Section 4. ODA Loan
1. General Review
ODA Loans which account for the major part of Japan's bilateral official development assistance, is playing an important role as an effective means of assistance to respond to developing countries' demand for development funds.
On an exchange note (E/N) conclusion basis, Japan's ODA Loan extension totaled \426,381 million in fiscal 1986, a decrease of about 40% from the preceding year. This was apparently because developing countries shelved the implementation of their economic development plans due to worsening economic conditions as a result of sluggish primary commodity prices or the deterioration of debt problems and therefore refrained from fresh borrowings.
In terms of shares by region, loans to Asia fell to 67% from 75% and those to Latin America and the Middle East almost stayed flat at 10 to 13%. Loans to Africa jumped to 9% from 1% as the extension of a Special Joint Financing with the Africa Fund, proposed by the International Development Association and whose implementation was decided in fiscal 1985, was counted.
In terms of the types of ODA Loan, Japan has given priority to the project-type loans, such as those for road, harbor and port, power plants, and telecommunications facilities. As for commodity loans, Japan makes it a policy to extend such loans, because their effects appear rapidly, by fully taking into account the balance of payments of recipient countries. In fiscal 1986, commodity loans accounted for 0.6% of the total ODA Loans extended on an E/N basis.
Though the environment surrounding ODA Loans seems to be difficult as stated above, Japan intends to try to continue expanding ODA Loans, while paying due attention to recipient countries' development needs.
2. Features of ODA Loans Extended in FY '86
Japan aims to expand the volume of assistance and at the same time improve its quality under the Third Medium-Term Target Programme. As for the improvement of the quality, Japan lowered the interest rate of ODA Loans by an average of around 0.6% from January 1987 in response to requests for easing ODA Loan terms from developing countries.
Also considering the requests of developing countries and from the viewpoint of effective use of the ODA funds, Japan has been trying to increase the ratio of general untied loans since 1978, reaching 50.8% in fiscal 1986.
On the other hand, Japan needs to diversify the types of ODA and to extend it more flexibly in response to the demand for development amid the present difficult economic conditions in developing countries. From such a viewpoint, the ratio of the local cost financing of ODA Loans extended rose to 9.5% in fiscal 1986 from only 4.6% in fiscal 1985. Particularly, ODA Loan package to Indonesia in fiscal 1986 covers the local cost financing of 26% of the total package, including that for the ongoing projects being executed under the Japan's ODA Loan.
The Ministry for Foreign Affairs also believes that decisions on ODA Loan extension to countries rescheduling their debt repayments should be made on a case-by-case basis in consideration of their specific economic conditions and interdependent relations between Japan and these countries. From such a viewpoint, Japan extended ODA Loan totaling \25,000 million to Ecuador, Togo, Guinea and Somalia now rescheduling their debt repayments.
In September 1986, the government decided on a comprehensive economic measures, which calls for the promotion of cooperation to vitalize the existing projects that are expected to produce no small economic effect with a small capital infusion amid economic hardships of developing countries. Based on the policy mentioned above, the government makes it a policy to actively extend ODA Loan.
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