Discussion Paper on
Development Assistance
No. 8

Japanese ODA
Adapting to the Issues and Challengesof the New Aid Environment

Takamasa Akiyama
Takehiko Nakao

October 2005

Japanese ODA
Adapting to the Issues and Challenges of the New Aid Environment

FASID Discussion Paper on Development Assistance No.8

October 2005

Takamasa Akiyama1
Senior Advisor, International Development Research Institute, FASID

andTakehiko Nakao2
Minister, Embassy of Japan in Washington DC

Note: All responsibility for facts and opinions in this paper rests exclusively with the authors and its
interpretations do not necessarily reflect the views or policies of FASID or the Japanese Government.

1

Takamasa Akiyama worked at UNCTAD during 1972-1980 and the World Bank during 1981-2000.
Currently he is also Visiting Professor, National Graduate Institute for Policy Studies (GRIPS).
2
Takehiko Nakao was Director, Coordination Division, International Bureau, Ministry of Finance until
July 2005. He also worked at PDR, IMF as advisor during 1994-1997.

Table of Contents

I.

Introduction .................................................................................................................. 2

II. The Evolution of Japanese Development Assistance and its Structure............... 4
III. Assistance Stance, Policies and Issues....................................................................... 9(1) Stance and Policies.......................................................................................................... 9(2) Critical Issues................................................................................................................ 16

IV. Recommendations for Meeting the Challenges..................................................... 21(1) Greater coordination among ministries/agencies............................................................. 21(2) Increased coordination and cooperation with other donors.............................................. 21(3) Increased Emphasis on Results- Based Management ...................................................... 22(4) Innovation for loan assistance........................................................................................ 22(5) More focused assistance based on comparative advantage............................................... 24(6) Focus on Africa............................................................................................................. 24(7) More studies on strategies and policies ........................................................................... 26

V. Concluding Remarks ................................................................................................. 26
References........................................................................................................................... 29

Table 1: ODA Performance of G7 countries ......................................................4
Table 2: ODA to GNP/GNI ratio of G7 countries ................................................ 5
Figure 1: Japan’s ODA : Flows by Type...........................................................7
Figure 2: ODA Operational Budget for FY 2004 ................................................ 7

Abstract
Japanese ODA today is facing major challenges on both the domestic and international
fronts. Domestically, a serious fiscal situation has brought declining popular support
and pressure to reduce the amount. As a consequence, after becoming the world’s
largest during the 1990s, Japanese ODA has been reduced annually over the past several
years. Internationally, changing conditions and new trends in development thinking are
creating questions in Japan about the appropriateness of its aid paradigm. Thesechanges include the “graduation” from ODA recipient status of many East Asian
countries, the cancellation of HIPC (Heavily Indebted Poor Country) debt which has
made loan assistance difficult, an emphasis on direct poverty reduction measures rather
than on economic growth, and an emphasis on social sectors rather than on economic
infrastructure. Within the global development community there is currently apreference for grant aid over loans, for programs over projects and concern for Africa
over other regions. It is time for a serious review and examination of Japanese ODA, toweigh the significance and impact of these challenges and to determine whether andperhaps what kind of new approaches and strategies should be adopted. This paper
attempts to contribute to such an endeavor.

I.

Introduction

Significant new trends in international development assistance have emerged over thelast few years, in terms of both level of financial commitment and practical approaches
to the problem. Key constituents of the changes include the introduction in the late
1990s of Poverty Reduction Strategies (PRS) in developing countries and the adoption
in September 2000 of the Millennium Development Goals (MDGs) by the international
community. Important international meetings have been convened to focus on
financing and approaches — the Financing for Development Conference in Monterrey,
Mexico in March 2002; the World Summit on Sustainable Development in
Johannesburg, South Africa in August/September 2002; the two High Level Fora on
harmonization of aids by various donors, in Rome in February 2003 and in Paris in
February/March 2005; and, the G8 Summit in Gleneagles, UK in July 2005. The
development issue central at these events has been what level of financing and what
modifications in practice will achieve sustainable poverty reduction, particularly in theintractable region of sub-Saharan Africa but also in least developed countries in otherparts of the world.
Japan has been an important participant in the international development community forfive decades, having observed its 50th anniversary as an ODA donor in 2004. The
most prominent accomplishment of Japanese participation over this time has
undoubtedly been support for the economic development of East Asian countries 3.
Trade and private sector investment have been important elements of this process, but
ODA, especially in the form of loan aid, has contributed crucially to building andstrengthening the economic infrastructure necessary for these countries to reducepoverty, achieve economic development and attract private sector interest.
Fifty years on, however, Japan’s development program is being challenged by the new
trends and their associated issues of volume, policies and approaches. Ironically, thissituation results in considerable degree from the success of the Japanese program inmeeting the major objective of assisting many East Asian countries get onto a path ofsustainable growth. Japan may now be in the process of finding new objectives and new
directions in development assistance. A major and obvious issue is a decline involume on net basis which is attributable to several factors: the prolonged recession
and ensuing huge government budget deficit; the “graduation” of major East Asia

3

In this paper East Asia includes Southeast Asia.
2

recipient countries from Japanese ODA; the debt-overhang of many sub-Saharancountries which makes it difficult for Japan to provide them loans; and the decline ofinterest in ODA among Japanese in the both public and private sectors. Anotherimportant issue relates to basic assistance themes and approaches. Today, attention isconcentrated on institutional changes at the social, political and economic levels.
Specifically, Europeans are emphasizing changes aimed at reducing poverty and the US
is emphasizing changes to make governments more democratic. While Japan supports
these themes, there is some question whether it has any comparative advantage inpursuing them. Conversely, at least until recently, many Japanese have held the viewthat assisting developing countries to strengthen their economic growth throughinfrastructure building is the most fundamental and important, and that this is the area
where Japan does have comparative advantage.
With these various factors as the background, “Basic Policies for Economic and Fiscal
Management and Structural Reforms 2005” were considered by the Japan Council on
Economic and Fiscal Policy, headed by Prime Minister Koizumi, and were then adopted
by the Cabinet in June of this year. The “Basic Policies” state that “Japan willcontinue its efforts toward the goal of providing 0.7% of its GNI for ODA in order tocontribute to the Millennium Development Goals, meaning that Japan will ensure acredible and sufficient level of ODA.” This is good news for the international
development effort, but the “Basic Policies” require prioritization of regions and areas,
stricter reviews on implementation, and introduction of new effective and efficientapproaches.
The present paper is an attempt to describe and explain Japan’s stance and approaches todevelopment assistance, to analyze the looming issues and challenges, and to propose
4

actions to address them effectively and efficiently . Because there are a limited numberof papers written in English with such a purpose, non-Japanese interested in Japanese
ODA may find this one useful. It is also hoped that Japanese ODA stakeholders willfind the arguments and proposals discussed here interesting and innovative. Following
the Introduction, the paper is organized as follows; Section II describes the evolution ofJapanese ODA and its organizational structure; Section III discusses the Japanese
government’s ODA stance and policies, Section IV offers recommendations for meetingthe challenges and the final section presents the conclusion.

