Japan is likely announce at the weekend that it is ready to resume making development loans to Myanmar, a source with direct knowledge of the matter said, a move that would support Myanmar's nascent democracy and help pay for much-needed infrastructure upgrades.
The two countries are in the final stages of talks to work out how Myanmar will repay at least part of its outstanding debt to Japan, a precondition for new loans, and the source said he expects an agreement to be reached in time for a regional summit in Tokyo on Saturday.
We are putting the final touches to the issue of how to solve the (debt) problem, which needs to be overcome for the loan restart, said the source, who spoke on condition of anonymity because the Japanese government's step has not been made public.
The exact amount of Myanmar's debt to Japan is not known.
Myanmar's government, which has no dedicated spokespeople, made no immediate comment.
The move is expected just days after the United States relaxed sanctions on Myanmar, allowing transactions to support some humanitarian and development projects.
The European Union is due this month to review its sanctions on Myanmar, whose president Thein Sein has stunned critics with reforms unthinkable a year ago, including the release of hundreds of political prisoners, easing media censorship and holding peace talks with rebels.
Nobel Peace Prize laureate and pro-democracy icon Aung San Suu Kyi won a seat in parliamentary by-elections this month that yielded a landslide victory for her party.
Before a bloody crackdown on pro-democracy demonstrations in Myanmar in 1988, Japan had promised around 410 billion yen ($5.04 billion) in low-interest, long-term loans to finance port, road, railway and other big projects in the country.
The Japanese government has not disclosed how much of that money changed hands, but since then it has mostly limited its aid to small grants for humanitarian purposes. Typically, low-interest loans made by Japan to developing countries for infrastructure projects run into the tens of billions of yen.
The limitations of Myanmar's transport system could present logistical problems for investors planning to use the country as a manufacturing base. Railways cover only a handful of routes and many roads are in poor condition, while much of the country is without access to reliable electricity.
Japanese Foreign Minister Koichiro Gemba said in February that Tokyo planed to resume development aid to Myanmar to support its move towards democracy, but he did not specify the timing of loan resumption or the size of fresh loans.
President Thein Sein is scheduled to travel to Japan on Friday for a five-day visit, including a six-way meeting between Japanese Prime Minister Yoshihiko Noda and top leaders from Cambodia, Vietnam, Thailand, Laos and Myanmar on Saturday.
Unlike many Western powers, Japan imposed no sanctions on Myanmar, preferring a policy of dialogue and engagement.
($1 = 81.3100 Japanese yen)
(Editing by Daniel Magnowski)