VZCZCXRO4381
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 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/MLS, INR/EAP, 
PACOM FOR FPA 
 
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