4

Many parts of this paper are from Nakao (2005).

3

community through action in the area of security, such as peace keeping operations.
This perception is at least partly due to the Japanese experience with the Gulf war of
1990, when it contributed a large amount of money but received little internationalrecognition or appreciation.
Significant ODA changes on the demand side also have caused Japanese loan assistanceto decline, especially on a net basis. Several economies in East Asia which used toreceive large amounts of ODA from Japan have “graduated” or are about to do so —including South Korea, Taiwan, Malaysia and Thailand. China still has a large numberof poor people; however, it is now considered to be emerging as a very strong industrial
country and is expected soon to “graduate” from being a recipient for substantial ODA.
Thus, Japan’s new ODA loan commitments to China have been declining over the past
several years and are expected to stop completely by 2008. Although Japanese ODA
has been increasing to India, which also has a large impoverished population, relative
unfamiliarity with that country, compounded by the fact that India has conductednuclear tests6, may make further significant ODA increases to that country difficult.
With regard to sub-Saharan Africa, another region with a high percentage of poor
people, a major hindrance to increased Japanese ODA is created by the difficulty ofextending loans to countries that have cancelled debt through the HIPC initiative.
As Figure 1 below shows, all the four components of Japanese ODA — grant assistance,loans, technical assistance and contributions to international organizations — increased
sharply during the 1970s and 1980s but started to decline after the turn of the century.
The figure also shows that the most volatile component is the loan component. A
comparison of data between 1999 and 2003 reveals that most of the decline of US$3.3
billion during this period is attributable to a decline in loans, US$3.1 billion (See Table1). This significant decline can in turn be attributed to increasing loan repayment
which caused a decline in net loan ODA. The wide discrepancy that can be seen in thebox “JBIC” in Figure 2 between JBIC loans in gross and net terms (¥700 billion and¥289 billion respectively) is mainly due to repayments from developing countries.
Repayments are expected to continue to increase and in a few years the loan component
could well turn negative in net terms. This will cause total Japanese ODA to continue
its decline if the grant and technical assistance components are not substantially
increased to offset it.

6

For details, see Shimomura et al. (1999)

6

The main components of Japanese ODA and the agencies responsible for them in 2004
are given in Figure 2. The Ministry of Foreign Affairs (MOFA) is in charge of
coordinating all Japanese ODA activities. Policies regarding loans are decided
through coordination between MOFA (core ministry and foreign policy perspective), theMinistry of Finance (MOF) (macro-economic context and review of debt sustainability),
and the Ministry of Economy, Trade and Industry (METI) (industry policy andrelevance to the Japanese business community). MOF oversees Japanese contributions
and relationships with the International Financial Institutions (IFIs) such as the IMF, theWorld Bank and the Asian Development Bank, while MOFA oversees relations with the
UN organizations. For specific bilateral ODA implementation, as the figure shows,
MOFA is the main agency for grant aid, the Japan Bank for International Cooperation(JBIC) is responsible for implementations of loan projects and Japan International
Cooperation Agency (JICA) is a central institution for technical assistance. Other
ministries, such as the Ministry of Economy, Trade and Industry, the Ministry of Health,
Labor and Welfare, the Ministry of Education, Culture, Sports, Science and Technology
and the Ministry of Agriculture, Forestry and Fishery, also conducts assistanceprograms in the areas of their expertise.
Japanese ODA-related ministries/agencies have very few specialized staff in some key
areas such as governance, health, energy and environment. This is compensated tosome extent by contractural arrangements with private firms and NGOs. In Japan theamount of ODA that is channeled through NGOs is a fraction of that of many othermajor donors and Japanese NGOs of the size and influence of CARE (US-based) or
Oxfam (UK-based) do not exist. But with the maturing of the society and with areduced expectation of the government by the citizenry, NGOs have been burgeoning
with 350 now engaged in international development cooperation. The Japanese
government has become increasingly aware of the importance of these organizations
and has been taking measures to help them grow, such as increasing ODA funding
allocated through them and establishing an NGO Support Unit within MOFA. NGOs
can play the important role of educating the public on the importance of ODA and, as inother major donor countries, they can be major political supporters of the national aid
program.

8

III.

Assistance Stance, Policies and Issues

This section briefly discusses Japan’s development assistance stance and policies andexamines some of the critical issues raised.
(1) Stance and Policies
Political and philosophical background:
Unlike some other countries, including the US and the UK, in Japan ODA policies havetended to be formulated by government officials taking into account other stakeholders’interests rather than by strong political advocacy. In the case of ODA, there ispractically no constituency among the voters; hence there have been few politicians whochampioned it7. There is, however, a general understanding by the public that Japan
has benefited from the contribution its ODA program has made to the relative peace andprosperity of East Asia, something which has enhanced Japan’s own peace andprosperity. Many Japanese private firms also have benefited because ODA has
facilitated trade with developing countries, improved opportunities for direct
investments and created demand for Japanese products. In fact, when the economy
was strong there was support for ODA among the general population8, but this has
declined in recent years except for assistance to strife-torn countries and to people
suffering from natural disasters.
Japan’s stance toward international development assistance is built essentially on its
own experience and its understanding of the development process of East Asia; i.e.,
utilizing loans to strengthen economic infrastructure for long-term growth and placing(some) trust in government-led development strategies. This is reflected in the large
share of loans in Japanese ODA provided in alignment with the development policies
and plans of the recipient government. In the Japanese view, these East Asianexperiences have been insufficiently respected, analyzed and applied to development
assistance in other regions. This view was firmly voiced in the late 1980s, at a time
when the World Bank was heavily engaged in structural adjustments lending. Due tothe firmness of Japan’s view and the important position Japan occupied as a major
donor country, the Bank conducted a study which focused on the East Asiandevelopment experience. The results were published as The East Asian Miracle
7

