By Jason Szep
BANGKOK (Reuters) - When the Asian Development Bank cut off aid to Myanmar in 1988, troops had just crushed a pro-democracy movement, killing thousands.
Today, Myanmar, the Asian Development Bank and the World Bank are inching closer to a deal that would lead to a full-fledged resumption of aid, possibly within a year, a senior ADB official said on Saturday.
Before aid can resume, Myanmar must settle millions of dollars in debt left unpaid from previous aid programmes that were cut off nearly a quarter century ago when the military put down a student-led uprising and locked up pro-democracy leader Aung San Suu Kyi that turned the country into an international pariah.
Those debts now total nearly $500 million to the Manila-based ADB and $393 million to the World Bank in Washington.
Paying them back and restoring aid is crucial for rebuilding the impoverished but resource-rich country after decades of misrule, trade-crippling sanctions and economic mismanagement. They could also pave the way for greater private investment by accelerating the development of industries such as farming.
"There are a couple of things that we have moved on which is encouraging," Stephen Groff, ADB vice president for East Asia, Southeast Asia and the Pacific, said in an interview in Bangkok after a four-day visit to Myanmar where he met with President Thein Sein and top cabinet ministers.
The president, a reformist former general, was "quite candid in his desire to see full re-engagement on the part of the multilateral development banks as soon as possible," said Groff, the most senior ADB official to visit the country in 25 years.
In recent weeks, the 15-month-old government has reached one critical milestone by agreeing with the ADB and the World Bank over how much debt is owed.
"That in itself is an accomplishment," said Groff. "They have their book-keeping and we have ours."
Talks are now focused on three possible options for paying off the debt: the government taps its reserves to repay it; a new loan is created by rescheduling the debt; donors build a trust fund to pay it back, essentially forgiving the debt.
"None of those options are mutually exclusive and I suspect whatever we end up will be a combination of all of them," said Groff. "But I don't know when that will happen."
"If you look back over the course of countries that have dealt with similar issues, countries that have come in from the cold if you will -- Afghanistan, Cambodia, Liberia - that process has taken a year or more." He expects broadly about the same timetable for Myanmar, he said.
In 1988, the ADB suspended all aid to Myanmar, then known as Burma. The World Bank froze aid in 1987 after the country halted debt payments. The two agencies are working together in talks over how the debt will be repaid.
The ADB started this year to re-engage with Myanmar. It recently opened an office in Yangon, the commercial centre, and by August aims to have three full-time staff in the country and a second official in the capital Naypyitaw.
"There is huge potential in the country," he said. "They have got abundant energy resources. They have abundant renewable energy resources. But it is largely at the moment untapped potential," he said. "Quite a bit needs to be done on the part of basic capacity development, institution strengthening."
Thein Sein's reforms over the past year include freeing hundreds of political prisoners, allowing greater media freedom, reforming the currency, and holding peace talks with ethnic minority rebels.
The United States and European Union have suspended sanctions on Myanmar following the new army-backed civilian government's efforts at pushing ahead with democratic reforms.
"I left this visit of four days with a real sense that across the board all of the people I spoke to are very engaged in the reform process, are very keen to see it through," said Groff. (Editing by Ed Lane)