YANGON, Myanmar – The World Bank announced a long-awaited deal to allow Myanmar to clear part of its huge decades-old foreign debt, opening the door for new much-needed lending to jump-start its lagging economy.
The bank’s Washington headquarters said in a statement Sunday that the Japan Bank for International Cooperation, the country’s overseas development bank, will provide a bridge loan to Myanmar to cover outstanding debt to the World Bank and the Asian Development Bank, which totals about $900 million.
Myanmar stopped payments on its old loans about 1987, making it ineligible for new development lending.
The deal is a major breakthrough for Myanmar, with loans likely to go to upgrading its dilapidated infrastructure, including electricity and ports. The effect would be to bring in more foreign direct investment, already attracted by the country’s relatively low-cost economy.
“We have not been allowed financial assistance for more than 20 years and the clearing of foreign debts will help bring fresh new loans for Myanmar,” said Maung Aung, a researcher and economist at the Union of Myanmar Federation of Chambers of Commerce and Industry. “We welcome the deal because the country’s infrastructure development can be carried out only with the financial assistance from the big financial institutions like the World Bank and ADB.”
The debt deal clears the way for Japan to push ahead with plans for a $12.3 billion plan to build a special economic zone near the capital, which is being developed by a consortium including Japanese trading firms Mitsubishi Corp., Marubeni Corp. and Sumitomo Corp.
The deal is also likely to draw criticism, because it comes as Myanmar’s army is pushing hard against ethnic Kachin rebels in the country’s north, in an echo of the notorious counterinsurgency campaigns of previous military regimes.
A former general, Thein Sein, became the country’s elected president in 2011 and began reversing almost five decades of military repression by instituting political and economic changes.
He won the substantial easing of economic and political sanctions imposed against the junta by the United States and other nations. But some pro-democracy activists say his administration has been rewarded too much, too fast, allowing some abuses to continue, such as repression of ethnic minorities.
Associated Press writers Grant Peck in Bangkok and Elaine Kurtenbach in Tokyo contributed to this article.