JAPAN-DEVELOPMENT: Turning Overseas Aid into Profits

By Suvendrini Kakuchi Reprint | | Print |

Suvendrini Kakuchi

TOKYO, Sep 19 1997 (IPS) - Japan is moving to require developing nations that get environment-related aid funds to buy goods and services from prompting protests from activists who say this is tantamount to profiting from aid programmes.

In recent years, Japan, the world’s No 1 aid donor, has been cutting down on the practice of ‘tying’ loans in the face of criticism from both developing and industl nations.

Officially, the Japanese government suspended ‘tied loans’ in fiscal 1988. And the foreign ministry says that by 1996, Japan’s assistance budget was 100 percent untied — for the first time.

But Japanese media recently reported that the government has decided on a formula under which tied loans would be issued to borrowers of overseas development assistance (ODA) funds for environmental projects and other anti-pollution programmes.

Those that take out loans for environmental protection would be obliged to use part of those funds to buy goods and services from Japanese firms, said the ‘Yomiuri Shimbun’, Japan’s largest daily.

“The development of tied loans is extremely disturbing,” said professor Yoshinori Murai, who teaches international development at Sophia University. “Japanese ODA will not help the developing world.”

Murai says tied loans may end up covering not just the environment but also Japanese grants to projects in the social sector such as education, gender and health.

“If this happens its going to be a deadly blow to our struggle for a more effective ODA policy in Japan,” he epxlained. “When it comes to specialised services towards social development, Japanese companies lack the necessary information and technology.”

Japan’s foreign ministry says the issue of tying certain loans is being discussed by government ministries. But Kiyoshi Amada of the grants section of the foreign ministry insisted: “No decision has been taken to extend tied loans or grants.”

Reports that Japan would tie environmental loans comes on the heels of other reforms in the country’s budget for overseas aid, ranging from a 10 percent cut to reduced contributions to international development organisations.

Governm officials say the reforms should streamline the country’s aid programmes, but critics say changes like tying loans are a step backward.

Amada assures that even if some loans were tied in the future, Japan’s ODA scheme would strictly follow rules laid down by the Overseas Economic Cooperation Fund (OECF), Japan’s aid agency.

“Technically it is possible for Japan to start extending tied loans,” he said. But this would strictly apply only to aid projects that have no commercial value or are not profit-oriented, as sulated by OECF.

“Even if the tied status is administered, Japan will abide by OECF credit management rules that ensures the fairness of official financial assistance,” he explained.

But Murai argues that the notion of tied loans is an indication of pitmaking, as well as a reflection of government’s desire to help Japanese business.

“The possibility of tied ODA loans and grants is becoming more a reality than a notion in the new Japanese budget. This is because tied ODA will ensure Japanese companies the contracts they feared losing as a result of the new cuts to be imposed in Japan’s official development assistance,” he explained.

When Japan’s ODA contributions are cut 10 percent in fiscal 1998, which starts in April, its contributions to organisations like the United Nations will also be reduced.

In 1996, Japan extended 9.43 billion U.S. dollars in aid and has been the top aid donor for the last six years. The second largest aid donor is the United States, which last year gave 9.05 billion dollars in overseas assistance.

In its report, the ‘Yomuiri Shimbun’ cited statistics saying that in 1995, Japanese businesses won about 27 percent of contracts for ODA-financed projects in developing countries. This rose to 33 percent in 1996.

Experts say Japanese business, aided by the government, want to ensure that it keeps a major share of ODA-related contracts — and one way of doing this is reverting to tied loans.

Due to their sagging competitiveness in the wake of the yen’s appreciation, Japanese businesses in recent years have won 20 to 30 percent of contracts for projects financed by ODA loans. Critics say they want a bigger share of ODA-related contracts.

The powerful Ministry of International Trade and Industry (MITI) supports this policy, the ‘Yomiuri Shimbun’ said.

A report submitted to MITI in June by the Industrial Structure Council advised the ministry to consider Japan’s interests, including business opportunities for Japanese companies, when drawing up aid policies priorities.

For the emerging economies in South-east Asia and China, the report suggests that Japan’s aid scheme focus on improving the private sector’s participation in infrastructure, enhancing conservation and hiking assistance to resource-rich countries located along the route of energy supplies bound for Japan.

Amada also says Japan has decided to lower interest rates on ODA loans for environmental projects to 0.75 percent per year, with a redemption period of 40 years. He added: “This unprecedented low rateet OECD rules for tying those loans.”

In a letter to the foreign ministry, the NGO Network on ODA, a citizens’ group that includes academics and lawyers, voiced bitter opposition to the changes proposed by the government.

The government should use taxpas’ money for quality programmes that help eliminate global poverty, not impose loan conditions that reap profits for its business conglomerates, they argued. It also sought the administration of ODA without the interference of industry and business.

Critics add that changes in Japan’s aid policy lead to larger questions about its views of its responsibility to poorer countries, and about whether the country is turning inward.

Observed Murai: “Japan is is moving towards a forced nationalism with less and less concern for issues such as global poverty and environment. This kind of thinking is affecting ODA programmes, and we have to fight even further to stop this slide.”