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Since beginning the process of reengagement with Myanmar in the last year, many lenders to the country have cut or refinanced its debt. David Roodman finds that the debt relief, by most standards, has been overly quick and large. While the regime that racked up the debt may have been odious, the current regime, he says, does not mark enough of a break from the old to warrant odious debt cancellation. Roodman says more refinancing, contingent on further reforms, instead of cancellation may have been more appropriate. He's concerned about the effect that new inflows of money have have on Myanmar's reform process.
Economic and political reforms in Myanmar have led democratic powers to reengage with the nation in the last year. In January, Japan, Norway, and other Western creditors agreed to cut the debt owed them by Myanmar by about 70 percent in economic terms, while the World Bank and Asian Development Bank refinanced Myanmar’s arrears to those lenders.
Myanmar’s great need and promising reforms might seem to have warranted such substantial forgiveness. But going by most relevant standards, the debt relief was overly quick and large. The regime that contracted the debts may have been “odious” but the current regime is too continuous with the old one to legitimate a refutation of past contracts on the odious debt doctrine.
Former political prisoner and Nobel Peace Prize laureate Aung San Suu Kyi has called for suspension, but not elimination, of foreign economic sanctions on her country, in order to maintain pressure for reform. The analogous step for debt would have been to refinance more than cancel, pending further reforms. And by the metrics of established systems for debt relief for poor countries, Myanmar’s external debt stress is too modest to justify such substantial forgiveness.
Finally, the practical consequence of greater debt relief is more headroom for new lending. Because money is power, infusions of foreign loans have political consequences. Since Myanmar’s reform process is promising, incomplete, and delicate, foreign lenders will be wise to move gingerly in disturbing it.
Data disclosure: data underlying this analysis are available for download in an Excel workbook.