Official Development Assistance (ODA)

1. In light of the continued severity of the debt problems faced by heavily indebted poor countries (HIPCs), the time has come for the international community to further enhance the efforts which have been made to alleviate this situation. As such, at the Second Tokyo International Conference on African Development (TICAD II) held in October 1998, Japan took the initiative of focusing international attention on debt problems and announced a policy initiative through which it will expand its cooperation in grant assistance for debt relief as it continues to seriously consider how to reduce the plight of the people of HIPCs.
2. Japan, in cooperation with G7 members and other countries, has taken a proactive approach within the international framework of the Paris Club to effect debt alleviation for those developing countries particularly overburdened with debt repayments, carrying out 940 billion yen in debt reschedulings to date. In particular, over the past twenty years, Japan has provided grant assistance to reduce the bilateral ODA debts of 27 countries, totaling approximately 340 billion yen (approximately US$3 billion). Moreover, Japan has been at the forefront of real cooperation efforts, making a substantial contribution of 8.4 billion yen (over US$73 million) to the HIPC debt relief funds of international financial institutions, such as the International Monetary Fund (IMF) and the World Bank.
3. The following points must be carefully considered in determining how the international community can best effect debt relief policies which will lower the debt burdens of HIPCs to a sustainable level and enable HIPCs to pursue their economic and social development.
   • Initiatives must be based on the principle that HIPCs take responsibility for and assume ownership of the problems they face. In particular, HIPCs should ensure that their economies are appropriately managed and that all necessary economic reforms are implemented.
   • Those financial resources which are made available through debt relief measures must be directed to activities targeting further development, for example social investments in education, health and medicine and toward greater employment generation.
   • Burden of debt relief should be shared fairly among creditor countries. Moreover, it is imperative that we ensure fairness in sharing the burden of debt relief between bilateral creditors and international financial institutions.
   • Thorough consideration must be given to the so-called "moral hazard".
   • Once debt relief is extended to a country, it will be quite difficult to extend new loans there in the future. Therefore, all future capital assistance will, in principle, have to be made in the form of grants.
4. It should be duly noted that long-term, low-interest ODA loans, which enhance the principle of ownership, have been contributing to the development of many developing countries.

Based on the aforementioned concepts and in addition to its previous efforts, Japan makes the following new proposals for G7 action, as part of the comprehensive international approach toward promoting the development of HIPCs and extending debt relief to them.

1. Giving full consideration to the principle of fair burden sharing, G7 together with like-minded creditor countries will improve and enhance existing measures within the current framework of international debt relief measures for HIPCs-the HIPCs Initiative-provided by the Paris Club and international financial institutions. Specifically, we will
   • increase the current Paris Club debt relief ceiling of 67% for bilateral ODA loans to 100% (Japan will provide grant assistance for debt relief, a measure which effectively results in the cancellation of debt. Japan introduced a voluntary debt relief measure equivalent to over 80% debt reduction in 1998).
   • go beyond the debt relief ceiling of 80% for non-ODA claims as necessary.
   • enhance international financial institutions' debt relief measures for loans extended to HIPCs in order to relieve their debt burden, while at the same time paying due consideration to ensuring fair sharing with bilateral burdens of debt relief. For this purpose, member countries are required to make fair contributions to the debt relief trust funds for HIPC initiative in the IMF and World Bank, guaranteeing that their total contributions to the whole initiative be fairly shared. IMF will secure the resources by selling its gold.
   • ensure flexibility under the HIPC Initiative for indebted countries which have made clear and demonstrable achievements toward reform, or for those which are in urgent need of assistance.
2. The debt relief extension measures outlined above must be extended only under the condition that recipient countries will make active efforts to effect structural reform and result in positive outcomes.
3. Indebted countries must be required to develop the necessary human resources in order to improve their debt-management capacity so that the debt relief measures extended by donors can have the maximum effect. Donors should positively provide technical cooperation to facilitate this.