Official Development Assistance (ODA)
3. ODA and the Asian Currency and Financial Crisis
The currency and financial crisis that developed and spread across Asia in the second half of 1997 fueled an atmosphere of mounting economic and political uncertainty in many countries of the region and triggered a heavy exodus of foreign money-market funds. In Thailand, Indonesia, South Korea, and elsewhere, local currencies and stock prices nose-dived en masse, generating an economic crisis in the process. Though many of the underlying reasons vary country by country, several structural factors in common have been cited, including weak financial sectors and a shortage of the human resources essential to the formulation and pursuit of economic and development policies.
The Asian currency and financial crisis has had global repercussions, and particularly on trends in the Japanese economy. 7 As detailed below, Japan is currently providing various Asian economies short-term emergency assistance as well as medium- to long-term assistance for undertakings in such areas as financial sector reform and human resources development.
1. Steps to Deal with the Funding Shortfalls
The latest financial and currency crisis has seriously hurt several Asian countries in terms of their balance of payments position. The International Monetary Fund (IMF) has accordingly taken the lead in putting together massive packages of financial aid for Thailand, South Korea, and Indonesia in particular. As a contribution to those packages, Japan announced that it would supply $19 billion for the three countries combined. 8 Furthermore, in February 1998, it adopted a set of emergency actions designed to promote economic stabilization in Southeast Asia, and the following April announced assistance measures for Asia as part of "Japan's Comprehensive Economic Measures." Together with other assistance, detailed below, Japan has so far extended assistance totaling $43 billion, the largest contribution of any single donor country, to address the Asian currency and financial crisis.
Of that total, Japan has provided yen loans and grant aid (grant aid for structural adjustment support, or non-project grant aid) to Indonesia, Thailand, the Philippines, and Laos as ODA-related aid efforts in economic structural adjustment to help them pay for essential imports. In particular, it provided yen loans (sector program loans) to Indonesia worth 20 billion yen and 150 billion yen, respectively, in FY 1997 and 1998. 9 Furthermore, as part of "Japan's Comprehensive Economic Measures." Japan now has plans to provide additional yen loans totaling 500 billion yen over the next three years, with special priority on aiding renovations to existing infrastructure and addressing environmental issues.
Official ceremony on the premises of a rice storage facility in northern Jakarta, marking the delivery of rice aid to Indonesia in August 1998 10.
2. Social Safety Net
The Asian economic crisis has sparked a sharp surge in import prices for many daily necessities. Under recently imposed austerity fiscal policies, public utility fees and the cost of educational and health-care services have gone up, while subsidies of various kinds have been cut. These developments have exacerbated the burden on the poor and other socially disadvantaged groups. One humanitarian issue in particular that has drawn attention is the potential impact these trends could have on the health of children, expectant mothers, the elderly, and the chronically ill.
Support for providing a social safety net is one of the top priorities of Japanese assistance to Asia. On the initiative of then-Foreign Minister Obuchi, Japan in April 1998 spon- sored an international symposium in Tokyo titled "Health Initiative in Asian Economic Crisis: Human-Centered Approach." That event was instrumental in raising public awareness of the importance of international cooperation that devotes attention to the social safety net.
Also, the non-project grant aid mentioned above and recipient country counterpart funds in local currency that accrue from the provision of sector program loans and non-project grant aid are intended to serve as a social safety net in such areas as education, primary health care, services for the physically handicapped, and countermeasures against unemployment.
So far, Japan has furnished Indonesia supplies of essential drugs, powdered milk, and other components of emergency grant aid (worth about 4 billion yen in total) 10 in addition to more than 500,000 metric tons of rice aid.
3. Assistance for Human Resources Development and Scholarship Programs
Driven by a medium- and long-term perspective, Japan has decided to pursue the Japan-ASEAN Comprehensive Human Resources Development Program (announced as the Joint Statement of the Meeting of Heads of State/Government of the Member States of ASEAN and the Prime Minister of Japan in December 1997). That undertaking is aimed chiefly at human resources development of around 20,000 personnel over the next five years, including (i) future political and social leaders, (ii) central and local government administrators who will be involved in social and economic affairs, and (iii) private-sector business executives and engineers. Special priority will be assigned to the training of financial sector personnel, namely, in the interest of removing structural weaknesses in the region's financial markets and forestalling any recurrence of the monetary crisis conditions for which those weaknesses were largely to blame.
Additionally, Japan has introduced a set of concessional terms and conditions for yen loans (exchange student loans) as financing for human resources development such as overseas scholarship programs and dispatches of Japanese experts. Many Southeast Asian exchange students in Japan now face serious financial strains. To help them, Japan has provided emergency grant aid (totaling about 500 million yen) to fund the exchange programs now run by the Malaysian and Thai governments, as well as disbursements of emergency financial assistance (about 50,000 yen per individual) to 6,000 exchange students now residing in Japan at their own expense.
- By some estimates (notably on p. 103 of the Economic Planning Agency's FY 1998 Annual Economic Report), economic strains throughout Asia could have the effect of cutting real GDP growth in Japan by half a percentage point. Japan has made heavy direct investments in this region (e.g., 308.5 billion yen to Indonesia alone in FY 1997). Fears are that the impact on local Japanese subsidiaries will deal a serious blow in turn to Japanese companies and Japanese creditors (Japanese banks had outstanding loan assets to Asia worth a combined $114.7 billion as of December 1997).
- The international aid package comprises about $17.2 billion in funding for Thailand, $40 billion for Indonesia, and $58 billion for South Korea.
- Sector program loans constitute a type of commodity loan because they involve the provision of financial assistance aimed at closing balance-of-payments gaps. Unlike conventional commodity loans, however, sector program loans are included in aid packages on the condition that the recipient government utilize the counterpart funds (accruing from the sale of loan funds to domestic importers) as financing for specific sector programs worked out with the Japanese government in advance. Counterpart funds also accrue from the provision of nonproject grant aid, and are allocated on a bilaterally negotiated basis to projects in economic and social development.
- Supplies of essential drugs will be distributed to about 340 public hospitals and health-care centers nationwide, and precursor drug supplies, to two state-run pharmaceutical companies. Powdered milk will be provided to approximately 3,900 maternal health-care centers around the country. Various local NGOs will be involved in distribution-related efforts, including the domestic transport and monitoring of supplied aid.