Myanmar needs private growth more than public debt
Myanmar has cleared another hurdle to being investible. The Southeast Asian nation has obtained a Paris Club debt relief agreement, which means aid agencies and global banks will now flock to lend. Myanmar should avoid taking too much easy money; private sector growth through domestic savings and property rights matters more than government-led infrastructure, even if the latter provides greater graft opportunities for corrupt officials.
Myanmar’s new deal, announced January 27, will see it write off debts of around $6 billion - three quarters of its total foreign borrowings. Japan has been especially generous.
This has already enabled the country to secure loans of $512 million from the Asian Development Bank and $440 million from the World Bank. Myanmar’s low debt-to-GDP levels mean more is likely to follow.
In addition, bond investors have shown themselves willing to lend to risky markets. Mongolia’s debut sovereign issue in November raised $1.5 billion, while impoverished, nationalization-prone Bolivia got $500 million of ten year money the previous month. Low-debt, fashionable Myanmar should have little difficulty in raising money from international financiers.
That may not benefit its citizens much. Myanmar’s government has improved marginally on Transparency International’s Corruption Perceptions Index in the last year, but it is among the six most corrupt countries. A flood of aid and private money, funneled through the government, runs the risk of producing graft. Myanmar’s government corruption has been limited in scale by a tax system that produces only around five per cent of GDP in revenues, according to the Heritage Foundation; scaling up the government’s access to financial resources seems counterproductive.
Myanmar can, nonetheless, use foreign support. Micro-lending programmes, advice on building better institutions, clear property rights and transparent procurement methods would all be helpful imports. Capital may be forthcoming from multinationals thanks to the new Investment Law passed in November, and will help strengthen the domestic private sector. If aid agencies, foreign banks and international investors want to do good and maximize their own long-term returns, they should help Myanmar create private growth, not public debt.
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