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Tuesday, Oct. 9, 2007

FYI

OFFICIAL DEVELOPMENT ASSISTANCE

ODA shrinking but still key tool


Staff writer

Official development assistance is an important diplomatic tool for Japan, which relies heavily on other countries for resources, food and many other economic necessities.

News photo
The National Highway in India that runs 260 km between Delhi and Jaipur ? built with official development assistance loans from Japan Bank for International Cooperation, the World Bank and the Asian Development Bank ? has cut travel time between the two cities by 25 percent. SETSUKO KAMIYA PHOTO

ODA is used not only to help developing countries pursue sustainable socioeconomic development, but also to combat global issues such as poverty, pollution and infectious diseases and to promote peace.

Japan is a member of the 22-nation Development Assistance Committee in the Organization for Economic Cooperation and Development, a group of major donor nations that coordinate their efforts in supporting developing countries and discuss the effectiveness of their aid.

Although Japan was the top donor in the 1990s, the amount of ODA has been steadily declining. OECD data show that in 2006, Japan dropped from second to third place after the United States and Britain. The OECD predicts France and Germany will surpass Japan by 2010.

What is behind Japan's shrinking ODA? Here are some basic facts about Japan's foreign aid:

What is official development assistance?

The OECD defines ODA as grants or loans to developing countries that are a) undertaken by the official sector of a donor country, such as the Japan International Cooperation Agency and Japan Bank for International Cooperation, b) whose main objective is to promote economic development and welfare, and c) have concessional financial terms. Grants, loans and credits for military purposes are excluded.

According to the Foreign Ministry, in fiscal 2005, 80 percent of Japanese ODA was used for bilateral aid, while 20 percent was used through multinational organizations such as the United Nations, the World Bank and the Asian Development Bank.

What is the history of Japan's foreign aid?

Japan's ODA policy has its roots in its own experience of being a foreign aid recipient.

Soon after the end of World War II, the United States gave Japan food and medical support. Between 1953 and 1966, Japan borrowed from the World Bank to build important infrastructure for economic growth, including the Kurobe No. 4 dam in Toyama Prefecture, the Tomei expressway that extends 350 km between Tokyo and Komaki, Aichi Prefecture, and bullet trains. It was only in 1991 that Japan completed paying back the loans to the international community.

In terms of its history as a donor, yen loan and grants began in 1954 as part of postwar compensation to other parts of Asia, and the effort continued until 1976.

Eventually, the amount of ODA increased as the country's economy developed, making Japan the top donor between 1991 and 2000. Over the years, the kind of assistance and regions it reaches has also expanded.

What are Japan's basic policies, and what does it prioritize?

Each donor nation has its own foreign aid objectives and goals. Japan's strategy is clarified in its Official Development Assistance Charter, which was first compiled in 1992 and revised in 2003.

Simply put, Japan in principal supports self-help efforts of developing countries. The aid is also carried out with "human security" perspectives, which focus on protecting and empowering individuals.

Asia is a priority area for recipients, because supporting growth and forming stronger ties with economies in the region is important for Japan's stability and prosperity.

In line with the global trend, support to Africa is set to expand, as it is a region with the largest number of least developed countries that are affected by conflicts and other development issues. At the same time, it is also a region rich in resources.

Former Prime Minister Junichiro Koizumi said at the Group of Eight summit in Gleneagles, Scotland in 2005 that Japan will double the total amount of aid toward Africa in three years.

Some observers say that this also has to do with Japan's strong interest in becoming a permanent member of the U.N. Security Council, where votes from African nations are crucial for it to achieve this goal.

Compared with other DAC countries where a large amount of foreign aid takes the form of grants, the ratio of loans is higher in Japanese bilateral ODA. Why is this?

This reflects Japan's strategy that although a yen loan requires repayment, the interest rate is low and the term is long. The government believes this encourages self-help efforts.

A large part of yen loans are used for establishing economic infrastructure such as the construction of roads, railways, bridges, ports and electric power plant facilities, which also derive from Japan's experience.

Grants, meanwhile, are in large part provided to least developed countries and are used in fields related to basic human needs to improve the quality of life of the people. They take forms such as dispatching experts and volunteers, technical transfers and receiving personnel from developing countries as trainees.

Loans and grants are offered in combination according to each country's financial situation. In general, Asian recipients tend to get loans instead of grants, while it is the other way around with many African countries.

What is the situation with aid toward China, whose economy has been growing rapidly?

China was the second-largest recipient of yen loans after Indonesia for many years. As its economy developed, many raised questions because China's military budget was also rising, and the country also began offering politically motivated aid to developing countries.

Yen loans to China have declined sharply since 2001, and in 2005, both countries agreed to end new yen loan projects by the Beijing Olympics in 2008. But grants will continue in limited cases, including the environment and infectious diseases.

Why is the overall amount of Japanese ODA decreasing?

Japan's ODA budget reached its peak in 1997 at ¥1.16 trillion, but the tight financial situation brought about by the recession during the 1990s has led to cuts in the ODA's budget. In a decade, it has shrunk by 38 percent to ¥729 billion in 2007.

Amid the tightening, the government has been working on ODA reforms to improve the quality and efficiency of aid, which has also been criticized in the past, in some cases for allegedly lobbying for support for Japan's policy goals.

Meanwhile, other donor countries are increasing their foreign aid budget, especially after the Sept. 11, 2001, terrorist attacks on the United States. This is because the international community realized that poverty was a breeding ground of terrorism and had to be curbed, the 2006 ODA White Paper said.

At the 2005 G-8 summit, Koizumi pledged to increase Japan's ODA by $10 billion in five years, although the 2006 economic policy guideline recommend cuts of 2 percent to 4 percent in ODA outlays over the five years beginning this fiscal year.

While financial reform is necessary, concerned observers are calling for an increase in ODA. In fact, a Liberal Democratic Party committee in June said that in order to strengthen diplomacy, cuts to foreign aid should be revised.

For fiscal 2008, 11 of the 13 ministries and agencies are requesting increases in their ODA expenditures. Thus, tough negotiations are expected with the Finance Ministry.

The Weekly FYI appears Tuesdays (Wednesday in some areas). Readers are encouraged to send ideas, questions and opinions to National News Desk


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