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Viewing cable 07RANGOON901, BURMESE PURCHASING POWER DECREASING AS PRICES RISE

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Reference ID Created Released Classification Origin
07RANGOON901 2007-09-19 05:06 2011-08-25 00:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Rangoon
VZCZCXRO1389
RR RUEHBZ RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHGO #0901/01 2620506
ZNR UUUUU ZZH
R 190506Z SEP 07
FM AMEMBASSY RANGOON
TO RUEHC/SECSTATE WASHDC 6543
RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHGG/UN SECURITY COUNCIL COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 1524
RUEHBY/AMEMBASSY CANBERRA 0524
RUEHKA/AMEMBASSY DHAKA 4617
RUEHNE/AMEMBASSY NEW DELHI 4056
RUEHUL/AMEMBASSY SEOUL 7614
RUEHKO/AMEMBASSY TOKYO 5171
RUEHCN/AMCONSUL CHENGDU 1203
RUEHCHI/AMCONSUL CHIANG MAI 1089
RUEHCI/AMCONSUL KOLKATA 0066
RUEATRS/DEPT OF TREASURY WASHDC
RHHMUNA/CDR USPACOM HONOLULU HI
RUEHGV/USMISSION GENEVA 3305
RHEHNSC/NSC WASHDC
RUCNDT/USMISSION USUN NEW YORK 0960
RUEKJCS/SECDEF WASHDC
RUEHBS/USEU BRUSSELS
RUEKJCS/JOINT STAFF WASHDC
UNCLAS SECTION 01 OF 03 RANGOON 000901 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/MLS, EEB/IFD/ODF 
PACOM FOR FPA 
TREASURY FOR OASIA:SCHUN 
 
E.O. 12958:N/A 
TAGS: ECON EFIN PREL BM
SUBJECT: BURMESE PURCHASING POWER DECREASING AS PRICES RISE 
 
REF: A) RANGOON 846     B)  RANGOON 749 
 
RANGOON 00000901  001.2 OF 003 
 
 
1.  (SBU) Summary.  The sudden increase of fuel prices in mid-August 
triggered an immediate increase in commodity and transportation 
costs.  Although many of these prices have fallen since their 
initial hike, prices are still higher than pre-August 15 levels. 
Only a few companies increased wages for their workers to counteract 
the higher prices and most urban have to get by with their normal 
monthly salary, which averages less than $30/month.  Inflation 
continues to rise and the kyat has depreciated 5 percent since 
August 15.  While lower-class Burmese feel the effects of declining 
purchasing power, companies must grapple with higher overhead costs 
and lower profit margins.  End Summary. 
 
Effects of the Fuel Price Hike 
------------------------------ 
 
2.  (SBU) On August 15, the Burmese Government, without prior 
warning, increased fuel prices between 66 and 100 percent on 
gasoline, diesel fuel, and natural gas (Ref B).  Transportation 
companies raised their prices accordingly and in the days following, 
bus fares rose between 100-300 percent and taxi fares more than 
doubled in downtown Rangoon, from 1000 kyat to 2500 kyat 
($0.75-1.85).  The public was outraged, and beginning August 21, 
democracy leaders organized protests against the government which 
continue today.  The GOB, attempting to undercut the momentum of the 
protests, verbally instructed all transportation companies to reduce 
fares.  Although transportation prices are no longer as high as they 
were at the end of August, we find them to be higher than pre-August 
15 levels.  Taxi fares are now anywhere between 500 and 1000 kyat 
higher ($0.37-0.75), regardless of destination.  While bus drivers 
reduced fares by 40 percent, they also altered bus routes, forcing 
people to take more than one bus to get to their final destination, 
which require a separate fare for each bus. 
 
3.  (SBU)  The fuel price hike also triggered a rise in commodity 
prices.  During the past month, we visited several wet markets to 
observe the price fluctuations.  On August 15, prices of meat, eggs, 
rice, and oil rose between 50 and 100 percent, and many Burmese 
rushed to the markets to purchase food before prices could skyrocket 
further.  Food sellers complained to us that they had no control 
over prices, as they had to compensate for higher transportation 
costs.  They also mentioned that people appeared to be doing 
without:  many of their customers began to shop elsewhere.  Two 
weeks after the fuel hike, basic commodities prices began to fall by 
100-200 kyats per day ($0.07-0.15), although the cost of certain 
luxury food items, such as beef, shrimp, and goat meat, remained 
high.  By mid-September, prices in the wet markets stabilized, 
although at a rate of 500-1000 ($0.37-0.75) kyats higher than 
previous levels.  While Embassy price figures for a basket of 36 
domestic and imported items show a 3.8 percent increase in prices 
since July, we estimate that an analysis of all prices would show an 
increase of more than 5 percent. 
 
