Contributions to the Stability and Development of Developing Countries

Section 3. Contributions to the Stability and Development of Developing Countries

1. Present State of Developing Countries' Economies

(1) Overview

(a) In 1987, the economic environment surrounding developing countries saw little improvement as a whole, including such aspects as terms of trade, flow of funds and trends of the economies of developed countries, though there were some favorable developments for developing countries, such as a moderate pickup in prices of crude oil and primary commodities. Under such conditions, disparities among different regions and countries have become more pronounced; Latin American countries, saddled with huge external debts, have not experienced improvement in their debt repayment burden pictures and Sub-Saharan African countries and other LLDCs were unable to overcome the fragility of their economic foundations, whereas Newly Industrializing Economies and other Asian countries showed relatively favorable economic performances.

(b) In terms of economic relations between Japan and developing countries, a major progress was seen in the areas of trade, especially in Japan's imports from developing countries, and in investment etc. Japan's exports to developing countries in 1987 rose by 16.4% from the previous year to $74,402 million, while imports advanced 20.3% to $67,276 million, leaving a trade surplus of $7,126 million, down from $7,993 million of the previous year.

Japan's exports to Asian countries surged by 26.8% to $52,841 million as a result of a sharp increase in sales of machinery and equipment to the Asian NIEs (Republic of Korea, Singapore, Hong Kong and Taiwan) and ASEAN countries, accounting for 71.0% of the nation's total exports to developing countries.

Trends of Japan's Region-by-Region Trade

Japan's imports from developing countries, which recorded yearly drops in 1985 and 1986 for two consecutive years, reversed its trend in 1987 for the first time in three years. This occurred as a result of an upturn of imports of mineral fuel which scored a 7.5% yearly gain owing among other things to a moderate recovery in crude oil prices and a steep 50.6% increase in imports of manufactured goods. Imports of manufactured goods from Asian NIEs and ASEAN countries registered particularly fast gains of 59.7% and 47.8%, respectively. The ratio of imports of manufactured goods in Japan's total imports from developing countries rose significantly to 28.8% in 1987 from 14.9% in 1985 and 23.0% in 1986, with the ratio of manufactured goods imports from Asian NIEs climbing to 66.2% from 62.3% of the previous year.

Though Japan's trade with developing countries has been expanding steadily, high expectations are placed on a further increase in Japan's imports from these countries, especially imports of manufactured goods, in order to help promote the economic development of developing countries through an increase of export earnings and to redress the international payments disequilibrium.

Trends of the Ratios of Japanese Imports of Manufactured Goods

Trends of the Growth Rates of Japan's Imports of Manufactured Goods

(c) Japan's direct overseas investment in fiscal year 1986 jumped to yet another record of $22.32 billion, a sharp 82.7% gain from the previous record of $12,217 billion in fiscal year 1985, with investment in developing countries leaping 73.8% to $7,418 billion, accounting for approximately one-third of the total.

By region, investment in Latin America continued to grow led by investment in the financial, insurance and transportation sectors, rising 81.1% from the previous year to $4,737 million. Investment in Asia, which suffered drops in fiscal years 1984 and 1985, made a turnaround in fiscal 1987 to increase by 62.2% from the previous year to $2,327 million. This reflects the fact that Japan's manufacturing industries, faced with the sharp deterioration of earning positions owing to the yen's appreciation, proceeded not only to raise export prices, and to minimize production cost through rationalization and energy saving, but also to expand its local production in Asian NIEs.

Japan's Direct Overseas Investments

On top of its importance for the economic development of recipient developing countries, overseas direct investment promotes the horizontal division of labor between Japan and the neighboring countries in Asia. Moreover, it contributes to solving the problem of accumulated external debts of the developing countries as the flow of funds in the form of direct investment does not incur further indebtedness. Therefore, it is hoped that Japan will further increase its direct overseas investment.

(2) NIEs

(a) Asian NIEs have maintained high economic growth rates since the latter half of the 1960s through rapid industrialization and expansion of exports. Furthermore on entering the 1980s, they have sustained dramatic growth rates in contrast to a slowdown in the overall world economic growth.

The countries and regions comprising Asian NIEs have achieved rapid industrialization by introducing technology and capital from Japan and the United States and by taking advantage of their labor conditions. They have also expanded their exports. At present, their positions in world trade, in particular the expansion of their trade surpluses, cannot be ignored in discussing the worldwide balance of payments disequilibrium.

(b) Amid the rapid adjustments of foreign exchange rates among major industrialized countries since the Plaza Agreement in September 1985, Asian NIEs saw their currencies fall sharply against the yen and European currencies, thus conspicuously reinforcing the relative export competitiveness of Asian NIEs' products.

Rising Presence of NIEs in the World Economy

(1) Economic growth rates

(2) Proportions of Asian NIEs in the world trade

As a result, the exports of the Republic of Korea, Taiwan, Hong Kong and Singapore in 1987 jumped significantly by 36.2%, 34.5%, 36.7% and 27.2%, respectively.

(c) The United States is the largest importer of the Asian NIEs' goods, while Japan tops the list of the exporting countries to the Asian NIEs. As a consequence, they run trade surpluses against the United States and trade deficits against Japan. This reflects their basic trade structures, in which they import capital and unfinished goods from Japan which are then processed into finished goods for export to the United States.

The U.S. trade deficit with the Asian NIEs as a whole surpassed $37 billion in 1987, accounting for some 22% of its total trade deficit of that year. Under these circumstances, the United States has stepped up its demand that the Asian NIEs should redress their trade imbalances with the United States.

(d) Since the latter half of 1986, however, the growth rates of the Asian NIEs' imports from Japan and exports to the United States although still increasing, have slowed down its pace. On the other hand, the increase of their exports to Japan and imports from the United States have accelerated.

The Asian NIEs' exports to Japan showed year-to-year gains of 27.3% and 50.3%, respectively, in 1986 and 1987. In particular, exports of manufactured goods scored considerable increases, rising by 37.2% in 1986 and 59.7% in 1987. On the other hand, imports from Japan climbed by 33.8% in 1986 and 31.2% in 1987, showing deceleration in the growth.

Meanwhile, Japan's direct investment in these countries and regions, especially the transfer of production bases abroad by the manufacturing industry, has gathered momentum as the basic tendency toward a stronger yen has taken root. The progress in the horizontal division of labor between Japan and the Asian NIEs has helped to accelerate their exports of manufactured goods to Japan.

(e) As the importance of the Asian NIEs in the world economy and trade grows, the Asian NIEs have come to be called on to fulfill a greater responsibility in areas such as the improvement of market access, currency rate adjustments, etc. at such forums as the Ministerial Council Meeting of the OECD, the Economic Summit in Venice and G7 meetings in 1987. The United States for its part, announced in January 1988 a policy to repeal the preferential tariff rates for imports from the Asian NIEs from the beginning of 1989.

Structure of Asian NIEs' Trade

(1) Shares of trade with Japan, U.S. and Asian NIEs (1987)

(2) Trends of trade balances with U.S., Japan

In this context, discussions concerning the roles that should be played by the Asian NIEs in the world economy and trade are expected to be conducted at various forums from now on.

Though it is important for the NIEs to play due role according to the stage of their development, there is also need to take a balanced view toward them by taking into account their favorable economic performances, contributions to the world economy, and problems faced by some of them such as external debts, fragile industrial structures, and special political situations. It is not appropriate for developed countries to unilaterally seek changes in the NIEs' policies or to pursue their responsibilities. But on the other hand, it is necessary to consider relations between developed countries and the NIEs within the context of the worldwide economic structural adjustment and to promote dialogue with them in various forms from this viewpoint.

