First Posted: 1/27/2013
(AP) The World Bank on Sunday announced a long-awaited deal to allow Myanmar to clear part of its huge decades-old foreign debt, opening the door for new much-needed lending to jump-start its lagging economy.
The bank’s Washington headquarters announced in a statement that the Japan Bank for International Cooperation, the country’s overseas development bank, will provide a bridge loan to Myanmar to allow it to cover outstanding debt to the World Bank and the Asian Development Bank, which totals about $900 million.
Myanmar stopped payments on its old loans about 1987, making it ineligible for new development lending.
The deal is a major breakthrough for Myanmar, with loans likely to go to upgrading its dilapidated infrastructure, including electricity and ports. The knock-on effect would be to bring in more foreign direct investment, already attracted by the country’s relatively low-cost economy.
The deal is also likely to draw criticism, because it comes as Myanmar’s army is pushing hard against ethnic Kachin rebels in the country’s north, in an echo of the notorious counterinsurgency campaigns of previous military regimes.
A former general, Thein Sein, became the country’s elected president in 2011 and began reversing almost five decades of military repression by instituting political and economic reforms.
He won the substantial easing of economic and political sanctions imposed against the junta by the United States and other nations. But some pro-democracy activists say his administration has been rewarded too much, too fast, allowing some abuses to continue, such as repression of ethnic minorities.
The World Bank had already made some exceptions to providing new aid.
In November, it approved an $80 million project to provide $25,000 grants to villages in 15 townships across the country, where community councils will identify the kind of help they want, such as roads, bridges, irrigation systems, schools, health clinics or rural markets. The bank reopened its office in Myanmar in August last year.
The bank was able to act because President Barack Obama earlier lifted a long-standing U.S. restriction on international financial institutions, such as the World Bank, lending to Myanmar after Congress passed legislation enabling that step. It was one in a series of steps by Washington to reward the country for its democratic reforms.
The World Bank statement did not detail the mechanics of the new deal to clear the debt arrears.
It did say the bank’s board on Jan. 22 approved a $440 million Reengagement and Reform Support Credit to Myanmar.
It said the credit would support critical reforms being implemented by the Government to strengthen macroeconomic stability, improve public financial management and improve the investment climate.
It added that its proceeds would also help the Government meet its foreign exchange needs, including repaying (the) bridge loan and that there are currently discussions with the government to identify priority needs.
Myanmar has come a long way in its economic transformation, undertaking unprecedented reforms to improve people’s lives, especially the poor and vulnerable, the statement quoted the bank’s Myanmar Country Director Annette Dixon saying.
Much work remains to be done. We are committed to helping the government accelerate poverty reduction and build shared prosperity. The Bank’s engagement, together with the ADB, the Government of Japan and other partners, will help attract investment, spur growth and create jobs.
Myanmar owes $8.4 billion in debt dating from the socialist regime of the late Gen. Ne Win between 1962 and 1988, and $2.61 billion of debt incurred after a new military junta took over in 1988, making for a total of just more than $11 billion.
The largest creditor before 1988 was Japan, with loans of $6.39 billion, and the biggest post-1988 creditor is China, with $2.13 billion.