Depreciation of the Kyat, 
Reduced Purchasing Power 
------------------------ 
 
4.  (SBU)  Higher transportation and commodity prices greatly affect 
urban Burmese, many of whom cannot afford these higher prices.  The 
75 percent of the population living in rural areas barely reaches 
subsistence levels.  According to the Chamber of Commerce, only a 
few companies raised wages for their workers between 5,000-10,000 
kyat a month, but the majority of businesses, including government 
offices, did not.  A few companies, such as City Mart and Daewoo 
International, provided their workers with a transportation subsidy 
to help offset costs, although this subsidy did little to address 
rising commodity prices. Several Burmese on the street told us that 
 
RANGOON 00000901  002.2 OF 003 
 
 
because they earn less than $30 a month, they are finding it 
difficult to pay their rent and other bills, let alone cover the 
rising costs of food. 
 
5.  (SBU) Between August 15 and September 18, the kyat depreciated 5 
percent, from a market value of 1305 kyat/$1 to 1370 kyat/$1. 
(Note:  The official exchange rate remains pegged at 6 kyat/$1.  End 
Note).  Local economists attribute the depreciation to high fuel 
prices, the current political turmoil, and the lack of a stable 
exchange rate system.  Higher prices, compounded by the depreciation 
of the kyat, contribute to a loss of purchasing power, forcing many 
lower-class Burmese to do without. 
 
6.  (SBU)  Win Win Tint, Managing Director of City Mart, Burma's 
largest supermarket chain serving middle to upper class customers, 
explained that despite the devaluation of the kyat, her stores have 
seen a surge in customers since August 15.  According to Win Win 
Tint, the average customer spends 6,000 kyat ($4.50) per trip.  She 
commented that their money does not go as far as it used to; people 
spend the same amount of money, but buy fewer products.  People have 
begun to shop more in supermarkets since August 15 because the 
quality of food is better and the prices of goods, which are based 
on previous orders and inventory, are more stable than in the local 
markets.  Other local supermarkets, including Ocean, Asia Light and 
Orange, also confirmed an increase in customers since mid-August. 
 
Impact on Businesses 
-------------------- 
 
7.  (SBU)  In meetings with businessmen over the past month, we 
inquired about the impact of the fuel price hike on their 
operations.  All businessmen pointed to the same trend - rising 
overhead costs.  Business owners pointed to the new demands for 
higher wages and reliance on generators - which use a substantial 
amount of fuel - to provide electricity as reasons for the higher 
overhead costs.  Win Win Tint noted that since the first fuel price 
hike in October 2005, City Mart's operating costs have increased by 
more than 50 percent.  Higher overhead costs cut into profits, and 
many local companies have seen a drop in their profit margins. 
Despite lower profits, companies that want to compete have to keep 
prices relatively stable.  Win Win Tint asserted that because of the 
decreasing purchasing power of the kyat, businesses are unable to 
increase their prices to cover rising costs.  Instead of paying 
higher prices, people will just stop buying expensive products. 
Companies instead have to focus on ways to cut costs, which often 
means reducing staff. 
 
8.  (SBU)  Taxi drivers also complain about the high costs of fuel. 
Whereas before August 15, many could eek out a living, many taxi 
drivers find themselves barely breaking even.  Customers refuse to 
pay steep prices for taxi rides, and taxi drivers can only increase 
fares by an average of 750 kyat ($0.55).  Because they have to pay 
such high prices for fuel and cannot recoup the costs by charging 
higher fares, many taxi drivers have told us that they limit their 
driving area to locations where there are many people.  They also 
explained how they are waiting for tourist season to begin in 
November, as they can charge visiting foreigners higher fares than 
the Burmese. 
 
Comment 
------- 
 
9.  (SBU)  The GOB continues to make uninformed economic decisions, 
with little regard to how they will affect the people.  The 
unannounced and unexplained fuel price hikes put additional 
inflationary pressure, which we estimate has reached 57 percent, on 
a stumbling economy.  The generals live isolated from the people and 
personally benefit from rising oil and gas prices.  Their detachment 
 
RANGOON 00000901  003.2 OF 003 
 
 
from what ordinary people are experiencing economically also leaves 
them out of touch with increasing popular discontent.  We see no 
evidence that recent events have caused them to modify their views. 
Arresting people who dare to speak out critically does nothing to 
address the underlying cause of discontent. 
 
VILLAROSA