AN INVESTIGATION has been launched into the year’s worst financial scandal, which led to the collapse of Myanmar’s beans and pulses market, a major earner of foreign currency.

The situation has left five major business entities under official investigation, with all of their assets frozen, and another three on the run.

These figures effectively formed a cartel prior to March 2008 that bought up massive stockpiles of beans and pulses in an attempt to inflate prices, banking on what they expected would be huge demand from India later in the year.

“Myanmar’s beans and pulses export industry was monopolised by four or five local giant merchants, and they betrayed the whole industry. They were not influenced by the beans and pulses association. All of them are very poorly educated and lacked any degree of international trading experience.”

“Unfortunately, these people have been driving one of the nation’s most important business sectors,” an official from Ministry of Information said.

Government trade officials, who became involved in late September, have now joined negotiations between those who lost money in the scandal and those thought to be responsible, say sources in the Ministries of Commerce and Information.

The scandal, which started in March, has collectively cost local beans and pulses traders up to K1 trillion (about US$1 billion), according to a Ministry of Commerce official. It may also have jeopardised trade relations with long-term foreign clients for the world’s second-largest beans and pulses industry.

Myanmar’s beans and pulses industry earned hefty profits last year by trading abroad, mostly to India, with many players cashing in. At the same time, big investors and speculators in the gold or car industries, who had suffered a downturn since the beginning of the year, decided they could share in the expected profits from the beans export industry.

Reports that India would need to increase its imports of beans and pulses this year helped fuel the speculation.

The merchants who formed the cartel had already verbally committed themselves to buying most of the local produce, hoping to dominate the supply.

And speculators flocked to these merchants, who in turn offered returns that started at 4 percent but that figure increased to 30pc later, an official from the Ministry of Commerce said.

Exports to India amounted to 70pc of total beans and pulses sales abroad last year. However, the merchants pushed prices from international levels of about $500 a tonne up to $700 when Indian buyers visited between June and September last year.

The Ministry of Commerce official said a number of local producers and brokers had, at that time, pushed to sell at international rates but the cartel refused, expecting the Indian buyers to back down.

The collapse came in the first week of November, when Indian buyers simply walked away from the negotiating table and bought from Vietnam instead.
Prices crashed from an inflated K800,000 a tonne for some varieties that normally sell for about K500,000, down to less than K400,000.

However, those within the cartel who had gleefully accepted investor money were, by this stage, in no position to return the funds. The Ministry of Commerce official said this money had been invested and consequently lost by speculating on international commodities such as gold and oil, which also crashed.

Investors lost their money but so too did the beans and pulses producers who had accepted word-of-mouth promises for their crops back in March and April.
Angry investors and growers rushed to retrieve their money from cartel members, sometimes resorting to force, a tactic that saw many arrested.
Police also arrested several cartel members who are now under investigation and have had their assets frozen.

However, that is not the end of the official action, the Ministry of Commerce official said.

“We are now restructuring the beans and pulses association and we will not allow such poorly educated to take senior roles in the export sector. In future all such figures will require international trade experience,” he said.

He added that the ministry will soon form a board of directors, numbering between seven and 10, to oversee the industry in future.