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U.S. Asked U.N. About Exchange Rate Issues in Burma Year Before Latest Scandal

By George Russell

Fox News

August 1, 2008

More than a year before the United Nations discovered "very serious losses" of at least $10 million on foreign exchange transactions involving relief money sent to cyclone-battered Burma, U.S. diplomats raised similar concerns about spending in that country by the United Nations Development Programme (UNDP).

The concerns were not directly addressed. Neither was a U.S. request for copies of UNDP audits of the expenditures — even as UNDP revealed that its spending in Burma, which the country's military regime renamed Myanmar, had soared spectacularly, totaling more than $74 million between 2002 and 2006.

The requests for information about Burma came on May 9, 2007, from then U.S. Ambassador to the U.N. Mark Wallace, who had already ignited a firestorm of controversy earlier that year over UNDP's funneling of forbidden hard currency flows to the Kim Jong Il regime in North Korea.

In his letter to UNDP's No. 2 chief, Ad Melkert, Wallace declared that "urgent steps are needed to prevent serious abuse" in UN programs around the world, and expressed U.S. "concerns" about Burma's restrictions on UNDP operations in that country, which were imposed in February 2006.

Among those restrictions, Wallace said, was the demand that all UNDP hard currency deposits in the country be exchanged through a system of foreign exchange credits, or FECs, before being converted into local currency. The exchange rates were arbitrarily set by the Burmese regime.

Earlier this week, the U.N.'s Under Secretary General for Humanitarian Affairs, John Holmes, admitted after earlier U.N. denials that "significant" foreign exchange losses had occurred in some $200 million in relief funds sent to Burma after Cyclone Nargis battered the country in May, leaving an estimated 140,000 people dead. While saying that U.N. officials were still digging into the issue, Holmes set the estimated losses at $10 million and indicated that they involved manipulation of the same FEC system.

So far, the U.N. has asked the international community for some $480 million in relief funding for Burma, and received only about a third of that.

The losses occurred after the regime arbitrarily widened the difference between the official and local market exchange rates in June, in effect making the local currency, the kyat, more expensive for users of the FECs. Just who got the profits arising from the new differential remains unclear.

Holmes termed the losses "unacceptable," but said that U.N. officials "were not aware of the extent of the loss" before the scam was exposed by an investigative blogger at the U.N., Matthew Russell Lee.

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