DEVELOPMENT-JAPAN: Activists Keep Watch Over Mammoth Aid Body

By Suvendrini Kakuchi Reprint | | Print |

Suvendrini Kakuchi

TOKYO, Apr 14 1999 (IPS) - The Japanese government is putting the finishing touches on the merger of two of its biggest aid agencies, a step that will make the new institution, to be formed in October, one of world’s largest lending agencies.

Analysts here say the new body, to be called the Japan Bank for International Cooperation or JBIC, will have international financing capabilities at par with the World Bank.

Following a Cabinet decision in 1995, the Lower House in the Japanese Diet passed a bill at the end of March supporting the integration of the Export-Import Bank, provider of crucial export credit, and the Overseas Economic Corporation Fund, Japan’s yen- loan arm.

The JBIC will have a budget of 24.5 billion U.S. dollars, certain to make it the single largest public financier of infrastructure projects in the developing world.

The World Bank, including its soft-loan window, made new loan commitments of 28.6 billion dollars for the financial year 1998, which ended on June 30. Of that amount, it disbursed 25.5 billion dollars.

Activists and development experts are watching out for the effects of the merger, asking whether it will lead to a more basic review of policies by the world’s largest aid donor.

The new bank will cover the preserves of the two separate institutions it combines, and its formation is part of restructuring efforts by the Japanese government in the current recession.

But officials say no major changes in aid policy are expected, but that apart from reducing extra management costs the merger seeks to make Japan’s aid programme more effective through the combination of staff .

The 35 overseas outlets belonging to Export-Import Bank and the OECF will be consolidated into a network of 28, including two new offices in Singapore and Lima, Peru.

The bank will be financed by the state budget for government- affiliated institutions, with separate accounts for its two key areas of operations — official development assistance and non-ODA activities.

Non-ODA activities cover the business of the Export-Import Bank, which was providing credit for trade and investment-related finance, and investment finance projects, untied loans and guarantees as well as lending aimed at the stabilisation of the international financial system.

Private aid monitors remain cautiously optimistic about the merger. They point out that the merger could be a change for the better if handled properly, although it does not really solve many of the old drawbacks that affects Japan’s ODA programme.

Keisuke Omura, a respected commentator on the subject, says the merger reflects the Japanese government’s desire to make the world’s largest aid budget more effective.

“The move signals a new era in Japan’s ODA, which until now tended to follow the World Bank or International Monetary Fund. Japan is now telling developing countries that lending will be on its own terms,” he explained.

The new bank will be the one to carry out many programmes under the Miyazawa plan launched last year to help South-east Asian countries struggling to overcome a severe recession. Then Finance Minister Kiichi Miyazawa pledged 30 billion dollars under the plan.

Omura also notes that for the first time Miyazawa told the Indonesian government, one of the foremost benefactors of the financial aid package and one of the largest recipients of Japanese aid, that Tokyo would be implementing a surveillance programme with the loans.

The fact that the loans were also aimed at helping market reforms rather than extended to traditional ODA projects also reveals a shift in Japan’s aid policy, traditionally lined up for developing infrastructure or improving social standards.

The JBIC will be dealing with this new policy further, points out Omura.

The Bank also hopes to handle what it views as the weaker aspects of the traditional lending institutions such as the IMF, especially in the wake of criticism that Fund-prescribed policies hurt struggling Asian economies further.

Diet deliberations are now focused on the need for the new aid institution to develop stricter guidelines to make sure its huge financial disbursements go along with social and environmental assessment studies on new projects.

The OECF has often been the target of criticism from non- governmental organisations for supporting projects such as expensive dams and power projects that displace local communities or hurt the environment in developing countries.

Critics here point out that part of the problem lies in the fact that the OECF, which handles a financial lending budget along the lines of the World Bank, has only one-tenth of the Bank’s staff.

“Against the backdrop of a skeleton staff, the situation will only worsen with the new bank which has no plans to increase research programmes towards improving accountability,” explains Ikuko Matsumoto of the Friends of the Earth Japan.

NGOs are want the government to adopt new provisions for improving transparency in JBIC, as well as a clear checklist that would slap prohibitions on projects that are unsustainable in the long run.

Matsumoto also urges the government to review a decision made last year to increase the number of tied loans that require aid recipients to work with Japanese companies.

This step was taken in the wake of pressure from businesses reeling from the recession, but aid activists said Tokyo should be moving away from such a policy instead of strengthening it.

Added Matsumoto: “We want a clear description of how the new bank will work to protect the environment in developing countries, an important area that has not been addressed.”