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Myanmar gets US$7.4b of debts written off
Publication Date : 29-01-2013
Myanmar's government has received a rousing endorsement of its reform efforts with nearly US$6 billion of its debts written off by foreign creditors.
The write-offs came after 20 hours of talks between the Myanmar government and Paris Club finance ministers last Thursday in Paris even as help from Japan, also made last week, will see the Southeast Asian country pay off about US$1 billion in debt to the World Bank and the Asian Development Bank (ADB).
The arrangements pave the way for new initiatives to alleviate poverty in the impoverished state. The debt arrears had prevented international financial institutions from offering new loans.
The Paris Club of 19 advanced economies cited as reason the "strong commitment the government of Myanmar has shown in implementing economic reforms aimed at maintaining macroeconomic stability, while creating the institutions necessary to manage a rapidly changing economy and achieve inclusive and sustainable economic growth".
It agreed to write off more than US$2 billion in arrears owed by Myanmar - half of all its debt to the group - in two phases. The remaining arrears will be rescheduled over the next 15 years, with a seven-year grace period.
Norway and Japan have followed with separate write-offs, of US$534 million and US$3 billion respectively.
Together, the amount written off comes to about 60 per cent of Myanmar's total debts to foreign creditors.
The government is hopeful of more write-offs as countries impressed with reforms lend support to reformists in the government of President Thein Sein.
Also last week, the ADB and World Bank announced the resumption of lending to Myanmar, as a bridge loan extended by Japan will enable it to clear arrears owed to them. The ADB offered a new loan of US$512 million for social and economic projects while the World Bank has offered new credit of US$440 million.
The two institutions recently opened offices in Myanmar, after having shunned the country under its previous military regime for almost 30 years.
Stephen Groff, a vice-president of the ADB, in a statement called the development a "historic tipping point for Myanmar".
"We are focusing first on the building blocks for stability and sustainability, which will ultimately lead to major investments in road, energy, irrigation and education projects, as well as investments in other sectors," he said.
According to a Myanmar government statement, Minister for Finance and Revenue Win Shein pledged after the Paris Club decision that his government would use resources freed by the debt relief "in development projects and poverty reduction programmes, while we will also step up a vigorous reform process under the Framework of Economic and Social Reforms".
Professor Sean Turnell, an economist and Myanmar specialist at Australia's Macquarie University, said in an e-mail it was critical that the Myanmar government "does something useful with the future loans this will ultimately deliver".
Myanmar is struggling with high poverty and unemployment levels, and tension and conflict in two states - Rakhine in the west and Kachin in the north.
It is also struggling to adjust to a newly vocal labour sector and to modernise its outdated financial service sector. Encouraging reforms is seen as a way to ensure the success of the reformists.