JAPAN EXPANDS DEBT RELIEF; AGREES TO HOST

C O N F I D E N T I A L SECTION 01 OF 02 RANGOON 000045

SIPDIS

STATE FOR EAP AND EB
TREASURY FOR OASIA
CDR USPACOM FOR FPA

E.O. 12958: DECL: 01/09/2013
TAGS: PREL EFIN EAID BM JP
SUBJECT: JAPAN EXPANDS DEBT RELIEF; AGREES TO HOST
CONSULTATIVE GROUP ON BURMA


Classified By: COM Carmen Martinez. Reason: 1.5 (d).


1. (C) Summary: Japan has agreed to host a consultative group
meeting on Burma in mid-February. It is also edging towards
support for economic reform in Burma. How far it can or
should go in that regard, absent real political reform, will
likely be one of the prime topics at the February meeting.
End Summary.

Consultative Group Meeting


2. (C) The Japanese Government has agreed to host a
consultative group meeting on Burma in mid-February.
According to Japanese Embassy sources, the agenda will
include political transition, economic reform and human
rights issues. The Japanese may also take advantage of the
meeting to present a summary of the economic reform
recommendations that have emerged from their Structural
Adjustment Project. The Thai and Indian Embassies have both
told us that their governments plan to attend.

Structural Adjustment Program


3. (C) The latest workshop on the Japanese Structural
Adjustment Program was held December 21 and 22. David Abel
headed the Burmese side; a Japanese academic (Professor
Odaka) headed the Japanese. The Burmese accepted the
Japanese recommendations, including currency unification, but
argued as usual that they needed time and financing support
for major adjustments. The Japanese also pushed the idea of
"special zones" for industry and agriculture within which
some of the GOB's regulations might be lifted. Again, the
Burmese accepted the idea, but made no commitments on
implementation.


4. (C) The next step will be a government-to-government
meeting (as opposed to the latest workshop, which was billed
as an academic exchange) probably in early March to work on
an implementation plan for the proposed reforms. At that
point, Japanese Embassy sources indicated, they will have to
talk about programs of financial support.

Debt Relief


5. (C) The Japanese government will provide Burma with debt
relief equivalent to about 150 billion yen ($1.3 billion)
under a program that will be implemented starting in February
2004 and which will cover all maturities coming due after
April 2003. According to the Embassy, the program will not
cover arrears to Japan, which, in Burma's case, are now
equivalent to about $2 billion. Those arrears will still be
available for use as leverage in encouraging economic reform.


6. (C) The program is not specific to Burma, although Burma
is easily the largest beneficiary. The debts of a whole
variety of heavily-indebted states, totaling about 900
billion yen, will be forgiven under the program. There is
also no connection to political developments in Burma.
According to Japanese Embassy sources, the new debt relief
initiative was the product of a general review of Japanese
debt relief practices. Previously, the Japanese had forgiven
debt on an annual basis by providing matching grants for any
debt service paid by heavily-indebted countries. However,
asking countries to come up with the debt payments before
relief could be granted made the whole program dependent on
recipient nations' cash flow. Whenever recipient nations had
cash flow problems; i.e., whenever they needed the relief
most, the whole program broke down. The new approach will
avoid those problems.

Comment


7. The Japanese are obviously edging towards support for
economic reform in Burma. They will want to talk about this
at the Consultative Group meeting in February and will likely
argue that it is time to move beyond humanitarian assistance
and the treatment of symptoms in Burma to the treatment of
root causes. That in turn could set the stage for a debate
as to whether anything can or should be done to treat these
problems absent real political reform. End Comment.
Martinez