[asia-apec 381] Japan's ODA

[Pacific-Asia Resource Center PARC]

ExamBy Kitazawa Yoko

*From AMPO: Japan Asia Quarterly Review, Vol. 27, No. 3 (1997). 

On September 29, 1996, a group of NGOs met in Tokyo to set up a lobbying
group called Japan’s NGO Network on ODA. The coalition includes groups work
ing in international development cooperation, such as the Japan
International Volunteer Center (JVC), Sodoshu Volunteer Association (SVA),
People to People Aid (P2), the Japanese Association of NGOs for
International Cooperation (JANIC) and the Japanese Network of NGOs for
Indonesia (JANNI), as well as advocacy groups such as the Pacific Asia
Resource Center (PARC) and People’s Forum 2001. 
The Network will do advocacy work toward the government on the issue of
Japan’s ODA to developing countries. The members also decided to encourage 
parliamentarians to set up a caucus on ODA as well as a special committee
to deal with development assistance under the Foreign Affairs Committees in
both Upper and Lower Houses. 
The Network agreed to work on the following short-term and long-term
objectives: as long-term projects, the enactment of a Basic Law on ODA and
the establishment of a special agency or ministry dealing with ODA; and in
terms of short-term objectives, a review and reform of yen loans provided
by the Overseas Economic Cooperation Fund (OECF) under the auspices of the
Economic Planning Agency and to undertake debt relief for heavily-indebted
countries. 
The Network will meet regularly to work out its own strategy for
negotiations with the government, will organize seminars and workshops in
order to mobilize public opinion, and will work with the mass media on
specific matters related to economic assistance. 

First Steps

The Network has met twice with officials of the OECF. The discussions
ranged from the OECF's Guidelines for Environmental Protection and for
Women in Development (WID) to the question of enacting a Basic Law on ODA. 
The NGOs are concerned that the OECF's guidelines are much weaker than
those of the Development Assistance Committee (DAC) of the Organization of
Economic Cooperation and Development (OECD) in Paris; the process of
drawing up guidelines has not been transparent; the implementation has been
carried out arbitrarily by officials; and there are no mechanisms to allow
local NGOs or beneficiaries of projects to participate in the planning,
implementation, or monitoring of the projects. 
According to the OECF, issues involving the environmental guidelines, WID
guidelines, and resettlement (there are no guidelines yet on this issue)
are dealt with by the Social and Environmental Section, which has a staff
of just seven. This means that these seven people are charged with the task
of ensuring that the entire OECF workload  some 120 development projects
involving infrastructure construction, spread over 82 countries, and with a
pledged budget of $10 billion  is in line with these guidelines. This is
simply impossible. In response, the NGOs proposed that the OECF stipulate
guidelines on resettlement, on the basis of the 1993 resolution of the
Human Rights Commission in Geneva, the Beijing Plan of Action, as well as
the rules set by the World Bank. 
However, given the current wave of administrative reformbeing carried out
within the government, it is not feasible at the moment to expect an
increase in the number of staff members in the section dealing with these
guidelines. As a possible solution to this staff shortage, the NGOs
proposed a substantive program to train OECF staff, private sector
consultants, construction company employees, and local NGOs and residents
in these guidelines, and at the same time the establishment of equal
partnerships with local NGOs and residents to fulfill the guidelines. They
proposed the establishment of solid and effective consultative mechanisms
with local groups and people, which might include NGO forums in project
areas, and providing funds for capacity building programs for the local
population, and especially for women living in poverty. The OECF officials
listened attentively to these proposals. 
The NGOs also pointed out that the WID guidelines, which were written in
1991, regard women as mere objects of development and not as subjects who
have long been carrying out sustainable development through their own
efforts. The OECF officials agreed to review and rewrite the guidelines in
line with the Beijing Plan of Action. They also agreed to send a mission to
the Philippines to survey WID activities there, and to meet with local NGO
representatives. They also said they would send a fact-finding mission to
the World Bank to examine WID guidelines there. 
In the coming meeting with OECF officials, the members of the NGO Network
will focus on matters relating to yen loans to the Philippines' Land Reform
Program and to the Grameen Bank in Bangladesh. 

Examining Japan's ODA

In 1995, Japan's ODA amounted to slightly over US$14.7 billion, on a
fulfilled level (there are some discrepancies between pledged and fulfilled
levels). This is the largest level of the 21 OECD member countries. Japan's
share is now nearly one fourth of total ODA flow from the North to the
South. 
Unfortunately, there is a lack of correspondence between this volume and
the assistance's content and quality. More than 30% of Japan's ODA ($4.46
billion) consists of yen loans. 
These yen loans have been used to construct large-scale infrastructure
development projects such as dams, power plants, highways, modern
hospitals, and irrigation. The top ten recipient countries, with the
exception of Egypt, are all in Asia, and these Asian recipients, of which
Indonesia and China are at the top, have absorbed 80% of the loans. Because
of the rapid rise of the yen, from 250 yen to the dollar in 1985 to 110 yen
today), the use of yen loans has become a major cause of accumulated debts.

