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| Finance Minister Win Shein signing the debt agreement. |
Above
statement was the common theme of recent media headlines about Burma’s
celebrated debt relief as an Obama’s reward for Thein Sein’s political and
economic reforms in Burma. Following was another common statement describing that
so-called debt relief by the World Bank and ADB.
“The former pariah state also cleared its arrears to the
World Bank and the Asian Development Bank (ADB) with the help of loans from
Japan, removing another key hurdle for the resumption of international aid.”
Is it
really? It reminds me of the skit “Really?” from very popular Saturday Light
Live comedy show. It sounded like the Japanese had come in and paid off all
Burma’s debts from World Bank and ADB, but they have not. It is just an accounting trick by the World Bank and ADB and a PR play by the Burmese government.
Actually
even I, who has had some 15 odd years experience in bonds and equities trading, was initially tricked into believing that statement of so-called debt-cancellation
from World Bank and ADB for a while till the time I read the following press releases (loosely
translated from the Burmese original) from Burma’s Ministry of Finance and
Revenue.
Press Statement on Burma’s Debt to the World Bank (28 Jan
2013)
Since 1973 Union of Burma had borrowed development loans from
the World Bank. But Burma has defaulted and the World Bank has stopped dealing
with Burma including new lending since 1988-89.
Since few years back Burma has been trying to get out of that default to normalize her relationship again with the World Bank with the help from JBIC (Japan Bank for International Cooperation).
As the direct result of recent negotiations with World Bank
and JBIC Burma has received USD 430
millions as a temporary bridging loan from JBIC on 25 January 2013.
With that money Burma was able to pay back to the World Bank USD 430 millions as the principal and
accrued interests of Burma’s defaulted debts from the World Bank.
That payment enabled the World Bank to normalize its
relationship with Burma again as a sovereign country and thus to lend Burma USD 430 millions which Burma used to
pay back the exact USD 430 millions
bridging loan from JBIC.
In a
round-robin way the so-called debt-cancellation was nothing more than an accounting
trick to re-normalize the relationship between Burma and the World Bank with
the help of Japanese government. Burma
still owes World Bank USD 430 millions,
period. As a new debt instead of the defaulted old debt.
 |
| MOFR Press Release in Burmese for World Bank Debt Cancellation. |
Since 1973 Union of Burma had borrowed development loans from
ADB. But Burma has defaulted and ADB has stopped dealing with Burma including
new lending since 1988-89.
Since few years back Burma has been trying to get out of that
default and to normalize her relationship again with ADB with the help from
JBIC (Japan Bank for International Cooperation).
As the direct result of recent negotiations with ADB and JBIC Burma has received USD 512 millions
as a temporary bridging loan from JBIC on 17 January 2013.
With that money Burma was able to pay back to the ADB USD 512 millions as the principal and
accrued interests of Burma’s defaulted debts from ADB.
That payment enabled ADB to normalize its relationship with
Burma as a sovereign country and to lend Burma USD 512 millions which Burma used to pay back the exact USD 512 millions bridging loan from
JBIC.
In a
round-robin way the so-called debt-cancellation was nothing more than an accounting
trick to re-normalize the relationship between Burma and ADB with the help of
Japanese government. Burma still owes ADB
USD 512 millions, period. As a new debt
instead of the defaulted old debt.
 |
| MOFR Press Release in Burmese for ADB Debt Cancellation. |
YANGON, Myanmar — The World Bank
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
jumpstart its lagging economy.
The bank’s Washington headquarters said
in a statement Sunday that the Japan Bank for International Cooperation, the
country’s overseas development bank, will provide a bridge loan to Myanmar 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.
“We have not been allowed financial
assistance for more than 20 years and the clearing of foreign debts will help
bring fresh new loans for Myanmar,” said Maung Aung, a researcher and economist
at the Union of Myanmar Federation of Chambers of Commerce and Industry. “We
welcome the deal because the country’s infrastructure development can be
carried out only with the financial assistance from the big financial
institutions like the World Bank and ADB.”
The debt deal clears the way for Japan
to push ahead with plans for a $12.3 billion plan to build a special economic
zone near the capital which is being developed by a consortium including
Japanese trading firms Mitsubishi Corp., Marubeni Corp. and Sumitomo Corp.
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 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 Southeast Asian 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 $430 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.
Separately, the
Manila-based Asian Development Bank announced it would extend a $512 million
loan to Myanmar under the same sort of arrangement with the Japan Bank for
International Cooperation.
“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 World
Bank’s Myanmar Country Director Annette Dixon as 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 ran up $8.4 billion in debt
during the socialist regime of the late Gen. Ne Win between 1962 and 1988, and
$2.61 billion of debt 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 was
China, with $2.13 billion.
 |
| MOFR Press Release in Burmese for JICA Debt Cancellation. JICA cancelled JY 303 billions and converted the rest, JY 198 billions, to a new debt of JY 198 billions by using the JY 198 billions bridging loan from three Japanese commercial banks. |
