While other large donor countries are leveling off or retrenching in their foreign aid programs, Japan is expanding assistance. From 1966 to 1977 Japan extended $2.2 billion (US) in aid. By the end of 1979, another $2.2 billion was distributed, making a total of $4.4 billion over the past 14 years.
However, the announcement of Japan's increased aid was greeted by the less-developed countries (LDCs) at a recent United Nations conference at Manila with a less-than-enthusiastic attitude. Many countries wondered why Tokyo had not done this before, and others felt that the increase should be a lot more, "because Japan can afford it." The LDCs are now more sophisticated and desire much more specific programs.
Japan's aid is known as the Overseas Economic Cooperation Fund (OECF). It includes economic investment, technical-assistance programs, and commodity price stabilization funds. Japan does not provide grants fee to LDCs, but it is a major source of "soft" loans. These loans are at 3.5 percent interest and have 7-year grace period during which no repayment is required, with an additional 18 years to pay back -- a total of 25 years of loan maturity.
One feature of these loans is they are not tied to purchases from Japan. OECF allows worldwide bidding on projects and will even authorize borrowing countries to convert yen to local currency. In these cases the OECF will credit substitutes for locally raised loans. By contrast France, Italy, the United Kingdom, the United States, and others require the use of the national currency for contracts to companies and suppliers from their own country. These would benefit their own economy.
Japan will increase its concentration on countries in Asia and especially those in the ASEAN (Association of South East Asian Nations) -- The Philippines, Thailand, Malaysia, Singapore, and Indonesia. This is natural because of the economic and the regional-security interests of Japan. ASEAN nations need sophisticated manufactured goods and want industrial plants brought in at medium levels of technology. These countries supply Japan with oil, timber, rubber, food, tin, and other ores.
One country that has benefited from OECF aid is Thailand. It has been using Japanese funds with agricultural and rural light industries -- usually 10 or 12 projects a year. Now Thailand will receive "soft" loans for urban transportation in Bangkok. A toll expressway will lead major rural highways to the Bangkok port through very heavy traffic in the business district. Creeping speeds now mean an extra 20 to 40 minutes there.
In the past, Bangkok with over 4 million people, used only urban buses and taxicabs for public transportation. The original street network is cut with canals, and only a few streets go all the way through town. These are very crowded with vehicles. Japan will consider a proposal for elevating rapid-transit trains above traffic and would lend $300 million to $400 million over the 10-year construction program.
Through 1977 the beneficiaries of OECF loans were: Indonesia, 30 percent; Korea, 12 percent; Egypt, 10 percent; Burma, Philippines, and Thailand, 6 percent each; other African and Central American countries, 10 percent. Eight South American countries divided the remaining 20 percent.
Japan's program has some similarities to the Us Aid for International Development. Like the US, the annual budget appropriation is passed each year in the Japanese Diet, then allocated among the countries and types of aid program. Also as with the US, the borrowing country is to spend all the money, even if all the projects are not in high-priority groups. Priority is given projects that will directly benefit the lowest income groups, especially those in the countryside.
Unlike the Japanese program, much of US aid is provided in grants. Furthermore, the loans Japan gives are all processed through commercial banks in Japan and will include foreign currency, whereas US loans or grants must go through the US Treasury and are only in US dollars.
With soaring prices for imported petroleum, the LDCs will need every possible foreign-exchange income. Many advanced nations are quite likely to reduce foreign aid programs because of ballooning oil imports. Contrariwise, Japan will apparently be a more generous foreign aid contributor to less- developed countries.