(3) Accumulated External Debt Problem

(a) Overview

According to the World Bank statistics, the external debt of developing countries is estimated to have reached $1.2 trillion by the end of 1987. As for the Third World debt issue, an immediate outburst of a crisis has been averted thanks to appropriate responses by parties concerned. However, heavy external debt repayment burden is proving to be a major obstacle not only to the sound development of the economies of developing countries, but also to the sound management of the world economy.

Trends of Total Debt Outstanding

Trends of Debt Repayment Burdens (Debt Service Ratio)

Debts owed by the Latin American countries account for about 40% of the developing countries' total debt with Brazil and Mexico ranking as the largest debtors. Although Brazil, announced a temporary suspension of interest payments on commercial bank debts in February 1987, it reached a debt rescheduling agreement with creditors in early 1988 following the debut of a new finance minister. As for Mexico, a new scheme was implemented in February 1988, under which part of its debts were converted into bonds guaranteed by the United States. This scheme enabled Mexico to reduce its outstanding external debt. A major crisis has been averted thanks to such case-by-case approaches, but many indebted countries still face difficulties against the background of sluggish prices of crude oil and other primary commodities, from which they mainly derive their export earnings, and social unrest.

As for Sub-Saharan African countries and other LLDCs, these countries also remain in serious situations, inspite of various positive approaches such as, the expansion of the IMF's structural adjustment facility (SAF), the prolongation of debt rescheduling periods for certain countries by the Paris Club consisted of creditor nations, and cooperation between developed countries and international organizations.

(Note) The structural adjustment facility (SAF) is one of the IMF's financing facilities. It is designed to provide concessional balances of payments assistance to low-income developing countries on the condition of implementing macroeconomic and structural adjustment policies to strengthen their balance of payments position on concessional terms (maturity of 10 years with interest rate set at 0.5%).

(b) International Cooperation

To break such a deadlock of debt problems, it is basically important that taking into account self-help efforts on the part of debtor countries through the promotion of economic adjustment policies, parties concerned such as IMF, World Bank and other international financial institutions, the governments of developed countries, commercial banks, etc. extend support in such forms as debt relief and fresh loans on a case-by-case basis and in an appropriate manner. It would also be important for developed countries to (1) achieve further solid growth of their economies, (2) improve the trade environment, (3) lower interest rates, and (4) promote the flow of funds in order to foster an international economic environment which would facilitate growth of developing countries from a medium- and long-term point of view.

As for the promotion of flow of funds in particular, it is necessary to (1) make efforts to achieve a smooth reflux of private sector funds to the middle-income debtor countries through the restoration of confidence of these countries and (2) reinforce public support for Sub-Sahara African low-income countries' structural adjustment efforts taking into consideration the different situations of middle-income and low-income countries.

Debt Amount of Major Indebted Countries

As for recent occurrences, the convention on the Multilateral Investment Guarantee Agency (MIGA) took effect in June 1987 and it is hoped that the agency will be operated appropriately so that it can contribute to the promotion of direct investment in developing countries from the viewpoint of expansion of flow of funds.

In dealing with the Third World debt problem, it is important to strengthen the roles of the IMF, the World Bank and other international financial organizations. From this viewpoint, the decision taken at the interim committee meeting of the IMF in April 1988 to reinforce its credit extension and moves to realize general increase of the World Bank's capital are welcomed.

On the basis of self-help efforts on the part of indebted countries, Japan in cooperation with countries concerned and international financial organizations, has been striving to help these countries in solving their debt problems by taking measures such as rescheduling their debts in an appropriate manner or granting fresh loans needed. Furthermore, in order to promote the flow of funds to indebted countries, Japan decided to recycle completely untied government and private funds to developing countries amounting to more than $20 billion over a three year period and to increase grants including about $500 million non-project aid to Sub-Sahara African and other LLDCs as part of the Emergency Economic Measures in 1987.

The fund recycling scheme of more than $20 billion consists of (1) financial assistance both by the government and private sectors through international development financial organizations in such forms as assistance to the World Bank's additional fund-raising (about $8 billion), (2) co-financing with the World Bank and other international development financial organizations and loans by the Overseas Economic Cooperation Fund designed to assist the developing countries in implementing their economic policies ($9 billion or more), and (3) direct untied loans by the Export-Import Bank of Japan (about $3 billion).

As of April 1988, approximately 60% of the projected funds had been achieved on a commitment basis. As for the recycling of funds through international financial organizations amounting to some $10 billion, which was announced earlier, about 87% of the funds have already been committed. Therefore, as for the total of more than $30 billion some 70% has been committed.

Japan will continue to make efforts to realize the smooth implementation of these measures the basis of close consultation with international development financial organizations and also by taking into account requests made on a bilateral basis.

(4) Primary Commodity Issue

(a) Overview

(i) Though the degree of economic development differs among developing countries, no less than 80 developing countries depend on exports of primary commodities for more than half of their export earnings. Under these circumstances, it is still paramountly important for these countries to ensure stable international transactions of primary commodities.

(ii) In 1987 primary commodity market prices reversed its sluggish trend and rose at last thanks to the recovery of the economies of major industrialized countries and other factors. But the persistent price depression has been the major problem concerning primary commodities in the 1980s. As for factors behind such sluggish prices, there are in addition to the slowdown of the economic growth of developed countries in recent years, changes in demand and supply structure of commodities which have been seen in declining demand for primary commodities as a result of the development of such industries as service, electronics etc. which consume less primary commodities and furthermore, in expansion of production capacities as a result of progress in technology and past investments.

Such sluggish primary commodity prices reduced export earnings of developing countries, retarded their economic development and spurred the accumulation of their external debt.

(iii) Under such circumstances, Japan has been playing a positive role in international commodity organizations so that international commodity agreements, which represent traditional measures to cope with the commodity problems would function more effectively. Furthermore, Japan has extended various kinds of economic assistance on a bilateral basis and has advanced many proposals to the United Nations Conference on Trade and Development (UNCTAD) and other international organizations with a view to helping reduction of developing countries dependence on primary commodities through the diversification of their production and export structures.

(b) Trends of International Commodity Agreements

(i) In 1987, prices of some primary commodities picked up after a long spell of stagnation, giving rise to more distinct disparity among international commodity agreements in their operation.

(ii) After the first International Natural Rubber Agreement expired in October 1987, an interim period, during which only buffer stock are allowed to sell under certain conditions, will continue until the second agreement, which was adopted in March of that year, will become effective. Since September of that year, rubber stocks so far accumulated have continued to be sold under the circumstances of soaring rubber prices. Under the International Coffee Agreement, the export quota system which had been suspended since February 1986, was reintroduced in October 1987, resulting in recovery of coffee bean prices.

Under the International Cocoa Agreement, on the other hand, further decline in cocoa bean prices prompted the start of cocoa bean purchases for buffer stocks in May 1987, but prices failed to pick up. As a result, cocoa bean purchases reached 250,000 tons which is the ceiling under the agreement, by February 1988.

Following the financial collapse taken place in 1985, the International Tin Council remained suspending its buffer stock operations and taking necessary actions with regard to litigations brought about by creditors decided to extend the agreement for another two years in April 1987.

(iii) In contrast, steady activities continued under the commodity agreements in which no economic provisions are included.

The International Tropical Timber Agreement, whose headquarters was set up in Japan, decided at a council meeting in November 1987 to launch 12 research and development projects and adopted the headquarters agreement designed to ensure the smooth activity of the organization.

The International Jute Agreement also started a new research and development project in 1987, in addition to projects to promote jute consumption launched earlier.

The International Sugar Council adopted a new agreement in September 1987, which has no economic provisions as in the case of the previous agreement.

The International Wheat Agreement continued their work to improve statistics.

(5) International Oil Situation

(a) Recovery of Crude Oil Prices

Prices of crude oil, which is a major source of export earnings along with primary commodities, showed unstable movements.

