ADB Won't Forgive Burma

By Lalit K Jha 15 October 2012

WASHINGTON—The Asian Development Bank (ADB) has ruled out any possibility of “debt forgiveness” to Burma, and instead is working with the Burmese government in association with the World Bank to reschedule its arrears, a move which is supported by Aung San Suu Kyi, the leader of the opposition National League of Democracy.

“We are working with the World Bank at the joint process of addressing the arrears of the country,” said Stephen P. Groff, the vice-president (operations) of ADB recently in Washington. “This would not be debt forgiveness, it would essentially be rescheduling and we hope that we would have a solution to that issue in place early next year, which would allow us to begin full engagement with the country.”

Burma currently has an arrear of about US $500 million with the ADB and another about $400 million with the World Bank. Both the ADB and the World Bank recently opened offices in Burma. They had ceased lending in the late 1980s after Burma suspended debt repayments.

Responding to questions, Groff said waiving the debt would require declaring Burma as a highly indebted and poor country, which would attract a lot of conditions. The debt in ratio to GDP does not determine whether the country immediately qualifies for the status of “Highly Indebted and Poor Countries,” he said.

“Secondly, while the [Burmese] government might like to pursue that path and have some of the debt forgiven, the conditions that come along with that are not that attractive to many governments,” he said.

“In fact, when I met Aung San Suu Kyi, she made a specific request. She felt that it is important that this government make the decision to repay that debt and not [be] forgiven. She feels that the government knows that they have made decisions over the course of the last 20 years that has led to these arrears and these debts that they need to be held responsible for,” Groff said.

Referring to a recently released ADB report on Burma, Groff said that if the country broadens and deepens its reforms, Burma has a potential of GDP growth of seven and eight percent, which would match that of the region’s growing economy. “There are risks and challenges at the moment, but we do believe that there is a lot of potential in this country to grow. It is starting at a low base, the lowest per capita GDP in the region,” he said.

“If the country can maintain its macro-economic stability, if it can hold the inflation in check and keep it at a reasonable level, if it can have sustainable budgets in place, if they can provide policies and incentives to encourage domestic savings, if they invest heavily in infrastructure, if they can modernize their financial sector and if they can invest in those areas in which there would be jobs created, we think there is a very good prospects of the country on the growth side,” Groff said.

“But the one challenge that the country would face in doing this is that of social cohesion and social stability,” he said, referring to the ethnic conflicts resulting in tensions in certain parts of the country. “If we do not see that kind of growth, it can undermine social cohesion even further, and create deeper and longer running problems for the country,” he warned.

Calling for a substantial investment in the health and education sector, he said this is necessary for the inclusive growth of the country. Strategically located between China and India alongside other Mekong countries, he said connectivity is going to be important for the economic development of Burma.