Why are yen loans so dominant in Japan's ODA? Basically, the reason is
that, first of all, the Japanese government pledged, in response to
international criticism over its large trade surplus, to recycle its
surplus to developing countries in the form of ODA by providing a total of
$60 billion in the five years beginning in 1993, and this meant it had to
increase its ODA budget in any way possible. However, the economy went into
a deep economic recession beginning in 1990 (the so-called bursting of the
bubble), and the government's budget recorded its largest fiscal deficit
since the end of World War II. As a result, it was impossible to find funds
for increasing ODA in the General Budget. The government had to resort,
therefore, to getting funds from the Treasury Investment and Loans (TIL)
program, which is mostly financed by the Post Office Savings Account under
the Ministry of Posts and Tele-communications. This is the origin of yen
loans to developing countries (although the majority of TIL funds go to
public works and industrial and social infrastructure projects within
Japan). 
There are two categories of Japanese ODA. The first is grants from the
General Budget, which are drawn from taxes, and this portion is handled by
the Japan Agency for International Cooperation (JICA), which is under the
Ministry of Foreign Affairs. The funds from this portion go to WID
projects, the fulfillment of Basic Human Needs, technical assistance, and
scholarships, for example. The second portion is yen loans, mainly from the
TIL, which are used for large-scale industrial infrastructure development
and, more recently, for structural adjustment lending. This part is handled
by the OECF, under the Economic Planning Agency. 

Scrutinizing the Loans to the Grameen Bank

In 1996, the government announced that it had decided to provide a yen loan
to the Grameen Bank in Bangladesh, as a first attempt to support NGO
activities in developing countries. The loan will amount to ￥3 billion (sli
ghtly less than $30 million at the 1996 exchange rate). 
The Bangladesh government will receive the loan, with a 30-year repayment
period, a 10-year grace period, at an annual interest rate of one percent.
The government will then loan the money to the Grameen Bank in takkas, the
local currency, with interest of two percent and the same repayment
conditions. The Grameen Bank will then lend the money to poor women for
micro business development projects, at a rate of 20 percent, and to
housing projects, at 8 percent. 
Several issues arise from the lending:
1) If the yen's value rises, the Bangladesh government's debts to Japan
will rise automatically, and the government will be obliged to cut outlays
to people living in poverty, meaning that poverty in the country will
deepen. To prevent this, the NGO Network proposed that the OECF set up a
common fund. If the yen rises, the Fund will be used to subsidize the
losses.
2) To the Grameen Bank, 3 billion is a huge sum of money. The Grameen Bank
is not a commercial bank, but rather its major work is to organize poor
women into groups and help them plan workable micro business projects. Who
will finance the staff to help the women? If the Bank wants to continue
this work, it will discover that 20 percent minus two percent is not enough
to cover its staff overhead. Perhaps 50 percent of the loan could be
channeled to staff activities. However, these activities would not create
profits, so the Bank would not be able to repay the loan. In response,
therefore, the NGO Network has proposed that JICA provide an equivalent
grant to cover the Bank's overhead costs. 

Loans to Land Reform in the Philippines

In July 1995, the OECF agreed to provide a yen loan of ￥6.151 billion to su
pport the Philippine Department of Agrarian Reform's Agrarian Reform
Infrastructure Support Project. This was the first time that Japan agreed
to provide a loan for an agrarian reform project. This, at least, can be
seen as a step forward. 
The project will fund four components: 1) the construction and repair of
community-based irrigation systems covering 18,000 hectares; 2) the
establishment of buildings for post-harvest work; 3) the construction of
540 kilometers of road to provide access to markets; and 4) the
organization of 10,000 farming families into 96 Agrarian Reform
Communities. The terms of the loan are 30-year repayment period, with a
grace period of 10 years, and an interest rate of 2.7 percent annually. 
In January 1996, Ernesto Garilao, the Secretary of Agrarian Reform, met
with Japanese NGOs in Tokyo. He told them that the Japanese government had
informed him it was not in a position to provide any new grants to the
Philippines, since it had become a middle-income country. Japanese
officials said Japan was facing severe budgetary constraints and at the
same time was being forced to make commitments to provide grants to
transition economies in Indochina. As a result, they told him, the
Philippines would have to rely on yen loans. 
The NGOs asked Garilao whether he believed it would be possible to repay
the loan, and in particular the portion used to organize 10,000 families.
>From the point of view of NGOs, the process of organizing farmers requires
the involvement of NGOs, and is the most important and time-consuming
process in agrarian reform programs. However, it would not produce any
extra profits to allow the government to repay its debt to Japan. 
Garilao told the NGOs that his Department desperately needed new funds, and
that it was not his office, but rather the Department of Finance, which
would be responsible for repaying the loan. 
In view of this, the NGO Network has proposed that in this case, like that
of Bangladesh, JICA should provide a simultaneous grant for the
organization of farmers. 

Conclusion

The US government has initiated drastic cuts in its foreign assistance, and
European countries have made cutbacks as well, in particular in aid
destined toward Asian countries, because of increasing commitments in
Africa and Eastern Europe. As a result, we are bound to see a considerable
increase in Japanese aid to Asia. 
Given this, it is inevitable that the government will look toward the TIL
as the source of funds for new ODA, meaning it will be in the form of yen
loans. These loans will be provided to projects such as support for the
Grameen Bank or for Agrarian Reform in the Philippines. These funds will
also go toward structural adjustment programs. As a result, we will see an
increase in the external indebtedness of the recipient countries. 
The OECF was set up in 1961, and with it began the yen loan as a form of
assistance to developing countries. As of 1995, the OECF has pledged a
total volume of ￥15.0373 trillion, for 2,820 projects, and had actually pro
vided ￥10.0751 trillion. So far, ￥2.0751 of this sum has been repaid. The 
balance, or \8,7815 trillion, represents debts of the recipient countries
to the OECF. 
The NGO Network will propose to the OECF, Economic Planning Agency, and to
the National Diet that guiding principles be drafted to incorporate yen
loans into ODA, and to create mechanisms to cope with fluctuations in
exchange rates. For instance, half of the volume of yen loans could be
converted to US dollar loans, or bilateral Common Funds could be set up
between Japan and recipient countries to create a hedge in the case of
fluctuations.