How Myanmar became ‘undemocratically’ indebted

Author: Sai Latt, SFU

Myanmar’s Minister of Finance and Revenue, Hla Tun, revealed in February 2012 that the country has an external debt of US$11 billion.

This came as a shock to the public, who is still trying to reconcile the amount of the debt with the fact that people in Myanmar seem to get poorer every year.

Since the early 1990s developed countries have imposed economic sanctions on Myanmar to punish the country’s ‘undemocratic governance’. But now Myanmar is said to be ‘on a historic new path toward democracy’, as US Secretary of State Hillary Clinton stated on 17 April 2012.

The US, Norway, and Australia were the first to lift sanctions against Myanmar, with the EU and Canada following suit. And it is likely that Myanmar’s democratic reforms will be rewarded with billions of dollars worth of loans, grants and aid.

The stance of these developed nations is unequivocal: democracy is what counts. But research into the history of international financial lending shows that this has not always been the case.

According to the finance minister, most of Myanmar’s debt (US$ 8.4 billion out of a total US$11 billion) was accumulated between 1962 and 1988. This was when General Ne Win ruled the country through political oppression and implemented a bizarre socialist economy. Lenders included the World Bank, the Asian Development Bank, the US, Japan, Germany, Finland, Norway and Australia.

Ne Win’s government borrowed money to promote industrial development in order to catch up with neighbouring and industrial nations. Officials — Ne Win included — firmly believed that they were doing the right thing for the country.

The result, it later became clear, was that money was being spent on inefficient industries and natural resource bases that could not generate any sufficient returns. This is not surprising because the officials were trained to fight wars, not to plan the economy.

Relatively speaking, a debt of US$11 billion is not overly large compared with many other countries. But the main concern is less about the amount, than about the fact that the people of Burma did not benefit from this borrowing.

Scholars and NGOs have reported that since the 1990s the energy sector has been the major source of revenue for the military state. During the same period, many ethnic-minority communities were militarised and dispossessed of their land — and, consequently, of their livelihood — by the Burmese regime so the state could build oil and gas pipeline projects and potential hydropower dams.

But the seeds of this militarisation were already being sowed during Ne Win’s era, when the energy and natural-resource sectors (including gas, oil, mineral, dams and timber) were being developed with financial assistance from the countries that now want to see democracy in Burma.

Apart from economic aid and money for crop substitution, the US also provided aid to Ne Win in the form of helicopters and planes, which were meant to fight ethnic armed groups with opium connections including drug lord Khun Sa’s Mong Tai Army. These aircraft were used to assault villagers in territories with large ethnic minorities as part of the so-called counterinsurgency operations. This was possible because Ne Win accepted helicopters only when he was assured that the US would not be controlling how the helicopters would be used.

Japan, which provided US$6 billion of Myanmar’s total debt of US$11 billion, is the country’s main creditor, and has been heavily involved in early exploration and financing of the developing energy sector. But Japan’s role has been overshadowed by recent NGO campaigns that focus on Chinese and Thai investments in Myanmar.

Details about the government’s borrowing practices and administrative culture are not publically available yet. Although records of transactions and repayments are incomplete, it is clear that today’s supposed champions of democracy have been giving financial assistance to one of the world’s most oppressive authoritarian regimes. If developed countries are now genuinely serious about Burma’s economic growth, a first step toward future lending and aid to Myanmar must be to ensure a mechanism for transparency and accountability is put in place. Otherwise, the long-tradition of corruption will definitely enables ruling elites and their cronies to abuse and mismanage publicly borrowed money for their private profits.

Sai Latt is a PhD Candidate at Simon Fraser University, Canada.

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