A. New Directions in ODA to China

It is extremely important to the peace and prosperity of Japan and the entire Asia-Pacific region that China become a more open and stable society, that it be a responsible member of the international community, and that friendly bilateral relations exist between Japan and China. Since China adopted a Reform and Open-Door Policy in the late 1970s, Japan has provided ODA to China in support of that policy, thereby creating a foundation for a stable bilateral relationship. Japan's ODA has made an important contribution to China's economic and social development, and China has expressed its admiration and gratitude for Japan's ODA at various occasions. Within Japan, however, there has recently been strong criticism of ODA to China. This reflects such changes as Japan's severe economic and fiscal situation, China's increased national power, particularly economic and military power, and its rising profile as a business competitor.

In July 2000 the Ministry of Foreign Affairs (MOFA) responded to these reactions by establishing the Advisory Group on Japan's Economic Cooperation to China in the 21st Century (chaired by former Director-General of the Economic Planning Agency Isamu Miyazaki) to seek the opinions of a broad cross-section of Japanese society, and the panel has submitted its recommendations to MOFA. Economic cooperation to China has also been debated by the Liberal Democratic Party (LDP)'s Special Committee on External Economic Cooperation, and the Committee issued the Summary of and Guidelines for Economic Assistance to China. In this context, the government formulated the Economic Cooperation Program for China in October 2001 and developed a new ODA policy toward China.

Based on this Program, in fiscal year 2001, Japan changed the procedures for the provision of yen loans to China from a multiple-year commitment system to a single-year commitment system based on the long list and introduced a project accumulation formula without making the previous levels a prerequisite. Other features of the new Program include (1) ensuring that ODA has the understanding and support of Japanese nationals and closely examining the selection of each project based on national interest, including the implications it may have for Japan, and (2) identifying priorities, including measures to deal with environmental issues and other global issues, encouraging social development and welfare of inland regions, and promoting mutual understanding. In addition, the program stipulates that China should basically implement economic infrastructure development in the coastal areas on its own.

Yen loan applications for China in fiscal year 2001 were considered under the project accumulation formula and in terms of their compatibility with Japan's priorities. As a result, the value of Japan's yen loans decreased by approximately 25% from the previous year's level, and over half of the loans (54% in value terms) were allocated to environmental projects.

Further efforts will be made to focus Japan's ODA on the priority areas identified in the Economic Cooperation Program for China and to ensure that ODA to China is of proper scale to gain the Japanese public's support and understanding.

B. Enhancing Economic Partnership and Policy Support

In 1997 Southeast Asia faced an economic and financial crisis of unprecedented scale. Today the countries of the region are revising their high-growth strategies and shifting their focus on economic restructuring and on reducing domestic and regional imbalances. Their aim is to develop stable economic and social structures that will be better able to withstand crises. This is particularly true of ASEAN members, which are evolving from low-income to medium- and high-income countries. They are working to maintain their economic growth while strengthening their regional competitiveness through closer integration. The biggest priority for Japan is to actively use its ODA to reduce the disparities within ASEAN, which are becoming more apparent as membership expands, and to facilitate trade and investment through institution building, human resources development, support for economic and social infrastructure development, and assistance with the formulation of economic restructuring policies. In pursuing these tasks, Japan will need to give careful consideration to enhancing economic partnership in East Asia.

Reducing Disparities within ASEAN and Initiative for ASEAN Integration Economic disparities within ASEAN are growing because of the participation of new members and due to geographical and other differences. The economic development stages differ from one country to another in ASEAN countries. According to the classifications used by the Development Assistance Committee of the Organization for Economic Cooperation and Development (OECD-DAC), Malaysia, Thailand, and the Philippines are middle-income countries; Indonesia and Viet Nam are low-income countries; and Laos, Cambodia, and Myanmar are still classed as less developed countries (LDCs). For this reason, Japan is fine-tuning its approach in accordance with the actual conditions of each country.

ASEAN recognizes that narrowing disparities and enhancing its regional competitiveness are urgent priorities, and it adopted the Initiative for ASEAN Integration (IAI) at the Fourth ASEAN Informal Summit in November 2000. The IAI identifies four priority areas: human resources development, information and communication technology (IT), infrastructure, and regional economic integration. Studies are being made of concrete cooperation projects in such new ASEAN members as Cambodia, Laos, Myanmar, and Viet Nam (the so-called CLMV countries), which are less developed regions. Japan welcomes the progress made by the IAI as an initiative for regional development based on the ownership of ASEAN members themselves, and it has indicated it will provide the greatest possible support for IAI projects. Japanese efforts in the CLMV countries and elsewhere include cooperation with surveys to promote agriculture, forestry, fisheries, and other local industries, as well as comprehensive regional development. It is also helping with Mekong Subregion Development, as described below. Consideration will be given to regional discrepancies, moreover, in pursuing the Initiative toward Japan-ASEAN Comprehensive Economic Partnership.

Mekong Subregion Development The 4,900-kilometer Mekong River crosses through Cambodia, Laos, Myanmar, Thailand, and Viet Nam, as well as China's Yunnan Province. Its basin covers 795,000 square kilometers, more than twice as large as Japan's total area, and is home to approximately 250 million people. The Mekong basin is richly endowed with various resources. Its development is crucial not only for the region's economy but also for regional stability, so it is being promoted through Mekong Subregion Development, which targets an extensive area covering all the basin's countries and districts. This endeavor will not only strengthen the ties between the countries of the basin but also reduce the discrepancies within ASEAN by raising the economic levels of the new members located in the subregion. This, in turn, will lead to stronger ASEAN integration and a more positive environment for the Initiative toward Japan-ASEAN Comprehensive Economic Partnership.

