By Louis Charbonneau and Megan Davies
UNITED NATIONS (Reuters) - The top U.N. humanitarianaffairs official said on Monday the world body had suffered"significant" losses while delivering cyclone aid to Myanmardue to a distorted official exchange rate.
Earlier this month, the United Nations issued an appeal formore than $300 million (150.5 million pounds) in extra aid tocope with the effects of Cyclone Nargis that struck theIrrawaddy Delta region on May 2-3, leaving around 140,000people dead or missing.
Under-Secretary-General for Humanitarian Affairs JohnHolmes told reporters the United Nations has lost about $10million in currency exchanges so far as it pays for a varietyof goods and services in Myanmar.
"We were arguably a bit slow to recognize ... how serious aproblem this has become for us," Holmes said, adding the losswas "significant" and that the spread between the market andofficial rates widened suddenly in June.
"It's not acceptable," he added.
The loss comes from a complicated system whereby the UnitedNations uses foreign exchange certificates with a nominal valueof $1 each that are then exchanged for the local currency, thekyat, at a rate set by Myanmar's military government.
The market rate for kyats is around 1,100 per dollar butthe U.N. rate is now around 880, according to the Inner CityPress (www.innercitypress.com), a blog that covers the UnitedNations and first raised the currency exchange issue.
Holmes said the United Nations did not include the issue ofthe exchange rate losses in the appeal documents because U.N.officials "were not aware of the extent of the loss."
Holmes, who spoke at the United Nations after returningfrom a trip to the Irrawaddy Delta, said relief efforts wereimproving, with almost everyone affected by the cyclone nowhaving been reached with items like food or shelter.
A revised appeal for aid of $482 million had raised about$200 million so far, he said, adding that initial indicationsfrom donors were "quite positive."
He later said he was not aware of any countries refusing tocontribute because of the currency loss but that donors wereonly just realizing themselves the extent of the problems.
But withdrawing aid would only hurt the people of the Deltawho needed help, he said.
OVERVALUED EXCHANGE RATE
Inner City Press reported last week the junta changed theofficial exchange rate since the cyclone so that the estimatedloss of the United Nations had risen to 25 percent from 15percent on the spread between the official and marker rates.
It reported on Monday that an internal memorandum showedthe United Nations was aware of the problem in June.
The International Monetary Fund raised the issue of what itdescribed as Myanmar's distorted official exchange rate in areport in November 2007.
"The use of the highly overvalued official exchange ratefor conversion purposes results in understatement of externaltrade and the foreign component of consumption, governmentexpenditures, and investment," the IMF said in the report.
Holmes said it was unclear where the exchange rate losseswere going and who specifically was benefiting.
"It's not clear that it goes straight into the government'spockets, because they don't do the actual exchange," he said."That's done by currency vendors. I'm not saying that thereisn't some benefit to the government in the spread somewhere --the likelihood is that there is."
Holmes said that in any financial transaction there is anexchange loss.
"The question is 'Is this a reasonable kind of fee toaccept or is it not?'" he said. "And clearly 20 percent is areal problem for us."
(Editing by John O'Callaghan)
