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FM AMEMBASSY RANGOON
TO RUEHC/SECSTATE WASHDC IMMEDIATE 6454
INFO RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 1508
RUEHBY/AMEMBASSY CANBERRA 0477
RUEHKA/AMEMBASSY DHAKA 4595
RUEHLO/AMEMBASSY LONDON 1991
RUEHNE/AMEMBASSY NEW DELHI 4011
RUEHUL/AMEMBASSY SEOUL 7567
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RUEHKO/AMEMBASSY TOKYO 5124
RUEHCN/AMCONSUL CHENGDU 1181
RUEHCHI/AMCONSUL CHIANG MAI 1065
RUEHCI/AMCONSUL KOLKATA 0044
RUEATRS/DEPT OF TREASURY WASHDC
RUEHGV/USMISSION GENEVA 3264
RHEHNSC/NSC WASHDC
RUEKJCS/SECDEF WASHDC
RUEKJCS/JOINT STAFF WASHDC
RUCNDT/USMISSION USUN NEW YORK 0919
RUEHBS/USEU BRUSSELS

C O N F I D E N T I A L SECTION 01 OF 03 RANGOON 000838 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EAP/MLS; 
PACOM FOR FPA 
TREASURY FOR OASIA:SCHUN 
 
E.O. 12958: DECL: 09/07/2017 
TAGS: BM ECON EFIN IMF PGOV
SUBJECT: IMF CONDUCTS ARTICLE IV CONSULTATIONS 
 
 
RANGOON 00000838  001.2 OF 003 
 
 
Classified By: Economic Officer Samantha A. Carl-Yoder for Reasons 1.4 
(b,d) 
 
¶1.  (C) Summary:  An International Monetary Fund (IMF) team 
visited Burma August 22-September 4 for annual Article IV 
consultations.  The team found that despite improvements in 
revenue collections and more than $2 billion in oil and gas 
revenues, the GOB capital expenditures remain high, resulting 
in a continuing large fiscal deficit.  Inflation continues to 
soar, which the GOB cites as a reason to not unify exchange 
rates.  The GOB is unable to reconcile national accounts to 
determine a realistic GDP figure, but the IMF estimates 
Burma's real GDP growth to be 3-4 percent, rather than the 
12-13 percent touted by the generals.  The IMF remains 
concerned about declining capacity among government economic 
officials and has offered technical assistance to upgrade 
skills.  The team did not provide detailed findings to us for 
confidentiality reasons, but they will be made available to 
 
SIPDIS 
the Board.  Embassy Rangoon requests a copy of the report 
after it is sent to the Board.  End Summary. 
 
¶2. (C) The IMF team was led by Leslie Teo and included 
representatives of the World Bank and the Asian Development 
Bank.  They met Central Bank, Finance, Budget, Planning, 
Statistics, Customs, Mining, Energy, Oil and Gas, Electric 
Power, Construction, Labor, Industry, Education, Agriculture, 
Social Welfare, and Health officials.  In addition, they met 
with directors of selected State-Owned Enterprises, official 
and private bankers, the Chamber of Commerce, and 
representatives of Embassies and UN agencies.  Unlike last 
year, the team did not meet with the Prime Minister (who is 
dying in Singapore), although Teo noted that, on a technical 
level, this year's discussions were better than last year's. 
The team noticed clear capacity issues: experienced, erudite 
civil servants are reaching retirement and their replacements 
have lower-quality education and little to no exposure to the 
world outside of Burma.  A key Ministry of Finance contact, a 
qualified economist who openly and frankly discusses economic 
issues with the IMF, will be retiring shortly and the IMF is 
concerned that there are few government officials who could 
fill that role.  To upgrade skills, the IMF will provide GOB 
officials with technical assistance.  Teo told us that he 
expected that the team's recommendations would be relayed to 
the Cabinet, but doubted the Senior General would review the 
report. 
 
Resource Allocation and Rising 
Inflation Key Concerns 
------------------------------ 
 
¶3. (C) The IMF team arrived in Rangoon just as protests broke 
out against fuel price hikes.  GOB technocrats claimed credit 
for reducing the subsidy going to imported fuel.  The IMF 
quickly tried to distance itself from any responsibility when 
they met with us earlier.  Teo said the IMF had never urged 
the GOB specifically to reduce that subsidy and acknowledged 
the need to educate officials about the importance of taking 
into consideration the social implications of policies and 
measures to alleviate the impact on the poor. 
 
