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W-Bank Action Pressure Myanmar



ANALYSIS-W.Bank action pressures Myanmar generals

By David Brunnstrom

BANGKOK, Sept 7 (Reuters) - Myanmar's ruling generals will find it even more
difficult to raise badly needed foreign funds after the World Bank announced
last week that it was cutting financial ties with the country, analysts said
on Monday. 

The bank, one of the world's lenders of last resort, said on Friday it would
not consider giving Yangon any more money because it had defaulted on
repayments of past loans. 

Diplomats and economists said the announcement was in a sense symbolic since
Myanmar has received no new assistance from international lending institutions
since its military rulers crushed a pro-democracy uprising in 1988. 

But they said it was a loud alarm bell for foreign investors as it showed
Myanmar to be a considerable investment risk. 

``Burma (Myanmar) had always kept up servicing its debt to the World Bank, but
recently it stopped doing so,'' said a diplomat in Yangon. ``It's a
confirmation that the economy has reached a very serious position. 

``It doesn't send a good signal to any investors thinking of putting in money
here. If it's not even able to come up with the small amount of money
necessary to keep servicing its debt, that's a pretty worrying sign.'' 

Diplomats and economists say that despite rosy government figures, the economy
has stagnated in the past two years due to mismanagement, corruption,
infrastructure inadequacies and Asia's financial crisis. 

The government faces a host of problems, including soaring inflation, a
plummeting currency and foreign reserves recently estimated as low as two
weeks of exports -- perhaps $100 million or less. 

In a rare and severe step, the World Bank said it placed loans and credits to
the Myanmar government in ``nonaccrual'' status, meaning it would have to
clear arrears estimated at $14 million before even being considered for new
loans. 

``There were a number of reasons, based on more political grounds, why the
bank couldn't have made loans,'' the diplomat said. ``But this is an economic
reason why it couldn't extend loans even if it wanted to.'' 

The bank did not make clear when Myanmar went into default, but a country goes
into non-accrual status if payment on any loan or credit is overdue by more
than six months. 

``The effect will be that whatever is left of the government's international
creditworthiness will get much worse,'' said an economist in Yangon. ``Even
some of its Asian investors will be rather nervous about it.'' 

Myanmar has borrowed more than $700 million from the World Bank since 1956.
Other countries with protracted arrears include Iraq, Liberia and Syria. 

A leading Myanmar businessman criticised the bank's decision. 

``Cut-offs by multilateral institutions can only be negative,'' said Bernard
Pe Win, the chief executive officer of Myanmar Investments Holdings, which has
interests in hotels, tourism and real estate. 

``I think they should be finding ways to engage the government,'' he told
Reuters. 

The announcement came as the government has been facing mounting pressure from
the opposition National League for Democracy to recognise the results of a
general election the party won by a landslide eight years ago. 

The NLD has put itself on collision course with the government by vowing to
call a parliament this month. 

Pe Win said that if the bank's aim was to promote democracy, its move would
have little effect. 

``The country is quite self-sufficient in terms of feeding its people, so in
terms of survival, I don't think shutting off by the World Bank will have any
meaningful result,'' he said. 

``But one thing's sure, that if there's no foreign investment and if foreign
investment dwindles to nothing and foreign businesses are put under pressure
to the point some leave, the end result will be less democracy than there is
now,'' he said. 

Pe Win said the economy was not in good shape but conditions were not as grim
as many news foreign news reports suggested, as there was a substantial
invisible economy. He said a repeat of the political unrest seen 10 years ago
was unlikely. 

``I don't think we see imminent signs of disturbances like in 1988. There is
some talk and no doubt there there is some tension, but it doesn't look like
it to me.'' 

The Myanmar government spokesman in a brief response to a Reuters query said
that Myanmar had not made any request for loans from the World Bank. 

``Even if Myanmar repays her old debts, is the World Bank in a position to
resume loans? If not, why bother to put Myanmar in nonaccrual status,'' he
said in a statement. 

06:10 09-07-98