Crude oil prices plummeted in 1986 due to OPEC's production increase designed to secure its share in the world. In the circumstances, the 13-nation oil cartel at a full ministerial meeting in December came up with a package of measures to support prices, including the adoption of an $18-per-barrel fixed price and the establishment of a production ceiling at 15.8 million b/d for the first half of 1987.

As a result, crude oil prices staged a sharp recovery since early 1987 and then maintained a firm trend through summer of that year with the OPEC output being held below the ceiling and the spot price of North Sea Brent crude climbing above $20 temporarily.

(b) OPEC Conference in June

OPEC at its Ordinary Meeting of the Conference in June 1987 decided to uphold the $18 fixed price system and further cut its production to 16.6 million b/d from 18.3 million b/d tentatively agreed for the latter half of 1987.

In the belief that cooperation not only within OPEC but also with non-OPEC oil-producing countries would be indispensable to support crude oil prices, OPEC formed a committee comprising the oil ministers from five member countries and negotiated with non-OPEC oil-producing countries. Among them, Norway announced crude oil production cuts, while Mexico, Oman and Malaysia expressed intent to maintain cooperation with the oil cartel.

But since summer 1987, cheating on country-by-country output quotas by some OPEC members became conspicuous. Iraq, which had not agreed to the production quota system in the first place, sharply raised its crude oil export capability by expanding its pipelines through Turkey and other measures, increasing its daily output to 2.5 million to 2.6 million barrels, or more than Iran's output, by the end of that year. Kuwait and the United Arab Emirates made sustained efforts to increase their crude oil output. As a result, OPEC's total output reached 19 million to 20 million b/d in the latter half of 1987, prompting crude oil prices to weaken.

OPEC barely managed to come up with resolutions to maintain the price and output levels at its Ordinary Meeting of the Conference in December 1987 despite confrontation between Iran and Saudi Arabia following the Mecca incident at the end of July of that year. But the oil market was deeply disappointed by the outcome of the meeting, which completely excluded Iraq in its production quota agreement.

Though OPEC's output level was corrected somewhat in early 1988, crude oil prices slid further after that as a result of a drawdown of oil stocks built up by oil consuming countries, with the spot Brent crude price falling to $13 per barrel level by early March.

Crude oil prices then rebounded moderately in April, reflecting a decision by OPEC's Price Monitoring Committee to hold a joint meeting of oil-producing countries with non-OPEC oil producers and an armed conflict between the United States and Iran in the Persian Gulf. But they have yet to return to the fixed price level.

2. Official Development Assistance (ODA)

(1) Overview

(a) Tasks for the World's Largest Aid Donor

(i) Japan has been increasingly extending its economic and technical assistance to developing countries based upon the philosophy of interdependence, which would be indispensable for the solution of the North-South problem, and humanitarian considerations. For Japan, which claims to stand as a nation dedicated to peace, enjoys the second largest economic power in the free world and highly depends on overseas resources and markets, its aid policy is considered to be gaining wide support both at home and abroad as matching its national interests and as one of the most effective means to contribute to the international society.

In addition, increasing expectations have been placed on Japan, which maintains the most stable economic growth among developed countries and has amassed huge trade surpluses, by both developed and developing countries that it will step up its contribution to the international society, in particular in the area of economic and technical assistance.

In other words, various kinds of cooperation Japan extends, through ODA, to the developing world, which has three-fourths of the world's population, have become an important task for Japan in the international society nowadays. Prime Minister Noboru Takeshita attached particular importance to ODA as one of the three pillars of Japan's initiative for international cooperation and he announced the initiative on the occasion of his visit to Western European countries in May 1988.

(ii) Japan has successively addressed the quantitative expansion and qualitative improvement of ODA over the past 10 years by setting a series of "Medium-Term Targets." The volume of Japan's ODA has jumped by less than threefold to some \1,078 billion in 1987 from about \380 billion in 1977 and by more than fivefold to $7.5 billion from $1.4 billion. The ratio of Japan's ODA to its GNP has been improved to 0.31% in 1987 from 0.21% in 1977. Japan's ODA thus grew at a pace twice as fast as the average ODA growth rate of the 18 member countries of the OECD's Development Assistance Committee (DAC).

In Japan's budget for fiscal 1988, ODA secured the fastest annual growth among general account budget items, up 6.5% to about \701 billion. On a project basis, Japan increased its ODA budget by 8.8% to about \1,350 billion, or $10 billion, surpassing the United States which earmarked just below $9 billion, and became the world's largest ODA donor.

(iii) In addition to such budgetary efforts, the yen's sharp appreciation has raised the prospect that Japan will be able to achieve its ODA expansion goal under the Third Medium-Term Target covering 1986-1992 in 1988, or four years earlier than scheduled.

Under such circumstances, the government decided to review the Third Medium-Term Target on the basis of its policy to show Japan's contributions to the international community through ODA more clearly and an agreement was reached on a new target among four cabinet ministers concerned following the working-level interministerial negotiations and was then reported to the cabinet before it was announced as the Fourth Medium-Term Target. This contains a new approach of raising the share of Japan's ODA in the total ODA of the DAC members to the level which corresponds to the share of Japan's GNP in that of the DAC members. With this in mind, Japan now aims at increasing the aggregate amount of ODA during the next five years (1988-1992) to more than $50 billion, thus more than doubling $25 billion, aggregate volume of ODA disbursed in the past five years (1983-1987). At the same time, a policy to steadily improve the ODA-GNP ratio was reaffirmed.

The government also decided to pay greater considerations to the qualitative improvement of ODA. In particular, it will expand grant-in-aid through such means as the increase in the proportion of grants in assistance to the Least Less-Developed Countries (LLDCs) and the expansion of debt-relief measures, as well as a step-up in technical assistance in such forms as increased assistance to studies from developing countries studying in Japan and the improvement of programs for trainees, the amelioration of the quality of yen loans and their flexible extension, and the promotion of general untied loans. Moreover, it will strive to extend cooperation in coordination with other aid donor countries and international organizations, increase the number of staff engaged in overseas assistance matters, and improve the aid assessment activity.

(iv) Prime Minister Noboru Takeshita introduced this Medium-Term Target at the annual summit of major industrialized countries in Toronto in June. On that occasion, he also announced Japan's plan to replace future repayments of the principal and the interest on yen loans extended over the 10 years (fiscal years 1978-1987) totaling some \680 billion, or $5.5 billion, with grant assistance as part of measures to expand Japan's debt relief measures for LLDCs. The other six summit participating nations gave high marks to such a drastic decision on ODA by Japan.

Japan's ODA, which has already become the world's largest in budgetary terms as mentioned above, is certain to have the largest scale in the world either in 1988 or 1989 by surpassing the United States. Therefore, what is required of Japan's overseas assistance activity, which has expanded rapidly, is the improvement of its quality and contents. So it is hoped that Japan will make efforts and come up with ingenious assistance methods so that it can be truly called the world's largest aid donor.

(b) Qualitative Improvement of Assistance

What should be emphasized in terms of the improvement of quality and contents of overseas assistance are the so-called "proportion of grants" and "grant element," which is a yardstick showing the degree of the "softness" of loans compared with loans made on a commercial basis.

It is desirable to extend loans that are as "soft" as possible in terms, or as close to as grants in terms. In the case of Japan, a series of improvements have been made on this score, but it still ranks low at 17th place on the list of grant elements among the 18 DAC member countries. This resulted from the government's policy to expand the volume of assistance under the constraints of the limited budget. However, in recent years, special consideration has been given to the expansion of grant elements in order to improve the quality of Japan's ODA. Under the fiscal 1988 budget, for example, a year-to-year increase of 9.8% was secured for grant assistance, surpassing the growth of 6.5% for the general account budget for ODA as a whole, while the technical assistance budget was boosted 10.7% from the previous fiscal year. The Fourth Medium-Term Target also clearly calls for qualitative improvement.

