YANGON, Myanmar (AP) — 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 $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.
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.
According to the Japan External Trade Organization, Myanmar's exports to Japan totaled 1.73 billion kyat ($2 million) in 2011, while its imports from Japan were 2.7 billion kyat ($3.1 million).
Associated Press writer Grant Peck in Bangkok and AP Business Writer Elaine Kurtenbach in Tokyo contributed.