Jul 28, 2008 (DVB), United Nations humanitarian affairs chief John Holmes said the UN is working with the Burmese regime to address the loss of local aid expenditure due to the foreign exchange system.

Holmes said up to 25 percent of funds spent locally had been lost in the currency exchange system, but valued the losses at "probably less than $10 million so far".

"Clearly this is a significant problem in terms of the loss generated in terms of the dollar and that's why we've raised it with the government now," Holmes said.

"Perhaps we were a bit slow to recognize , because the spread suddenly widened in June , how big a problem this was going to become for us. We have recognized it and are taking it up with the government."

The Burmese system requires that dollars be converted into Foreign Exchange Certificates before they can be exchanged for kyat.

While the value of one FEC was previously approximately equal to one US dollar, in June the difference between the currencies widened to 25 percent and now stands at more than 20 percent.

"Obviously we would like to have a situation where there was no exchange loss," Holmes said.

"The ideal situation would be if we could pay with our dollars and get the market rate back in kyat [, ] and that is what we're asking for."

In response to concerns that the Burmese military regime was gaining from the exchange loss, Holmes said it was currency traders who benefited from the discrepancy, not the government.

Holmes said the currency rate only affected money spent locally, which the Office for the Coordination of Humanitarian Affairs estimated to be around one third of the total aid expenditure, the remaining two thirds having been spent outside the country on supplies to be imported and on salaries for international relief workers.

Burmese economist Khin Maung Nyo said the system was intended to allow foreign currency to be used in Burma but could be abandoned if conditions were right.

"If you look at China, you can see they came through a similar system to Burma’s FEC currency system , the main point of FEC is to make possible a legal use of foreign currency in Burma," Khin Maung Nyo said.

"If you ask if we could abandon the FEC system, I’d say yes we can , if Burma has a lot of foreign currency in the country," he said.

Reporting by Htet Aung Kyaw