The second point that should be noted in connection with the expansion of Japan's overseas assistance is widening the scope of regions receiving Japan's assistance, or the so-called "globalization" phenomenon of assistance.

As for the geographical distribution of Japan's overseas assistance, Asia has received the bulk of it, or about 70%, in consideration of Japan's political, economic and historic relations with the region. However, in recent years, the list of regions receiving Japan's assistance has expanded to include Africa, Latin America, the Middle East and Oceania on top of Asia, reflecting Japan's responsibility as a major aid donor. In 1987, Japan extended $3,416 million in assistance to Asia, $516 million to Africa, $418 million to Latin America, $526 million to the Middle East, $68 million to Oceania and $304 million to other regions.

As for regions other than Asia in particular, Japan has strived to increase aid to Africa, where there are many LLDCs which are suffering from serious economic difficulties. Japan's assistance to Africa grew by about 10-fold over the past 10 years, or twice as fast as the growth of its overall overseas assistance. In the meantime, Japan willingly joined international moves to step up assistance to Africa in such forms as the special co-financing with the International Development Associations's (IDA) African Fund and started disbursing in fiscal 1987 non-project grant assistance to African countries totaling $500 million over three years. In fiscal 1987, Japan extended non-project grant assistance totaling some $170 million to 11 African countries and was given high marks for that by these African countries. Moreover, about 40% of Japanese staff dispatched abroad under the Japan Overseas Cooperation Volunteers (JOCV) program are now in Africa.

Though the share of assistance to Asia may show a temporary increase in view of persistent brisk demand for Japan's yen loans by Asian countries, the expansion of the scope of Japan's assistance as evidenced by increased aid to Africa as mentioned above should lead to furthering "globalization" of Japan's overseas assistance in the long run.

(d) Making Forms of Assistance more Diversified, Flexible

On the other hand, the actual situation of developing countries shows their needs for assistance which have diversified in recent years, mirroring the state of economic development and the degree of economic difficulties. To respond to such needs in a thoroughgoing manner, there is a need to devise new aid disbursement forms and methods.

For example, there is a need to carry out such measures more flexibly as non-project type financial assistance like loans for supporting the execution of domestic economic policies, the expansion of loans made in recipient countries' currencies, and the extension of loans for the rehabilitation of existing projects for developing countries suffering from accumulated external debts, foreign currency shortage and financial difficulties.

In order to make its assistance more effective, Japan has also been promoting the formulation of country-by-country assistance plans, including the one for the Philippines, and dialogue with aid recipient countries. As for Japan's aid to the Philippines, for example, the government sent a comprehensive economic cooperation research mission, led by Former Foreign Minister Saburo Okita to that country for a high-level policy dialogue. Prior to this development, the Study Group on the Philippines, the first countrywide study group set up at the Japan International Cooperation Agency's (JICA) International Cooperation Comprehensive Training Center, announced a report in May 1987, which was well received both at home and abroad.

Japan has been striving to improve the international emergency relief system in recent years so that it can speedily extend assistance both in terms of human resources and materials in the event of the occurrence of natural disasters. In September 1987, the law on the dispatch of an international emergency relief team was enacted.

In addition to such measures, the nurturing of aid-related human resources has become an urgent problem. In this connection, studies on the idea of "International Development University Scheme" designed to foster Japan's future aid experts are being carried out with help from academics and a report on the proposal was submitted to the Minister for Foreign Affairs in July 1987 to pave the way for its realization.

(2) Technical Cooperation

(a) Overview

Technical cooperation is part of economic cooperation through the acceptance of trainees and dispatch of experts at the request of the governments of developing countries or international organizations in order to transfer technologies necessary for the socioeconomic development of developing countries. This involves not just the aspect of nurturing human resources who will be in charge of the nation building of developing countries but also the deepening of mutual understanding and friendship between the Japanese and the peoples of developing countries.

Government-base technical cooperation is now mainly conducted by the Japan International Cooperation Agency (JICA). JICA reveives grants from the Ministry of Foreign Affairs (\106.2 billion in fiscal 1988) to implement technical cooperation.

Requests for Japanese technical cooperation from developing countries tend to become gradually diversified and sophisticated year after year and Japan has been making efforts to meet developing countries' needs by implementing the effective technical cooperation. For example, the "ASEAN Human Resources Development Project" and the "Japan-ASEAN Cooperation on Science and Technology" project now under way with ASEAN countries cover, material science and other fields in order to meet diversified and sophisticated needs of ASEAN countries. Japan has also been striving to proceed with projects utilizing the private sector's vitality and cooperation in tie-ups with local governments and nongovernmental organizations (NGOs), in a move to expand the scope of technical cooperation.

In 1987, Japan's technical cooperation-related disbursement on DAC basis came to $851 million (\123 billion), up 23% from the previous fiscal year on DAC basis.

An international comparison on DAC basis shows that Japan placed fourth in terms of technical cooperation amount among the 18 DAC member countries behind France, the United States and the Federal Republic of Germany with $599 million. In terms of the ratio of technical cooperation to total ODA, Japan placed 14th among the DAC members with 10.6%, or about half of the DAC member countries' average of 20.2%. In order to achieve the qualitative improvement of its ODA, Japan must continue striving to expand the volume of technical cooperation, while paying due heed to the need to improve its quality, and strengthen the Japan International Cooperation Agency (JICA) and other bodies in charge of executing such cooperation.

(b) Government-base Cooperation through Japan International Cooperation Agency (JICA)

(i) Acceptance of Trainees

Acceptance of trainees is one of the most basic forms of technical cooperation. Under this scheme, Japan supports economic and social development of developing countries by receiving mid-career engineers, government officials, etc. from developing countries and transferring expert knowledge and technologies to them in certain areas.

There are two forms of the acceptance of trainees. One of them is the group training under which training is conducted in groups on the basis of predetermined courses with training contents for which developing countries commonly have great needs and the other is individual training for which training programs are formulated at specific requests of developing countries.

The trainee acceptance project enables the transfer of a broad range of technologies without fail because the training is conducted in Japan. Moreover, trainees' stay in Japan would contribute to the promotion of mutual understanding and friendship between developing countries and Japan.

Japan newly accepted 4,656 trainees in fiscal 1987.

The third country training program is also an effective form of cooperation in that it would support technical cooperation among developing countries and enable training matching the needs of countries taking part in the training program to a greater degree. In fiscal 1987, Japan newly implemented 11 third-country training programs and provided training to 208 people from developing countries.

(ii) Dispatch of Experts

Dispatch of experts is also one of the most basic forms of technical cooperation along with the acceptance of trainees. Under this scheme, Japan sends experts to the governments, government agencies, testing and research organizations, etc. of developing countries to carry out such activities as planning, research and studies, technology guidance and popularization, and providing of advice.

In order to implement technical cooperation effectively, there is a need to nurture and secure experts on such cooperation. In this context, JICA inaugurated the Institute for International Cooperation in October 1983. The institute is engaged in the registration of experts (578 experts have registered with the institute by the end of fiscal 1987), and gives training to experts before they are dispatched abroad as well as medium-term training designed to foster and secure next-generation experts. JICA has also been trying to secure international cooperation experts (lifeworked experts) from the viewpoint that it would be necessary to secure manpower who are well versed not only in expert knowledge, but also the conditions of developing countries and methods of economic cooperation, become the core of technical cooperation and engage in cooperation activities throughout their life in order to strengthen technical cooperation. It has secured 35 such experts by the end of fiscal 1987.

In fiscal 1987, Japan newly sent 2,259 experts through JICA, including experts on project-type technical cooperation.

