Stop the IMF, World Bank, and Asian

[reaproy@xxxxxxxxxxxxx]

Subject: Stop the IMF, World Bank, and Asian Development Bank from  Returning to Burma

The New Threat to Democracy in Burma:  The Re-engagement of International
Financial Institutions with the SLORC Regime

by Philip S. Robertson Jr. 
e-mail: reaproy@xxxxxxxx
phone: (301) 270-1009

I. The Imperative to Act

Unknown both to many Burma activists world-wide as well as important policy-
makers in Washington, D.C. and elsewhere, Burma is far closer to receiving
major financial assistance from the International Financial Institutions (or
IFIs, in this case the International Monetary Fund, the World Bank, and the
Asian Development Bank) than most believe.  Unless we act now there is a
significant possibility that the U.S. Government's important efforts to prevent
IFI assistance from reaching Burma may fall short.  What is at stake in this
issue is nothing less than all the gains made in bringing international economic
pressure against SLORC in order to force the regime to negotiate a transition
to democratic rule with the National League for Democracy (NLD).  

Clearly one of the worst human rights abusers in the world, the State Law and
Order Restoration Council (SLORC) regime has massacred thousands of people
in the streets, annulled a free and fair election in 1990 and imprisoned many of
the victorious candidates, and been repeatedly condemned by the United
Nations General Assembly and the International Labor Organization (ILO). 
This regime, which refuses to conduct negotiations with the democratic
opposistion lead by 1991 Nobel Prize Laureate Aung San Suu Kyi, does not
deserve financial assistance from the IFIs because it will further strengthen
SLORC's illegitimate control of the country.  
   
Fortunately, it is not too late to bring pressure to bear to stop the IFIs from
providing the SLORC with the financial support it seeks if we begin now, work
on multiple fronts to lobby the G-7 governments and the U.S. Congress, and
understand from the outset that this will be a difficult fight.  We must move
quickly to lay the groundwork to make economic and political arguments that
Burma should not be assisted at this time because once the SLORC decides to
devalue (or "float") the kyat at market or near-market rates, the countdown to
IFI involvement in Burma begins in earnest.  The IFIs offer SLORC the
solution to economic inflation (running at 30-50%), the key economic problem
that undermines their attempts to legitimize their rule.  At the moment,
inflation results from SLORC's budget deficits (high military expenditures a
big part of that) and its inability to secure external financing for its
approximately $5.5. billion external debt.  All SLORC can do at the moment is
force the Central Bank of Myanmar to cover the debt by printing more money
(and by cutting social programs, like education and health) which further
destabilizes its rule.  Symbolically, IFI support would lend to the appearance
of stability in Burma and further encourage foreign investment which Aung
San Suu Kyi and the NLD have clearly said should not take place at this time. 

Everyone who reads this should seek to obtain the following reports so that
they are conversant with some of the basic economic issues involved.  These
reports are in the public domain, so they should be obtainable:  World Bank
report No. 14062-BA, "Myanmar Policies for Sustaining Economic Reform",
Country Operations Division, Country Department I (East Asia and Pacific
Region), October 16, 1995; and International Monetary Fund "Myanmar Recent
Economic Developments", prepared by J.R. Dodsworth, Michael Braulke,
Ulhas Gunjal and Paul Heytens (Central Asia Department), October 11, 1995.  

I imagine (thought I haven't looked) that the World Bank and IMF both have
web pages were inquiries could be made. 

In this paper, I will first outline the role that each of these
organizations (and
the Paris Club) play. I will then concisely explain actions have been taken by
the IFIs in Burma since the release of Aung San Suu Kyi in July 1995 and why I
believe the U.S. alone cannot stop them.  Finally I will then what they want to
do (if we allow them) in Burma.  I will then offer several strategies that we,
the international activists for a free and democratic Burma, should pursue
immediately to keep the IFIs out of Burma, thereby maintaining economic
pressure on the SLORC. 