In Europe and US, NGOs have enough political power to influence government ODA policies byappealing to politicians, media and street demonstrations. This is not the case in Japan.
8
Currently even support from the business circle seems to have declined with the maturing of many
countries in Asia and the progressive untying of Japanese aid. In 2003 96.1% of Japanese ODA wasuntied, one of the highest among DAC members. (OECD/DAC 2004: 187)

9

(World Bank 1993). This exercise had a decisive impact on development thinking,especially with regard to the role of government in successful economic development.
At the same time, the authors of The East Asian Miracle pointed out that in the current“globalizing” world, it might not be appropriate to apply the experience of East Asia
directly to Africa and other developing regions, a view which many Japanesedevelopment experts now share. Nonetheless, the East Asian experience of rapid
export-led growth in an open external trade system, as well as high investment andsavings supported by appropriate policies and institutions, could well be valuable forother developing regions. The World Bank9 is conducting follow-up studies on thisquestion but even more needs to be done, especially with regard to institutions, for thisapproach to be practical in other regions.
Japan has historically emphasized loans as the primary component of its ODA for thefollowing reasons: (i) Loans are relatively easily used by donors to provide large-scaleassistance even where there are budgetary constraints. (ii) Japan has been able to tap
large savings in the postal system and the public pension fund as sources of loan funds.
(iii) Japan considers loans to be rational the system by which loans are repaid as
economic benefits accrue to the borrower over a relatively long time. (iv) Efficiency
can be expected with loans because there is a greater sense of ownership from theborrowing country government in selecting and implementing projects.
(v)
Implementation of large projects with loans can contribute to the institutional
strengthening and capacity building of the people of the borrower country which, in turn,can facilitate private sector led development. (vi) Because large-scale infrastructure
projects usually are important components in the long-tem development strategies of theborrowing country, loans allow Japan to design and provide broad-based development
assistance.
During the cold war era up to the late 1980s, one of Japan’s main diplomatic objectives
was to contribute to international peace and prosperity, especially in East Asia, and tosupport the idea of democracy and free-market economy. Constitutionally, Japan
could not contribute internationally through its military. Since the end of the cold war,emphasis has been directed beyond the traditional East Asian recipients toward Asian
countries that had been socialist. Hirata believes that this is due to the importance
MOFA attaches to “assisting these countries to move towards market-oriented
economies . . in order to accelerate the economic integration of Southeast Asia as a9See, for example, Stiglitz and Yusuf (2001).

10

whole.” (Hirata 1998: 316) Japan has played a leading development role in countriesof the Indochina region through multilateral arrangements such as the International
Committee on the Reconstruction of Cambodia which developed into the donor
Consultative Group (CG), the Forum for Comprehensive Development of Indochina
which evolved with Japan’s contribution into the ADB’s Greater Mekong Sub-region
Business Forum, and the Mekong River Commission10.
Response to an emerging focus on social sectors:
An emerging trend in development assistance after the early 1990s was a reorientationfrom economic growth toward poverty reduction with emphasis on policies andinstitutions. Consequently, global assistance in recent years has focused on social
sectors, including education, health and gender issues. This trend is exemplified by
the advent of PRSPs and MDGs. This new international paradigm has stimulated
serious discussions within the Japanese development assistance community.
Traditionally, Japanese aid has emphasized economic infrastructure in terms of sectorand East Asia in terms of region and has been based on the principle that economic
growth is an important component for achieving poverty reduction. In conjunction
with the increased attention in the international community on policies and institutions,a shift is underway from project-type aid to program aid. In Japan some aid experts
are skeptical about this shift, arguing that program-type aid is less visible to the publicof recipient countries, more difficult to justify to the Japanese taxpayers, and could
degenerate into cash support to recipient governments with no clear results.
Nonetheless, Japan is seeking to align its policies and approaches to the new paradigm
for several reasons. Alignment with other donors will enhance aid effectiveness; itwill also insure relevance with respect to the strategies of recipient countries. The
troubling, persistent lack of development in sub-Saharan Africa strongly suggests thatthe complex issue of poverty needs to be addressed directly and realistically. Though
the modalities may be different, many of the concepts being discussed in theinternational development community are elements which Japan has been endorsing andimplementing over the years: empowerment of people, institution building, humandevelopment, ownership, alignment with recipient government strategies, predictabilityof aid flow, and policy coherence among aid, trade, investment and private sector
development11.
10

For detail, see Watanabe and Fusamae (2005)
To take a few typical examples, in Indonesia (since 1968), Philippines (since 1974), and China (since1979), Japan’s ODA were provided in a predictable manner in alignment with multi-year development

1111

One salient example of Japan’s leadership in defining assistance philosophy whilealigning with emerging international orientation is the preparation of the report Human
Security Now: Protecting and Empowering People, released in May 2003 by the
independent Commission on Human Security commissioned by the Secretary Generalof the United Nations. Japan considers human security to be important in thedevelopment context and the Commission on Human Security was an initiative of theJapanese government. Human security has become a pillar of Japanese ODA andincluded as such in the 2003 ODA Charter. The premise underlying this is that “toaddress direct threats to individuals such as conflicts, disasters, infectious diseases, it isimportant not only to consider the global, regional, and national perspectives, but also to
consider the perspective of human security, which focuses on individuals.” (MOFA
website “ODA Charter”) Administratively, to ensure implementation of this concept,
Ms Sadako Ogata, one of the co-chairperson of the committee12, was later appointed
head of JICA. Nonetheless, implementation of this concept within the context of
JICA’s activities is likely to be challenging.
Significantly, even as the attention of the development community focused on poverty
and related social factors over the last few years, the World Bank (2003, 2005) has
revealed a re-appreciation of the importance of infrastructure. This is due in part toJapanese reasoning on the issue and in part to strong demand from some developing
countries. There are indications that with the recent change in the World Bank
presidency, the role of infrastructure may gain even more credibility as a development
fundamental.
MDGs and Japan:
Japan supports the achievement of the MDGs. In fact, in the mid-1900s when theconcept of targets was first broached within the OECD/DAC — as International
Development Targets (IDTs) — Japan was one of the main proponents and formulators.
Nonetheless, the Japanese development community has had reservations about the role
the MDGs have been assigned within the international development arena. These

plans of recipient countries. While ODA loans supported building of ports, highways, railways, andindustrial parks, non-ODA untied loans from the Export-Import Bank of Japan (now one arm of the JBIC)
were extended to development of electricity, natural gas, pipelines and so forth. Concomitant with theseloans were grant aid to hospitals and other social areas, and technical assistance programs which
promoted capacity building and human capital development, especially, in the agriculture sector and theindustrial sector. These policies helped prepare and improve the investment climate and contributed toactive direct investments by Japanese and other foreign corporations which were essential to open tradedevelopment strategies of these countries.
12
Nobel Prize Laureate Amartya Sen was the other co-chairperson.

