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."
Carey L Biron
Business & Investment Opportunities
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