Changes in Debt Relief Method

In order to provide debt relief which Japan committed itself at international fora for counties such as Heavily Indebted Poor Countries, the Japanese government has been providing "Grant Aid for Debt Relief" for eligible debtor countries in return for repayment of their ODA debts. However, the government has decided that, from FY 2003, instead of providing Grant Aid for Debt Relief, Japan will forgive debts of those countries by canceling relevant ODA debts owed to Japan Bank for International Cooperation (JBIC). The decision was made with a view to: (1) achieving an earlier solution of debt problems of developing countries; (2) reducing burden on debtor countries; and (3) enhancing transparency and efficiency of Japan's ODA.

1. Background

(1)

Japan has been providing "Grant Aid for Debt Relief" because repaying their own debts encourages self-help efforts of debtor countries and because the grant scheme limits the use of grant to appropriate purposes. However, several problems of the current scheme have been pointed out: outstanding debts will remain for a long period of time; acquiring foreign currency to repay the debts, even though the equivalent amount will be granted afterwards, is a heavy burden for some debtor countries. Meanwhile, international community has shown steady progress in monitoring policy efforts of recipient countries in macro-economic management, poverty reduction and social development in cooperation with the IMF and the World Bank.

(2)

Under the circumstances, an advisory group called by the Minister for Foreign Affairs to reform the Ministry proposed in a report in July 2002 to re-examine Japan's debt relief strategy while abolishing the scheme of Grant Aid for Debt Relief.

2. Outline of New Method

(1)	In order to provide debt relief which it committed itself within the international framework for countries such as Heavily Indebted Poor Countries, Japan cancels relevant ODA debts owed to JBIC, instead of providing Grant Aid for Debt Relief.
(2)	Reserves and net earnings for each period of JBIC will be used to write off and provide an allowance for ODA loans. Since the debt cancellation is based on the government's policy decision, the government intends to take all the necessary measures to maintain the financial soundness of JBIC.
(3)	The decision only changes the way to provide debt relief: it changes NEITHER the scope of countries which are granted debt relief NOR the amount of debts to be forgiven.

Official Development Assistance (ODA)