US embassy cable - 03RANGOON1118

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, Economy 
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