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Thursday, March 23, 2017
- Nearly 20 of the world’s largest creditor countries have announced that they would be cutting nearly half of Myanmar’s total foreign debt, worth some six billion dollars.
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-percent 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 four billion dollars. 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 a billion additional dollars 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 dollars, 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 programmes 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 dollars, aimed at strengthening the country’s macroeconomic climate – and beginning to pay back the Japanese government’s bridge loan.
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 eagerly flood back into 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 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,” Tim Jones, a policy officer with the Jubilee Debt Campaign, an international anti-debt advocacy group, said Monday in a statement.
He also noted that the new World Bank and ADB deals, which simply restructure rather than cancel Myanmar’s debts, will now 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 factionalisation 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 Monday. “Burma’s leaders should be on trial in The Hague, not getting special deals on debt relief.”
The “specialness” of the new deals is of particular interest. Over the past decade, after all, 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 percent, Myanmar’s debt stands at just 18 percent of GDP, almost half of the stipulated requirement. Likewise, the level for debt to exports has been agreed at 100 percent, while Myanmar’s stands somewhat lower at 85 percent.
“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 two billion dollars to China, the military’s closest ally for decades and a key reason many Western countries may be prioritising relations with Myanmar today. In a new 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.
“(T)he 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 be.”