, the less the FEC will be worth.

“International agencies and overseas Burmese deposit US dollars for local purchases, but they can only withdraw FECs. The more dollars that come into Burma, the more FEC there will be in the market,” said the relief worker.

Economic observers pointed out that the government, which has been driving down the value of the FEC by printing them in large numbers, is now effectively earning a 20 percent “tax” on all aid coming into the country.

According to figures released by the United Nations, US $134 million has so far been spent on the international relief mission in Burma, some of it used to purchase supplies and pay for services locally.

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