7. The Role of Grant Aid

    In terms of making a contribution to solving North-South problems, Japan is being increasingly called on to furnish economic cooperation and fulfill its international responsibilities in proportion to its national might. It goes without saying that Japan must continue to maintain its assistance endeavors to support the development-oriented self-reliant efforts of developing countries. Japan has responded to these demands by continuing to improve its ODA both qualitatively and quantitatively. In an environment characterized by rising ODA, grant aid has been especially notable for its growth rate. The following issues warrant attention in terms of the quantitative increase in grant aid.

(i) Economic assistance provided by Japan serves as an effective diplomatic tool for maintaining and strengthening amicable relations with developing countries. Grant aid is most highly rated by recipient countries, since it carries no accompanying obligation for repayment. Because it can be implemented promptly and flexibly, it also confers excellent diplomatic benefits.

(ii) More recently, multilateral forums such as DAC and UNCTAD have called on advanced countries to boost their international aid obligations not only in quantitative terms but also in their qualitative aspects. Japan has long ranked at bottom place (average for 1994/95) among the 21 DAC member countries in terms of grant element, the parameter that measures the softness of the aid conditions. Further enhancing the quality of Japan's aid will thus demand an improved grant element and a higher grant ratio.

(iii) Japan played a leadership role in the formulation of the DAC's New Development Strategy, adopted in May 1995. This document heralds the notion of human-centered development, and proposes numerical targets to be attained in terms of halving the population of poor and achieving universal attendance in primary education by the year 2015. Development in these social sectors will play an extremely substantial role in fulfilling grant aid obligations.

Grant Element
    An index of the quality of assistance. The grant element increases in direct proportion to the grant ratio, defined as 100% for a pure grant and 0% for a loan at an interest rate of 10%, and varying between these two limits in accordance with the terms and conditions of the loan.The grant element for Japan's assistance in 1996 was 78.2% (averaging 80.5% for 1995/96). According to DAC Secretariat estimates, the average grant element for ODA provided by DAC member countries is 91.8%.

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