An economic downturn exacerbated by the regime’s own disastrous policies is hampering efforts to recuperate loans given to businesses by the ousted civilian government.
By FRONTIER
The junta’s campaign for businesses to repay COVID-19 loans quickly has been thwarted by the economic downturn, forcing the military regime to extend the repayment term by another year.
Myanmar was one country that provided special loans to companies whose operations were severely affected by COVID-19-related measures, such as lockdowns.
The National League for Democracy established the COVID-19 Economic Relief Plan to ease financial pressures on struggling businesses. Nearly 6,000 companies received loans for one year totaling K200 billion, at 1 percent interest, starting April 2020.
Priority was given to 12 industries: garment factories, hotels and export companies; small and medium businesses; agriculture and fishery firms; the film industry, theatres and music and media.
Following the February 2021 coup that saw the NLD overthrown by the military, the State Administration Council was formed to push for repayment of the loans. The economy has been severely affected by widespread opposition to military rule, and the erratic economic policy have forced the military to extend the repayment period for two additional six months in March 2021 and September 2021.
Last November, two years later than the loan was disbursed by the junta, Senior General Min Aung Hlaing stated that it was now time to repay them.
“The economy of the country will improve only if there is money in circulation. Repayment of loans must be at a fixed rate. You can use the money only after the loan has been repaid. All involved need to act responsibly,” he told a meeting in Nay Pyi Taw on November 1.
However, difficulties in repaying the loans prompted the nation’s peak business body, the Union of Myanmar Federation of Chambers of Commerce and Industry, to appeal to the military council for leniency, securing another year-long extension, announced the same month. The loans were given at different times so repayments have not been set in stone. Payments will be due now three years after they are granted.
Garment factory owners welcome the new move.
“We are facing various difficulties; we don’t get orders and power outages are increasing, so we asked for an extension,” said Daw Yin Yin Moe, whose garment factory in Yangon’s Mingaladon Township operates on a cut, make and pack basis.
Yin Yin Moe, however, said that it was not certain if she will meet the 2024 deadline given economic uncertainty.
Yin Yin Moe, a 300-person worker, reduced to just 150 in the COVID-19 2nd wave. This was to cut production costs. Early last year, she reinstated the workers but had to reduce her workforce again in November to just 100 employees.
“The factory has not shut down, but it is not running as normal and production is down by 50 percent. The main reason is the fall in orders,” she said.
The tourism and hotel industry are in constant decline
The tourism sector was hit hard by the pandemic and then the coup, and foreign arrivals are a fraction of the volumes achieved after Myanmar began opening up a decade ago.
According to Bagan’s hotelier, foreign tourists are leaving Myanmar and there is widespread conflict in the country. Most hotels cannot repay loans.
“There are only a few Myanmar travellers,” she said, adding that lengthy power cuts were also destroying the hotel’s profits. “There are only about two hours of power each day. On some days, there’s no electricity. In the last 4 months, it has been worsening. We have to depend on a generator and are working without profit just to keep the business going.”
She said they turn on the generator three times a day – from 6pm to 12pm, 1am to 3am, and 6am to 9am. To offset the rising costs of generator fuel and to continue to pay the staff, the hotel had to increase the room rate from K35,000 to K45,000.
“We have to raise prices because of rising costs, but it’s the customers who are hurt by this,” she said.
The generator appears to be what keeps the hotel going. She stated that around 10 rooms were occupied each day by guests, and some are transferred to her hotel from their previous bookings.
“Other hotels that do not have generators are sending their guests to us,” she said.
Although she stated that she believed she could repay her loan, she said it was not possible.
“I can manage to repay between K500,000 and K1 million per month,” she said. Her final extension will expire in June this year, when the loan becomes three years old, but she’s still not sure if she can meet that deadline.
The deputy minister says that the maximum time for this is three years
The junta’s deputy minister for investment and foreign economic relations, Dr Wah Wah Maung, said the SAC would definitely not extend the deadlines any further.
“Loans that are three years’ old must be repaid,” the deputy minister told FrontierThe junta can lend money to businesses that are in dire need once it has been done.
“We need to disburse loans to businesses that have not yet received any assistance,” she said.
He stated that the SAC would continue to support companies in financial need through loans made by the Ministry of Planning and Finance. These loans are not part of the CERP original scheme.
“Support programmes for businesses will continue. Although the ministry has changed, we will continue to implement programmes for businesses,” she said, making an indirect reference to the coup.
A warning was included in the terms and conditions for COVID-19 loans that they would not be repaid within one year. Credit Bureau will also blacklist the company and prevent it from receiving loans from other banks, institutions or microfinance organizations.
“It is clearly stated what action will be taken if the loans are not repaid in time. Procedures must be followed according to the law,” the deputy minister said.
Because many COVID-19 loan recipients were only able to keep their costs down, it is not surprising that business owners are anxious about when they will be paid.
“Everyone knows that no businesses are okay now,” said Yin Yin Moe, from the Mingaladon garment factory.
“It would be different if I was the only one who was unable to repay the loan on time, but because all businesses are in the same situation, we must explain our plight to the relevant authorities. I don’t know what will happen next,” she said, adding that the situation for the garment industry remains grim.
“The CMP sector is not in good shape. Perhaps it’s because this is the season when fewer orders are received. One thing is for sure, compared to 2020, orders are down by about 50 percent,” she said.
A member of a UMFCCI affiliate association, who asked to remain anonymous, said actions the SAC has taken since the coup make it clear it is in “dire financial need”, but only the higher-level officials know whether the COVID loans would help offset that need.
“K200 billion is only around US$100 million at the current market price. The government budget should not consider this amount insignificant. But the fact that they are asking for repayment may mean it’s a significant amount for the SAC. I can’t say exactly,” he said.
He said he expects businesses to continue to struggle to pay back the loans, particularly as the economy begins to feel the effects of the exodus of young people.
“Many have gone abroad… as the number of young workers decreases, businesses begin to decrease production. Because there are fewer people, demand will fall,” he said, adding that most businesses are in a constant “panic” over rapidly changing policies.
Wah Wah Maung stated that if businesses were still insolvent to repay loans by new deadlines they would be typically placed on blacklist by banks.
“But I don’t know what the military will do,” he said. “Anything is possible.”