12reservations relate to the following questions:(1) Is there too much emphasis on increasing ODA levels to achieve the MDGs
and too little associated regard for the absorptive capacities of partnercountries13?
(2) Given the prospect that a number of countries will have tremendous
difficulty in achieving the MDGs by 2015, is the push to meet the Goals bythat time an efficient or, more importantly, a sustainable way to assist thesecountries?
(3) Shouldn’t more emphasis be given to capacity building that is focused onstrengthening policies and institutions?
(4) Shouldn’t more emphasis be placed on economic growth which will benecessary for the formulation of “exit” strategies?
There is a growing impression within the development community that the current
extreme focus on poverty reduction is an attempt to apply Western European social
programs to developing countries. This is accompanied by a growing doubt whether
such programs can actually move those countries toward economic and financial
independence. The World Bank, for one, as with infrastructure mentioned above,
appears to be undergoing a change in its thinking. Recent Bank analysis of its
development effectiveness (World Bank 2005) suggests that the organization has
excessively promoted social policies and insufficiently emphasized economic growth asa means for reducing poverty. This change in stance may well accelerate as a newpresident14 makes his mark on the Bank.
A key factor likely to affect Japan’s ODA policies is its campaign to become apermanent member of the UN Security Council. Professor Jeffrey Sachs, advisor to
the UN Secretary General on the MDGs and director of the Millennium Project, hasargued (Millennium Project 2005)15 that any wealthy country aspiring to permanent
membership on the Security Council should increase its ODA to 0.7% of GNI16. Japanis currently facing sizable government deficits that make it extremely difficult toachieve this level. In order to demonstrate a good faith effort, Prime Minister
Junichiro Koizumi pledged in April 2005 at the Asia-Africa Summit in Bandung,Indonesia, to double ODA to sub-Saharan African countries over the coming three years.

13

An example of absorption problem is discussed with regard to spending on AIDS by Lewis (2005).
Paul Wolfowitz succeeded James Wolfensohn to became president in May, 2005.
15
Investing in Development
16
Sometimes the term GDP is used instead of the more correct GNI.

14

13

Nonetheless, Japan remains under pressure to take additional steps to convince theinternational community of its serious intention to help low-income countries.
At the same time, domestically many Japanese seem to be experiencing “aid fatigue.”
Their sense is that their country’s ODA has been at a very high level for a long time —number one or two in the world — while other donors with much smaller programs
have managed to set the international aid agenda. Over the ten-year span of
1994-2003, Japan’s global total ODA constituted 20% of global ODA while that of US
and UK amounted to be 18% and 7%, respectively. With specific reference to the UN
Security Council issue, since none of the ODA levels of the current permanent members
reach 0.7% of their GNI, it seems unreasonable to make that a condition for new
permanent membership. Furthermore, Japan contributes 19% of the United Nations
administrative budget, second only to the 22% of the United States. The other four
permanent UNSC members — China, France, Russia and UK — contribute less than
10% each17.
Recent reforms in ODA implementation:
In recent years, the Japanese government has been implementing policy andorganizational changes aimed at making its ODA more efficient and effective in thechanging environment. These changes include transforming JICA into a moreautonomous body (from October 2003) and establishing ODA Task Forces in a numberof developing countries (from April 2004).
JICA’s change in of status from special corporation to independent administrative
institution in 2003 was accompanied by changes in its management and structure, as
well. It was at this time that Ms Ogata, former UN High Commission for Refugees(UNHCR), was appointed to head the agency. As noted above, she is a major advocate
of human security which has become one of the pillars underlying the entire Japanese
ODA approach. Other notable changes were the transfer of significant numbers of
JICA staff to the field from Tokyo headquarters and an increase in JICA’s allocation of
resources to sub-Saharan Africa.
The purposes of establishing the ODA Task Forces in developing countries include:
strengthening policy dialogue with partner countries; coordinating aid activities among
Japanese agencies and other donors; and devolving a large portion of policy-formulation

17

China 2%, France 6%, Russia 1%, UK 6%
14

and decision-making power to the field offices.
Task Forces will facilitate
coordination of activities with other bilateral donors, such as USAID and DFID, andmultilateral institutions, such as the World Bank, the Asian Development Bank and UN
agencies. The Task Forces will also promote coordination and collaboration among
the Japanese development agencies – MOFA, JICA and JBIC – as well as MOF and
METI that are closely engaged in the formation of Japan’s ODA policy and, in moregeneral terms, JETRO (Japan External Trade Organization), private firms and NGOs.
Devolution to field offices is a trend followed by major donors such as the World Bankand DFID. There are many advantages to devolution, including rapid decision making
and aid strategies better suited to local conditions. However, as discussed further
below, some of the field offices have small numbers of staff with limited experience andneed strong support.
Coordination with UK approaches to poverty reduction
Coordination of policies and development approaches with other donors is a central
issue for Japan’s aid agencies. This is especially the case with Western Europe donors,
the most influential of which is the UK. Professor Shigeru Ishikawa points out in his
recent paper (Ishikawa 2005) that the patrimonial (or patron-client) relationship systemprevalent in many developing countries — especially sub-Saharan African countries —reduces the effectiveness and efficiency of their government expenditure mechanism, an
indispensable component for poverty reduction and capital accumulation. According
to his analysis, the British approach is to guide recipient country governments toimplement PRS policies thoroughly to the extent they become institutionalized, thereby
creating a political environment in which the enlightened poor make demands on theirgovernments. This promotes democracy and the elimination of the patrimonial
political system.
Ishikawa believes that the experiences of Japan and other East Asian countries shows
this same objective to be achievable in other ways, through economic growth and theconcomitant strengthening of economic infrastructure. Economic growth creates andexpands the middle class which promotes democracy. The US shares this eventual
goal, but attempts to create democracy more directly, through capacity building andtraining programs conducted by NGOs. Arguments for and against these different
methods have political ramifications and in many developing countries are delicate
issues which infringe upon domestic political substance. Because of these sensitivities,
Japanese ODA stakeholders have tended to shy away from such discussions. However,15