II.  Who the IFIs Are: A Primer

International Monetary Fund (IMF):  Based in Washington, D.C., the IMF
provides technical advice for governments seeking to reform economic policies
and non-project financial assistance when governments undertake these
reforms.  Since this money is not tied to projects, governments can essentially
use IMF funds they receive they way that they like -- in essence, a pay off for
undertaking a reform.  Think of it as giving SLORC a multi-million dollar cash
payment for finally getting around to fixing the economy that they and their
military brethren have been mismanaging since 1962 and you get the picture.
Approval of projects must be made by the IMF Board of Directors, which is
comprised of representatives of the governments which contribute operating
funds to the IMF and dominated by the G-7 nations.  Weight of votes is
assigned based on amount of contribution to the IMF that the government
makes -- i.e. the U.S. has 18% of the votes because that is how much they
contribute -- but decisions are, by tradition, made by consensus.  IMF staff
are bound by the organization's charter to not consider "political issues" when
proposing projects, but to only examine "economic issues".  The Board of
Directors are not IMF staff (rather they are employees of their respective
governments) so they are not bound by this restriction.   

World Bank (WB):  Also based in Washington, D.C., the WB gives technical
advice, non-project assistance (like IMF), specific project assistance (for a
road or other part of infrastructure, for instance), and "humanitarian" project
assistance (health, education, etc.).  Traditionally, the WB only enters a
country after the IMF has gone in (in essence, give the IMF stamp of approval
for reforms) but, as we shall see, Burma was almost an exception.  The U.S.
has 21% of the vote at the WB. 

Asian Development Bank (ADB): Based in Manila in the Philippines, the ADB
is dominated by Japan and U.S. influence is much weaker (only 11% of the
vote).  Like the WB, it conducts four types of projects.  However, the ADB is
not bound like the WB and has no restraints in entering a country before the
IMF.  In fact, the ADB has already done several road projects in Burma
(started pre-1988) and is plotting ways to start new infrastructure projects.   

The Paris Club:  An informal group of lenders/creditors, this organization is
lead by the French and its mission is to provide relief for "official debt",
i.e.
debts guaranteed by governments.  They only operate once a country has the
IMF's seal of approval.  Unamity of creditors is required and they operate
under rules set by the G-7 nations.  

What they can do for SLORC is re-schedule (at lower interest rates, or with
long interest-free grace periods) perhaps 60% of the SLORC's $5.5 billion
external debt.  Most of that debt is held by the Japanese.  The poorer a
country, the more generous their terms tend to be -- up to and including just
cancelling debts.  Think of it this way -- debt relief for SLORC is tantamount
to a new cash infusion, because now they can borrow more and buy more. 
And, as recent news reports show, they are still interested in buying things
like new Russian attack helicopters which are 'cash on the barrel head' deals. 

The Japanese Government is already subverting the intent (although not
necessarily the writ) of the international community against new loans to the
SLORC.  When SLORC pays back Japanese Government funds, it goes into a
special account.  All the proceeds in this account can be used by SLORC to
purchase new commodities manufactured in Japan.  So, in essence, the
Japanese Government is not being paid back -- the balance of the loans
remains the same while SLORC gets more Japanese equipment.  

III.  What the IFIs Have Been Doing in Burma

It is clear that the IFIs want to get back into Burma as quickly as
possible.  In
August 1995, within a month of Aung San Suu Kyi's release from house arrest,
both the IMF (on an annual monitoring mission) and the World Bank had come
up with concrete plans for their immediate re-involvement in the country.  At
big bureaucracies like these, plans of this kind of complexity take longer than
a month to put together -- signifying that the IMF and World Bank staff have
been plotting these approaches for awhile, even when Aung San Suu Kyi was
still in detention.  While many have said that it was the possibility of aid
from
Japan that prompted SLORC to release her, a question worth asking is it also
possible that the lure of millions of dollars from the IFIs was also a factor in
SLORC's plans?  And, if this is true, did the IFIs know this beforehand?

The IMF does what is known as an "Article Four consultation" each year in
each country around the world, examining economic trends, offering advice to
the government and writing a report.  Every August, it is Burma's turn for
this service but August 1995 was different than previous years.  Eager to get
back into Burma after years when Western government pressure kept them
out, the IMF staff had prepared what essentially constituted an end-run 
around the IMF Board of Directors.  What was proposed (following a formal
request from the SLORC Finance Minister, likely arranged in advance of the
mission) is what is known in IMF terms as a "staff monitoring mission".  The
mission would monitor SLORC compliance towards economic reform targets, the
most important of which is moving to a market-based exchange rate for the
kyat.  If the mission certifies that SLORC has satisfactorily met the reforms,
then within as fast as 6 to 9 months a formal IMF project (putting millions of
dollars in SLORC's pockets) could be set up.  The length of this timeline,
assuming full float of the kyat, could be a IMF project within a year and a
half.

