Cablegate: Burma: Five Thousand Kyat Note Creates Buzz,

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OO RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHGO #0657/01 2681027
ZNR UUUUU ZZH
O 251027Z SEP 09
FM AMEMBASSY RANGOON
TO RUEHC/SECSTATE WASHDC IMMEDIATE 9495
INFO RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHBK/AMEMBASSY BANGKOK 3086
RUEHBJ/AMEMBASSY BEIJING 2408
RUEHBY/AMEMBASSY CANBERRA 2291
RUEHKA/AMEMBASSY DHAKA 5318
RUEHLO/AMEMBASSY LONDON 2237
RUEHNE/AMEMBASSY NEW DELHI 5752
RUEHUL/AMEMBASSY SEOUL 9356
RUEHTC/AMEMBASSY THE HAGUE 0864
RUEHKO/AMEMBASSY TOKYO 6941
RUEHCN/AMCONSUL CHENGDU 1911
RUEHCHI/AMCONSUL CHIANG MAI 2342
RUEHCI/AMCONSUL KOLKATA 0752
RHHMUNA/CDR USPACOM HONOLULU HI
RUEKJCS/JOINT STAFF WASHDC
RUCNDT/USMISSION USUN NEW YORK 2725
RUEHGV/USMISSION GENEVA 4685
RUEATRS/DEPT OF TREASURY WASHDC
RUEKJCS/DIA WASHDC
RUEAIIA/CIA WASHDC
RHEHNSC/NSC WASHDC
RUEKJCS/SECDEF WASHDC

UNCLAS SECTION 01 OF 02 RANGOON 000657

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E.O. 12958: N/A
TAGS: ECON EFIN ETRD PREL PGOV PINR BM
SUBJECT: BURMA: FIVE THOUSAND KYAT NOTE CREATES BUZZ,
STOKES INFLATION FEARS

RANGOON 00000657 001.2 OF 002

Summary
-------

1. (SBU) The GOB used a prime-time TV broadcast to announce
the roll-out of a 5,000 kyat(K) note (worth slightly less
than USD 5). The highest note currently in circulation is
K1,000 (less than USD 1). Rangoon residents are excited
about the new bill, seemingly for its novelty and
convenience. The GOB has not publicly stated a monetary
policy to curb inflation associated with printing the new
denomination notes and inflation concerns drove up the price
of the dollar against the kyat as well as the price of gold
in the hours after the announcement.

A New Bill, Large Wallet Still Needed
-------------------------------------

2. (SBU) The GOB announced September 24 on state-run
television that on October 1 the Central Bank will begin
issuing K5,000 denomination bills. The broadcast carried
color images of a red bill with an elephant on one side and
an image of the future parliament building in Nay Pyi Taw on
the other. At the September 24 prevailing unofficial
exchange rate ($1 = K1,080) the new notes are will be worth
approximately $4.63. The largest bill now in circulation is
the K1,000, worth about $.93 at the September 24 rate. The
official exchange rate of $1 = K6 is widely ignored and
black-market money changers conduct most currency exchanges
in Burma.

Inflation Fears
---------------

3. (SBU) In its announcement of the new bills the GOB made
clear that existing currency will remain legal tender. The
GOB's English language New Light of Myanmar noted "All legal
tender currency notes and coins will continue to be in
circulation." Presumably that assurance was intended to
reassure a public that at least once in the past had seen the
government suddenly introduce new denominations of currency
coupled with an announcement that all old currency had become
valueless. Unfortunately, the GOB did not outline a
demonetization policy (in effect to pull out of circulation
five old K1,000 notes for each new K5,000 note). Such a
policy would curb the inflationary pressure of printing new
bills. According to a local journalist, the government
planned to call a meeting September 25 to warn leading
traders not to increase commodities prices in response to
introduction of the new bill.

4. (SBU) In the wake of the announcement, Rangoon's streets
are abuzz with talk of the new bills. Many seem excited with
the novelty and the fact that larger purchases will require
smaller bricks of cash. However, shoppers, merchants, and
currency traders are worried about inflation. The GOB's
infrequently released data on inflation is not credible and
foreign organizations have trouble collecting the required
inputs to estimate inflation. A January 2009 IMF report
estimated annual inflation to be around 30 percent over the
last two years. Additional inflationary pressure could have
meaningful effects on the average urban consumer.

5. (SBU) One embassy private-sector contact estimates the
effect of the new bills will be a 20 percent rise in prices.

RANGOON 00000657 002.2 OF 002

A business consultant with GOB contacts told us the
government will not pull older currency out of circulation as
it introduces the new bills. A commercial real estate
developer reportedly barred his staff from quoting lease
rates in kyat out of fear that a rate quoted today would be
worth less in the near future. This apprehension is
reflected in rising values of foreign currency and gold in
the Rangoon market. The dollar appreciated between five and
nine percent against the kyat in trading through
mid-afternoon on September 25. Gold prices in kyat also
climbed over six percent in the wake of the announcement.

A New Political Symbol?
-----------------------

6. (SBU) Some observers went beyond the financial
implications to delve into the potential political undertones
of the announcement and design of the new bill. The current
K1,000 note bears the image of a lion which is also the
symbol of the United Solidarity Development Association
(USDA), the GOB's mass mobilization organization. Some
sources speculate that a future military-backed political
party created to run in the 2010 elections will use an
elephant as its symbol. Others note that Senior General Than
Shwe hails from an area once famous for its elephants.
Finally, some wits have suggested a likeness between Than
Shwe and the elephant.

Contrarian Views
----------------

7. (SBU) One expatriate business contact expressed surprise
that gold and dollar values have moved significantly but
predicted only short-term increases. The same contact
expressed doubt that the new bill even exists. He told us a
close contact working in the GOB mint has yet to see any new
bills even though they are scheduled to debut next week. Two
contacts, a retired economist and an active banker,
acknowledged the lack of a publicly stated demonetization
policy and possible inflation risks but predicted the kyat's
devaluation against the dollar is temporary since the
decrepit state of Burma's economy limits the total underlying
demand for dollars.

DINGER

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