the reality is that development and ODA are very much political in nature and suchconsideration are important if Japan is to support recipient countries through budget
support linked to comprehensive poverty reduction programs.
To briefly summarize, Japan has been struggling to find its optimal point by aligning its
ODA policies with the current trends of the global aid community while maintaining its
original strengths and focuses.
(2) Critical Issues
Bias toward East Asian economic infrastructure?
Hook and Zhang (1998) argue that the main reason for Japan’s focus on Asia’s
economic infrastructure is the interests of Japanese business community — “MITI
discourse.” This argument, however, seems incomplete. Japan’s focus on economic
infrastructure is actually based on its own development experience and on the belief thatsustainable development and long-lasting poverty reduction can be achieved only
through economic growth which requires a high-standard of economic infrastructure:
ports, highways, railways and power stations. Additionally, Japan has basically been
complying with the requests of Asian recipient countries for help in strengthening theireconomic infrastructure. It is true also that the Japanese business community has
benefited because the strengthened economic infrastructure in East Asia has facilitatedtrade and investment. However, such private sector activities are crucial for thedevelopment of poor countries and for the eventual reduction in their poverty. With
the achievement of a certain level of development, many East Asian countries, asmentioned above in reference to Ishikawa, have succeeded in creating a large middle
class and moving politically away from authoritative development-oriented regimes tomore politically democratic systems.
Japan’s ODA focus on East Asia is a natural outcome of its geopolitical and economic
interest. Biases or preferences of this nature are common among major donors: theUS toward politically important countries such as Egypt and Pakistan; the UK toward
former colonies in Indian sub-continent and in Africa; and France toward francophonedeveloping countries. In the context of aid coordination among donors, each donor isencouraged to concentrate on the region and in the sectors for which it has somecomparative advantage. Japan has been trying to replicate East Asia’s experiences in
sub-Sahara Africa, though admittedly it has proven difficult due to different contexts for
institutional building and trade integration with other regions.

16No coherent policies?
Policy coherence refers to coherence between policies with development objectives sothat they are mutually reinforcing rather than conflicting. This concept has been
receiving attention at OECD/DAC following discussion at the 2002 Ministerial Council
Meeting (OECD Council at Ministerial Level). This is a topic which should be
pursued with greater deliberation.
The thorny issue of Japanese protection of agricultural products was extensively
highlighted and criticized in the 2004 DAC Peer Review Report of Japanese ODA(OECD/DAC 2004: 103). The peer review also pointed out that Japan has conducted“. . . relatively little analytical work on policy coherence for development issues.”
Japan has been aware of the impact of trade on development since its ODA began in the
1950s and that, as was noted in the DAC review, even with regard to agriculture,
Japanese trade policy has been changing over time. Changes include tariffication ofrice imports and reduction of import tariffs, especially for imports from LDCs (least
developed countries). Tariffs on agricultural products have also been reduced within
the framework of FTAs (free trade agreements). In fact, Japan is the second largest
importer of food products in the world and the largest per capita importer.
Trade issues are complicated and careful analyses are required to fully comprehend theirimpact. For instance, a recent study (Abe 2005) of Japan’s trade policy impact showsthat liberalization of all agricultural products and processed foods by Japan would
mainly benefit high and medium income countries, such as the US, the EU, Thailand
and Malaysia, and would have little or even negative impact on LDCs. This result
would occur, in part, because complete agricultural product trade liberalization would
negate the favorable treatment LDCs presently receive.
We also want to re-emphasize that Japan’s ODA to East Asia was provided in a
predictable manner aligning with multi-year development plans of recipient countries,
and that there was rather a strong actual policy coherence in the sense that various
modalities of aid and non-ODA loan were utilized and accompanying direct investment
and trade by the Japanese private sector were successfully promoted.
Arms trade and the environment are other topics relevant to policy coherence.
The policy coherence implications of arms exports to developing countries has received
little attention within the global development community. In the context of conflict17

avoidance and peace building, and hence conditions for sustainable development, thisimportant topic has not been included in the policy coherence agenda. Industrialized
donor countries, with the exception of Japan, are the main exporters of arms todeveloping countries (Tamachi 2004).
Environmental sustainability also has coherence implications. Japan has been a major
proponent of the Kyoto Protocol and has routinely evaluated the environmental impactof all its ODA activities. Although there are complications involved in reporting CDM
as ODA18, this is an area of development assistance that the general Japanese public caneasily support because the importance of the global environment is well documented in
the media and very much noticeable in environmental disasters.
No well-defined national policy?
There has also been criticism, as noted by Kawai and Takagi (2004: 270), that Japan is“faceless,” lacking a well-defined national policy. They suggest that “clear objectives
be defined; for example, to assist sustainable development . . poverty reduction . . . andthereby contributing to stability, peace and prosperity in the international community.”
The fact is, however, that these objectives are clearly set out in the ODA Charter
revision of August 2003. A more accurate statement of the problem seems to be thatthese objectives are rather broad, especially as compared with the declared ODA
objectives of the US or the UK, which seem to be more clear-cut than those of Japan.
Probably Japanese ODA objectives are not as clear as those of other major donors
because the Japanese development agenda covers a broad spectrum instead of focusing
on specifics.
Some points should be kept in mind when considering this issue. “Objectives” can be
written clearly and beautifully, but in the complicated world of diplomacy anddevelopment, clearly stated objectives often have to be interpreted in very imaginative
ways. There is also the added complication of shifting theories and approaches. As
Akiyama et al. (2003) notes, development theories and approaches have changed
frequently according to prevailing world political and economic conditions. It
becomes problematic when changed objectives and firmly held objectives are bothdenounced, the former as “opportunistic” and the latter as “dogmatic and inflexible.”
Japan is probably more hesitant than others to change its approaches too easily or too
often and is more inclined to stick to objectives once stated, especially in international
18“ODA measures donor effort net of any returns to the donor from ODA expenditure.” (OECD/DAC
2004b: 3)

