The US Campaign for Burma has criticized the International Finance Corporation (IFC)’s decision to invest about US$170 million in the private sector development of upscale hotels and real estate in Burma, and said the projects would do little to alleviate poverty in the country.
The IFC, which is part of the World Bank Group, defended the projects and told The Irrawaddy that the development of high-end tourism and hotels would boost Burma’s economy and create jobs.
The organization, whose mission is to reduce poverty and support the private sector in developing countries, returned to Burma in late 2012 following the reforms introduced by President Thein Sein. It has since announced plans to provide about $200 million in financing and is also working with the government on improving energy infrastructure.
The US Campaign for Burma Policy Director Rachel Wagley said in a statement released earlier this week that, “The IFC’s lending proposals are raising serious questions regarding the IFC’s mission to alleviate poverty in Burma.
“The IFC’s recent investment proposals […] may instead exacerbate socioeconomic inequality,” she said. “Upscale hotel construction and signing multiple investments with one individual, Serge Pun, are peculiar ways to empower impoverished people in a country where over one-fourth of the population lives under the national poverty line.”
The IFC has announced investments in luxury hotels and real estate, including a $75 million loan for two firms of Burmese businessman Serge Pun. The firms are implementing a $500 million project to build office towers, a business hotel and apartments in a 10-acre zone around the former British Burma Railway Company headquarters in downtown Rangoon. Pun’s Yoma Bank will also get $30 million in IFC funding for a small and medium enterprise (SME) lending program.
The IFC provided an $80 million loan for the expansion of Sule Shangri-la (Traders Hotel) in downtown Rangoon and construction of Shangri-La’s a luxury apartment tower overlooking Kandawgyi Lake. Shangri-La Asia Ltd is 50 percent owned by Kerry Group, a Hong Kong-based conglomerate of Robert Kuok, one of Asia’s richest men.
Other announced IFC’s investments include a $17 million loan for Apple Tree Company, which is building luxury hotels in Rangoon, Bagan, Inle Lake, and in Luang Prabang, Laos. The Burma branch of Cambodian microfinance institution Acleda received a $2 million IFC loan.
The US Campaign for Burma also questioned the IFC’s decision to grant so-called ‘Financial Intermediary’ status to the $30 million investment in Pun’s Yoma Bank SME financing program, as this designation would exempt the bank from due diligence standards and safeguards, such as conducting environmental or social impact assessments, or disclosing its sub-clients.
“We urge the IFC to consult with civil society, and choose projects that reinforce business transparency and broad-based development,” Wagley said in an email.
IFC Burma Resident Representative Vikram Kumar defended the organization’s private sector investments on Thursday and told The Irrawaddy, “It’s a gross mischaracterization to say that we’re only working with Serge [Pun] and working only on upscale hotels.”
He said that 10 IFC projects totaling about $300 million in investments had been approved so far and would cover not only hotels and real estate, but also infrastructure, agribusiness and lending to local banks and microfinance institutions.
“We have many other projects in other sectors…but we can’t disclose those right now,” Kumar said in a phone call, adding that the IFC was also supporting and partially financing the transformation of the Yangon Electricity Supply Board into a commercial corporation.
IFC’s investments in luxury hotels in downtown Rangoon and other tourist destinations in Burma, he said, would address the shortage in hotel rooms, create jobs, boost economic growth and generate government revenue.
“A hotel has a huge downstream impact, the services and jobs it creates,” he said, adding that Burma “needs to develop tourism and you need to attract high-end tourism to get bang for your buck.”
Vikram said Yoma Bank’s $30 million SME program loan was exempt from IFC Performance Standards regarding due diligence standards and safeguards as the project was considered relatively small and because “SME [lending] is considered to have very little social and environmental impact.”
He said the firms that received IFC loans had been selected because “these are companies with good growth potential…and can return the investment.”
