YANGON (Reuters) - The World Bank will provide a restructuring loan to help Myanmar clear $397 million in arrears by January, a senior official said on Wednesday, as the Washington-based development bank opened an office in the country and prepared to step up aid work there.
The World Bank has not made any loans to Myanmar since 1987 but is returning to the country, along with other big donors, after its former junta stepped aside in March 2011 and a quasi-civilian government embarked on political and economic reforms.
Clearing the arrears is a condition for restarting loans.
"We have worked out a way to clear those arrears and we hope to do that by January," said Pamela Cox, the World Bank's vice-president for East Asia and the Pacific.
"We need to do it together with the Asian Development Bank (ADB); we're working very closely with them on a common schedule," she said during the opening of the office in Yangon, the former capital and still the main commercial city.
"I do want to emphasize we're not forgiving the debt to Myanmar. We're just clearing the back interest payments and Myanmar will resume paying its debts to the World Bank and the ADB," she added.
Myanmar also owes nearly $500 million to the ADB, which has played a lead role in advising the government's economic teams.
The ADB has also opened a small office in Yangon, while the International Monetary Fund is opening an office in neighboring Thailand aimed at providing technical assistance to Myanmar.
Paying off the loans and restoring aid flows is crucial for Myanmar, struggling after decades of army rule, trade-crippling sanctions and economic mismanagement. Aid could also pave the way for greater private investment.
Cox also said the World Bank was considering $85 million in grants to the country for community-based projects, subject to approval by its board and shareholders. The bank aimed to grant the money by October, she said.
"We're here to say that the World Bank is back to re-engage with the country, with the government, but most importantly with the citizens of this country to help them have a better life in the future," Cox told reporters.
The bank has already started work, in a limited way, carrying out research in a country notorious for its lack of accurate data. It is also advising Myanmar on how to modernize its financial system and improve the business environment.
During her visit, Cox has met President Thein Sein and cabinet members, as well as Nobel Peace Prize winner Aung San Suu Kyi, who was detained for years under the former junta but now sits in parliament after winning a by-election in April.
The International Finance Corporation, part of the World Bank that invests in the private sector, has begun assessments in areas critical to private sector growth such as access to finance, the investment climate and infrastructure.
The European Union, United States and other countries have lifted or suspended sanctions on Myanmar in recognition of the government's economic and political reforms.
Since Thein Sein took office in March last year, the government has freed hundreds of political prisoners, legalized trade unions, signed peace deals with ethnic minority rebels, eased censorship and reformed its currency.
Cox said the bank's support would be quid-pro-quo, with the amount of aid determined by the performance and commitment of the government towards reforms and further opening up its economy.
"We need to make sure that the government has the budget system, transparency, the basic economic infrastructure to provide services," she added.
Another focus for the bank would be support for the agriculture sector, which 70 percent of the population depends on, plus increasing emergency electricity supplies, Cox said.
Myanmar, which exports the vast majority of its power, has been hit by protests over outages. Three-quarters of the population do not receive regular electricity and the intermittent supply is a concern for would-be investors.