Official Development Assistance (ODA)

(1) The first category is work between donors and partner governments.

The biggest challenge here is to create an environment so that partner countries can demonstrate ownership and leadership. The importance of ensuring partner country ownership has been reiterated in all three regional workshops held prior to this Forum. While partner countries have a primary responsibility for their own development, it is essential for donors to support their efforts. We recognize that donors are required to take the following two actions in order to support partner country ownership and encourage governmental leadership by partners.

The first requirement is to enhance the alignment of donor activities with the partner government systems, in particular, partner country-owned national or sectoral development plans. Japan will further align its country assistance programs with partner country-owned development plans including PRSPs (Poverty Reduction Strategy Papers). We will also further align its aid projects/programs to those of partner country-owned sector strategies.

The second requirement is to help the building of capacity in partner countries. Japan's experience in harmonization of ODA loan procedures in Viet Nam indicates that the high administrative capacity of the Government of Viet Nam was a key to the success. We believe that in order to continue our efforts on harmonization donors must provide adequate support to those countries with limited capacities. In this regard, Japan has been providing support for policy and institutional development through JICA (Japan International Cooperation Agency) utilizing Japanese experiences and knowledge acquired in its own development process. Japan will continue to enhance support for capacity building in partner countries in the areas of formulation of sectoral development strategies and statistics.

(2) The second category is work between donor agencies.

Being fully aware of the fact that a wide variety of donor requirements and processes are generating unproductive transaction costs, our task is to explore the manner in which partner countries can minimize unnecessary transaction costs while ensuring the diversity of aid modalities to address the very diversified development needs. To this end, Japan believes that donor agencies must adopt a cost-benefit approach. It means to start from the areas where marginal benefits are the greatest.

Let me cite the case of Viet Nam, where the Japan Bank for International Cooperation (JBIC; the Government of Japan's ODA loan agency), the Asian Development Bank (ADB) and the world Bank have successfully engaged in harmonization work, with the collaboration of the Government of Viet Nam. We believe that there are several reasons for the success achieved thus far.

Firstly, the Government of Viet Nam demonstrated strong ownership of the work on harmonization.

Secondly, these three banks share similarities in their respective loan procedures, which considerably lowers the initial costs for harmonization work.

Thirdly, the total amount of ODA loans provided by the three banks covers roughly 70% of the total ODA flow to Viet Nam, which means that the impact of their harmonization work on the effectiveness of development assistance is significant.

We can say the harmonization work by JBIC, ADB and the World Bank in Viet Nam has been highly effective from a cost-benefit perspective. Japan will also participate and support the initiative launched by the Republic of the Philippines for harmonization work among the same three banks. We can also expect a cost-effective result in the Philippines, where ODA loans provided by the three banks account for about 70%of total ODA inflow.

In addition, I would like to emphasize the importance for each donor of sharing information concerning country and sectoral analysis with other donors. In this regard, Japan will promote information sharing with other donors through participation in the Country Analytic Work Website launched by the World Bank.

(3) The third category is work within individual donor systems.

We should not forget that the efforts of individual donors are indispensable elements in work on harmonization. Therefore, it is important for individual donors to improve and rationalize their aid procedures and systems. Thus, Japan is determined to review its aid procedures and systems for their further improvement and rationalization.

In this regard, Japan has decided to write-off the relevant ODA debts for HIPCs (Heavily Indebted Poor Countries) and other eligible countries, instead of providing grant aid for debt relief as we have been doing in accordance with the HIPC Initiative and the resolution of the Trade and Development Board (TDB) of UNCTAD adopted in 1978. We hope that this measure will significantly contribute to reducing the administration costs of debtor countries.

Use of Information and Communications Technology (ICT) in training programs has led to a reduction in transaction costs. We are currently rationalizing procedures in dispatching project preparatory missions. We will continue our efforts to improve and rationalize our aid procedures and systems.

Distinguished Co-chairs,

Finally, I would like to briefly touch upon our future work. In examining our future course of action, we should bear in mind three guiding principles, which we believe came out from the three regional workshops. They are: (i) the need to ensure partner country ownership, (ii) the importance of adopting a country-based approach and (iii) the need to ensure diversity of aid modalities.

After Rome, our work should be progressively shifted from the discussion at the global level to implementation at the country level. In doing so, we should constantly remind ourselves of these three guiding principles. We should also utilize, as appropriate, existing products (such as PRSPs) and existing mechanisms (such as Consultative Group meetings), rather than creating an entirely new mechanism.

I believe that we should think globally but act locally, or, as the old proverb goes, "When in Rome, do as the Romans do."

Thank you very much.

1. Actions related to work between donors and partner governments

In order to support partner country ownership and encourage partner government leadership, donors must:

2. Actions related to work between donor agencies

Our task is to explore the manner in which partner countries can minimize unnecessary transaction costs while ensuring the diversity of aid modalities to address the very diversified development needs. To this end, Japan believes that donor agencies must:

3. Actions related to work within individual donor systems

We should not forget that the efforts of individual donors are indispensable elements in work on harmonization. Therefore, it is important for individual donors to improve and rationalize their aid procedures and systems. Japan is determined to review its aid procedures and systems for their further improvement and rationalization.

For this purpose, Japan will implement the following measures:

• reduce the administration costs of debtor countries in accordance with the decision by the Government of Japan in December 2002 on the changes in debt relief method;
• rationalize the procedures in dispatching preparatory missions;
• implement case studies and research to identify transaction costs;
• use Information and Communications Technology (ICT) in training programs; and
• promote decentralization, including delegating authority to the local representative offices of JICA and JBIC.