Myanmar exchange scam fleeces UN
By Brian McCartan
CHIANG MAI, Thailand - Myanmar's military junta has in recent months used a
dual exchange rate regime to divert funds away from the humanitarian efforts
overseen by the United Nations and other international aid agencies for the
Cyclone Nargis disaster that struck the country in May.
The system valued the local currency, the kyat, at 20% to 25% less than the
prevailing market rate, resulting in currency exchange losses that have ended
up in the military regime's coffers.
The UN has suffered losses of at least US$1.56 million to the distorted
exchange rate regime, while one senior UN official earlier estimated as much as
$10 million had been lost. While the junta on Monday appeared to relax the
system after news reports
spotlighted the diversion of funds meant for victims, the concession will
likely fail to overcome donor concerns about the lack of transparency
surrounding the humanitarian effort and increases the likelihood they will
decline to come up with the $1 billion the UN, Association of Southeast Asian
Nations (ASEAN) and the Myanmar government jointly estimated will be needed to
rebuild devastated areas.
As the focus of the relief effort shifts from emergency aid to reconstruction,
the UN and other aid agencies face the moral dilemma of how long they should
continue working with a regime that is reviled in much of the world for its
poor human rights record and negligence of the well-being of its own people.
Unless the UN plans to source all of its rebuilding materials from abroad, it
will soon become necessary for it to work hand-in-hand with government-approved
businesses, many of which are known to bankroll the regime and some of which
are under US and European economic and financial sanctions.
The UN is renowned for its ability to respond to disasters and coordinate
relief efforts. Its agencies have similarly become notorious for their lack of
oversight and controls that should ensure integrity of those same operations,
blind spots that have already come to light with the dual exchange rate system
and that will be a constant concern in working with a government Transparency
International ranked last year as tied with Somalia as the world's most
corrupt.
The Tripartite Core Group made up of the UN, ASEAN and the Myanmar government
issued its post-cyclone needs assessment on July 21 at an ASEAN foreign
ministers meeting in Singapore. The report estimated total damage from the
cyclone at $4 billion and appealed to foreign donors for $1 billion for relief
and reconstruction over a three-year period.
The report followed a second flash appeal to donors by the UN launched in New
York on July 10, which called for $481 million for emergency relief and
reconstruction. An additional $280 million was requested on top of the original
$201 million earmarked to cover the first year of operations, including
financial support for 13 UN agencies and 23 international non-governmental
organizations involved in the effort.
The ruling generals, on the other hand, have contributed very little to the
relief and reconstruction efforts. At the first flash appeal to foreign donors
held in Yangon in late May, around three weeks after the disaster first hit,
the junta requested $11.7 billion without a proper needs assessment. Critics
claim this demand was simply based on the amount of foreign money Indonesia's
Aceh received in the wake of the 2004 tsunami.
Since the first days after the May 2 cyclone, locals and analysts have noted an
almost complete lack of assistance from the military apart from clearing major
roads and, of course, for security. Aid sent from Thailand was shown
disingenuously on state-run television relabeled as having come from senior
generals themselves.
UN and regional dignitaries were taken on tours of model refugee camps, while
thousands of other survivors received little or no relief. After two weeks of
official inaction, the junta declared the relief phase over and began a mass
relocation of people back to their villages in a cynical attempt to show the
world that they had the situation under control.
See no evil
The UN has meanwhile downplayed the difficulties and restrictions its staffers
have faced and continues to laud the junta for its collaborative spirit. UN
officials have repeatedly announced their hopes the two sides can build on the
current goodwill and expand into other future areas of cooperation. John
Holmes, the UN's chief humanitarian relief official, estimated after his July
trip to the worst-hit Irrawaddy Delta region that the relief effort would
continue for another six months and the reconstruction period would likely last
until April 2009.
Donors, including the US and United Kingdom, have, however, remained reluctant
to pay the UN's bill and UN officials have complained they now face a funding
crunch for their cyclone relief operations. An August 14 report by the UN
Office for the Coordination of Humanitarian Aid (OCHA) said that only $196.3
million had been received of the $1 billion appeal. That shortfall has resulted
in curbs on activities.
The UN's World Food Program (WFP) announced in July that aid flights from
Bangkok's Don Muang airport would be discontinued from August 10, citing that
its three-month "rapid response" period ended on that date. The relief agency
also withdrew two of five helicopters from Myanmar and said the remaining two
would be pulled out in mid-November because of the expense. The WFP said
restored water and roadways could now be used to move supplies, though some see
this as spin-doctoring of the funding crunch that has dictated their
scaled-back operations.
Countries with trade and financial sanctions against the junta, including the
US and UK, are currently among the major aid providers, but this is expected to
change when the relief phase ends and reconstruction begins. Once Myanmar is
deemed able to domestically support its own reconstruction, the waivers now in
place on transfers of funds and materials to Myanmar will likely be rescinded,
especially as questions mount about how foreign funds have been funneled so
far.
