JAPAN Japan’s ODA at a Crossroads:
ECONOMIC Striving for a New Vision
CURRENTS by Izumi Ohno, National Graduate Institute for Policy Studies
apanese foreign aid policy is at acrossroads. First, a decade of
prolonged economic recession
has forced the government to cut
Japan’s foreign aid budget (OfficialDevelopment Assistance, or ODA)
– once regarded as sacred – by 0.2
percent in FY2000, 3.0 percent inFY2001, 10.3 percent in FY2002,
and 5.8 percent in FY2003, in yenterms. For the first time in tenyears, the US replaced Japan as topdonor in 2001. Stark budget
realities are requiring Japan tostrategically prioritize its aid inorder to maintain ODA’seffectiveness.

JSecond, Japan does not wholly
accept the mainstream thinking byWestern aid community1 aboutdevelopment. Japan continues tobelieve that East Asian development
experience, which is widely regarded
as a “success story,” and to which
Japan itself made significant contribution through aid, trade and investment, has also been a good model.
Moreover, the September 11
tragedy prompted a major shift in
the Bush Administration’s foreign
policy and also strongly affected thethinking of the entire aid community– poverty alleviation through foreign
aid is now considered to be another
tool in fighting terrorism. As a
direct result, the US and the EUNo. 31
April 2003

4

aspire to boost aid to levels2
unimaginable just two years ago.

have access to private capitaland thus do not need ODA.

Budgetary pressures at home andshifting motivations for increased
foreign aid by other countries havecreated a sense of urgency inJapanese development experts andofficials. Some innovative efforts,
both within and outside the government, have emerged in a means tomove away from the traditional
reactive mode and to project Japan’s
own ideas more strongly in theglobal arena.

• An increase in grant components and the reduction ofconcessional loans.

Global Development Trends
Current thinking in the global
development community has four
major features, with which Japan
feels considerable unease.
• The combination of a drive to
reduce poverty and a neo-liberal
economic framework – under
this regime, public actions are
justified only in direct propoor targeting and/or macroeconomic management.
Consequently, the contents ofthe growth strategies, including
industrial promotion and infrastructure development, areoften superficially treated orsimply ignored.
• Re-direction of ODA to thepoorest countries, assumingthat middle-income countries• Aid harmonization in favor ofnon-project aid and pooled
funding, and the marginalization of project aid.
Strategic convergence rather thandiversity is epitomized in the twocurrently dominant aid policies: thePoverty Reduction Strategy Paper(PRSP) initiated by the World Bankin late 1999 and the United Nations
Development Goals adopted in2001. Both regard poverty reduction
as the ultimate goal of development
and contend that aid must beevaluated mainly by thecontribution to this goal.
Furthermore, it is argued that thepolarization of developing countries
where some countries perform welland others remain stagnant—someeven call it the “Africanization ofglobal poverty”3 —provides a strong
case for concentrating ODA on thepoorest countries, particularly thosein Sub-Sahara Africa, with increased
grant components with no obligation
to repay4. Since many Sub-SaharanAfrican countries are highly aiddependent under the proliferation ofdonors and projects, there is a callfor reducing “transaction costs”

JAPANECONOMIC
CURRENTS
associated with multiplicity
of aid to lift administrative
burdens from recipient
countries5. Now, donors areencouraged to harmonize oreven completely unify theiraid disbursement procedures.

FIGURE 1 TOP 5 DONORS: REGIONAL DISTRIBUTION OF ODA
2000-2001

Indeed, the UK has
NOTE: 1) PERCENT OF TOTAL NET DISBURSEMENTS.
2) INCLUDING IMPUTED MULTILATERAL FLOWS, I.E. MAKING ALLOWANCE FOR
announced its intention toCONTRIBUTIONS THROUGH MULTILATERAL ORGANIZATIONS, CALCULATEDUSING THE GEOGRAPHICAL DISTRIBUTION OF MULTILATERAL DISBURSEMENTS
FOR THE YEAR OF REFERENCE. EXCLUDING AMOUNTS UNSPECIFIED BY REGION.
phase out specific project
SOURCE: OECD “REGIONAL DISTRIBUTION OF ODA BY INDIVIDUAL DAC DONORS”,
aid in favor of budget
TABLE FROM THE STATISTICAL ANNEX OF THE 2002 DEVELOP,MENT CO-OPERATIONREPORT. AVAILABLE AT HTTP://WWW/OECD.ORG/EN/DOCUMENT/0,,EN-DOCUMENT-15support and common basket NODIRECTORATE-NO-1-2674-15,00.HTML
funding. These initiatives
FIGURE 2 TOP 5 DONORS: SECTORAL SPENDING
are a European reaction to2000-2001
the disappointing records ofAfrican development in thepast and the latest desperateattempt to meet the Africanchallenge.