18

fora.
There are suggestions that in order to accentuate coherence and make its ODA less“faceless”, Japan should display more ODA logos on the buildings, bridges andmachines which it has helped create. However, recent trends that emphasize
program-based assistance instead of project-based assistance make it difficult to showsuch “face”. Some argue that what is most important is to have an active “say” or“voice,” a place at the table where development policy formulation takes place, in
meetings with other donors and recipient government such as sector program meetingsor consultative group meetings.
Too much inter-ministerial struggle?
Policy coordination difficulty among the various Japanese ministries is discussed by
Hook and Zhang (1998) and Kawai and Takagi (2004). These researchers notesignificantly different perspective among three powerful ministries — MOFA, MOF and
METI — on how ODA should be used. They describe what is called “MOFA
discourse” and “METI discourse,” the former referring to MOFA attempts “to makegreater use of aid for improving the economic, social and political conditions of thepoor nations….” (Kawai and Takagi 2004: 261), and thus to strengthen diplomatic ties
with them, and the latter referring to METI advocacy of “the use of aid to advanceJapan’s own economic interest.” (Kawai and Takagi 2004: 260). MOF “enters thedecision-making process from the standpoint of fiscal authority and as a self-appointed
guardian of the international financial system.” (Kawai and Takagi 2004: 260).
While there is some truth in these observations, the description of the roles of the three
ministries is over simplified and possibly outdated. Actually, the involvement ofministries with varying perspectives could contribute positively to the coherence anddurability of ODA policies. The involvement of METI, for example, has been usefulin strengthening the links between ODA and the private sector investment and trade thatare essential for the sustainable development of the recipient country. Furthermore, theJapanese ODA apparatus has recently been restructured and to some extent rationalized.
In January 2001 MOFA was statutorily designated as the lead ODA agency, enabling it
to become more active in formulating policies and strategies and in coordinating themwith other ministries. Some results of this new arrangement include the new ODA
Charter of 2003 and the Medium-Term ODA Policies (MTP) of 2004. In addition,
MOFA has established in-country ODA Task Forces in more than 60 developing
countries. These ODA Task Forces are expected to make various Japanese assistance19

activities more coherent and consistent with the Charter and MTP.
One persistent problem with the inter-ministerial consultation process is the hightransaction costs involved, mainly in term of time spent on meetings. This cost may
discourage innovative ideas and prompt action. This issue is further elaborated in thenext section.
Conditionalities?
Historically Japanese development assistance has essentially been “request-based,”although there have been some exceptions (Kawai and Takagi 2004: 267). Thisapproach was built on the principle of “self-help” and “ownership” and on Japan’s
preference for separating ODA from politics. But there might also be anotherexplanation: too few government staff working on ODA compared with its volume.
This might have required the Japanese government to rely on “requests” made by
developing countries, often with the assistance of private firms. One corollary of thisis that Japan has imposed few conditionalities on its assistance, the exceptions being
military expenditures and nuclear tests. This “request-based” approach was reviewed
in conjunction with the ODA Charter revision of 2003 so that the Charter now specifies
that “intensified policy dialogues” should proceed before the requests are made. The
revised Charter also states that preventing conflicts and terrorism” is a major objective
and clearly declares the importance of some topics which might have been considered
too delicate to touch upon in the past: governance, institutions, democracy andsecurity.
In this regard, JICA has recently been stressing the importance of peace building in its
activities and Japanese government and aid agencies have been more actively engaged
in policy dialogues with the governments of the recipient countries, taking up such
issues as appropriate macroeconomic policies, public expenditure management,anti-corruption measures, intellectual property rights, and environmental and social
issues. These changes stem from the recognition that assistance will not be effective if
policy and institution issues are not properly addressed by each recipient country.
They suggest that Japan’s ODA distribution is likely to become more selective andcontingent on the stances and efforts of partner countries with respect to these issues.
For this to be most effective, however, in-depth studies of the recipients will benecessary in the areas of political process, economy and society in general. High level
political decisions might also be necessary on some key issues; for example, the degree20

of acceptable involvement in actively changing recipients’ political or other institutions.
IV.

Recommendations for Meeting the Challenges

It is clear that the significant changes in development thinking, approaches andexogenous factors taking hold over the past decade require that Japan re-examine its
ODA policies and their implementation and also strengthen its ODA-related institutions
to make them more efficient and effective. The government is well aware this. It has
already taken several measures and more are being considered, some of which are
discussed above. This section presents recommendations which the authors believe
are necessary if Japanese ODA is to become more relevant, efficient and effective.
(1) Greater coordination among ministries/agencies
The value of aid coordination among international donors has been recognized andstrongly emphasized 19 . Such coordination is difficult, however, unless there issufficient coordination among ministries/agencies in Japan. While recent activity
indicates that key ministries are more closely cooperating to increase ODA policy
coherence, further efforts are necessary in order to integrate grants, loans, and technicalassistance as appropriate20. Increased discussion among stakeholders will probably beneeded as well as strong political initiative, including intervention by the Cabinet onsome fundamental issues, because of the differences in mandates among theministries/agencies. One practical approach may be to strengthen ODA Task Forcesboth to coordinate the assistance activities of the Japanese government agencies and to
facilitate Japanese cooperation and coordination with other donors. It is often easierfor the field staff of the various ministries and agencies to coordinate directly with theircounterparts than for officials in Tokyo to intercede.
(2) Increased coordination and cooperation with other donors
In the current development assistance environment, individual action has become moredifficult and less effective. The Japanese government realizes that implementation of
the PRS approach requires enhanced coordination and cooperation with other donors,
unlike some past practices of implementing ODA activities in isolation. Establishmentof the ODA Task Forces, and serious consideration of more assistance in the form ofbudget support and funds pooled with other donors are some manifestations of this19

Two High Level Forums on Harmonization and Coordination have been held so far. One in Rome in
February 2003 and the other in Paris in March 2005.
20
Related to this issue are some recommendations made by OECD/DAC (2004a: 149)

