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