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Myanmar gets total debt relief of $6b

Posted in Banking, Finance, Myanmar, Yangon by Sherpa Hossainy on July 9, 2013

World Bank and ADB writes off debt; aid flows set to rise

Published in Myanmar Business Today (Vol 1, Issue 3) on February 7, 2013

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Myanmar has cleared its arrears to the World Bank and Asian Development Bank and secured a huge debt write-off by creditor countries grouped in the Paris Club, clearing the way for aid donors to step up work to support the government’s reforms.

On January 28, the Asian Development Bank (ADB) said the arrears owed to it had been cleared with the help of Japan, so it could resume operations in Myanmar. It offered a $512 million loan for social and economic projects.

The World Bank said Myanmar had also paid the money owed to it, again with the help of Japan, and it had responded with a $440 million credit.

The government said in a statement it had met creditors grouped in the Paris Club on January 25 and they had agreed to cancel half of the arrears Myanmar owed them in two stages, rescheduling the rest over 15 years, with seven years’ grace.

Norway had cancelled all the $534 million owed to it, while Japan was cancelling more than $3 billion, it said. “These agreements result in total debt relief of around $6 billion, more than 60 per cent of total debt,” the government said.

Myanmar stopped payments on its old loans about 1987, making it ineligible for new development lending.

Finance Minister Win Shein said in the statement this marked “an era of new relationships in which Myanmar is committed to fully cooperate with all members of the Paris Club”. He promised that resources freed up by the debt relief would be used for development projects and poverty reduction.

The Manila-based ADB said bridge financing provided to Myanmar by the Japan Bank for International Cooperation (JBIC) this month allowed the government to pay off arrears to the ADB of about $500 million.

The World Bank, in its statement from Washington on January 27, said its new loan would be used in part to “help the government meet its foreign exchange needs”, which included repaying a JBIC bridge loan used to clear arrears. The World Bank arrears had been put at about $400 million.

The World Bank said its credit would support reforms to strengthen macroeconomic stability and to improve public financial management and the investment climate.

“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.

“The Bank’s engagement, together with the ADB, the Government of Japan and other partners, will help attract investment, spur growth and create jobs,” Dixon said.

The ADB, which reopened an office in Yangon, Myanmar’s commercial capital, in April 2012, said the clearing of arrears allowed it to provide its first loan to the country in more than 30 years.

U Thein Sein’s government has had to start practically from scratch in developing a modern economy. Reflecting that, the ADB said it would focus on “the building blocks for stability and sustainability”. Among other things, it would look at improving public finances and developing the finance sector.

The loan would be used to “finalise arrears clearance and sustain government efforts to revamp the national budget process and modernise tax administration,” the ADB said.

“In rural areas, where development has been hindered by lack of infrastructure, restrictions on land usage, poorly developed support services and limited access to financial services for farmers, ADB funding will help develop a strategy to make banking services more widely available,” it said.

The government outlined a detailed programme at a big aid donors’ conference in the capital, Nay Pyi Taw, on January 19-20.

The World Bank said it had already provided an $80 million grant for improvements to rural infrastructure, including schools, health clinics, roads and irrigation schemes in about 640 villages across Myanmar over six years.

The International Monetary Fund said on January 17 the government had asked for its help to pursue reforms and craft economic policies so that Myanmar could become part of the global economy.

Myanmar had run 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.

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