Identifier
Created
Classification
Origin
06RANGOON1098
2006-08-03 03:38:00
CONFIDENTIAL
Embassy Rangoon
Cable title:  

IMF TEAM VISITS BURMA FOR ARTICLE IV CONSULTATIONS

Tags:  EFIN PGOV IMF BM 
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C O N F I D E N T I A L SECTION 01 OF 02 RANGOON 001098 

SIPDIS

SIPDIS

STATE FOR EAP/MLS; PACOM FOR FPA;
TREASURY FOR OASIA:S. SEARLS

E.O. 12958: DECL: 12/08/2015
TAGS: EFIN PGOV IMF BM
SUBJECT: IMF TEAM VISITS BURMA FOR ARTICLE IV CONSULTATIONS

RANGOON 00001098 001.2 OF 002


Classified By: CDA Villarosa for Reason 1.4 (b,d)

C O N F I D E N T I A L SECTION 01 OF 02 RANGOON 001098

SIPDIS

SIPDIS

STATE FOR EAP/MLS; PACOM FOR FPA;
TREASURY FOR OASIA:S. SEARLS

E.O. 12958: DECL: 12/08/2015
TAGS: EFIN PGOV IMF BM
SUBJECT: IMF TEAM VISITS BURMA FOR ARTICLE IV CONSULTATIONS

RANGOON 00001098 001.2 OF 002


Classified By: CDA Villarosa for Reason 1.4 (b,d)


1. (C) Summary: An International Monetary Fund (IMF) team
visited Burma July 10-21 for annual Article IV consultations.
Charge met with them privately during their visit plus
hosted a separate roundtable for the team with Burmese
private sector business and economic observers. The IMF team
received higher-level meetings than in previous years,
including with the Prime Minister in the new capital of
Naypyitaw. The IMF team generally found GOB officials
concerned about the fiscal deficit and rising inflation,
making progress on raising revenues, but failing to attract
investment. The team also found the GOB unwilling to tamper
with the multiple exchange rate system and unable to
reconcile national accounts to determine a realistic GDP
figure. GOB officials requested IMF assistance, but the IMF
team leader committed to nothing beyond technical advice.
The Burmese roundtable participants discussed the general
deterioration experienced in every sector of the economy.
The IMF team agreed that Burma had fallen behind its
neighbors due to mismanagement and serious political issues.
The IMF team did not provide detailed findings to us for
confidentiality reasons, but they will be made available to

SIPDIS
the Board. Embassy Rangoon requests a copy of the report
after it is sent to the Board. End Summary.


2. (C) The IMF team was led by Leslie Teo, and included Hooi
Eng Phang, the Executive Director for Southeast Asia, along
with representatives of the World Bank and the Asian
Development Bank. They met Central Bank, Finance, Budget,
Planning, Statistics, Customs, Mining, Energy, Oil and Gas,
Electric Power, Construction, Labor, Industry, Education,
Social Welfare and Health officials. In addition, they met
with directors of selected State-Owned Enterprises, official
and private bankers, the Chamber of Commerce, and
representatives of Embassies and UN agencies. Teo said that
every government office requested help from the team; he made

no commitments beyond technical advice. The team's meeting
with the Prime Minister received prominent coverage by the
government-controlled print and television media. Although
pleased with the higher-level attention, Teo remained
uncertain whether the team's recommendations would be relayed
to the Senior General and to what extent the IMF advice would
be taken.

Poor Quality Statistics
--------------

3. (C) The Roundtable began by discussing the quality of the
statistics the GOB now collects since one of our Burmese
participants had established the Central Statistics Office.
He noted that the GOB no longer regularly publishes
statistics. When he headed the department, he had tried to
gather complete statistics without analysis to avoid
political problems. But now he noted the statistics were
incomplete and even less reliable without facts or analysis
to back them. None of the Burmese participants believed the
statistics now cited by the GOB. Teo said that officials had
been very forthcoming with statistics, but noted that many of
the categories of statistics they received from the GOB were
marked N/A. He said the IMF could provide technical advice
to the GOB on the compilation of statistics.

Inflation a Concern But Not Exchange Rates
--------------


4. (C) Although he could not discuss the statistics in
detail for confidentiality reasons, Teo "roughly" estimated
that the money supply had increased from 3 trillion kyat last
year to somewhere between 4 and 5 trillion kyat this year.
The IMF team estimated that year-on-year inflation was 12.6

RANGOON 00001098 002.2 OF 002


percent, which surprised the roundtable participants. The
IMF team explained that the fuel price increases and civil
servant wage increases had occurred towards the end of the
year. With those increases factored in, the IMF estimated
inflation this year could reach 30-50 percent. Teo said the
technical-level officials were very concerned about
inflation. The GOB had followed the IMF's advice made last
year to reduce fuel subsidies and improve revenue collection,
which had helped to reduce the deficit. He also noted large
increases in foreign exchange revenues from gas sales. Teo
dismissed GOB excuses that sanctions had caused inflation.
The GOB also cited declining investment as a reason, and the
team suggested ways to improve the investment climate.


5. (C) The Burmese roundtable participants complained about
increased complications with customs, which they attributed
to GOB attempts to increase revenues. A pharmaceutical
distributor said that importers and exporters now must spend
10-14 days and make several trips to the new capital to get
necessary approvals; this added to the costs of doing
businesses. Others chimed in with complaints about corrupt
Customs officials. They requested the IMF advise the GOB to
simplify the process and make it more transparent. Teo
promised to do so saying the GOB needs to improve
transparency. He added that the Prime Minister seemed
particularly interested in measures to combat corruption.


6. (C) The Civil Service pay hikes announced last April also
troubled the Burmese roundtable participants. One former
state banker noted that he calculated that the increases
would cost the GOB 45 billion kyat per month, or 540 billion
kyat over the coming year. As a result, the price of rice
had increased 50 percent since April. So now private sector
workers seek wage hikes, which will further fuel inflation
and harm businesses already losing money due to higher fuel
prices and increased transactions costs. The Burmese
roundtable participants acknowledged that civil service wages
had been kept too low for too long, but criticized the timing
as bad psychologically.


7. (C) Teo commented that the market rate of the kyat did
not appear to depreciating dramatically, signifying that
inflation was not spiraling out of control. The Burmese
participants acknowledged that it had stabilized around 1310
kyat for one US dollar, but said officials frequently put
pressure on the money changers to maintain stability. The
Burmese also cited slowing business and the closure of border
trade as other factors depressing the demand for US dollars.


8. (C) Charge asked if the IMF had discussed the wide
variation in the official exchange rate (6 kyat/US$1) and the
market rate with numerous other in-between rates. Teo said
they have repeatedly tried to address this over the years,
but officials express great reluctance to make any
adjustments. The Burmese participants said almost all
Burmese used the market rate anyway, so concluded that the
official rate just distorts Burma's national income accounts.
Teo acknowledged that the team had also been unable to
resolve differences about Burma's national accounts and GDP,
but indicated some GOB receptivity to technical assistance in
this area.


9. (C) Comment: The IMF team clearly recognized that there
is little they could do as long as the larger political
issues remain unresolved. Greater transparency would reveal
the military's mismanagement of the economy. For that
reason, we do recommend that the IMF be encouraged to provide
technical assistance that increases transparency.
VILLAROSA