Japan is poised to write off about 300 billion yen ($3.7 billion) in yen-denominated loans to the government of Myanmar, making it the first developed nation to reach a deal on the country’s unpaid debt.
A formal agreement is expected on April 21 when Prime Minister Yoshihiko Noda meets Myanmar President Thein Sein in Tokyo, sources said.
Japan decided to support Myanmar’s efforts at introducing democracy by resuming the yen loan program, which has been frozen for about 25 years, following victories by the opposition National League for Democracy, led by Aung San Suu Kyi, in parliamentary by-elections on April 1.
However, Myanmar’s existing debt of about 500 billion yen in loans and interest has to be cleared up before the program can resume. Officials of the two governments have been negotiating a two-stage mechanism for dealing with the issue ahead of Thein Sein’s visit.
The first step will involve Japan forgiving 127.4 billion yen in loans. A decision had actually been made to forgive those loans in 2002, as part of a broader program directed at heavily indebted nations, but Japan could not complete the necessary procedures with the military junta-led government.
In the second step of the process, 176.1 billion yen in interest and penalties for delays in repayments will also be forgiven. That step will be conditional on an evaluation of the progress made toward democracy in Myanmar after one year.
The Myanmar government will take out new loans from Japanese financial institutions to repay the remaining 198.9 billion yen in loans. The Japanese government will provide a similar amount in loans aimed at promoting democracy and poverty, enabling the repayment period of the renewed loans to be extended.