Japan's Official Development Assistance White Paper 2007
Next PageMain Text > Part II ODA RECORD FOR FY2006 > Chapter 2 Details about Japan's Official Development Assistance > Section 2. Measures for Each of the Priority Issues > 1. Sustainable Growth > (7) Response to Debt Issues
(7) Response to Debt Issues
<Current Status>
As long as the developing countries can maintain their repayment capacity by effectively using the received funds and thus ensuring future economic growth, the debt is useful in achieving development. However, if a country has little repayment capacity and becomes overburdened with excess debt, it could inhibit sustainable development and thus pose a significant challenge.
Such debt issues must be resolved by the indebted countries themselves by putting forth reform and other efforts. However, their excessive debt must not stand in the way of their development path.
<Japan's Efforts>
Japan conducts assistance while paying due consideration to ensuring that debt issues do not arise in developing countries. Furthermore, for countries where debt issues have arisen, while taking the basic position that it is important for indebted countries to achieve medium to long-term growth and recover their debt servicing capability through their own efforts, Japan also works to resolve problems through an international framework.
Specifically, Japan provides cooperation for debt relief measures through debt rescheduling,18 cancellation, and reduction measures which were agreed upon at the Paris Club.
At the G8 Summit at Sea Island in 2004, it was reconfirmed that the leading industrialized nations would work to fully implement the Heavily Indebted Poor Countries (HIPC) Initiative19 and to ensure debt sustainability in the poorest countries.
Moreover, at the Gleneagles Summit in July 2005, the G8 agreed on the proposal to reduce 100% of the debts that the HIPCs owe to the IMF, IDA, and African Development Fund (AfDF). The agreement is called Multilateral Debt Relief Initiative (MDRI).
In addressing the debt issue faced by the poorest countries, Japan will be canceling debts totaling approximately US$5.6 billion (about ¥616.3 billion) to the 29 countries for which it was decided to apply the Enhanced HIPC Initiative. Japan's contribution is around one fifth of the total amount (approximately US$25.9 billion, in the form of debt cancellation) of debt relief granted by the G7 countries, and is the largest contribution offered for this initiative. Japan will continue to promptly and steadily put this initiative into implementation in the future.
Japan had long offered debt relief to yen loans by providing grant aid (debt-relief grant). However, from the viewpoint of resolving the debt issue more promptly, reducing the burden on the indebted countries, and promoting transparency and efficiency of development assistance, Japan began in FY2003 to provide debt relief to countries that have hitherto received the debt-relief grant by canceling their yen loans. In FY2006 under the Enhanced HIPC Initiative, Japan cancelled a total of approximately ¥31.5 billion worth of yen loans extended to two countries (approximately ¥10.0 billion to Cameroon and approximately ¥21.5 billion to Malawi). Furthermore, Japan has also begun to apply debt cancellation for commercial claims,20 which were subject to the Paris Club agreement, totaling about ¥100.3 billion for nine countries (approximately ¥63.7 billion to Tanzania and approximately ¥11.6 billion to Honduras). As a result, the total official claims that were cancelled in FY2006 were approximately ¥131.8 billion, with the cumulative total of debt cancellation since FY2003 amounting to ¥505.1 billion. Japan will conduct monitoring in cooperation with the international community based on the PRSP to ensure that debt cancellation will contribute to poverty reduction and the overall social and economic development of the indebted countries.
Among the low-income and middle-income countries other than HIPCs (hereinafter 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 sustainability21 than ever before. Based on the agreement of the Paris Club addressing non-HIPC countries, Japan provided debt relief to the Dominican Republic in May 2006 and to Ecuador in November 2006.