Chapter V.   Present State of Economic Cooperation



Section 1. Overview



1.  Economic Cooperation as Responsibility in International Society


(1)  Japan has been extending its economic assistance to developing countries from the viewpoints of interdependence and humanitarian concerns, which underlie the North-South problem. As a peace-loving nation with the second largest economy in the free world and highly dependent on external economies, Japan finds it the most important responsibility. Supporting economic expansion of developing countries through the extension of such assistance contributes to the peace and stability of developing countries and regions, and the world as a whole, and also to the peace and prosperity of Japan.

(2)  Recognizing such significance, Japan has set the medium-term target of official development assistance (ODA) twice, and has strived to expand steadily its ODA in line with the targets. In September 1985, the government set the Third Medium-Term Target for a seven-year period beginning in 1986.

The Third Medium-Term Target aims at increasing the total ODA amount during the seven-year period from 1986 to 1992 to more than $40 billion. It also requires the Japanese Government to double the 1985's ODA disbursement in 1992, as well as to improve ODA quality as much as possible. During his visit to the United States in spring 1987, Prime Minister Yasuhiro Nakasone announced that the Japanese Government will move up the ODA-doubling target by two years to 1990.



2.  1986's ODA Disbursement and Fiscal Year 1987's Budget


Japan's ODA totaled $5,634 million in 1986 (net disbursement basis), increasing by 48.4% from $3,797 million in 1985. On a yen basis, it totaled \949,500 million, gaining by 4.8% from \905,700 million of the previous year. The ODA/GNP ratio remained unchanged at 0.29%.

As for the geographical distribution, Japan has so far allocated about 70% of its bilateral ODA to Asian countries; the remaining 30% is distributed equally for Africa, the Middle East and Latin America. In 1986, the shares stood at 64.8%, 10.9%, 8.8% and 8.2%, respectively.

Despite severe fiscal constraints under which general expenditures registered a negative growth for the fifth consecutive year (in fiscal 1987, 0.0% decrease from the previous fiscal year, \658,000 million in ODA funds were earmarked in general account budget of the fiscal 1987, an increase of 5.8% over the preceding fiscal year, which shows the largest growth among major budget items.

The Japanese Government also continued to pay special considerations to the improvement of the quality of ODA. Grants showed a sharp increase of 8.1% (\10,000 million) over the previous fiscal year to \134,000 million. Both the rate and the amount of growth surpassing fiscal 1986's levels (7.8% and \9,000 million). Moreover, the budget for technical cooperation totaled \165,700 million, a gain of 11.7% from the previous fiscal year, the highest growth rate since fiscal 1985.



3.  Effective and Efficient Assistance


As stated above in light of the importance of economic cooperation, Japan has been making efforts to expand its ODA both quantitatively and qualitatively. However, it is necessary to implement economic cooperation effectively and efficiently from the viewpoint of effectively utilizing limited financial resources under the severe fiscal constraints. To this end, we need to give careful considerations as the following: (i) efforts to find out premier projects through policy dialogues with developing countries expansion of preliminary surveys, (ii) stepped-up coordination between technical and financial cooperation to increase their multiplying effects, (iii) adoption of more flexible project-scheme such as flexible treatment of costs to be covered by recipient countries (local costs), utilization of non-project assistance and others, (iv) improvement of follow-up assistance and after-care assistance, and (v) expansion of project evaluation.

These measures have already been implemented in various forms, and there is a need to improve them further.



4.  International Trends Surrounding Development Assistance and Positive Assistance as a Response to Expectations of International Society


(1)  Total capital flows to developing countries fell down to $82,300 million in 1985 after reaching a peak of $139,100 million in 1981. This is mainly because of declining of private-sector flows and export credits, and strong growth cannot be anticipated in ODA, which has come to be expected to play a more and more important role, because of financial difficulties of major donor countries.

In such circumstances, the Development Assistance Committee (DAC) has pointed out the importance of securing necessary resource flows to developing countries, extending aid to sub-Saharan African countries on a priority basis, supporting the efforts to implement structural adjustment programs and promoting and coordination among donors. Especially in 1986, the DAC, after reviewing Japan's assistance policy, expressed its hope that Japan should raise further the ODA volume (in particular ODA/GNP ratio), improve its aid quality (grant element), expand the scope of recipient countries (especially enhancing assistance to sub-Saharan African countries and LLDCs), diversify the schemes of its assistance (greater emphasis on promoting untying policies), and improve the system for implementing its assistance.


(2)  More than 30 years have passed since Japan started economic assistance, increasing expectations are placed on Japan, as a major donor. Japan needs to try to live up to such international expectations and step up its efforts to take a leading role in international trends on economic cooperation, while endeavoring to improve the method of economic assistance.

From such viewpoints, Prime Minister Yasuhiro Nakasone during his visit to the United States in April 1987 stated Japan's policies to newly recycle more than $20 billion in completely untied funds to developing countries, centering on those suffering from external debts, during the three years from 1987, and to extend a positive support to sub-Saharan African countries and other least developed countries.



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