Western donor with ahistory of early andsuccessful industrialization. Furthermore, many
Japanese personally experienced the post-WWII
destruction and poverty
that were graduallyovercome by hard work.
Japan’s success in strengthening its manufacturingbase contributed in turn to
the trade-and investmentdriven development andpoverty reduction in therest of East Asia.

Second, Japan’s postwar
decision to abandon military force pushed ODA
to play a special role inJapan’s Development Visiondiplomacy. Indeed, ODA
NOTE: 1) PERCENT OF TOTAL BILATERAL COMMITMENTS.
2) ON A DISBURSEMENTS BASIS.
By sharp contrast, the East
has been the principal
SOURCE: OECD “MAJOR AID USES BY INDIVIDUAL DAC DONORS”, TABLE FROM THE
Asian development expeSTATISTICAL ANNEX OF THE 2002 DEVELOPMENT CO-OPERATION REPORT. AVAILABLE AT
means by which Japan
HTTP://WWW.OECD.ORG/EN/DOCUMENT/0,,EN-DOCUMENT-15-NODIRECTORATE-NO-12674-15,00.HTML
rience strongly affects thecontributed to globally
Japanese approach to develFIGURE 3 TOP 5 DONORS: GRANT SHARE OF BILATERAL ODA
shared goals and address2000-2001 AVERAGE
opment aid. Japan’s ODA
ed specific external needs,
intends to support the indussuch as war reparation
trialization of latecomer
payment in the 1950s,
countries and has thetrade promotion in thefollowing features:
NOTE: EXCLUDING DEBT REORGANIZATION. EQUITIES ARE TREATED AS HAVING 100%1960s, securing imported
GRANT ELEMENTS, BUT ARE NOT TREATED AS LOANS.
• Geographical concenSOURCE: OECD, “FINANCIAL TERMS OF ODA COMMITMENTS, “TABLE FROM THE
energy and raw materials
STATISTICAL ANNEX OF THE 2002 DEVELOPMENT CO-OPERATION REPORT. AVAILABLE AT
tration in Asia [Figure 1] 2H6T7T4P-:1/5/,W00W.HW.TMOELCD.ORG/EN/DOCUMENT/0,,EN-DOCUMENT-15-NODIRECTORATE-NO-1in the 1970s, and the“recycling” of the trade• High priority on infrasTwo
historicfactors
makeJapan’s
surplus in the 1980s.
tructure development
aidanddevelopment
visionquite[Figure 2]
These factors heavily influence
distinctive from those of otherthe way development visions are• A broad aid menu, including
donors. First, Japan is the only nonloans [Figure 3]
Continued on page 65No. 31
April 2003

JAPANECONOMIC Japan’s ODA at a Crossroads:
CURRENTS Striving for a New Vision
shaped and the kind of relationshipthat Japan wishes to foster with
developing countries through aid.
Japan embraces the following
latecomer perspectives that are
unlikely to emerge from the West.

country should interpret andadapt them to the local
context. Diversity, not rigid
rules and conditions, should bepermitted and encouraged inboth aid strategy and delivery.

• Self-help effort (ownership)
and growth aspiration: Aid isneither charity nor the moralobligation of the rich. Aidshould support self-help efforts
of developing countries andcontribute to fostering theirnational pride, even if it means
the recipient could overtake thedonor country in the long run.

By contrast, the Western countries and international organizations
often prefer farsighted frameworks,
convergence toward a single system,and emphasis on macroeconomic
and financial issues6.

• Real-sector concern: In theearly stages of development,
government should take anactive role in promoting andeven creating a market
economy. Greater attention
should be given to the dynamic
contents of the real economy
such as key industries,investment and competitiveness, rather thanframeworks.
• Long-term perspective:
Development is a long-term,path-dependent undertaking. It
is thus necessary to consider
the history, society and cultureof a country in designing its
unique strategy.
• A flexible and pragmatic
approach: While accepting
general principles, eachNo. 31
April 2003

