REUTERS: U.N. admits "significant" Myanmar exchange rate loss

By Louis Charbonneau and Megan Davies
REUTERS

UNITED NATIONS (Reuters) - The United Nations top humanitarian affairs official said on Monday that the world body had incurred "significant" losses in Myanmar due to a distorted official exchange rate while delivering cyclone aid.

Earlier this month the United Nations issued an appeal for over $300 million in additional aid for Myanmar to cope with the effects of a cyclone in May that left around 140,000 people dead or missing.

U.N. Under-Secretary-General for Humanitarian Affairs John Holmes told reporters that the world body has so far lost around $10 million on aid delivered so far, adding up to an average loss of some 15 percent.

"We were arguably a bit slow to recognize ... how serious a problem this has become for us," Holmes told reporters, adding that the loss was "significant." He said the spread between the market and official rate widened suddenly in June.

"It's not acceptable," he added.

Holmes said the reason the United Nations did not include the issue of the exchange rate losses in the appeal documents was that U.N. officials did not realize the severity of the problem.

"Certainly at the time the appeal was made, we were not aware of the extent of the loss," he said.

The issue was first raised by the news blog Inner City Press (www.innercitypress.com), which follows the United Nations.

It reported last week that the military junta had changed the official exchange rate since the cyclone so that the estimated loss had increased from 15 percent to 25 percent.

Inner City Press reported on Monday that an internal U.N. memorandum showed the United Nations was aware of the problem as early as June.

The loss comes from a complicated system whereby the United Nations uses so-called foreign exchange certificates, which have a nominal value of $1 per certificate and are then exchanged for local currency, kyats, at a rate set by the government.

The market rate for kyats is around 1,100 per dollar but the U.N. rate is now around 880, according to Inner City Press. Holmes confirmed the losses had expanded to as much as 25 percent.

The International Monetary Fund raised the issue of what it described as Myanmar's distorted official exchange rate in a report it published in November 2007.

"The use of the highly overvalued official exchange rate for conversion purposes results in understatement of external trade and the foreign component of consumption, government expenditures, and investment," the IMF said in the report.

Holmes said it was unclear where the exchange rate losses were going and who specifically was benefiting.

"It's not clear that it goes straight into the government's pockets, because they don't do the actual exchange," he said. "That's done by currency vendors. I'm not saying that there isn't some benefit to the government in the spread somewhere -- the likelihood is that there is."

Holmes added that in any financial transaction there is an exchange loss. "The question is -- is this a reasonable kind of fee to accept or is it not, and clearly 20 percent is a real problem for us."