Japan to write-off some of Burma's debt
Japan claims the move to write-off debt is an acknowledgment of progress in bringing in 'reforms'.
The IMF says Burma’s government’s total foreign owed debt is 23 per cent of GDP; around $12 billion. Half of this is in arrears; payments due on it have been defaulted on. The UK government claims Burma owes UK Export Finance £85 million, all of which is in default. The original loans which created this debt to the UK were given between 1972 and 1988, despite the fact Burma has been ruled by the military since 1962.
Burma is meeting payments on some of its debts, currently costing around 4 per cent of export revenues; $400 million a year. Like Zimbabwe, Burma has never been assessed for inclusion in the Heavily Indebted Poor Countries initiative, partly because of lack of data. The IMF and World Bank have previously said it could be assessed as eligible to join, although on the current debt data, it may not be considered indebted enough.
At the start of May, for the first time the Burmese government allowed the IMF’s annual Article IV report on the country to be released. The IMF has welcomed easing of restrictions on foreign investment. This includes a new foreign investment law which:
• Removes requirements for foreign business to setup with local partners
• Provides guarantees to investors against nationalisation
• Eases restrictions on repatriation of profits by multinational companies
• Grants a five-year tax exemption for foreign companies.
Burma has also begun the process of switching to a floating exchange rate. The use of foreign currency has previously been heavily controlled, as part of government policy to limit imports. The IMF report welcomes the move to a floating rate and the potential increase in foreign investment which “could bolster growth”. However, it also warns that unofficial market exchange rates are already overvalued and could appreciate further with inflows of foreign investment for ‘natural resources’ projects and aid programmes. The combination of removing controls on the exchange rate and foreign currency could lead to a flood of imports, which “could further erode external competitiveness” ie, put domestic producers our of business.