UNITED NATIONS - The top U.N. humanitarian affairs official said on Monday the world body had suffered "significant" losses while delivering cyclone aid to Myanmar due to a distorted official exchange rate.

Earlier this month, the United Nations issued an appeal for more than $300 million in extra aid to cope with the effects of Cyclone Nargis that struck the Irrawaddy Delta region on May 2-3, leaving around 140,000 people dead or missing.

Under-Secretary-General for Humanitarian Affairs John Holmes told reporters the United Nations has lost about $10 million in currency exchanges so far as it pays for a variety of goods and services in Myanmar.

"It's not acceptable," he added.

The loss comes from a complicated system whereby the United Nations uses foreign exchange certificates with a nominal value of $1 each that are then exchanged for the local currency, the kyat, at a rate set by Myanmar's military government.

The market rate for kyats is around 1,100 per dollar but the U.N. rate is now around 880, according to the Inner City Press , a blog that covers the United Nations and first raised the currency exchange issue.

Holmes said the United Nations did not include the issue of the 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 returning from a trip to the Irrawaddy Delta, said relief efforts were improving, with almost everyone affected by the cyclone now having 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 indications from donors were "quite positive."

He later said he was not aware of any countries refusing to contribute because of the currency loss but that donors were only just realizing themselves the extent of the problems.

But withdrawing aid would only hurt the people of the Delta who needed help, he said.

OVERVALUED EXCHANGE RATE

Inner City Press reported last week the junta changed the official exchange rate since the cyclone so that the estimated loss of the United Nations had risen to 25 percent from 15 percent on the spread between the official and marker rates.

It reported on Monday that an internal memorandum showed the United Nations was aware of the problem in June.

The International Monetary Fund raised the issue of what it described as Myanmar's distorted official exchange rate in a report in November 2007.

"The use of the highly overvalued official exchange rate for conversion purposes results in understatement of external trade and the foreign component of consumption, government expenditures, and investment," the IMF said in the report.

Holmes said it was unclear where the exchange rate losses were going and who specifically was benefiting.

"It's not clear that it goes straight into the government's pockets, because they don't do the actual exchange," he said. "That's done by currency vendors. I'm not saying that there isn'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 an exchange loss.

"The question is 'Is this a reasonable kind of fee to accept or is it not?'" he said. "And clearly 20 percent is a real problem for us."

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