By MALCOLM FOSTER, Associated Press

TOKYO (AP) — Japan said Saturday it will forgive about 300 billion yen ($3.7 billion) of Myanmar's debt and resume development aid as a way to support the country's democratic and economic reforms.

The government made the announcement after a meeting between Prime Minister Yoshihiko Noda and Myanmar President Thein Sein following a summit with leaders from the five nations of theMekong River region.

Myanmar's military junta last year handed power to a nominally civilian government that has surprised the world with a series of sweeping political and economic reforms, including releasing prominent political prisoners and allowing democracy icon AungSan Suu Kyi to contest recent parliamentary by-elections.

The Japanese government said in a statement that it will cancel 127.4 billion yen in loans due after April 2003. It will also forgive 176.1 billion yen in overdue charges accumulated over the past two decades after one year's time as the two countries jointly monitor reforms.

Japan does not have sanctions on Myanmar, although it cut most government aid in 2003 after Suu Kyi was put under house arrest, which ended last November. Japan was Myanmar's largest aid donor until 2003 and has continued small amounts of humanitarian grass-roots aid in health and education.

Japanese companies have held back from investing in Myanmar in recent years because they didn't want to upset relations with the United States and the European Union, which have imposed sanctions on the country, and due to the lack of transparency in business laws.

On Friday, Thein Sein told Japanese business leaders that his country is eager for their investment and know-how to help his country grow.

Asian investors and international tourists have started to flock to the country in recent months, and a number of Japanese companies have started projects and expressed interest in doing business in the desperately poor country.

The country is rich in natural resources, including timber, oil, natural gas and gems.

Last week, the Tokyo Stock Exchange and Daiwa Securities Group said they had reached an agreement with the Central Bank of Myanmar to help establish a stock market by 2015. On Thursday, NTT Data Corp. said it will establish a subsidiary in Yangon, citing the country's "large potential." All Nippon Airways Co. is also preparing to add service to Myanmar this fiscal year.

Since 1989, Japanese investment in Myanmar has totaled just $212 million — a tiny amount by global standards and a fraction of that of the top two investors in the country, China and Thailand.

The news about the debt forgiveness comes after Japan earlier in the day pledged about 600 billion yen ($7.4 billion) in development aid and expertise to five countries in the Mekong River region — Thailand, Vietnam, Cambodia, Laos and Myanmar. It was their fourth summit since leaders first met in 2009.

By strengthening its ties with Myanmar and other Mekong regioncountries, Japan is also looking to counter China's growing influence in the region. Noda emphasized continued cooperation with the region, saying, "The stability and development of East Asia is not possible without the stability and development of the Mekong region."

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