Why Are the World Bank and Asian Development Bank Still Financing the Myanmar Government?

September 10, 2018

The wave of enthusiasm about a political opening in Myanmar six years ago swept in a lot of new money from the World Bank and Asian Development Bank (ADB). A recent UN report, which levels charges of genocide and complicity in genocide against military and government officials in Myanmar, ought to quash any last bit of enthusiasm that remains about the current regime. Yet, the multilateral development banks show no signs of backing off their current commitments to Myanmar’s government.

There are two pressing issues of concern here. The first order concern is the simple question of whether these international institutions should be providing any sort of financial support given the credible findings of genocide. Put differently, in the face of this genocide, why aren’t the World Bank and ADB’s shareholders (particularly the United States, Japan, and Europe) forcing a cessation of financing as a punitive measure? As a second order concern, if they are going to remain engaged, is their current engagement strategy sufficient to minimize the risk that funding is not contributing to the persecution of the Rohingya population?

To date, the World Bank and ADB have provided nearly $5 billion in highly favorable loans (below market interest rates with long grace periods) to Myanmar. Most of this lending is attached to specific projects, but it is worth keeping in mind that nearly all of it also takes the form of direct financing to the government itself. Unlike aid providers like USAID, which often work directly with NGOs, the multilateral development banks mostly engage with client country governments. As a result, no matter what the project, whether it is in the energy sector, building classrooms, or supporting a health clinic, there is a financial benefit for the government.

Given this direct financing relationship, under what circumstances will these institutions withdraw support? There are clear cut fiduciary reasons (non-payment of existing loans) and project-level reasons (a violation of project standards, such as improper procurement) that have caused them to cut off lending over the years. Less clear and highly contested are broader concerns about the political regimes they are lending to. In short, there is nothing automatic about the World Bank or ADB’s withdrawal from supporting a government that has engaged in genocide. In fact, the bank’s rules prohibit the institution from interfering in domestic politics. This prohibition has been interpreted broadly to tolerate significant human rights abuses by authoritarian governments with which the multilateral development banks have engaged over many decades.

When the World Bank has acted in the face of abuses in the past, it has done so at the behest of its most powerful shareholders. Most recently, the World Bank was forced to cease financing in Russia in reaction to Russia’s incursions in Crimea. The bank’s action came when its G7 shareholders announced that they would no longer support any World Bank projects in Russia that came to the board of directors for approval. (G7 board representatives constitute a majority of the voting power in the institution.)

So far, there has been no similar coordinated action by the G7 in the case of Myanmar. Instead, we see clumsy and tepid responses from the World Bank itself, which must work within the rules it is given. Hence, last year the World Bank announced (implausibly) that it would pause on a budget support loan for the Myanmar government due to macroeconomic considerations. This explanation came in an announcement that also expressed concern about the Rohingya situation, but the bank’s “no political interference” mandate presumably kept it from making the linkage explicit.

It seems clear enough at this point that the senior management of these institutions do not believe they have license to take further punitive action in Myanmar until or unless their leading shareholders act. Unfortunately, the muted responses from the United States and other G7 countries may reveal the high degree of influence China is having over the situation. The very enthusiasm expressed by the US and Japan to reengage with Myanmar six years ago was as much a strategic response to China’s influence in the country as it was a humanitarian gesture. With China showing no signs of seeking to reign in the abuses in Myanmar or otherwise disengage more generally, the G7 countries themselves appear reluctant to pull back their support for fear of ceding ground to China.

This brings us to the second order concern. World Bank and ADB management do have control over the content of their programs with the Myanmar government, and the institutions have strong rules about the treatment of minority populations within the purview of the projects they are funding. For example, it would be a violation of World Bank rules for a bank-funded health clinic in the Rakhine state to refuse treatment to members of the Rohingya population or for a school to refuse to educate Rohingya children.

But policing these violations is notoriously difficult and relies a great deal on victims themselves reporting abuses through World Bank and ADB grievance mechanisms, something that seems unlikely in the current context given the scale of abuse. The policing problem seems particularly fraught in the case of the World Bank’s $400 million community-driven development initiative, which is disbursing relatively small amounts of money very widely across Myanmar—to date, 14,500 “subprojects” in 8,500 villages, including in the Rakhine state. Has any of this money contributed to conflict or abuses? How would we know?

The bank’s embrace of the community-driven development model in Myanmar appears to have reflected some hesitancy to pursue large-scale operations (roads, power, etc.) with a government partner that lacked basic capacity. Ironically, this approach may have raised the risk of abuse. With a concentrated number of larger-scale projects, the World Bank would have been in a better position to ringfence the operations to ensure full compliance when it comes to minority population protections.

In the end, getting the mode of World Bank and ADB engagement right likely pales in importance to the more fundamental question: why be engaged at all with a government that has engaged in the atrocities described in the UN report? Human rights abuses globally may remain all too common. But abuses on the scale of genocide are not, and they deserve a stronger response than we have seen so far from World Bank, the ADB, and their shareholders.


CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.