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No. 6 — February 11, 2000

Feature Article

JAPAN'S FOREIGN AID PROGRAM IN THE NEW MILLENNIUM:
RETHINKING "DEVELOPMENT"

Marc Castellano

Summary

Japan, the world's largest provider of official development assistance since 1992, likely will keep its preeminent position this year. The East Asian economic crisis, a regionwide debacle triggered by the devaluation of the Thai baht in mid-1997, prompted Tokyo to launch a major rescue effort worth some $80 billion. In line with traditional policy, funds were pumped into infrastructure and "development" projects. Recently, however, growing fiscal pressures, emerging questions about the impact of this type of aid on the poorest segments of recipient nations and waning domestic support for huge overseas assistance programs have spurred influentials both inside and outside the government to call for a wholesale reform of Japan's ODA policy.

Thus, new priorities and directives for ODA have been established. This year's program emphasizes initiatives that serve Japan's national interest, protect the environment, alleviate social problems and ensure efficient utilization of funds. A host of changes will be made not only in administrative procedures but also in fundamental perspective. Instead of pouring funds into traditional infrastructure projects, Tokyo will carefully spend its money on projects that reach the grass roots. Such improvements are designed to make the development process more humanistic as well as to boost domestic understanding and support for Tokyo's substantial aid program.

The ODA budget for FY 2000 reflects these new priorities and includes provisions for new types of social and environmental programs. For improved efficiency, other initiatives have been introduced to enhance transparency and to expand monitoring activities. If all goes according to plan, Japan's aid program will undergo a major transformation and emerge as a better institution in the new millennium.

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Weekly Review

MOF'S DEBT MANAGEMENT TAKES A NEW TURN
--- by Douglas Ostrom

Tokyo's management of Japan's public-sector debt is unique in its ability to scare or at least confuse analysts on both sides of the Pacific. That reality was highlighted by the flap in late January and early February over a government plan to borrow money from the nation's commercial banks. The proposal raised eyebrows because Tokyo, like Washington, almost always prefers the generally cheaper option of issuing government securities when it needs money. Moreover, the Ministry of Finance will raise real money — to the tune of ¥8 trillion ($72.7 billion at ¥110=$1.00) — in this fashion during the fiscal year that begins April 1.

 

JAPANESE BANKS PAST WORST OF NONPERFORMING-LOAN PROBLEMS
--- by Jon Choy

The Financial Supervisory Agency's latest loan portfolio survey of domestic banks, which covered the April 1, 1999-September 30, 1999 period, revealed improvements almost across the board. As a group, nationwide banks, top regional banks and their smaller counterparts clearly rid their books of problem loans in FY 1999's first half. Another unambiguous development was apparent, however: banks reduced their overall loan commitments. This result almost certainly reflected the hard lessons that bank executives learned from the nonperforming-loan crisis that has wreaked havoc with traditional banking operations in recent years. Only time will tell whether the newfound caution translates into sound lending practices that help the economy restructure or produces overly conservative decisions that could retard a sustained recovery.

 

VICTORIES OF COALITION-BACKED CANDIDATES IN LOCAL RACES BOOST OBUCHI GOVERNMENT
--- by Barbara Wanner

Pundits who had maintained that Prime Minister Keizo Obuchi's days in office were numbered following the controversial decision to ram a Diet reform measure through the legislature February 2 have been forced to revise their forecasts. In a gubernatorial election in Osaka prefecture and a mayoral race in Kyoto, both held four days later, candidates backed by the three ruling parties — the Liberal Democratic Party, the Liberal Party and the New Komeito — trounced their opponents, who either ran as independents or were endorsed by the Japan Communist Party.

 

INDONESIA REGAINS SUPPORT OF INTERNATIONAL COMMUNITY
--- by Marc Castellano

International donors pledged up to $4.7 billion in aid for Indonesia at a February 1-2 meeting of the Consultative Group on Indonesia, organized by the World Bank. Japan, Indonesia's most important provider of development assistance, offered $1.6 billion, while the World Bank committed $1.5 billion and the Asian Development Bank pledged $1.1 billion. The balance will come from the nearly three dozen other countries and international organizations that make up the group. The money will be disbursed during FY 2000. About $1 billion of the total is new funding; the rest represents a restatement of previous commitments.

 

NOTES

Progress was elusive in the early phases of both the 1997-98 and the 1998-99 round of talks under the U.S.-Japan Enhanced Initiative on Deregulation and Competition Policy — the forum the White House devised for capitalizing on Tokyo's stated commitment to deregulation and structural reform to promote changes in conditions of competition of particular interest to American businesses. If anything, the going is even slower in the final cycle.

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