Myanmar secures generous debt
relief By Carey L Biron
WASHINGTON - Nearly 20 of the world's
largest creditor countries have announced that
they will be cutting nearly half of Myanmar's
total foreign debt, worth some US$6 billion.
Those countries, which include the United
States, United Kingdom and several members of the
European Union, are part of the Paris Club, a
group of 19 of the world's largest donors. On
Monday, the group stated that its members were
aware of Myanmar's "exceptional situation" and had
agreed to a 50% cancellation of arrears and a
seven-year grace period for the remainder.
On the sidelines, Norway and Japan came to
separate agreements to cancel additional debts
amounting to around $4 billion. President Thein
Sein, who has overseen more than two
years of contested political
and economic reforms in Myanmar, had reportedly
made debt relief a priority for his
administration.
The Paris Club move comes
just a day after the World Bank and the Asian
Development Bank (ADB) came to a separate
agreement to restructure close to an additional $1
billion that Myanmar owed the institutions. This
deal, made possible by a substantial "bridge loan"
from Japan, will give the country economic
breathing room as it works to emerge from decades
of international isolation and almost nonexistent
economic and social development.
The deals
follow on an agreement signed last month
stipulating that Myanmar would adhere to
conditionalities set by the International Monetary
Fund (IMF). Together, the accords signed in recent
days clear up, at least temporarily, almost
three-quarters of Myanmar's total foreign debt.
Estimated by the IMF at around $15
billion, that debt load has been described by some
economists and diplomats as one of the most
significant impediments to the new government's
plans for reforms and development.
Among
other things, the new agreements will allow
Myanmar leeway to engage in new program through
the World Bank, which had been constrained in the
extent to which it could engage with the country.
Last week, the World Bank approved a new credit,
worth $440 million, aimed at strengthening the
country's macroeconomic climate - and beginning to
pay back the Japanese government's bridge loan.
Future saddling Myanmar received
significant foreign financing during the 1980s,
but that was largely halted following a brutal
crackdown on civil liberties that began in 1988.
By the end of the 1990s, the military government,
amidst broad stagnation and increasingly isolated
on the international stage, essentially stopped
paying its foreign debts.
As the past two
years of reforms have taken hold, however,
international donors and multinational companies
have begun to re-enter the country; the World Bank
Group re-opened Yangon offices in August. Yet the
fact that Myanmar will now again be fully
integrated into the international framework
strikes some as overly quick - and the terms of
the new agreements as overly generous.
"These agreements allow large amounts of
new lending before any investigation has been made
into how past loans did and did not benefit the
people of Burma [as Myanmar is also known]," Tim
Jones, a policy officer with the Jubilee Debt
Campaign, an international anti-debt advocacy
group, said on Monday.
He also noted that
the new World Bank and ADB deals, which simply
restructure rather than cancel Myanmar's debts,
will allow the government once again to engage in
borrowing from these institutions.
"None
of these deals save Burma any money now, but they
commit future governments to making payments on
debt they inherit," he says. "This support for a
military dictatorship could bind the hands of a
hoped-for future democratic government."
Indeed, for all of the changes of the past
few years, Myanmar's government is still dominated
by the military, with President Thein Sein himself
a former general. And despite suggestions of
significant factionalization within that force, it
is far too early for many in and out of the
country to believe that the Myanmarese military is
in any way reformed.
"It is incredible
that Burma gets billions of dollars of debt relief
when its biggest spending is on the military,"
Anna Roberts, executive director of Burma Campaign
UK, said on Monday. "Burma's leaders should be on
trial in The Hague, not getting special deals on
debt relief."
Unnecessary
exception The "specialness" of the new
deals is of particular interest. Over the past
decade, the international community has made some
progress in consolidating a set of principles by
which it should deal with foreign debt amassed by
developing countries.
"If two developing
countries have the same amount of debt, we'd like
them to get the same deal," David Roodman, who
researches aid and debt relief at the Center for
Global Development, a Washington think tank, told
IPS. "But according to the norms that have been
developed, Myanmar didn't meet those requirements.
So this agreement not only is an exception to
those rules but undermines the rules-based
approach more generally."
In evolving
discussions over the past 10 years, the
international community has agreed to define
eligibility for debt relief based on the
sustainability of debt levels - the ratio of debt
to gross domestic product (GDP), for instance, or
the ratio of debt to exports.
Yet Roodman
says that while the agreed level for debt to GDP
is 30%, Myanmar's debt stands at just 18% of GDP,
almost half of the stipulated requirement.
Likewise, the level for debt to exports has been
agreed at 100%, while Myanmar's stands somewhat
lower at 85%.
"Further, the IMF has done
some scenarios through modelling on the likely
course of exports and GDP in coming years in
Myanmar," he says, "and they found that the debt
load, if anything, is going shrink."
The
key to understanding the Paris Club decision,
then, might have to do less with development than
with foreign policy. From this perspective, while
foreign governments may be successfully jockeying
for position with Myanmarese officials, they may
be losing valuable leverage that could still be
required down the road.
Notably, Myanmar
still owes around $2 billion to China, the
military's closest ally for decades and a key
reason many Western countries may be prioritizing
relations with Myanmar today. In a blog post,
Roodman notes that opposition leader Aung San Suu
Kyi has in the past urged foreign governments to
suspend rather than end economic sanctions.
The "threat of easy reinstatement, in her
judgment, would spur further reform," he writes.
"The analogous step in the debt dance was to
refinance defaulted loans rather than cancel them.
Just as sanctions can be permanently abolished
later, so can debts."
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