It would have all taken place quietly and secretly, behind the closed doors of
the IMF, but it appears some people in the Clinton Administration were paying
attention and raised the issue.  (The U.S. Government's representatives to
the IFIs are all currently required by law to vote against all assistance to the
SLORC Government because Burma has been identified as a country that is not
cooperating in eliminating narcotics.)  What followed was extraordinary.  To
its credit, the U.S. Government used the full array of diplomatic weapons at
its disposal to stop the IMF staff's plan.  It held a meeting in Rangoon
with all
the Ambassadors of the G-7 countries (Canada, Japan, Britain, France,
Germany, Italy and U.S.) to outline U.S. opposition to the staff monitoring
mission.  The U.S. then called a similar meeting held at the State Department
in Washington, D.C. with all the G-7 country Ambassadors based in
Washington.  Finally, the U.S. Embassy staff in each G-7 country were sent
with a diplomatic demarche to the Finance Ministry which again explained why
the U.S. was against the IMF staff's proposal.  

Despite this intense inter-governmental pressure, the U.S. was unable to stop
the plan.  When the IMF Board of Directors met to consider the matter on
October 20, 1995 the U.S. was the only country which opposed the staff
monitoring mission proposal.  The issue was finessed to make it seem less
confrontational -- the Board just made a statement of non-objection to the
staff's proposal -- but the bottom line was the same:  the staff monitoring
mission was established.  While the situation may be different in the future if
the issue is a full assistance package and IMF members have to confront the
appalling human rights record of SLORC straight on, we can't assume
anything.  We need to organize opposition right now in support of the position
that all IMF Board of Directors (from whatever country) should vote against
any future requests for assistance for Burma. 

Publicly the U.S. Government (or at least the State Department) presents the
impression that its opposition will be enough to prevent IFIs from re-engaging
with SLORC.  For instance, when Winston Lord, the Assistant Secretary of
State for East Asian and Pacific Affairs, went up to testify before the Senate
Appropriations Committee (Foreign Operations Subcommittee) on July 24, 1995,
he said "Of greatest impact, we will also continue to oppose lending from the
international financial institutions..."  When Kent Wiedemann, Lord's Deputy,
went to testify before the Subcommittee on Asian and Pacific at the House
International Relations Committee on September 7, 1995, the line was much the
same:  "...our influence with other countries have in practice prevented most
assistance to Burma from the IMF, the World Bank, and the Asian Development
Bank."  He continues optimistically that "...our actions and those of like-
minded countries have made clear that Burma can not fully rejoin the
international community and gain the assistance it needs to develop its economy
until fundamental challenges are made."  

Well, those lines may sound good to the Congress but rather than placating
them I would argue we need to get Congressional interest stirred up so that
the Congress can work to apply additional pressure on the IFIs.  All one can
say about Lord's weapon of "greatest impact" is that it didn't work the first
time.  The U.S. went quite far out on a limb to oppose the staff monitoring
mission (not even a full project proposal) and they weren't able to win that
one.

Let's be clear here.  My purpose is not to beat up on the U.S. Government --
they are, after all, the only government in the G-7 that took a principled stand
at the IMF -- but rather get the word out that we need to help them find allies
who will make it clear to the IFIs that now is not the time to provide the
financial support to SLORC.  

Approval of a formal IMF project in Burma could open the gates for hundreds
of millions of dollars in financial assistance to the SLORC regime.  The process
will remain into suspended animation until the SLORC makes a decision about
the kyat.  Either it will fully float the kyat (i.e. abolishing the fixed
official
exchange rate of 6 kyat = $1.00 and following the market price) or partially
float the kyat by establishing a new fixed rate, such as 60 kyat = $1.00.  Once
that reform begins, the clock starts ticking.  It is this issue, how and when to
deal with the exchange rate reform, which is allegedly being debated within
SLORC at this time.  

As for the other IFIs, they are also working on ways to re-engage with
SLORC.  The World Bank has already outlined a full Structural Adjustment
Program (SAP) for the SLORC regime to implement.  In fact, some World Bank
staff allegedly proposed that in the case of Burma, the World Bank violate its
fundamental policy of waiting for the IMF to negotiate a project which
demonstrates the seriousness of the host government to economic reform.  The
only other case where the World Bank has done this was Brazil in the 1970's,
and the results were disastrous.  Fortunately, this ill-considered proposal was
stopped and know the World Bank is back to its initial position, waiting for the
IMF to act.  Once a IMF staff-monitoring mission certifies that SLORC is
meeting reform targets, the World Bank will come on line with what could well
be projects worth hundreds of millions of dollars. 