In 1993 Japan proposed the establishment of a Forum for Comprehensive Development of Indo-China and hosted a ministerial conference in Tokyo in 1995, thereby providing leadership for international undertakings in this region. Concrete ODA support measures have included the provision of yen loans for the construction of the Second International Mekong Bridge between Thailand and Laos. Japan has also been supporting infrastructure improvement by building roads, bridges, and ports for an "East-West Corridor" across Indochina.

In promoting development, Japan has been cooperating with Mekong basin countries and with other major donors, such as the Asian Development Bank (ADB). In July 2001 Japan and the ADB sent a joint study team to the subregion, and based on the results of that study, Japan announced at the ASEAN plus Three (ASEAN+3) Summit Meeting and at the ASEAN plus One (Japan) Summit Meeting in November that its future cooperation would be based primarily on enhancement of the "East-West Corridor" into an "Economic Corridor" and on constructing a "Second East-West Corridor" (a road linking Bangkok, Phnom Penh, and Ho Chi Minh City). Japan held a Workshop Regarding the "East-West Corridor" in December 2002 to encourage private-sector involvement, and proposed a tourism mission by the ASEAN-Japan Center. Japan also actively cooperates by dispatching personnel to the Mekong River Commission--established to ensure the sustainable development of the Mekong basin--and by relating Japan's experience in river-basin management.

Policy Support Japan is helping Southeast Asian countries formulate economic policies and build institutions to enable them to shift to market-oriented economies and respond to economic globalization.

Assistance of this type is classed as policy support and is characterized by policy proposals to recipient-country governments drafted jointly by officials and experts, including Japanese and recipient-country ministers, through detailed surveys and discussions. Its principal aim is to help recipient countries develop economic policies and build institutions, and it is hoped that such support will raise the policy-planning capabilities of recipient countries and that its fruits will be reflected in their key policies.

Japan began providing comprehensive policy support in 1995 with the Study on the Economic Development Policy in the Transition toward a Market-Oriented Economy in the Socialist Republic of Viet Nam. Because the work was led by Shigeru Ishikawa, professor emeritus of Hitotsubashi University, it became known as the Ishikawa Project. Japan and Viet Nam undertook joint research on such themes as macroeconomics, fiscal and monetary policy, industrial policy, and agricultural and rural development. The project had a major impact on policy formulation by the Vietnamese government, its results being reflected in the country's sixth 5-year plan (1996-2000), seventh 5-year plan (2001-2005), and the 10-year medium- to long-term plan.

Based on this experience in Viet Nam, Japan is currently supporting economic restructuring in Myanmar. The Myanmar-Japan Cooperation Programme for Structural Adjustment of the Myanmar Economy is expected to encourage economic reform and induce an environment conducive to democratization. In March 2002 Japan initiated the Program for Economic Policy Support for the Republic of Indonesia to offer recommendations on decentralization and macroeconomic management, and in June 2002 it presented a set of proposals focusing on fiscal sustainability and on enhancing international competitiveness.

C. Initiative for Development in East Asia (IDEA): Building a Vision for Regional Development Cooperation and Disseminating the East Asian Experience to the World

The basic goal of IDEA is to promote economic partnership and regional cooperation in East Asia. It seeks to achieve a shared awareness of current development issues in the region and to identify future directions for regional development cooperation. Another objective is to disseminate the East Asian development model to other regions. IDEA seeks not to divide participants into ODA donors and recipients but rather to encourage Japan, China, Korea, and ASEAN countries to work as equal partners with a common interest and to promote frank debate on development issues that have a direct impact on regional peace and stability.

The first IDEA Ministerial Meeting was held in Tokyo in August 2002. The participant countries expressed their appreciation for Japanese ODA and presented the following common perceptions.

1. It is important for each country to pursue development as a national agenda through self-help efforts. The key to reinforcing such efforts is to develop human resources to spearhead develop-ment and to enhance government capacity.
2. To achieve regional prosperity, it is meaningful to promote a comprehensive, growth-oriented approach to development linking ODA, trade and investment, and finance. It is hoped that strategic ODA based on close and meaningful links with private flows will be used to enable this dynamic mobilization of resources to promote sustainable growth.
3. Greater consideration will be given to vulnerable members of society to counter the negative effects of globalization. It is a common task for regional peace and stability to facilitate an environment conducive to effective development featuring good governance, institution building, infrastructure development, and conflict prevention.
4. Although the countries and regions are at different stages of development, it is effective to give support according to their respective capacities. Some countries in the region have begun to carry out South-South cooperation, which helps transfer appropriate technology effectively, and priority will be given to support for this type of intraregional cooperation.
5. Combination of official and private flows has worked to promote development in East Asia, as ODA-financed economic infrastructure improvements have attracted trade and investment. It is effective to promote partnerships between governments and the private sector together with intergovernmental cooperation.

The communiqué from the IDEA Ministerial Meeting called for the international propagation of East Asia's experience and expertise. Japan hosted a symposium on IDEA, attended by Japanese Foreign Minister Yoriko Kawaguchi, at the World Summit on Sustainable Development (WSSD) in Johannesburg. At the symposium, African government officials took a keen interest in East Asia's growth-oriented approach that has used ODA to build economic infrastructure while expanding links with trade and investment. This active dissemination and sharing of knowledge with the international community is a feature of the IDEA process, and such efforts will continue in the future.

In 2003 Japan will host the Third Tokyo International Conference on African Development (TICAD III) to discuss new directions in development with African countries, at which Asia-Africa cooperation is expected to be an important topic of discussion. Japan has built a cooperative relationship with East Asian countries through IDEA and is eager to apply that experience to the TICAD process, which is another international initiative led by Japan.