BANGKOK, THAILAND — Japanese Prime Minister Shinzo Abe has forgiven billions of dollars of Burmese debt and promised new aid. Analysts said despite China being its largest investor, Burma is increasingly looking to Japan as the dominant economic force.
During the first visit by a Japanese prime minister in 36 years, Shinzo Abe not only forgave Burma's debt, but also pledged a new development loan.
Japan cancelled $1.74 billion in debt and on Sunday agreed to lend Burma over half a billion dollars more for infrastructure and power projects.
Japan had earlier written off debts of more than $3.5 billion owed by Burma.
Speaking via Skype, economics professor Sean Turnell of Macquarie University in Sydney said Japan's serves its own self-interest by forgiving Burma's debt.
"There is a huge amount of money that the government of Japan is willing to advance," he said. "And many Japanese firms, particularly in the areas of infrastructure and so on, who are only too glad to win contracts to do development work in Burma. So, I think that is number one. Secondly, though, of course, there's the geo-political aspect. Japan, like many countries have been worried the extent to which Burma has moved increasingly under China's shadow. And, of course, we know that there is a broader story of China and Japan in the region. So, I think we would have to fit it as part of that."
Part of the new loan will go toward electricity development at the Thilawa Special Economic Zone at a port near Rangoon.
The SEZ is Japan's largest investment project and one that economists say is likely to have a major impact because of its proximity to Burma's largest city.
Despite the development plan, Japan's few-hundred-million dollars in investments ranks far below China's more than $14 billion.
Like China, Japan did not take part in Western sanctions against Burma's former military government. But, Tokyo did scale back loans for development and major investments.
Meanwhile, China invested heavily in hydropower dams, mining projects, and an oil and gas pipeline stretching from western Burma to the Chinese border.
But, unlike Japan, most of China's investments were made in shady deals under the former military government.
Many of the projects are controversial because of their environmental and social costs and have led to protests and hostility against the Chinese.
Turnell said because of the way it is investing, Japan's impact is starting to eclipse that of China's.
"Again, the Chinese investment is mostly resource and energy projects. It is mostly about taking stuff out of the ground or taking energy out of Burma and into China, with China as the main consumer. But, if we look at what Japan is about it is essentially projects that will have a deep impact within Burma. It is not just simply about taking out resources. It is actually planting infrastructure and institutions in place. But, similarly, of course, Japan is heavily involved in some the areas of reform," he said.
Thailand Prime Minister Yingluck Shinawatra was in Japan last week and encouraged investment in its Dawei project in Burma.
The $8.5 billion deep sea port and industrial zone is to be built along the Thai border, but the project has struggled to get funding.
If finished, it would be the largest industrial zone in Southeast Asia and would cut transport time for goods and improve shipping security.
But analysts said Japan has approached the mega-project cautiously as there is a lot of money needed and Thailand stands to benefit the most.
Thin Aung is director general of the Dawei project at Italian-Thai Development, the company in charge. Speaking via Skype, he said while they have surveyed the land for the project, the only construction work so far is on a road between Thailand and Burma, also known as Myanmar.
"So, once the road is complete then we have a better road link to Thailand and Myanmar and then we start pushing on the port. Meanwhile, small industries may be set up at the border or along the road," he said.
Thin Aung said although the road will not likely be finished until 2015, they expect some small factories to begin building in the coming months.
Meanwhile, Ital-Thai is exploring the possibility of investments in the Dawei project from countries other than Japan.
Thin Aung said they plan to discuss opening up the project to various companies, including from the United States, China, the European Union, and Russia during a June meeting in Bangkok.