6

Japan is also unique in offering a
relatively large share of loans inbilateral aid. Because loan aid canmobilize larger resources (e.g., forfinancing large-scale infrastructure
projects or supporting reforms), it
can be very effective in promoting
broad-based growth if combinedwith a good growth strategy. At thesame time, loan aid requires discipline on the recipient side
including strong ownership and debt
management capacity, and donor
responsibility for ensuring projectsustainability. The time scope of therecipient-donor relationship underloan aid is much longer than grant
aid and goes far beyond projectcompletion to the last repayment. In
this sense, each party assumes
shared responsibility in the long run.
Aid harmonization should bepromoted whenever feasible andeffective. But we must proceed witha sense of realism and careful
identification of country-specificbottlenecks of exactly where aidfails. A broad range of options for
improvement should be considered,because the “transaction cost” is justone factor among many. Otherfactors, such as the quality andcontents of development strategy,
institutional capacity of recipient
countries and the degree of aid
dependency, may play a bigger role.
Moreover, appropriate matching of
aid modalities with sector conditions and intervention type is necessary. The thrust of successful aid
policies should be aimed at selfsustained development and not thepermanent aid dependency ofrecipient countries, with an
eventual graduation from aid.
Suggested Actions
As a non-Western industrializedcountry, Japan should bring diversity
and the latecomer perspective to theglobal development debate and aid
practice. Japanese development
experts and officials should:• Take initiative in designing andimplementing a good growthstrategy by conducting countryspecific in-depth industrial
studies and engaging various
development partners. The
ongoing intellectual ODA toVietnam and Laos are good
examples – they provide policy
advice on the overall strategy
for marketization, from a longterm perspective. For latecomer

JAPANECONOMIC
CURRENTS
countries in Asia, it is particularly important to offer concrete
industry-specific policy advice,not just general counsel, taking
account of intense integrationpressure. To this end, Japan
should continue to offer a rightmix of aid menu (loans, grants,and technical assistance)
tailored to each country.
• Compile and widely disseminate the East Asian development experience, so that it
can be understood by policymakers and researchers in bothdeveloping and advancedcountries. To maximize policy
impact, a sophisticateddissemination strategy isneeded for each targetedaudience.
• Bring pragmatism and flexibility
into the discussion on aid harmonization. Introduce Asianexperiences in order to add
variety and country context tothe current debate, which is too
narrowly focused on African

experiences. At the same time,
Japan should also reform its
own aid procedures wherenecessary.
• In policy-making, strengthen
strategic coordination in Tokyo
by regular consultation among
various ministries charged withODA (especially the Ministry ofForeign Affairs, the Ministry ofEconomy, Trade, and Industry,
and the Ministry of Finance)
and the two key executing
agencies (JICA and JBIC).
Delegate decision-making to
the country team in the field(Embassy of Japan, JICA, JBIC,and JETRO as appropriate). The
country team should be madefully responsible for conducting
policy dialogue and partnership
activities.
These actions may require afundamental reform in the current
ODA system, which is politicallysensitive and are likely to take time.
But I am not too pessimistic. Undera shared strategic vision, it is pos-sible and quite effective to build
intellectual networks among
Japanese policy makers, aid practitioners, academics, NGOs, andother shareholders. Websites andemail propel ideas across geographical and institutional boundaries and be transformed into
policy-oriented actions. Such activities have already begun by theGRIPS Development Forum andthe Washington DC Development
Forum, as well as by country teams
in Vietnam and Bangladesh.
Hopefully through these interactions, good practice from theJapanese perspective can be widely
shared and disseminated, and impact
global development strategy.
Dr Ohno is a professor of development economics at the National
Graduate Institute for Policy
Studies, a graduate school andresearch institute in Japan. She canbe reached at i-ohno@grips.ac.jp

1This includes the World Bank and the UNDP at the international level, and at the level of individual countries, the members of the Anglo-Saxon campwith the US and the UK in the lead, and the Nordic group of donor countries.

2For example, the US has said it will add $5 billion annually during the next three years for the benefit of poor countries with “good practices.” To thisend, the “Millennium Challenging Account” is to be established to provide performance-based grants to eligible countries.
3World Bank, African Poverty at the Millennium: Causes, Complexities, and Challenges, 2001.

4In the IDA 13 replenishment negotiations, the US strongly insisted on a drastic increase in grant components of IDA’s concessional funding to lowincome countries. After a long negotiation, it was finally agreed to raise the grant components to 18-21%, with particular emphasis on post-conflictassistance, natural disaster relief and coping with HIV/AIDS.

5In the mid-1990s, Tanzania had 40 donors implementing 2000 projects without coordination.
6For different views on poverty, market and integration, see Izumi Ohno and Kenichi Ohno (2002), “Global Development Strategy and Japan’s ODA
Policy,” GRIPS Development Forum Discussion Paper No. 1.

7No. 31April 2003