Myanmar steps towards debt trap

Myanmar plans to reduce the cost of the Chinese-backed Kyaukpyu special economic zone and port, cap its external debt load and avoid repeating the debts of Sri Lanka’s Hambantota development, according to a lobby group.

But heavy debts might be an inevitable consequence of spending billions on a project that appears to be far more advantageous to Beijing than Nay Pyi Taw. 

London-based research firm BMI Research said Myanmar’s move to downsize Kyaukphyu was “positive for debt and growth sustainability” and “in line with the government’s intention of diversifying its foreign policy and reducing its reliance on Chinese investment”. 

“We believe that Myanmar’s move to rationalise the Chinese-backed Kyaukphyu SEZ mega-project in troubled Rakhine State is positive for debt and growth sustainability over the long-run, given that the development has questionable commercial viability.”

The media coverage of the ethnic cleansing of the Rohingya in the border state and the Kyaukphyu port project are kept entirely separate. But the removal of more than 700,000 Muslims from Rakhine State since August 25, 2017, could be seen as an attempt by the military-controlled authorities to divide and rule the area and distract the Buddhist community from the exploitation of its strategic coastline and abundant natural resources by the military-controlled authorities and China. 

Nay Pyi Taw’s planning and finance minister Soe Win – and a candidate to become Myanmar’s next central bank governor – said the government intended to reduce the Kyaukphyu budget amid concerns of becoming indebted to China. 

And his concerns are heard elsewhere in Myanmar. 

“Is this deep-sea port being made to benefit Myanmar?” asked Ken Tun, whose Parami Energy is the only Burmese firm to be shortlisted for the development. “If we have a deep sea port, but it’s not controlled by Myanmar, that’s a problem.”

But Soe Win said the National League for Democracy (NLD) government was aware of “lessons that we learned from our neighbouring countries, that over-investment is not good sometimes”.

“China is trying to influence political events in Myanmar in many ways,” Soe Win was quoted saying by Bloomberg in May. “But what we are afraid of is that we will end up like Sri Lanka.”

The US$1-billion Hambantota port in Sri Lanka, where Colombo borrowed heavily to construct from China but could not repay the loans, resulted in Beijing taking a 99-year lease over the site for debt relief in a colonial-style land grab. 

Soe Win said Nay Pyi Taw wanted to “cut all the unnecessary expenses” without explaining how this would be achieved. 

In 2015, a Chinese consortium led by Citic won the bid to develop the port and business zone. This happened after NLD leader Aung San Suu Kyi had won the October 2015 but while she was waiting to take what little power the military allowed her. 

Since taking power in April 2016, the NLD has tried to secure a distinctly unambitious 30 per cent of the project. 

The administration of previous president Thein Sein originally agreed to give the Chinese-dominated consortium an 85-per-cent stake. 

The Chinese companies would run the Kyaukpyu development for up to 75 years and finance the Burmese stake.

Some government insiders reportedly fear a nation with a smaller economy than the Dominican Republic may struggle to service and repay the billions of dollars borrowed for the project.

The port is intended to link the landlocked southwestern Chinese province of Yunnan to the Indian Ocean and is a key part of Beijing’s extensive Belt and Road Initiative, that aims to link most of the planet to China’s industrial muscle. “Belt and Road” might become one of the defining phrases of the 21st century.

But it looks like Nay Pyi Taw may replicate Sri Lanka’s debt burden at Kyaukphyu. Raphael Mok of BMI Research said Myanmar would struggle to find non-Chinese financial backers for Kyaukphyu with the domestic capital market still in its infancy. 

Sean Turnell, an economic adviser to State Counsellor Aung San Suu Kyi, has called the US$7.5-billion projected cost for Kyaukphyu “crazy” and “absurd”. He said Hambantota’s precedent “has been really taken notice of in Myanmar”, saying the government should not be asked to borrow US$2-3 billion from the Export-Import Bank of China to finance the port and business zone. 

The Asean Economist has long argued that the Rohingya have been used as a political tool by the generals in Nay Pyi Taw to create an enemy for the Rakhine Buddhists. Meanwhile, the troubled state’s considerable assets have been divided between the ethnically Bamar military elite and the Chinese, who have a strategic vision for Rakhine State that does not take the interests of the Rohingya or their Buddhist neighbours into account. 

As in so many other impoverished corners of the globe, the people have been fighting the wrong enemy. 

 

International media coverage of the plight of the Rohingya fails to mention the Kyaukpyu project. Picture credit: Wikimedia