Japan fights complaints about its foreign aid performance. Since '77, aid has risen fourfold, but other donors not impressed

Even when we do something good, Japanese officials can be heard to complain these days, foreigners still criticize us. The Japanese' sense of wounded pride over what they see as insufficient appreciation for their efforts is most often expressed on trade issues. But it is also strongly felt over their endeavors to assist developing nations.

In the past decade, Japan has increased its official aid to developing countries by more than four times. Last year, it provided about $5 billion in aid, making Japan the largest donor after the United States.

Yet many foreign critics, including Western European and US government officials, are not so impressed. Those efforts are still seen as less than what Japan, as the second great economic power, should do. Even less charitably, Japan is depicted as using aid as yet another means of increasing its huge trade surplus.

The Japanese government points with pride to its pledge, first made in 1977, to double its foreign aid. When that target was achieved in 1980, it was renewed as a five-year goal. While falling slightly short in '85, Japan embarked on its third such target, for the years 1986-92. By the end of that seven-year period, the country plans to provide a cumulative total of $40 billion in aid, doubling in 1992 the 1985 level of $3.8 billion.

``This kind of target is a rare case,'' claims Shunro Kageyama, an official of the Overseas Economic Cooperation Fund (OECF), Japan's largest aid agency. ``No other country has such a target to increase aid to developing countries. If we don't have this kind of target, many developing countries would have no actual additional assistance, because of budget difficulties in Europe and the US.'' In a period of fiscal austerity in Japan as well, foreign aid, along with defense, has been the only budget item to consistently be increased, by 6 to 7 percent a year.

Foreign aid is viewed by many Japanese as an alternative to defense spending. ``Japan is determined not to have strong military forces,'' observes Takashi Hosomi, the chairman of OECF. ``So, as a rather successful industrial country, we should contribute to the total peace of the world by concentrating on this development problem.... Economic stability and prosperity are the core of peace.''

Japan is a mercantile nation without natural resources, dependent on a secure flow of raw materials and energy supplies from the rest of the world and markets for its manufactured goods. Many of the recipients of its aid, two-thirds of which goes to neighboring Asian nations, are major trading partners. Aid, Mr. Hosomi says, has the self-interested goal ``to keep good relations with those recipient countries.''

Such efforts have certainly not gone completely unheralded.

``The US government welcomes the steady improvement in ... the concurrent and proposed growth of Japan's assistance to the developing world,'' US Secretary of State George Shultz said during a brief stopover here. In recent testimony before the US Congress, Mr. Shultz also endorsed the concept that increased foreign aid is a useful alternative to Japan becoming a major military power.

Still, US officials and Europeans have frequently been critical of the Japanese aid program. When the Development Assistance Committee (DAC) of the Organization for Economic Cooperation and Development met on Jan. 20 to review Japan's aid efforts, there was praise for ``the major contribution'' Japan made. But they also pointed to some faults.

Japan's overall aid levels still lag, in some ways, behind other nations. In 1985, Japan provided $3.8 billion, compared to $9.4 billion from the US, $3.9 billion from France, and $2.9 billion from West Germany. When measured as a percentage of gross national product (GNP), the committee pointed out, Japan's contribution is only 0.29 percent of its GNP, more than America's 0.24, but less than France and Germany at 0.54 and 0.47 percent.

Japan's aid targets, the committee said, are difficult to judge, because they are expressed in dollars. Because of the yen's huge rise in value against the dollar, Japan's aid levels took a corresponding leap. In yen terms, in 1986, the aid budget grew 7 percent, but in dollar terms it grew by a third, to about $5 billion. Because their 1992 target is dollar denominated, Hosomi says, the target is ``no problem.''

Japan also drew fire for the relatively high proportion of its aid that consists of loans rather than grants. For most donors, grants, which do not have to be repaid, constitute more than 90 percent of Official Development Assistance (ODA). In Japan's case grants represent slightly more than 70 percent.

Hosomi agrees that the grants should be increased but says that by drawing on funds borrowed from commercial banks and private sources Japan can make more money available, at somewhat lower than market interest rates.

``Demand for loans under those conditions is urgent, so we think to expand the amount is more necessary than to increase the grant element,'' he says.

Japan is also accused of lending money for development projects on a ``tied'' basis - requiring that it be spent in Japan - and favoring Japanese firms as the contractors for the projects. The practice is widespread among many nations, but ``[Japan has] less need to do that than other countries do,'' Secretary Shultz reportedly told a Senate committee recently.

Japanese officials protest that this is unjustified. They produce figures showing that more than 90 percent of their loans are ``untied'' and that local firms in many developing countries are winning more and more contracts. Japan may have used its aid to promote exports at an earlier stage, Hosomi says, ``but now Japanese industry is competitive enough, and there is no such need.''

Perhaps the most serious concern is the predominant share of Japan's aid that goes to Asian nations. That has declined somewhat, from 75 percent in 1975 to just under 70 percent now. But ``the share of aid to African developing countries,'' the DAC stated, ``remains relatively modest in spite of recent increases.''

Japanese officials cite geographical and historical reasons for their focus on Asian nations. ``We feel some moral responsiblity, because we invaded throughout some parts of East Asia during the Second World War, so we should make some compensation for that,'' Hosomi says. ``At the same time, we think that expansion of economic interdependence is inevitable and so important because of our geographic closeness.''

American analysts point to a different explanation: the Japanese penchant for big projects, which are inappropriate for African conditions. The Japanese, one US expert says, build something and leave it to the country to run it, without worrying enough about follow-up and training. The DAC echoed that assessment.

The demands on Japan for more generosity are relatively new, resulting from its emergence as a global power. The Japanese ask for patience. ``We have never been a world power,'' Hosomi says. ``We are just expanding our sight gradually.''

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