US embassy cable - 05RANGOON1297

UNCLAS SECTION 01 OF 02 RANGOON 001297 
 
SIPDIS 
 
STATE FOR EAP/MLS; EB/TPP 
TREASURY FOR OASIA; AJEWELL 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ECON, ETRD, PGOV, BM, Economy 
SUBJECT: BURMA'S KYAT ON THE REBOUND? 
 
REFS:  A)RANGOON 1203, B)RANGOON 1139 
 
1. (U) Summary: From a record low of K.1360/$1 on September 
30, the Burmese kyat appreciated 8.1% to K.1250/$1 on 
October 31, 2005.  Local moneychangers forecast that it will 
continue to appreciate through tourist season (until May 
2006).  Despite the kyat's appreciation, prices of consumer 
goods and the inflation rate continued to increase in 
October.  End Summary. 
 
KYAT VALUE UP 
------------- 
2. (U) After hitting a record low of K.1360/$1 on September 
30 (Ref B), the kyat started appreciating in October, 
reaching K.1250/$1 on October 31, a gain of 8.1 percent. 
Moneychangers in Rangoon expect that the kyat will continue 
to appreciate until May 2006, by perhaps as much as 5-10 
percent, unless there is an unexpected local demand for US 
dollars. 
 
3. (U) One reason for the kyat's gain is the arrival of the 
traditional tourist season, which brings in U.S. dollars and 
increases the demand for kyat.  The currency also received a 
boost from increased public demand for kyat to pay higher 
fuel prices, which is adding about K.1 billion (US$850,000) 
to the government's coffers daily, according to Embassy 
calculations.  Also, the demand for dollars usually lessens 
at holiday time because trade activity declines. 
 
GEM SALES UP 
------------ 
4. (U) Another boost to the kyat came from an inflow of 
dollars spent by over 1,200 foreign gem merchants who 
visited the Mid Year Gems Emporium held in Rangoon from 
October 12 to 16.  The gems merchants make both formal and 
informal purchases of gems from local traders inside and 
outside the official Gems Emporium.  Official purchases at 
the Emporium are made through bank transfers in euros.  A 
source from Myanmar Gems Enterprises said that, although the 
attendance was about the same, gem sales were much higher 
this year than last year. 
 
5. (SBU) The increased sales at the Gems Emporium may be 
attributable to a new GOB regulation forbidding the 
previously-allowed sale of lower quality jade directly 
across the Chinese border.  Now all gems are supposed to be 
sold in the Emporium.  Some contacts in the mining industry 
say small miners are happy to do so because they earn credit 
from formal exports that they can use later to import goods. 
Others in the industry say that sellers have lost income 
formerly earned by under-reporting the value of their gem 
exports to the GOB and collecting the difference in Chinese 
bank accounts. 
 
PRICES UP TOO 
------------- 
6. (U) The kyat's appreciation in October did not 
significantly affect rapidly rising consumer prices.  The 
prices of many consumer goods and most transportation jumped 
after the GOB increased the official price of fuel in 
October (Ref. A).  The total cost of the Embassy's basket of 
low income sector goods increased 5.9% in October from 
September.  That is the highest month-to-month increase 
since August 2002. 
 
7. (SBU) The inflation rate, based on the total Consumer 
Price Index of the Embassy's basket for the previous 12 
months, was almost 14%.  The Embassy's informal estimate of 
the inflation rate for all sectors, including clothing, 
fuel, education, health, transportation and rental charges, 
is between 40% and 50% for the same period.  The GOB's 
official inflation rate (which is considered classified 
information in Burma), was just 6.3% for 12 months up to 
September. 
 
COMMENT: BENEFITS FLOW TO THE CENTER 
------------------------------------ 
8. (SBU) Unfortunately for Burma's poor, the benefits of a 
stronger kyat, such as cheaper imports, are more than offset 
by higher local food and transport costs.  The influx of 
dollars from foreign gem merchants and tourists does not 
improve the economic situation of the average citizen, since 
the majority of gem resources and tourism facilities are GOB- 
owned.  There will be some residual gains for small and 
medium private businesses that support the tourism industry, 
but the main beneficiary of the season's increased flows of 
foreign currency and tourists will continue to be the ruling 
regime. 
Stoltz