Donor concerns intensified with revelations in late July about the large
windfall the junta had received through its grossly distorted dual exchange
rate mechanism, where the official fixed exchange rate is around 6.4 kyat to
the US dollar while the black market rate hovers around 1,100 kyat. Under
Myanmar's foreign exchange rules, US dollars that enter the country must first
be deposited in the state-owned Myanmar Foreign Trade Bank. Funds may then be
withdrawn as Foreign Exchange Certificates (FECs), which are calculated at yet
another rate of around 880 kyat to the dollar, and must be exchanged for kyat
before they may be used.
The Myanmar Foreign Trade Bank is used by the UN, international NGOs and
Burmese overseas remitting money back home. On his return from Myanmar in July,
the UN's Holmes admitted that the relief effort was losing millions of dollars
as a result of the regime's foreign exchange controls. "This is an
extraordinary exchange loss, and where the gain goes, I'm not sure," he told
reporters.
He went on to say that the issue had been raised in meetings on July 24 with
the generals as a "significant problem". Prior to the May 2 cyclone, the
kyat-to-FEC rate hovered between 960 or 980, but by late July that rate rose to
880 kyat while the kyat-US dollar black market rate was around 1,180. The
FEC-dollar rate is stipulated by the government, and by forcing the UN and
other aid agencies to exchange dollars for FECs before they may buy kyat the
generals collect 220 kyat per dollar exchanged. That market distortion
translated to a loss of 20%-25% on the FEC to kyat rate.
Passing mention
The issue was raised obliquely by the Tripartite Core Group in its July 18
assessment report, where it devoted a special box on page 23 to describe the
dual exchange rate policy as it applied to the assessment of damages. The
report noted that the official rate of 6.4 kyat to the dollar was used by the
government and state-owned enterprises "primarily for accounting purposes" and
that a market-determined rate was used for FECs.
It also noted a "parallel market" exists for exchanging US dollars into kyat
and that the 1,100 kyat to the US dollar market rate was used to determine the
damages accounted for in the report. However the analysis neatly passed over
the government-mandated conversion to FECs by which the military regime
collects a tidy 20%-25% premium over the market exchange rate. While the
revelation is new to the international media and has the potential to upset
donors, the system has been in place for over 15 years.
FECs were initially introduced by the government in 1993 to counter the higher
rates offered by black market money changers over the government fixed rate
used at banks and to take advantage of what the regime hoped would be a foreign
currency windfall as more tourists traveled to the country. In the latest UN
update on Cyclone Nargis relief efforts, Baker acknowledged that the UN had
lost $1.56 million to the foreign exchange conversion system.
Losses incurred by the exchange controls should be qualified, however, since,
according to Baker, much of the relief supplies are purchased overseas. He
said, "We are not getting the full value of dollars donated for emergency
relief, and donors are extremely worried and keen to see that this issue is
resolved."
In apparent damage-control mode, an August 13 press release by the Tripartite
Core Group announced that "humanitarian agencies are now invited to transfer
payments to US dollar accounts of vendors for supplies and services". Myanmar
Minister for National Planning and Economic Development U Soe Tha indicated
that vendors would be under no obligation to convert dollars into FECs or the
local currency. He went on to say that there was no obligation for
international organizations to commission particular local vendors.
Despite these missteps and money lost, the UN continues to portray its
relationship with the generals as one of increasing cooperation. On his return
from Myanmar on July 24, Holmes said he was optimistic about the continuing
relief effort. "We hope that the dialogue and cooperation built up in the last
couple of months over the Cyclone Nargis response can be continued and
improved, and in the future extended to other humanitarian issues as well," he
said.
The Tripartite Core Group report significantly made no mention of the junta's
slow response to the disaster, which was widely lamented as inadequate and
callous by the international community. While the UN and international agencies
are undoubtedly providing much needed assistance, reports from the Irrawaddy
Delta indicate that there is still much room for improvement. While all
cyclone-affected areas have by now received some assistance, the distribution
has been highly uneven.
A small donor who returned from the region early last week noted that some
remote villages he visited had only just received aid in the past week or two,
nearly three months after the storm first hit on May 2. While Myanmar's
Ministry of Foreign Affairs has granted 369 visas to foreign aid workers,
obstacles remain in the form of time limits placed on visits to the delta and
the necessity of seeking government permission to travel. Local Myanmar
volunteers continue to be harassed and arrested for their relief activities.
Myanmar is estimated to have $3.5 billion in foreign reserves and receives an
estimated $150 million per month from gas export revenues alone, according to a
July 23 Human Rights Watch press release. Very little, if any, of this money
appears to have gone towards relief and reconstruction. Instead the regime has
squirreled away for itself at least $1.56 million through its distorted
exchange rate system.
Meanwhile, affected farmers and local volunteers complain that officials now
charge far above prevailing market rates for government supplies of seed and
petrol. Fertilizers, pesticides and other farming inputs are often sold through
businesses with strong ties to local government officials or the military, to
which they often pay a concession to operate.
Larger companies with known links to the regime, including several that have
been targeted by recent US sanctions, such as the Htoo Company and the Maung
Weik Company, have already been contracted for reconstruction activities.
Analysts suspect that they have accepted small-scale rehabilitation schemes in
order to gain concessions for subsequent big-ticket infrastructure and property
development projects the junta still hopes the donor community will finance.
Brian McCartan is a Chiang Mai-based freelance journalist. He may be
reached at brianpm@comcast.net
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