The Asian Development Bank has fewer constraints than the World Bank. 
They have finished many of the "left-over" infrastructure projects that the
ADB committed to before the 1988 crushing of the democracy movement.  A
recent ADB staff mission to Burma in December 1995 allegedly held discussions
with Minister for Foreign Investment General David Abel and other SLORC
leaders to initiate a whole slew of new infrastructure projects in collaboration
with the SLORC Government.  There are ostensibly plans for a March 1996
ADB mission to Burma to examine the situation and make recommendations,
with the idea of approving projects at the ADB's Board of Directors meeting in
April 1996.  This timeline shows that the March evaluation mission is just a
cover, an empty exercise in political whitewashing, for a decision that ADB
staff (and some donor countries, perhaps -- like Japan) have already made: 
that it is time for the ADB to return to Burma and support the projects of the
SLORC Government.   

IV. Actions to Take Now

The current balance of the game is running against those of us who feel that
IFI support for Burma will further entrench SLORC's illegitimate and brutal
rule and we need to do something about it.  If we can't persuade the IFIs that
it is not economically appropriate to do so because of basic macro-economic
problems in Burma -- e.g. the SLORC has no legitimacy to seek revenue
(taxes) from the people and is spending huge amounts of the budget on
military arms -- then we must develop the necessary political pressure to stop
them.  

Since the IMF is the key initiating agency in this process, we need to
concentrate on the IMF.  We need at least two or three of the remaining six
members of the G-7 to support the U.S. position at the IMF Board of Directors. 
Another approach could be lifting the level of political heat in the U.S.
Congress (which must authorize the U.S. contribution to the IFIs) to the level
where the IMF and WB decide that their financing sources are more important
than a risky enterprise in a remote country with a pariah regime. 

The key is to get the governments of the G-7 to raise these issues with the IMF
and World Bank.  IFIs are not democracies but bureaucracies -- so they don't
care about what you, as an individual citizen, think.  They do care a great
deal about what your government thinks and says to them, especially if you
happen to live in a Western country that gives significant financial support. 

Possible strategies include the following: 

(1) Express our support to the U.S. Government for its work so far in holding
out against further IFI involvement in Burma and urge them to continue this
important policy.  

(2) Approach key decision-makers in the U.S. Congress in the House Banking
Committee and Senate Finance Committee and encourage them to demand
explanations from the IFIs and the Ambassadors in Washington, D.C. from our
G-7 allies  about this situation.  Concurrent with this effort needs to be
further explanations about the appalling abuse of human rights and forced
labor by the SLORC. 

(3) In Europe and Japan, activists need to approach their Members of
Parliament and Government to demand explanations for the failure to oppose
the IMF staff monitoring.  After all, a Nobel Peace Prize winner has asked that
foreigners not invest in Burma at this time -- her wishes, supported by the
moral authority of the 1990 elections and the continuing support of the
Burmese people, should be respected.   The policy of those governments need
to be changed, so any action that contributes to that objective is worthwhile. 
Europeans should concentrate on the IMF and World Bank first.  Japanese
activists should seek to focus their efforts on persuading government policy-
makers to prevent the ADB from expanding in Burma.  Japan controls the
largest share of the ADB's votes so this is important.  Japanese activists
should also contact the IMF, where Japan has a large percentage of votes as
well.  

(4) Develop further information on the huge percentage of the SLORC
Government's budget that goes to the military.  Using the data on the SLORC's
expenditures in the IMF report of October 1995, rough estimates can be
worked out that defense spending is over 50% of the budget.  How does the
World Bank square this figure with its purported interest in "development"? 
Obviously if the SLORC has decided that if the health of the people and the
education of the children has to suffer in order that the Army can buy new
weapons from China, Russia, Singapore or other nations, it doesn't care much
about "development".  

(5) Bring into the public light as much information on Burma projects from the
IMF, World Bank, and ADB as possible.  For a starter, information and
statements from the October 20, 1995 IMF Board of Directors meeting should be
sought.  Other reports and information should be found and made public
knowledge.  When these issues are discussed behind closed doors, we are at a
significant disadvantage.  So we need to take them into the public domain
where issues like SLORC's horrendous treatment of the people of Burma
matter.  
 
I welcome your suggestions to this issue and hope that you will join me in a
campaign to stop the IFIs from tilting the political balance in Burma against
Aung San Suu Kyi, the NLD, and the vast majority of the Burmese people who
voted for them in the 1990 elections.