¶4. (C) The IMF team told us that Burma's economy is not 
performing at the level it should, given the country's 
abundant resources and economic potential.  The IMF rejected 
government GDP growth estimates (12.7 percent in 2006) as 
unrealistic, and stated that growth was only 3-4 percent. 
The team estimates that real 2007 growth rates will hover 
around 4 percent, due to increased production in the 
agricultural and oil and gas sectors.  Teo also emphasized 
that because of increased tax collection and lower spending 
 
RANGOON 00000838  002.2 OF 003 
 
 
by state-owned enterprises, the government reduced the budget 
deficit from 463.4 billion kyat in FY05 to 235.8 billion kyat 
in FY06.  The IMF believes, however, that the increased 
revenues will not offset the surge in capital expenditures in 
FY07, and the budget deficit will reach 4-5 percent of GDP. 
However, the IMF, working with GOB experts, has found it 
difficult to reconcile national accounts to determine a 
realistic GDP figure. 
 
¶5.  (C)  The real problem, Teo noted, is not the growth rate, 
but rather how resources are allocated.  The country fails to 
see the benefits of growth, as money is controlled by the 
military and not spent on education, health, and social 
welfare programs that would benefit the poor and raise the 
collective standard of living.  Despite more than $2 billion 
in oil and gas revenues, a majority of Burmese remain poor. 
In a departure from the usual Fund advice, the IMF strongly 
recommended the GOB increase expenditures on health and 
education. 
 
¶6.  (C) Although he could not discuss the statistics in 
detail for confidentiality reasons, Teo estimated that the 
money supply remains stable at between 2.5 and 3 trillion 
kyat.  The IMF team estimated that year-on-year inflation was 
between 30-40 percent, which is lower than the Embassy 
estimate of 57 percent.  Inflation is fueled by a loose 
monetary policy (printing money), which finances the deficit. 
 Technical-level officials remain concerned about inflation, 
and the government is in the process of updating its consumer 
price index, which is based on 1987 prices and uses an old 
data basket, to better reflect the current situation.  The 
IMF suggested that the GOB change its deficit finance plan 
and recommended ways to improve Burma's investment climate to 
attract new investment. 
 
¶7.  (C) Teo commented that the market rate of the kyat did 
not appear to be depreciating dramatically, signifying that 
inflation was not spiraling out of control.  The market kyat 
rate has reached 1350 kyat for one US dollar following the 
recent fuel price hike, a 10 percent decline from a year ago. 
 The IMF reiterated its advice that the government unify the 
exchange rate (which varies from the official rate of 6 
kyat/$1 on up).  Once again, the officials expressed great 
reluctance to make any adjustments, and pointed to the 
growing inflation rate as a reason against adjusting the 
exchange rate at this time. 
 
Some Improvements 
----------------- 
 
¶8.  (C)  The news is not all bad, the IMF explained, citing 
positive developments in both the policy and technical 
arenas.  Teo reiterated the government's success at reducing 
the deficit to GDP ratio due to a 50 percent increase in tax 
collections and lower spending by state-owned enterprises. 
The team also emphasized improvements in the trade sector, 
including the streamlining of the process for import and 
export licenses, which has improved the balance of payments. 
On the technical side, the GOB continues to work with the IMF 
to strengthen anti-money laundering efforts, including 
improving banking supervision.  The team also praised the 
GOB's recent actions to make more of its financial data 
available to the public on the Central Statistics Agency's 
website. 
 
Comment 
------- 
 
¶9.  (C) The IMF team zeroed in on a key point:  despite huge 
 
RANGOON 00000838  003.2 OF 003 
 
 
potential, Burma's severe economic problems result from 
mismanagement.  As long as the senior generals maintain 
power, the economy will continue to decline.  They are 
interested in increasing revenues but have no intention of 
sharing them with the people.  Only the military seems 
surprised that public discontent has begun to boil over. 
 
VILLAROSA