Japan's Official Development Assistance White Paper 2008
Next PageMain Text > Part III Official Development Assistance in FY2007 > 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
<Current Status>
As long as the developing countries can maintain their repayment capacity by using the received funds effectively and thus ensuring future economic growth, 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 forward reforms and other efforts. However, their excessive debt must not stand in the way of their development path. At G8 Gleneagles 2005, the G8 countries agreed on the proposal to reduce 100% of the debts that the Heavily Indebted Poor Countries (HIPCs) owe to the International Monetary Fund (IMF), International Development Association (IDA), and African Development Fund (AfDF).10 As for the debt issue faced by the poorest countries, 33 HIPCs have become eligible for the Enhanced HIPC Initiative11 so far, and 23 of them had received comprehensive debt cancellation as a result of their achievement of economic and social reforms as of the end of FY2007.
Some low-income and middle-income countries, other than HIPCs, may owe heavy debts, so that appropriate measures must be taken to make sure such debts do not stand in the way of their stable medium- to long-term development. In 2003, the Paris Club12 adopted a new Paris Club approach to debt restructuring (the Evian Approach), which examines measures that correspond to respective situations of low-income and middle-income indebted countries other than HIPCs, with focusing more on debt sustainability. The approach takes comprehensive debt relief measures for a country that is considered insolvent, from the perspective of debt sustainability, as long as the country meets certain criteria.
<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, Japan works to resolve problems through an international framework, with the basic position that it is important for indebted countries to achieve medium-to long-term growth and to recover their debt servicing capability through their own efforts. For example, Japan provides cooperation for debt relief measures through debt rescheduling,13 cancellation, and reduction measures that were agreed upon at the Paris Club. In accordance with the Enhanced HIPC Initiative agreed upon at the G8 Gleneagles 2005, Japan has cancelled about ¥500 billion debts since FY2003. In FY2007, Japan allowed Sierra Leone not to repay ODA loans of about ¥3.9 billion. Japan conducts monitoring based on the Poverty Reduction Strategy Paper (PRSP) to ensure that debt cancellation can contribute to poverty reduction and to the overall social and economic development of the indebted countries.