UPDATE 2-Myanmar debt deals clear way for new reform push

* Government says Paris Club deals worth $6 bln

* Myanmar to stabilise economy, then seek "quick wins"

* Japan helps it clear arrears to World Bank, ADB

* Development banks now able to resume full lending

* IMF also helping to craft economic policies (Recasts, adds more comments from government)

By Martin Petty

Jan 28 (Reuters) - Myanmar looks set to accelerate the pace of economic reforms after the government cleared nearly two-thirds of debt that had piled up under the former military regime, allowing big development banks to start lending again.

International financial institutions, which have offered technical help to Myanmar's reconstruction plans, have been prevented from doing more because of the arrears, which, under their rules, stopped them providing new loans.

In a set of deals announced on Monday, the government said it had cleared its arrears to the World Bank and Asian Development Bank and secured a huge debt write-off by creditor countries grouped in the Paris Club.

Zaw Oo, a member of the government delegation that met representatives of creditor countries on Friday, said the debt had been a "very distressful burden". He said the country would try to trim its debts further in the coming months and start raising living standards of its people, who are among Asia's poorest.

"This will help the government to overcome the single most difficult roadblock: to re-engage with the western world as well as multilateral institutions," he told Reuters in response to emailed questions.

The arrears owed to the Asian Development Bank (ADB) and the World Bank were cleared with the help of Japan. The ADB immediately responded with a $512 million loan for social and economic projects and the World Bank with a $440 million credit.

The government said Paris Club creditors had agreed to cancel half of the arrears Myanmar owed them in two stages, rescheduling the rest over 15 years, with seven years' grace.

Zaw Oo said Myanmar's immediate response to the clearing of arrears would be to work closely with the International Monetary Fund (IMF) to stabilise the economy.

"(After that) the government should focus on the 'quick wins' -- tangible and sustainable benefits to the population right away," he said, adding that reallocating the resources would ensure continued public support for the reforms.

Since taking office at the head of a quasi-civilian government in 2011, President Thein Sein has freed political prisoners, lifted restrictions on the media and begun to reform the economy with a new foreign investment law and an exchange rate determined more by market forces.

In response, Western countries have eased sanctions imposed on the previous military regime. Foreign companies are keen to move in but will need a big improvement in infrastructure -- from telecoms to roads to schools -- to function properly.

Zaw Oo, who is also an advisor to Thein Sein, said the clearing of arrears would speed that up.

"We now have more confidence and locked-in reform programmes to overcome the additional challenges," he said.


Norway cancelled all the $534 million owed to it by Myanmar and Japan was cancelling more than $3 billion. Other countries could follow suit in the months ahead.

"These agreements result in total debt relief of around $6 billion, that is, more than 60 percent of total debt," the government said in a statement.

The Manila-based ADB said bridge financing provided to Myanmar by the Japan Bank for International Cooperation (JBIC) this month allowed the government to pay off arrears to the ADB of about $500 million.

The World Bank, in its statement from Washington dated Jan. 27, said its new loan would be used in part to "help the government meet its foreign exchange needs", which included repaying a JBIC bridge loan used to clear arrears.

The World Bank arrears had been put at about $400 million.

Japan, whose government and companies have been particularly active in the former Burma since it opened up, had said it would help with the arrears.

The ADB, which reopened an office in Myanmar in April 2012, said the clearing of arrears allowed it to provide its first loan to the country in more than 30 years.

Thein Sein's government has had to start practically from scratch in developing a modern economy. Reflecting that, the ADB said it would focus on "the building blocks for stability and sustainability".

Among other things, it would look at improving public finances and developing the finance sector.

The loan would be used to "finalise arrears clearance and sustain government efforts to revamp the national budget process and modernise tax administration", the ADB said.

"In rural areas, where development has been hindered by lack of infrastructure, restrictions on land usage, poorly developed support services and limited access to financial services for farmers, ADB funding will help develop a strategy to make banking services more widely available," it said.

The World Bank said its credit would support reforms to strengthen macroeconomic stability and to improve public financial management and the investment climate.

It said that, over the past year, it had opened an office in Yangon and brought in technical experts to help the government develop a broad development programme.

The government outlined a detailed programme at a big aid donors' conference in the capital, Naypyitaw, on Jan. 19-20.

The World Bank said it had already provided an $80 million grant for improvements to rural infrastructure, including schools, health clinics, roads and irrigation schemes in about 640 villages across Myanmar over six years. (Writing and additional reporting by Alan Raybould; Editing by Sanjeev Miglani)