21

understanding of the changed environment.
Despite the awareness of the changed environment, Japanese procedures, administrative
processes and language considerations pose obstacles to many Japanese staff who findworking closely with other donors to be unfamiliar, difficult, time-consuming andentailing high transaction costs. Some procedural changes have been made to
overcome these problems, but more are probably needed. Staffing and training of
ODA related ministries/agencies should be reviewed in conjunction with these changes.
(3) Increased Emphasis on Results- Based Management
Because of the limits on increasing ODA volume, in recent years Japan has beenstressing measures that will make ODA more efficient and effective. Though such an
intention may at first glance seem straightforward, the definitions of “efficiency” and“effectiveness” become murky within the governmental organizations of any country
because of the political constraints which prevail21. Defining these terms requires
clear objectives and ODA targets22. International efforts are underway to increase theclarity of these notions by devising measurements that allow objective evaluation.
Efforts to clarify and quantify objectives and targets are recommended in theMillennium Project report (Millennium Project 2005: Chapter 13) and in the Paris
Declaration on Aid Effectiveness” (High Level Forum 2005) with regard to achieving“Indicators of Progress”. These objectives and targets are often expressed innumerical terms, in terms of actual policies implemented and in terms of progress
indicators. Japan should not only harmonize with these efforts but should takeinitiative in promoting this trend. One implication of placing emphasis on results isthat Japanese ODA would become more demand-driven, another is that Japan would
reassess its technical assistance and other programs in view of the quality of aid, a topic
also gaining currency in the global ODA agenda23.
(4) Innovation for loan assistance
There are indications that the international development community hasoveremphasized debt relief and poverty reduction in recent years at the expense of
attention to economic infrastructure, but this trend seems now to be evolving withrenewed recognition that infrastructure is pre-requisite to poverty reduction24. As a
21

See, for example, Menard (2005).
There are efforts in this direction under the New Public Management (NPM) framework.
the most well-known is the UK government’s Public Service Agreement (PSA)..
23
This issue is raised in Millennium Project (2005) and also by the NGO Action Aid (2005).
24
See, for example, DFID (2002) and World Bank (2003)
22

22

Probablyrecent study25 has noted, many developing countries now find themselves in desperateneed of economic infrastructure partly as a consequence of the redirection of donor
funding away from this area. According to the study, the annual anticipated need forinfrastructure investment in developing countries is about US$465 billion for the period
2005-2010, of which US$26 billion will be needed in Sub-Saharan Africa.
Given the renewed understanding of the relationship between economic infrastructure
and poverty — that infrastructure is necessary for economic development and poverty
reduction — Japan should continue its loan assistance, with perhaps some modifications
and innovations. These could include the following:(i) In countries which regularly receive loan assistance from Japan, projects tobe financed through loans should be integral parts of the PRS and importantcomponents of the country’s long-term development program.
(ii) Implementation of loan projects should be pursued in close coordination
with technical assistance and grant assistance programs. This would
enhance coordination among MOFA, JICA and JBIC and create synergy
among them, resulting in more effective assistance. This approach shouldbe easier to implement now that ODA Task Forces have been established.
(iii) There should be a higher degree of international cooperation, including
co-financing with other donors. JBIC’s recent agreement with the African
Development Bank to establish a fund for private sector development is agood step in this direction.
(iv) In the context of Public-Private Partnerships (PPP), loans to the private
sector in developing countries should be increased through JBIC’s two-step
programs 26 . Under these programs, JBIC provides loans togovernment-owned financial organizations, which in turn lend to private
entities. Given the importance of private sector development, these
programs could be strengthened.
(v) Japan could also utilize the Clean Development Mechanism (CDM), one of
the measures allowed under the Kyoto Protocol. CDM is a system thatallows developed countries to implement projects designed to reducegreenhouse gas emissions in developing countries and obtain part of theresultant reduction in emissions to help satisfy its quota. Japan has
technological comparative advantage with respect to this mechanism.
25

Fay and Yepes (2003)
In September 2005, JBIC announced that it will, for the first time, make a loan to a
private firm in Turkey.

26

23

(5) More focused assistance based on comparative advantage
One aspect of enhanced coordination promoted among donors is focused assistance.
No single donor should be active in all areas of development, each should concentrate in
the area where it can have the best impact based on its comparative advantage. An
example of a donor taking this route is Canada’s recent decision to limit its partners sothat it can target ODA to those few countries where it can have maximum impact27.
Japan may currently have too many ODA recipients according to this rationale forconcentrating aid impact, but for political and diplomatic reasons it may have difficulty
reducing the number for a large donor like Japan. One possibility might be toconcentrate ODA activities in selected sectors or sub-sectors where Japanese aid
historically has had good results, such as economic infrastructure, rural development
and disaster relief. Research and analysis will surely identify even more areas, whichmight include institution building for agricultural product marketing and export systems,
establishment of institutional mechanisms to coordinate government and private sector
investment, and promotion of industrialization28.
One model of an approach many Japanese consider to have been successful is the
Ishikawa Project on Vietnam. Under this project, headed by Professor of Development
Economics Shigeru Ishikawa and financed by JICA, experts in various relevant fields
were assembled. Together with Vietnamese counterparts, they drew up development
strategies and programs based on studies and discussions. This is a holistic approach,demanding time and patience, but the outcome has been very successful in designing
development strategies for Vietnam. The development process is by its nature
extremely complicated, making such a holistic approach appropriate; however, it israrely employed because most donors prefer “quick-fixes.”(6) Focus on Africa
Japan has been a large contributor to sub-Saharan Africa (SSA)29 and is strengthening
further its support for that region. At the Gleneagles G8 Summit in 2005, Japan
committed to double its ODA to SSA over the next three years30.
27

Reuters on line (2005). According to this report, Canada will double its ODA by 2010 from 2001
level while reducing the number of recipients to 25 from 150.
28
FASID has been active in this area.
29
In 2001 Japan was the largest donor or the second in many SSA countries including Botswana, Angola,
Ethiopia, Tanzania and Gabon although the volume has declined from the 1990s.
30Japan launched the $5 billion Health and Development Project over the next three years andestablished the Enhanced Private Sector Assistance (EPSA) to provide more than $1 billion over the next
5 years in partnership with the AfDB.

