Japan's Official Development Assistance White Paper 2005

Main Text > Part II ODA DISBURSEMENTS IN FISCAL YEAR 2004 > Chapter 2 Details and New Policies about Japan's ODA: Striving for Further ODA Reforms > Section 2. Measures for Each of the Priority Issues > 2.Sustainable Growth > (7) Debt-related Efforts

(7) Debt-related Efforts

Debt is one of the issues that hinder sustainable growth of developing countries. As long as these countries can maintain a repayment capacity, insofar as they are able to effectively use the received funds and realize future growth, the debt does not pose a problem. However, becoming overburdened with excess debt could inhibit sustainable development of developing countries. Many developing countries have borrowed financial resources from overseas in order to secure funds for development. Due to the oil shock of the 1970s and the drop in primary commodity prices since the latter half of the 1970s, the situation concerning the international balance of payments in developing countries deteriorated, and many developing countries ended up becoming so laden with debt that they were no longer able to sustain it.

Such debts issues must be resolved by the indebted countries themselves by taking the initiative in managing the debt while putting forth reform and other efforts. However, at the same time, their massive debt must not stand in the way of their development path. Based on the standpoint that it is necessary for developing countries to achieve medium- to long-term growth and regain their debt repayment capacities though their own efforts, Japan has been tackling the debt issue within the international framework.

Specifically, Japan provides debt relief in the form of rescheduling of payments 26 through the Paris Club. While rescheduling used to be the most common form of debt relief, debt cancellation is being offered since the late 1980s. Furthermore, in the past, debt relief was not granted for debts from international financial organizations. However, with the agreement on the HIPC Initiative 27 at the Lyon Summit in 1996, debt cancellation measures were agreed to be taken to reduce the debt of HIPC countries to a sustainable level by granting debt relief that also applies to international financial institutions and commercial creditors.

"Debt Sustainability for the Poorest," 28 a statement which was released at the Sea Island Summit in 2004, reconfirmed that the leading industrialized nations would work to fully implement the HIPC initiative and to ensure debt sustainability in the poorest countries.

Moreover, while at the Finance Ministers' Meeting in June and the Gleneagles Summit in July, the G8 agreed to the proposal to reduce 100% of the debts that the HIPCs owe to the IMF, IDA, and AfDF (African Development Fund).

In addressing the debt issue faced by the poorest countries, Japan has contributed approximately US$5.4 billion to the 27 countries for which the Enhanced HIPC Initiative applies. Japan's contribution is around one-fourth of the total amount (US$23.5 billion) of debt relief (debt cancellation method) extended by the G7 countries, and is of the largest contribution offered for this initiative. Japan will continue to promptly and steadily put this initiative into implementation in the future.

Japan has long offered debt relief to yen loans by implementing grant aid. However, from the viewpoint of resolving the debt issue more promptly, reducing the burden on the indebted countries, and promoting transparency and efficiency of ODA, Japan began in FY2003 to provide debt relief to countries that have hitherto received debt-relief grant by writing off their yen loans. In FY2004, Japan wrote off a total of approximately ¥129.9 billion worth of yen loans extended to four countries (approximately ¥12.9 billion to Nicaragua, approximately ¥2.5 billion to Niger, approximately ¥9.8 billion to Senegal, and approximately ¥104.7 billion to Ghana) under the Enhanced HIPC Initiative. Furthermore, Japan promised to write off a total of approximately ¥144.2 billion of debt owed by eleven countries (ex. approximately ¥28.2 billion owned by Malawi, approximately ¥21.1 owned by Nepal, etc.) as a debt-reduction measure based on a decision made by the Trade and Development Board ( TDB ). 29 As a result, the total yen loans that were written off for FY2004 was approximately ¥274.1 billion, with the cumulative total of debt forgiveness since FY2003 amounting to ¥523.5 billion. Japan will conduct monitoring in cooperation with the international community based on the Poverty Reduction Strategy Paper ( PRSP ) to ensure that debt cancellation will contribute to poverty reduction and overall social and economic development of the indebted countries.

Among the low-income countries (hereafter referred to as "non-HIPC countries") , there are also countries which owe heavy debts, and appropriate measures must be taken to make sure such debts do not stand in the way of their stable, medium- to long-term development. To address the debt issue faced by the non-HIPC countries, measures that match the situation of each indebted country are considered individually by focusing more on their debt sustainability under the Evian Approach. *1 Based on the Evian Approach, in November 2004, Japan and other creditor countries of the Paris Club agreed to reduce the remaining debts owed by Iraq by 80%. Japan and other creditor countries of the Paris Club are also taking steps to resolve the debt issue according to the needs of each country affected by the major earthquake off the coast of Sumatra and the tsunami in the Indian Ocean in December 2004 by such means as granting a moratorium on debt payments so that reconstruction assistance can be fully provided.