(iii) Provision of Equipment

Under the equipment supply scheme, Japan provides equipment and machinery necessary for the guidance, popularization and transfer of technologies mainly by the experts dispatched, Japan Overseas Cooperation Volunteers and trainees who have returned home as part of technical cooperation. This scheme is distinct from the provision of equipment under the project-type technical cooperation and is called "individual equipment provision."

In fiscal 1987, Japan supplied equipment in 79 cases with the budget of \1,889 million.

(iv) Development Survey

In the development survey program, survey teams comprising consultants for public development projects in developing regions are dispatched to such regions in order to formulate plans that would contribute to the promotion of development programs and work out reports. As part of technical cooperation, it is also designed to transfer technologies related to the formulation of development programs and also plays an important role in identifying and forming projects subject to Japan's economic cooperation. In fiscal 1987, \22.5 billion was spent for 79 surveys.

(v) Project-type Technical Cooperation

Project-type technical cooperation refers to comprehensive technical cooperation, which combines the three elements of the dispatch of experts, the acceptance of trainees, and the provision of equipment in an effective and coordinated manner. Under this type of cooperation, cooperation is extended for human resources development (fostering of counterparts in developing country) at training centers and research institutes that usually serve as the bases for activities.

Development Survey (fiscal 1987 result)

The project-type technical cooperation is broken down into the following five schemes.

a) Center-based Cooperation

This is designed to foster and train human resources in various technological areas by using technical training centers or institutes of developing countries as bases. Specifically, undertakings covered by this scheme range from general vocational training to foster engineers in the infrastructure sector to the transfer of sophisticated technologies, such as those involving electronics, broadcasting technology, as well as disaster prevention technology and corporate administration and management.

b) Health and Medical Cooperation

This cooperation involves the fostering and training of personnel in the health and medical sectors needed by developing countries, including doctors and nurses. It is roughly divided into research into basic and clinical medicine, measures to curb specific diseases, and regional health measures.

c) Population and Family Planning Cooperation

This is designed to contribute to the solution of the population problem in developing countries through the P.R. and propagation activity, audiovisual activity and the nurturing of personnel who will engage in the propagation activity.

Results of JICA Undertakings (FY 1987 Project-type Technical Cooperation)

d) Agriculture, Forestry and Fisheries Cooperation

This is the cooperation with emphasis placed on the transfer and propagation of technology for the improvement of agricultural productivity, and covers a wide range of areas, including agriculture - increased food production - livestock farming, forestry and fishery. As for the contents of cooperation, Japan extends cooperation not only regarding such traditional technologies as those involving sericulture and seedling culture but also regarding biotechnology, genetic resource preservation technology and other sophisticated technologies.

e) Industrial Development Cooperation

This is the scheme to provide comprehensive and many-sided cooperation in order to nurture and promote local industries of developing countries. Specifically, its contents range from the formulation of plans for such purposes to the nurturing of personnel and research and development of trade techniques for the promotion of exports.

(vi) Development Cooperation

Development cooperation is the program under which funds are supplied under soft conditions and technologies are provided through the dispatch of experts, the acceptance of trainees, and surveys to combine with economic cooperation carried out by the private Japanese companies in developing regions from the viewpoint of helping the socioeconomic development of such regions. Specifically, it covers the following projects for which it is deemed difficult to obtain loans from the government-controlled Export-Import Bank of Japan or the governmental Overseas Economic Cooperation Fund: (i) projects aimed at the construction of the infrastructure needed in keeping with various development programs and contributing to development of adjacent areas (roads, water supply, drainage, hospitals, etc.), and (ii) pilot projects that are unlikely to be successfully carried out without improvement or development of relevant technologies (experimental cultivation of farm produce and experimental afforestation).

In fiscal 1987, about \1.9 billion was invested or loaned, 30 surveys were conducted, 32 experts were dispatched and 29 trainees were accepted.

(vii) Dispatch of Japan Overseas Cooperation Volunteers (JOCV)

The dispatch of Japan Overseas Cooperation Volunteers (JOCV) was started in 1965 as part of Japan's technical cooperation with developing countries. Under this scheme, young Japanese people with technical expertise sent to developing countries live and work together with the people of the recipient countries and cooperate with their nation-building and human resources development efforts, thus deepening friendship between these countries and Japan.

The Volunteers are dispatched under agreements between the government of Japan and the governments of the recipient countries. In fiscal 1987, Japan newly concluded such agreements with Bhutan, Vanuatu, Indonesia, Guatemala and Jamaica. As of the end of March 1988, Japan had volunteer dispatch agreements with 45 countries.

In fiscal 1987, Japan newly sent 794 volunteers to 34 countries, raising the total number of volunteers to 1,820 as of the end of March 1988.

(viii) Youth Invitation Program (Friendship Program for the 21st Century)

The "Friendship Program for the 21st Century" was originally proposed by former Prime Minister Yasuhiro Nakasone during his visit to ASEAN countries in 1983 and it started in 1984 as the ASEAN Youth Invitation Program. Under this program, the youth of developing countries, who will shoulder the task of future nation-building are invited to Japan for exchanges with their Japanese counterparts to deepen mutual understanding and foster true friendship and confidence.

As the program was highly appreciated both at home and abroad, Japan extended the scope of the program to Burma, Papua New Guinea and Fiji in Japanese fiscal year 1986 and to China and Republic of Korea in Japanese fiscal year 1987. In Japanese fiscal year 1987, Japan invited a total of 1,034 youths including 800 youths from ASEAN countries, and 100 each from China and the Republic of Korea.

(ix) Dispatch of Japan Disaster Relief Team

In the event of large-scale disasters abroad, Japan extended disaster relief financial assistance and dispatched the Japan Medical Team for Disaster Relief to the countries hit by such a disaster. Taking lessons from the experience of its relief activities on the occasion of two major disasters in 1985 - the major earthquake in Mexico in September and the eruption of a volcano in Colombia in November, Japan improved the international disaster relief system for the dispatch of personnel for emergency disaster relief, including relief personnel. The bill on the dispatch of the Japan Disaster Relief Team (JDR) was enacted at the Diet in August 1987 and was promulgated and put into force the following month.

In fiscal 1987, Japan sent 26 persons as JDR in nine cases, including the flood disaster in Bangladesh, the flood disaster in Venezuela and the typhoon disaster in Vietnam.

(3) Capital Grant Assistance

(a) Overview

Grant in aid is financial assistance extended to developing countries without requiring any repayment. Funds, not in the form of commodities, are supplied to economic and social development projects to be implemented by developing countries.

Japan's grant in aid started in fiscal 1968 and the budget for grant in aid has been constantly expanded since then. In fiscal 1987, \201.1 billion was appropriated for grant in aid, an increase of about sevenfold from \29 billion for fiscal 1977. Grant in aid is an important part in Japan's ODA, in particular in the improvement of the quality of ODA as measured by the proportion of grants and the grant element. Moreover, the role played by grant in aid has been increased amid the growing economic difficulties in developing countries, including the accumulated debt problem.

Japan's grant in aid program comprises (i) general grant aid, (ii) aid for fisheries, (iii) aid for disaster relief, (iv) aid for cultural activities, (all of them mentioned so far economic development and other assistance), (v) food aid, and (vi) increased food production aid. Included in the general grant aid are capital grant aid for debt relief based on the resolution adopted by the U.N. Trade and Development Board in 1978 and non-project type capital grant aid of approximately $500 million to be extended to African and other countries, which Japan announced at the Venice summit meeting of seven major industrial democracies in 1987.

