New Delhi - Over two months on after relief efforts, the United Nations has perforce admitted that there is a 'serious issue'  involved in the conversion mechanism of the aid money provided to Burma's cyclone victims.

The UN Secretary-General's spokesperson, Michele Montas, on Thursday said John Holmes, the UN humanitarian chief, has acknowledged that there are problems in foreign exchange rate while converting aid money provided  for relief work.

"There are losses implicit in the gap between the street rate and the official 'Foreign Exchange Certificate' rate," Montas told reporters in New York, adding "Aid agencies and donors alike are concerned about this because fewer services can be purchased."

Montas said, Holmes, who is on a three-day visit to cyclone-stricken Burma, raised the issue with the Burmese government during a meeting.

"They understood the problem and they will find a way to resolve it, though no further details have been given by the government," Montas said.

The UN Humanitarian Chief's admission of the problem in the exchange rate came after sources in the military establishment revealed to Mizzima that the Burmese generals are lining their pockets with aid money through a twisted currency exchange mechanism.

The source, who wished not to be named for fear of reprisal told Mizzima, aid money transferred to Burma has to go through the Myanmar Foreign Trade Bank, which then pays the recipient in 'Foreign Exchange Certificate', where the junta creates notes equivalent to US dollar.

While the street rate for a US $ is 1180 kyat, FEC is worth only 880 kyat, the source said.

"For every dollar, the junta is profiting about 200 to 300 Kyats, you can imagine how much they will have pocketed since aid agencies made their way into Burma," the source told Mizzima earlier.

The source further said, in order to keep the hard foreign currency, the MFTB has made a regulation that every recipient needs to open an account with the bank before  being allowed to withdraw the money in FEC.

According to Inner City Press, a UN watch-dog group, the UN looses about 20 percent of what it can buy with the hard currency dollar due to the government's official exchange rate.

Holmes, in an interview with the German Press Agency in Burma, said the exchange rate gap amounts to losses of millions of dollars and "where that gain goes I'm not sure."