The World Bank is set to re-engage with Burma 25 years after freezing its lending, but the Southeast Asian country must first repay several hundred million dollars in outstanding arrears.

The announcement came as the global financial institution held a board of directors meeting on the future of the country yesterday and is the latest sign that the international community is ready to welcome Burma back in from the cold.

“We are encouraged by developments in Myanmar [Burma] and we have begun the process of re-engaging with the government to support reforms that will benefit all of the people of Myanmar, including the poor and vulnerable,” said the bank’s vice president for East Asia and Pacific, Pamela Cox.

The World Bank froze all its operations in Burma in 1987 after the country’s repeated failure to meet its loan repayments or to implement economic or political reform.

According to Reuters, Burma owes some $US11.02 billion in external debt run up decades ago, while its foreign currency reserves are a little over $US7 billion.

Both the United States and the European Union have begun easing their sanctions against Burma and have indicated that they will remove further restrictions provided free and fair by-elections are held on 1 April.

Cox highlighted the importance of budget transparency and working closely with civil society organisations to promote social accountability and inclusivity. Earlier this week, Human Rights Watch urged the World Bank to “take special care to avoid further bolstering the economic elite” in its re-engagement process.

Continued violence in many of Burma’s border areas – notably Kachin state – has been a key source of concern for potential donors. The Bank insists that it will provide technical assistance on economic incentives to help with the peace process in border areas in an effort to promote peace and security.

Although the US – the World Bank’s largest shareholder — waived sanctions on limited technical assistance earlier this month, additional restrictions means it is still required to oppose any new lending by the institution.

Despite vast natural resource wealth, Burma remains the poorest country in Southeast Asia and ranks 149 out of 187 on the UN’s Human Development Index.