(b) Cooperation through the Use of Economic Development and Other Assistance Expenses

(i) General Grant Assistance

Under the general grant scheme, which forms a major part of economic development and other assistance expenses, Japan extends funds necessary for the procurement of facilities, equipment and materials, and services for the implementation of projects geared to the socioeconomic development of developing countries. In the fiscal 1988 budget, \133.1 billion was earmarked for the general grant assistance out of \147.1 billion for the economic development and other assistance expenses.

In principle, general grant assistance covers the areas of basic human needs and human resources development, centering on projects with low economic return, which cannot be easily implemented by developing countries with their own funds. On the other hand, the developing countries receiving Japan's grant in aid are being divided into two groups with the one comprised of countries that are experiencing relatively smooth socioeconomic development and the other the group of least less developed countries (LLDCs), resulting in the diversification of development needs of recipient countries. Therefore, Japan needs to respond to these diversifying needs appropriately. In fact, Japan, taking into account the state of development and the contents of projects of the grant recipient countries, has been somewhat flexibly providing grant in aid in cultural exchange and export promotion areas, and the improvement of basic infrastructures of LLDCs, for which yen loans were supplied in the past.

General grant in fiscal 1987 amounted to \135.8 billion to cover 65 countries, including capital grant assistance for debt relief and non-project type capital grant assistance.

Here is the breakdown of the result of general grant assistance in fiscal 1987 on a budgetary basis by region and by area.

Moreover, on the basis of the resolution adopted at a ministerial meeting of the Trade and Development Board (TDB) of the United Nations Conference on Trade and Development (UNCTAD) in March 1978, Japan has provided cash grants, to ease debt repayment burdens, to a total of 18 least less developed and other countries to which Japan extended public loans in or before fiscal 1977. In fiscal 1987, Japan supplied about \7,861.91 million under this scheme to 14 countries.

(ii) Fishery-Related Assistance

Fishery-related assistance refers to the supply of funds necessary for consructing fishery training facilities, training boats, fishery ports and fishery research facilities, and purchasing fishing gear and materials and equipment in order to contribute to the promotion of the marine product industry of developing countries.

Developing countries place growing expectations on Japan which has the world's most advanced technology and rich experience in the marine product development field as they attach renewed importance to this field as one of the supply sources of animal protein against the background of the food problem as well as means to save or earn foreign currencies. The implementation of fishery-related assistance has contributed to the maintenance and development of friendly relations between aid recipient countries and Japan.

In fiscal 1987, Japan granted \9,700 million to a total of 16 projects, including the Puerto Deseado Port Expansion Project in Argentina, the Beidaihe Central Breeding Experimental Station improvement project in China and the small fishery promotion plan in Senegal.

Results of General Grant Assistance by Region and by Area

(iii) Disaster Relief-Related Assistance

Disaster relief-related assistance comprises emergency assistance to countries suffering from natural disasters, such as storms, floods, earthquakes and droughts and humanitarian assistance to refugees and victims of disputes. In fiscal 1987, Japan extended \952.65 million in assistance to 12 cases, such as the forest fire in China, typhoons in the Philippines and Vietnam, and difficulties of those suffering from hunger in Ethiopia and those of Cambodian refugees.

(iv) Culture-Related Assistance

Culture-related assistance is designed to provide funds necessary for purchasing materials and equipment for promotion of education and research, preservation and utilization of cultural assets and relics, and cultural performances and displays in developing countries. Japan has implemented such assistance since fiscal 1975 as part of international cooperation concerning cultural exchanges. In fiscal 1987, Japan extended a total of \2,000 million in 49 cases.

(i) Food Assistance

Japan has been implementing food assistance, also called Kennedy Round (KR) assistance, since 1968 when it joined the International Grain Agreement of 1967. It is now extended on the basis of the provisions of Food Assistance Convention of 1986, which is part of the International Wheat Agreement of 1986.

Examples of Areawise Projects under General Capital Grant Assistance

Under the provisions, Japan is obligated to contribute at least 300,000 tons in wheat equivalent terms every year, and has granted funds necessary for importing grains, such as rice, wheat and maize, and their transportation to developing countries suffering from food shortages. On the budgetary basis in fiscal 1987, food assistance was extended to 28 countries and two international organizations (food assistance for refugees) totaled \16,849 million. A regional breakdown of the recipients shows that Africa accounted for 46.1% of the total, Asia 40%, the Middle East 8.9% and Latin America 5.0%. By country, Bangladesh received the largest food assistance of \2,500 million.

(ii) Assistance for Increased Food Production

Being cognizant that food problems in developing countries should be ultimately solved through their own efforts to increase food production, Japan has appropriated budget for increased food production assistance since fiscal 1977, providing developing countries with funds for purchasing fertilizers, agricultural chemicals, and agricultural machinery needed to carry out increased food production projects. On the budget authorization basis in fiscal 1987, Japan extended assistance for increased food production to 49 countries in total amount of \35,850 million. A regional breakdown of the recipients reveals that Asia accounted for 54.1%, Africa 35.0%, Latin America 7.3% and the Middle East 3.6%. By country, the Philippines took the largest sum of \3,140 million.

(d) Recent Trends

(i) Implementation of Non-Project Type Capital Grant Assistance

In African countries, economic difficulties as evidenced by snowballing external debts, widening international balance of payments deficits and other problems have come to assume serious proportions against the backdrop of growing population, sluggish production activity and inefficient economic and fiscal management. To overcome such economic difficulties, there is a growing need to support these countries structural adjustment efforts worldwide from the viewpoint that they must improve the structures of their economies and secure foreign currencies urgently needed.

In view of the small proportion of aid to African countries in the government's total development assistance so far and its rising status in the international society, Japan announced plans to extend non-project type grant in aid as part of the package of "emergency economic measures" in May 1987. At the Venice summit of seven major industrial democracies in June and also at the seventh United Nations Conference on Trade and Development (UNCTAD) in August, Japan expressed plans to extend some $500 million in grant in aid over three years to developing countries, including those in Africa. This was given high marks.

The non-project type grant in aid is designed to provide funds to African and other countries facing external debts and other economic difficulties so that they can secure imported materials urgently needed. It has the coloring of support for improving the international balance of payments positions and is expected to produce an immediate effect. As for the source of procurements of imported materials, such grants are "untied" in principle. In fiscal 1987, Japan extended \22,100 million in non-project type grant to 11 African countries, including Kenya, Tanzania and Zambia.

(ii) Emphasis on Africa

Japan's extension of grant in aid to Africa has expanded sharply in step with the food shortage and deteriorating economic conditions of African countries in recent years. In fiscal 1987, Japan's grant in aid to Africa surpassed \70 billion in total on a commitment basis due to a step-up in aid designed to enhance the production capabilities on a long-term basis and improve public welfare of African countries as well as to the implementation of the non-project type grant in aid as stated above, accounting for 35% of the total grant in aid. Grant in aid to Africa amounted to \54.3 billion in fiscal 1986, accounting for 30% of the total.

(iii) More Effective Implementation of Grant Assistance

Japan has adopted the following measures in order to extend capital grant assistance more effectively.

(a) Harmonization of Capital Grant Assistance with Technical Cooperation

The strengthening of harmonization of capital grant assistance with technical cooperation is exceedingly important to enhance the effect of aid (for example, on the occasion of the dispatch of engineers to a vocational training center established with grant in aid provided by Japan). From this viewpoint, the government has tried to harmonize capital grant assistance with technical cooperation as much as possible in the former's implementation.

(b) Coordination with Other Aid Donor Countries and Aid-Related Organizations

As there are other aid donor countries and aid-related international organizations with rich knowledge and experience in certain aid areas and regions, Japan has coordinated with these aid donor countries and aid organizations in implementing cooperation in regions and aid areas in which it has yet to accumulate sufficient experience.