24

Drawing on its comparative advantage, Japan hopes to apply at least some elements ofthe East Asian development experience in other developing countries, especially thosein SSA. One of the important components of the “East Asian Model” is synergy ofODA, trade and private sector investment (Urata (2004). East Asian countries, inretrospect, benefited greatly from the sharp rise of yen in the mid-1980s because it
induced many Japanese private firms to transfer production facilities to that region.
However, the application of the “East Asian Model” to SSA is hindered by the distance,
unfamiliarity and real or perceived poor infrastructure which make it unlikely thatJapanese firms will bring large-scale investment there in the near future.
It is clear that sustainable development in SSA is very difficult with only ODA andwithout adequate investment and trade involvement by private firms. The world
development community, at least on paper, seems to be aware of this and has spoken for
Public-Private-Partnerships (PPP) and for the importance of FDI. Unfortunately, thisawareness does not seem to have been translated into concrete action. A report by theShell Foundation (2005) 31 points out that while private firms can contribute
substantially in a number of practical ways, under current PPP they are asked mainly formoney (Shell Foundation 2005: 29). Related to this is the concept presented by Aoki
et al. (1996) of a “market-enhancing view” wherein the important role for governments
is to provide institutions that enhance the coordination of economic activities among
private sector players.
If the global development community wants seriously to help SSA find sustainable
development in a reasonable period of time, involvement of the private sector, including
NGOs, is essential. To tackle this issue, development stakeholders must be innovativeand challenging. The Japanese government has been involving the private sector interms of technical assistance and JBIC’s two-step loans programs (mentioned above),although these programs have been government-to-government because of the nature of
ODA32. Because historically Japan has made most use of experts within the private
sector in its aid activities, it appears to have comparative advantage and be in a good
position to strengthen technical assistance programs in this area. On the supply side,
many people who are retired or are soon to retire have valuable information, know-how
and experience in business and manufacturing. On the demand side, the authors’
31This report introduces Shell Foundation’s activities and makes a number of propositions on how
private firms can contribute to the development agenda.
32 As noted above, there will be a JBIC loan to a private firm in Turkey.

25

experiences suggest that many entrepreneurs in SSA would welcome the opportunity towork together with these experienced professionals.
A further example of Japan’s efforts to assist SSA is its hosting of the quadrennial
Tokyo International Conference on African Development (TICAD), three of which havethus far been held. At the TICADs, African development issues are discussed amongexperts from many countries, including several African heads of state. The TICADs
contributed to the establishment of NEPAD (New Partnership for African
Development)33, which provides a framework for the long-term development of thecontinent. The next TICAD will be TICAD IV in 2008, the same year in which Japan
will again host the G8 Summit. Japan should use these events to design and propose
innovative ideas to help SSA.
(7) More studies on strategies and policies
In spite of the fact that it has been one of the most important donor countries for
decades, Japan has conducted only a limited number of objective academic studies ondevelopment strategies and policies. Explanations for this may include the small
number of government/agency staff working on ODA in proportion to the size of the
program and the limited number of qualified scholars interested in ODA policies.
Over the last several years, however, the number of competent researchers has increased
significantly and many of them are organizing to analyze ODA policy issues. A solid
institutional framework, possibly at MOFA initiative, is required to boost intellectual
input and output. In addition, compared with other major donor countries, there is asevere shortage of private research organizations that can conduct independent researchon ODA policies because private firms and individuals have shied away from financing
such studies. Persuading the private sector to take more interest in development policy
issues is also an area that should be explored.
V.

Concluding Remarks

The present paper has reviewed Japanese ODA approaches and implementation over the
decades, examined issues and challenges, and made some recommendations for action.
This juncture is not the first turning point for the Japanese ODA program, but it is avery significant one because it demands a thorough review of the program’s
fundamental assumptions as reflected in its modalities and regional emphasis.

33

See, for example, NEPAD Secretariat (2004)

26

Historically the primary component of Japanese ODA has been concessional loans
extended to East Asia to strengthen that region’s economic infrastructure. However, as
exemplified by the MDGs, current global development thinking is focused on social
infrastructure such as education and health and on sub-Saharan Africa. Restructuring
and strengthening political, social and economic institutions appears now to be theunderlying objective. This situation requires Japan to analyze, understand and clarify
its aid philosophy, expectations and fundamental approach to development assistance.
In the international arena, aid loans on net basis have begun stagnating or evendeclining. This is the case with JBIC and also with the International Bank for
Reconstruction and Development (IBRD) of the World Bank Group. Asian countries
that once depended on development loans can now obtain commercial loans fromprivate banks; at the same time, many countries that still need concessionary loans are
so heavily indebted that they can neither repay what they owe nor qualify for otherloans. However, partly because the international development community has been
focusing on social infrastructure, there is a growing recognition that many developing
countries are in dire need of economic infrastructure.
Japan’s core belief, formed out of its own experience, is that economic development
based on economic infrastructure is needed for developing countries to graduate frominternational development assistance. Social infrastructure is important, and theJapanese government has supported the MDGs, but strengthening economic
infrastructure should not be held back while social infrastructure is built. Japan is
exploring innovative approaches to loan provision for the infrastructure building and wehave suggested some possibilities in this paper. This is in contrast to the approach of the
UK or US, which appears to give priority to changing political and other institutions inrecipient countries34. In this regard, Professor Ishikawa’s suggestion that the Japaneseand British approaches to development be synthesized through collaboration anddiscussions is very attractive.
Cooperation and collaboration, not only with the UK but also with other donors, should
be encouraged. Institutional arrangements might be required to strengthen working
relationships with other donors because creating and participating in these relationships

34

Even regarding the US and Europe, new efforts in revisiting importance of infrastructure include the
US’s MCA[0] and budget support by Western European donors, which enable large amounts of capital to
be spent on economic infrastructure. Consult the MCC website for information on the grants this far
forwarded, including countries and sector targeted.

27

will affect the work load of the staff. Similarly, establishment of the ODA Task Forces
is an important step in right direction, but measures that create institutional support for
the Task Forces are necessary such as new staffing arrangements and training in related
ministries and agencies. The institutional participation of scholars and experts to study
strategic and policy issues also should not be forgotten.
The issues and challenges facing the Japanese ODA program today are numerous:
coordinating aid ministries and agencies, strengthening ODA Task Forces, examining
policy coherence issues, and identifying Japan’s comparative advantage. But inconclusion, the authors would like to suggest that healthy and sustainable ODA rests on
the support and understanding of the Japanese people as well as the international
development community, including recipient countries. Looking at the compassionate
response to the victims of the Indian Ocean tsunami disaster and the Niigata earthquake,
we are convinced that the willingness of the Japanese people to assist people indeveloping countries is directly related to the quality of information they receive about
those people, their circumstances and the positive impact of the aid that is sent.
One way to achieve this is for the stakeholders to speak more explicitly, publicly andconsistently about the contributions and returns of Japanese ODA. For this purpose,the mass media and NGOs are included among the stakeholders. We hope that thepresent paper helps, even in a minor way, to spur this effort.

28

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31

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