US embassy cable - 03RANGOON214

C O N F I D E N T I A L SECTION 01 OF 02 RANGOON 000214 
 
SIPDIS 
 
STATE FOR EAP AND EB 
TREASURY FOR OASIA 
CDR PACOM FOR FPA 
 
E.O. 12958: DECL: 02/18/2013 
TAGS: EFIN, BM, Economy 
SUBJECT: BANKING CRISIS CONTINUES; STILL NO EFFECTIVE 
GO0VERNMENT ACTION 
 
REF: RANGOON 213 
 
Classified By: CDA, a.i. Ron McMullen.  Reason: 1.5 (d). 
 
1. (C) Summary: Burma's banking crisis has continued to build 
in the absence of government action.  Several private banks 
have effectively closed, while the Myanmar Bankers 
Association has agreed to further reduce the limits on 
withdrawals to only 200,000 kyat (i.e., $200) per account per 
week.  Government banks have continued to operate normally, 
but their deposits represent only a small fraction of the 
entire banking system's.  Moreover, even their operations 
have been interrupted to a degree by the problems at the 
private banks.  End Summary. 
 
2. (C) Burma's banking crisis continued unabated on February 
19 in the absence of any effective government response. 
While the Central Bank has reportedly extended emergency 
credits to several banks and brought in several truckloads of 
bills to meet the banks demands for cash, the government 
itself has still not issued any statement regarding its 
intent to support the private banks.  Some of the 
government's steps have even been counterproductive.  On 
February 17, the government instructed Myawaddy Bank, which 
is affiliated with the Myanmar Economic Holdings Limited 
(MEHL), to transfer all official government and military 
accounts to the Myanmar Economic Corporation's Inwaa Bank. 
This order had nothing to do with the banking crisis; it was 
essentially precipitated by MEHL's fall from grace as the 
favored military corporation in country.  Nevertheless, 5 
billion kyat in deposits crossed the street, putting the 
joint venture Myawaddy Bank in trouble along with the private 
banks. 
 
3. (C) As might be expected under these circumstances, lines 
have continued to form in front of all the private banks, 
forcing several to effectively close.  Meanwhile, the Myanmar 
Bankers Association (an unoffical grouping of private 
bankers) agreed on February 18 to further reduce the limit on 
withdrawals from 500,000 to 200,000 kyat (i.e., about $200) 
per account per week.  There are also increasing signs of 
payment problems, in part because some of the steps taken by 
the private banks ostensibly to slow withdrawals (e.g., a ban 
on account transfers even between branches of the same bank). 
 That ban may facilitate controls on withdrawals, but it also 
makes it nearly impossible for any company to do business. 
 
3. (C) Thus far, fortunately, only private banks have been 
affected by the crisis.  Government-owned banks such as 
Myanmar Economic Bank, Myanmar Investment and Commercial 
Bank, and the Myanmar Foreign Trade Bank have all continued 
to operate normally without restrictions on withdrawals. 
However, even they have been affected in cases where they 
have to arrange settlements through the private banks.  For 
instance, MFTB regularly redeems foreign currency by 
crediting the customer's kyat account at a local bank.  With 
private banks shutting down and limiting withdrawals, 
however, few customers want to see their accounts credited 
with any amount of kyat.  Moreover, the relative confidence 
people seem to have in government-owned banks does not 
reflect the quality of their operations.  Rather, the public 
appears simply to believe that the government is far more 
likely to stand behind its own banks than the private banks. 
 
4. (C) Finally, observers are increasingly sensitive to the 
potential political consequences of this crisis.  One of the 
best economic correspondents in country believes that 
mismanagement of this crisis could signal the beginning of 
the end for this government, or at least its current economic 
policy.  On February 18, he received "a panicky call" from 
the Office of the Chief of Military Intelligence asking him 
to do an options paper for GOB review.  He has recommended, 
he said, government guarantees of deposits scaled to the size 
of deposits (e.g., 100 percent for small depositors and 
running down to zero for those over a certain limit).  He has 
also recommended triage for the troubled banks, though 
whether the government has the capacity to pick the good 
banks from the bad remains to be tested. 
 
5. (C) In short, the public is now waiting on the GOB, which 
needs to make clear how it intends to deal with this crisis. 
If it does nothing, or waits too long to sort out the mess, 
it could find itself faced with increasing political as well 
as economic problems. 
McMullen