In order to secure the effective implementation of projects to which Japan bas extended grant in aid in the past, Japan has expanded follow-up aid through the expansion of facilities and additional supply of spare parts for machinery and materials it provided at the request of the governments of the recipient countries or on the basis of the results of assessments and surveys conducted by survey teams dispatched by Japan. Importance must be attached to such follow-up assistance from the viewpoints of continuing assistance and ensuring carefully thought-out assistance. Moreover, Japan has implemented the so-called "rehabilitation assistance" designed to improve, buildup and expand the existing facilities or infrastructures to which the governments of aid recipient countries or other aid organizations have constructed, on top of the assistance provided by Japan.

(4) Direct Government Loans

(a) Overview

Direct government loans, or the so-called 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 loans extended in fiscal 1987 jumped 65.0% from the previous year to \703,700 million. This was apparently in reaction to a year-to-year drop of about 40% to \426,400 million in fiscal 1986, which reflected the fact that developing countries refrained from requesting ODA loans against the background of the deterioration of their economic and financial conditions and the growingly serious nature of external debt problems. But in fiscal 1987, ODA loans on an E/N conclusion basis rose sharply as an average reduction of about 0.6% in the ODA loan interest rate from the newly committed ODA loans effective January of that year led to an increase in requests from developing countries, in particular Asian countries, and the extension of non-project ODA loans under measures of the Financial Recycling Scheme of more than $20 billion as part of the package of Emergency Economic Measures decided in May, 1987. But this still fell below the all-time high of \732,300 million materialized in fiscal 1985.

In order to extend ODA loans in response to demand for development on the part of developing countries now suffering from difficult economic conditions, Japan intends to continue striving to diversify the forms of assistance further and make ODA loan extension more flexible.

(b) Features of ODA Loans Extended in FY '87

In terms of shares by region, ODA loans to Asia accounted for 89%, a sharp increase from 67% in the previous fiscal year, with the share of ODA loans to ASEAN almost doubling to 41% from 22%, resulting in a drop in the shares of ODA loans to non-Asian countries. The share of ODA loans to the Middle East fell to a single-digit level for the first time in two years, down from the previous fiscal year's 14% to 6%, while that of ODA loans to the Middle East dropped to 1% from the 5%-10% level in the past. The share of ODA loans to Africa also dwindled to 4% from 9% of the previous fiscal year. The drop in the shares of ODA loans to non-Asian countries primarily reflected a smooth conclusion of E/Ns for large ODA loans to the Philippines, Thailand, Burma, Pakistan and Bangladesh in fiscal 1987. E/Ns for such ODA loans were not concluded in fiscal 1986. On the other hand, the conclusion of E/Ns for ODA loans to the Middle East and Africa saw its growth slow down, while ODA loans to Latin American countries plunged on an E/N basis.

In terms of the types of ODA loans, non-project type loans increased to \170,100 million to account for 24% of the total ODA loans on an E/N basis, up from 18% the previous year, under the lead of commodity loans, which soared to \140,000 million for \2,500 million of the previous fiscal year. This mirrored increased demand for non-project type loans against the background of the introduction of the Financial Recycling Scheme and the deterioration of the external debt problem. As for project type loans, ODA loans related to roads, harbors, power stations, telecommunications facilities and other economic infrastructures, which have usually accounted for the bulk of ODA loans, occupied 72% of the project-type loans. ODA, loans related to the agriculture, forestry and fisheries industries, and the mining and manufacturing industries had shares of 8% and 10%, respectively.

From the viewpoints of paying due heed to the wishes of developing countries and ensuring the effective use of assistance funds, Japan has been striving to increase the proportion of untied ODA loans in terms of procurement conditions since 1978, with the ratio of general untied ODA loans in fiscal 1987 rising 11 points from the previous fiscal year to 62%.

Under the Financial Recycling Scheme of more than $20 billion as stated above, Japan has extended ODA loans in the form of co-financings with the World Bank and other international financial development organizations and bilateral ODA loans for the support of the economic policies of developing countries. In fiscal 1987, a total of \132,800 million of such loans were materialized on a prior notification basis. These ODA loans are non-project type loans and are general untied loans in terms of procurement conditions.

Moreover, in order to diversify the forms of ODA loan extension and make such extension more flexible, Japan has expanded the extension of local cost financings (accounting for 11% of the ODA loans newly extended, up 2 percentage points from the previous fiscal year), promoted the extension of ODA loans to assist in the revitalization of on-going projects (\42,000 million on a prior notification basis) and flexibly responded to the requests for ODA loan extension from the countries for which debt rescheduling measures are taken on a case-by-case basis (decisions have been made to extend ODA loans to Ecuador, Bolivia, Zaire and Madagascar that are now in the period of debt rescheduling).

3. Economic Cooperation through International Organizations

The issues of stability and development of developing countries are being addressed at the United Nations and other international organizations, deemed as a major subject to the international community. A wide range of discussions are carried out at the United Nations General Assembly, the United Nations Conference on Trade and Development (UNCTAD) and other fora. The World Bank and other international financial institutions as well as the United Nations Development Programme and other United Nations organizations devoted to technical cooperation are extending assistance for the improvement and development of the social and economic lives of the peoples of developing countries. Cognizant that contributions to the development of developing countries through activities of such international organizations represent its major responsibility in the international community, Japan has been positively cooperating in their activities.

(1) Initiatives for Cooperation in Developing Countries

(a) The Seventh Session of the United Nations Conference on Trade and Development (UNCTAD)

The seventh session of the United Nations Conference on Trade and Development (UNCTAD VII) was held in Geneva, Switzerland, July 9 through August 3 in 1987. UNCTAD is held once every four years to discuss trade and development issues of developing countries in a comprehensive manner. As this session was held amid developing countries facing difficult economic conditions as exemplified by sluggish primary commodity prices and accumulated external debts, no small expectations were placed on Japan by the developing countries, with the United States and other developed countries unable to come up with positive attitudes. Japan, represented by Mr. Tadashi Kuranari, then Minister for Foreign Affairs, explained its new measures for developing countries, including the scheme to recycle $30 billion to these countries and played a leading role in the conduct of proceedings at the Conference. Japan also made proposals on the ways to promote financial flows to developing countries and on the enhancement of the degree of processing of commodities. These proposals of Japan were highly appreciated by the developing countries.

(b) Proposal of the Internationald Decade for Natural Disaster Reduction

In view of its advanced levels of its expertise in research and technology concerning disaster preventive measures and of the progress made in the improvement in its international disaster relief system, Japan has long been aware that it would be able to make positive contributions to the international community in this field. At the 42nd Session of the United Nations General Assembly in 1987, Japan and Morocco jointly proposed a resolution designating the 1990's as "a decade to foster international cooperation in the field of natural disaster reduction." The resolution was adopted by consensus ultimately as 93 other countries joined the two countries as co-sponsors. Though specific contents of the activities for the "decade" remain to be studied Japan, abundant in expertise, research and technology concerning natural disasters, is expeced to make positive contributions.

Discussions development aid policies and other aid related matters at the Development Assistance Committee (DAC) of the OECD (note) and Japan has actively participated in the DAC's activities as the world's second largest donor country.

Of various DAC meetings, the most important one is the High-Level Meeting which is held annually with the attendance of ministerial-level aid officials. At the High-Level Meeting in 1987, participants discussed, on top of estimates of the aid amounts of the DAC member countries as a whole, a wide range of issues, including structural adjustment policies mainly for low-income African countries; additional support and debt relief for developing countries which are making structural adjustment efforts, political, economic and social impacts of structural adjustment programs on developing countries, aid coordination in extending support for structural adjustment programs, and the strengthening of administrative capabilities of developing countries, etc.

(2) Japan's Multilateral ODA

Japan's Mutilateral ODA in 1987 rose by 23.4% from the previous year to $2,268.1 million. Of Japan's total ODA multilateral ODA accounted for 29.6% in 1987 compared with 31.7% the previous year.

