SANCTIONS FORCE GOB TO LOOK FOR DOLLAR SUBSTITUTES

C O N F I D E N T I A L RANGOON 001118 SIPDIS TREASURY FOR OASIA JEFF NEIL USPACOM FOR FPA E.O. 12958: DECL: 05/30/2013 TAGS: ETRD ECON EINV KFPC PGOV BM SUBJECT: SANCTIONS FORCE GOB TO LOOK FOR DOLLAR SUBSTITUTES REF: RANGOON 994 AND PREVIOUS Classified By: COM Carmen Martinez for Reasons 1.5 (B,D) ¶1. (C) Summary: Following the recent application of new U.S. trade and financial sanctions on Burma, the GOB has faced considerable difficulty in utilizing U.S. dollars for official foreign trade transactions. Third country entrepreneurs are unable, or unwilling, to issue letters of credit in U.S. dollars, forcing many Burma-based businessmen to resort to elaborate barter exchange and informal remittances. GOB authorities, who remain defiant as the dollarized Burmese economy continues to absorb the blow of sanctions, recently issued an official directive ordering banks and entrepreneurs to switch from U.S. dollars to Euros, Japanese Yen, or Singapore dollars for new and existing L/Cs and export/import licenses. The business community is highly skeptical, weary of income loss due to currency exchange requirements, and there are few signs that the new policy is catching on. End Summary ¶2. (SBU) Following President Bush's signing of the Burma Freedom and Democracy Act in July, Burma's principal trade finance institutions, the Myanma Foreign Trade Bank (MFTB) and the Myanma Investment and Commercial Bank (MICB), experienced an almost complete blockage of U.S. dollar transactions. U.S. sanctions prohibit financial services to Burma, which had a broad and direct impact on Burma's dollar-based foreign trade when trade transactions could no longer be cleared through the U.S. Many foreign-based financial institutions refused to conduct U.S. dollar transactions with companies in Burma and denied letters of credit in U.S. dollars. Among those shutting down transactions were many Singapore banks, who play an important role in Burma's trade and overall economy. ¶3. (C) As a result of the immediate trade crisis, Lt. General Min Thein, then Minister of the Office of the Chairman of the SPDC, chaired a meeting in mid-August with entrepreneurs to discuss the sanctions (reftel). Although no clear policy pronouncements emerged from this session, ministers in attendance subsequently collaborated to develop a plan to direct foreign trade away from the U.S. dollar toward several "alternative" currencies. We learned in early September that the Ministry of Commerce had issued an official directive on August 12, directing banks and entrepreneurs to amend values of goods in existing U.S. dollar export and import licenses, and all future licenses, in Euro, Japanese Yen, or Singapore dollars "for opening L/Cs and for payments." (Note: the GOB made no public announcement regarding this directive. End note). ¶4. (C) Comment: Businessmen in Burma, already fatigued by corrupt practices of the regime and frustrated by the GOB's reluctance to deal effectively with the sanctions, have no faith that the plan to de-dollarize the economy will succeed. Traders are already complaining that the new directive will cause significant currency exchange losses and they predict that overall official trade will decline sharply by the end of 2003. Ironically, Lt. General Min Thein, who was behind the plan to switch to Euro/Yen/Singapore dollar trade, was ousted from the cabinet in an SPDC cabinet shuffle on August ¶25. End comment. Martinez