DEVELOPMENT-JAPAN: Economic Woes Push Cuts in Aid Budget

By Suvendrini Kakuchi Reprint | | Print |

Suvendrini Kakuchi

TOKYO, Oct 9 2001 (IPS) - Japan’s powerful Finance Ministry has suggested a 10 percent slash in the Japanese foreign aid budget, the largest in the world, for the next fiscal year, government officials say.

In keeping with this pressure, the foreign ministry last week requested an official development assistance budget of 918.12 billion yen or 90 billion U.S. dollars, down 9.6 percent from the initial budget of 1.02 trillion yen or 13 billion dollars for the current fiscal year that ends March 31, 2002.

The cut marks the first time in a decade that Japanese official development assistance has slipped to below the trillion-yen mark or 10 billion dollars. However, cuts in the foreign aid budget have been occurring in recent years – the ODA budget was reduced 3 percent in fiscal year 2001.

Along with the financial pressure to cut the foreign aid budget however, Tokyo’s aid priorities are also being affected by the changed global political situation after the Sep. 11 bombings in the United States.

For instance, Indonesia, the next largest ODA recipient after China, received a pledge of an increase in funds despite the severity of Japan’s finances.

Finance Minister Masajiro Shiokawa told Indonesian President Megawati Sukarnoputri, who was in Tokyo during the last week of September, that Japan expressed gratitude for Indonesia’s role to support efforts by the United States in its ‘war against terrorism’.

In a similar move, Japan is set to grant Pakistan about 40 million U.S. dollars as emergency aid as part of its support for the US.

Of the total, 3 million dollars will go to helping Pakistan rebuild its finances and 1 million dollars used to help cope with a possible flood of refugees from Afghanistan.

Japan also granted Pakistan a debt rescheduling pact worth 616 million dollars and is expected to be signed shortly after the approval of the Japanese Cabinet.

According to a foreign ministry press report, the reduction in Japan’s aid budget next year is in response to Prime Minister Junichiro Koizumi’s plan for sweeping structural reforms that are now being implemented to shore up an economy struggling against recession.

But the report says the new ODA budget will emphasise quality over quantity in its projects for developing countries.

In keeping with this policy, grant aid, that forms 47 percent of the overall aid budget, is expected to remain intact. Loans, on the other hand, will be reduced or kept at the same level as this fiscal year.

“Japan needs to review its effectiveness of the aid it extends to developing countries and cut unnecessary official development assistance,” Foreign Minister Makiko Tanaka said.

She explained, “Some projects, initiated out of goodwill, are not functioning well. From the taxpayers’ viewpoint, it is necessary that ODA be used effectively.”

Japan’s ODA budget comprises the backbone of the nation’s pacifist foreign policy and cuts are severely defended by official supporters.

However, the country’s long recession, which has resulted in a record 5 percent unemployment rate and rising corporate bankruptcies in the past few years, has begun to force cuts in Japan’s development assistance.

A three percent drop was recorded in 2001, after rising pressure from an advisory panel to the Foreign Ministry that called for a small drop in order not to hurt Japan’s international stature.

At the beginning of September, Koizumi told reporters before his scheduled trip to South-east Asia was postponed: “Japan faces severe financial conditions. I want ODA to have meaty contents.”

Koizumi’s trip to Indonesia, Malaysia, Singapore and Thailand was postponed as a result of the terrorist bombings in New York and Washington on Sep. 11

The repercussions of reduced Japanese overseas assistance will be severe for China, which has been either the largest or second largest recipient of Tokyo’s aid, according to analysts. Beijing gets 11.4 percent of Japanese ODA.

China received 17 million dollars in loans in fiscal 2000, which ended in April 2001. Loans make up the bulk of Japanese ODA to China. China is also the top recipient of technical transfer from Japan.

The Foreign Ministry submitted a plan to the ruling Liberal Democratic Party in September calling for reduction of yen loans.

The reduction, according to the official report, was related to Japan’s financial crisis and the view that China’s economic development that has now helped paved the way for China to build its own railways and infrastructure.

Assistance to China for fiscal 2002, starting from April next year, is expected to be on a project-to-project basis, reflecting official calls for reduction from next year onward.

The reductions will affect new infrastructure projects that China wants financed. Japan, on the other hand, wants aid to be channeled to environment protection and agricultural projects.

Shiokawa told the Upper House in August that China’s economic expansion and its military build-up are leading reasons for the drop in assistance.

Japan’s strained relations with China after Koizumi’s trip on Aug. 13 to Tokyo’s Yasukuni Shrine, which honours war criminals along with Japan’s other war dead, is also seen as a reason for the shift in policy. He tried however to salve those tensions during a visit to this week to China.

He then goes to South Korea on Oct. 15 to meet with South Korean President Kim Dae Jung.

For South-east Asia, cuts in Japanese aid could mean more funds being granted to sectors such as environmental protection instead of expensive infrastructure.

In addition, advisors have suggested that Japan cooperate with the more developed countries such as Singapore and Thailand to provide aid to poorer countries such as Laos and Cambodia.

“Such trilateral cooperation is becoming very important to make aid more suitable for recipient countries and follows the principle of quality over quantity in Japanese aid,” commented professor Toshio Watanabe of development studies at Takushoku University.

Advisers have also promoted a regional balance in Japanese aid policy, pointing out the need for poverty reduction activities to be supported in Africa and Latin America as well. Almost 60 percent of Japan’s ODA budget goes to Asia.