Japan's multilateral ODA has expanded steadily and as a result its share in the total DAC multilateral ODA increased from 9.0% to 20.4% (1975-76 - 1985-86 average). Moreover, the share of Japan's multilateral ODA in the total ODA was 32.1% for 1985-1986, surpassing by for the DAC average of the corresponding figures of 22.5% (excluding contributions to the EC). But the ratio of ODA Japan extended to the various U.N. agencies to her total ODA came to 6.6% in the same two years, falling below the DAC members' average of 8.0%.

The merit of bilateral aid for Japan is that it can be implemented in a flexible and deliberate manner along the lines set by her foreign policy and directly contributes to the promotion of her relations with aid recipient countries. On the other hand, multilateral ODA enables us to utilize expertise of international organizations, to ensure the neutrality of aid and to provide aid to the developing countries for which Japan has insufficient aid implementation systems.

Bearing in mind that aid is a major tool in diplomacy, Japan intends to expand and improve official development assistance by taking into account the advantages of both bilateral and multilateral aid.

(a) Cooperation with International Development Financial Institutions

Japan has extended positive cooperation to the three international development financial institutions; the International Bank for Reconstruction and Development (IBRD), the International Development Association (IDA) and the International Finance Corporation (IFC). Japan is now the second largest capital-subscriber both in the IBRD and the IDA. Especially, in the IBRD, Japan established the Japan Special Funds and contributed \9,000 million to the funds in fiscal 1987, while it sharply raised its capital subscription share in the bank to 6.69% from 5.19% in the same year. Japan has also decided to contribute some $2,600 million to the IDA under its Eighth Capital Replenishment Program totaling about $12,400 million. Moreover, Japan extended \11,500 million to the IDA's "Special Facility for Sub-Saharan Africa" in fiscal 1987 under a special joint financing scheme, bringing Japan's cumulative financial assistance to the facility to \44,700 million which placed Japan at the top of the nations assisting the facility.

As for the Asian Development Bank (ADB), Japan has the largest capital subscription share of 14.89% alongside the United States. Besides, Japan has established the Japan Special Funds at the ADB as part of its scheme to recycle more than $20 billion to developing countries and intends to contribute to the fund.

Japan has the largest capital subscription share both in the Inter-American Development Fund (IDB) and the Inter-American Development Corporation (IPC) among their non-regional member countries. It has established the Japan Special Funds for the IDB as part of the abovementioned fund-recycling scheme and intends to contribute to the fund.

As for the African Development Bank (AfDB), Japan has the second largest capital subscription share behind the United States among the non-regional member countries. On the other hand, Japan is expected to surpass the United States to become the largest contributor to the African Development Fund (AfDF) after completing subscription to the fund already agreed upon under its Fifth Capital Replenishment Program.

Japan is the second largest donor to the International Fund for Agricultural Development (IFAD) among the group of developed countries that are members of the IFAD behind the United States. It has positively dealt with the organization by making contributions to the "Special Program for Sub-Saharan African Countries Affected by Drought and Desertification" on top of regular contributions.

The Multilateral Investment Guarantee Agency (MIGA) is an international organization designed to expand investment in member developing countries by way of guaranteeing non-commercial risks involved in direct investment by member countries. On June 5, 1987, Japan became the first advanced country to join the treaty establishing MIGA. As other countries followed in Japan's footsteps later, the treaty became effective on April 12, 1988, and the agency is expected to start its operation shortly.

(b) The Structural Adjustment Facility of the IMF

As for the Structural Adjustment Facility (SAF) of the IMF, which was established in March 1986 with a view to helping low-income developing countries undertake programs to improve their balance of payments positions on concessional terms with the resources totaling up to 2.7 billion SDRs, the Managing Director of the Fund proposed an increase of the resources. This proposal was supported at the Venice economic summit meeting of major industrial democracies in June 1987 and also endorsed at the IMF's policy-making Interim Committee meeting in September of the same year. On the back of such support, the IMF announced a decision to establish the Enhanced SAF (ESAF) with new resources of 6 billion SDRs. The total resources of the facility would rise to 8,200 million SDRs as remaining resources to be disbursed under the SAF are added to the new resources of 6 billion SDRs.

For the SAF expansion, Japan has decided to have the Export-Import Bank of Japan extend financing to the IMF up to 2.2 billion SDRs (about \380 billion computed at the exchange rate of one SDR = \172.76 seen as of April 25, 1988). Moreover, the government plans to contribute a total of 300 million SDRs to the ESAF as long as the balance on loans using the ESAF exists, as a grant designed to make the interest rate on lending to developing countries a concessionary one.

Japan is positively contributing to the activities carried out by U.N. development assistance organizations in their respective areas, including the World Food Program (WFP), the United Nations Children's Fund(UNICEF), the United Nations Fund for Population Activities (UNFPA), the United Nations Industrial Development Organization (UNIDO), the Food and Agriculture Organization of the United Nations (FAO) and the United Nations Relief and Works Agency for Palestine Refugees in the Near East (UNRWA), with major emphasis placed on the United Nations Development Programme (UNDP), which is the central funding agency for technical cooperation in the U.N. system. Japan contributed $319 million to these U.N. aid agencies in 1987, an increase of 5% from the previous year, with the largest contribution to the UNDP amounting to about $70 million. The UNDP has 112 field offices, which constitute the largest network within the U.N. system. Moreover, resident representatives at each office has been designated as the resident coordinator in charge of the activities of every U.N. aid agency at the site. Japan needs to contribute to the implementation of the aid activities, in such a way to utilize expertise and experience of each organization, while continuing to place special emphasis on the UNDP and coordinating the activities of these U.N. aid organizations.

As a new form of assistance through international organizations, there is the so-called multi-bilateral assistance, an attempt in which donor countries and international organizations join hands to enhance the effectiveness and efficiency of assistance. This kind of assistance is implemented in the forms of an international organization extending the assistance which involves difficulties on a bilateral basis either by establishing a trust fund at the organization or by executing projects through the combination of bilateral assistance and assistance by international organizations. In 1987, the Pacific Island Nation Fund was established to assist Pacific island countries, while a nurses school was constructed in Burma with grant in aid from Japan and the UNDP dispatched experts on nurses training to the school. There is a need to further study ways to utilize multi-bilateral assistance at a time when the importance of effective implementation of assistance is being recognized.

(d) Cooperation through Other Major International Organizations

Japan is also making contributions to international aid organizations other than international financial institutions and U.N. agencies.

Japan contributed about $20.25 million to the international agricultural research institutions under the aegis of the Consultative Group on International Agricultural Research (CGIAR) such as the International Rice Research Institute (IRRI), which is well known for bringing forth the "Green Revolution," in order to contribute to agricultural studies and increased food production of developing countries, making Japan the third largest donor behind the United States and the World Bank.

Japan has extended a broad range of assistance to such technical international organizations as the Asian Productivity Organization (APO), the Southeast Asian Fisheries Development Center (SEAFDEC), the Asian Institute of Technology (AIT), the Colombo Plan, the International Centre for Diarrhoeal Research, Bangladesh, (ICDDR.B), the Southeast Asian Agency for Regional Transport and Communications Development (SEATAC), Onchocerciasis Control Programme in West Africa (OCP), in its efforts to extend carefully thought-out development assistance through international organizations.

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(Note) The Development Assistance Committee (DAC) of the OECD comprises 18 major aid donor countries, including the United States, Japan, France, the Federal Republic of Germany, Canada, Italy and the United Kingdom, as well as the EC. Its main activities are discussions on aid policies, prospects of aid volume and other matters, collection and analysis of statistics on the volume and quality of aid.