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10.11.2013 г.

The evolution of Japan's ODA towards South-East Asia

Yevgeny Kovrigin, Professor, University of Fukuoka

Southeast Asia and ASEAN are a traditional favorite of Japan's policy of Official Development Assistance. The countries of the region have been its number one recipient since 1978. The nearly 60 years of implementing assistance programs saw not a few changes in their motives and goals, which were intertwined and interpreted in different ways. Still, most observers believe to this day that the Japanese model of assistance has primarily focused on economic and neo-mercantilist objectives. The philosophical foundation of Japanese ODA comes closest to the concept of developmentalism, as opposed to the "basic human needs" concept.

From 1989 to 2001, Japan held the world's first place in the volume of transfers to the developing countries (yen loans together with repayable grants). Annual reductions in ODA began with the onset of the 21st century, shifting Japan to the fifth place among the donors. The reductions were mainly due to the aging population and the decreasing tax base. There are other reasons for these statistics that diminish Japan's prestige. The assistance it provided in the 20th century relied not so much on grants as on concessional loans, which began to mature in the 21st century, with payouts from the debtor countries increasing every year. These payments are deducted from new transfers; as a result, some ODA recipients are obliged to pay more than they receive. Yet Japan continues to be a great power, comparable to the U.S., as regards the volume of new or gross payments.

The special Japanese model of economic aid to Southeast Asia has its origin in the post-war reparations (or quasi-reparations) that it used to pay to the victims of its aggression in the Pacific War. Due to these reparations, Japan has managed to gain a unique foothold in the markets of the new independent states by getting them accustomed to their goods and services. This process went parallel to a gradual transition to voluntary assistance. The United States, burdened with a negative balance of payments and the Vietnam War, stimulated the Japanese to assist the anti-communist regimes. Hence, ODA was for a long time the main, if not the only instrument of Japanese diplomacy in Southeast Asia (as well as in East Asia and Oceania).

It is in Southeast Asia that there evolved the so-called triad of foreign trade - direct foreign investment - ODA, in which ODA played the role of a "lubricant" for Japanese private corporations. A long-time favorite "in the square" in this sense was Indonesia, run by the brutal Suharto regime. An important milestone on the path to Japan's leadership in the region was the creation in 1966 of the Asian Development Bank (ADB), where Japan's initial contribution matched that of the U.S. Its strong position in ADB gave Japan an indirect control over the flow of multinational aid to Southeast Asia and the Asia-Pacific region as a whole. In his so-called Manila doctrine of 1977, Japanese Prime Minister Fukuda announced the creation of a special relationship between the ASEAN member-states and Japan. As part of this relationship, Japan began to update the infrastructure of Southeast Asian countries through its growing financial and technical assistance, which was followed with an influx of private investment from the Japanese archipelago.

Soon, however, ASEAN was faced with the emergence of a powerful competitor for its share of the Japanese "aid pie" - the People's Republic of China (from 1979 to 2008). For a while, Japan, being in the prime of its economic power, could afford increasing amounts of aid both to China and South East Asia. In general, the geographical structure of ODA started to diversify as a result of pressure from the West to channel more aid to the poorest areas of the planet. In 1992, the cabinet of ministers adopted its ODA Charter, which became a benchmark for selecting recipient countries. In the late 1990s, the emerging trend to scale back preferential transfers abroad was interrupted by a powerful financial crisis in ASEAN and South Korea; it will be recalled that Japan played an important role in efforts to overcome the crisis.

Soon thereafter, a conflict arose between two contradictory trends in Japan. On the one hand, responding to the Japanese corporations' persistent demands for greater participation in the development of infrastructure in Southeast Asia and China, the government promised to give them greater access to overseas projects. Parallel to this trend, an opposite, "humanitarian," motivation was gaining momentum among the Japanese elites. As a result, the revised ODA Charter (2003) formalized a comprehensive concept of human security that combined the "freedom from want" with "freedom from fear" concepts. Since then, Japanese leaders, in formulating assistance programs, have had to juggle between developmentalism and "human security," corroborating them both with humanitarian considerations and "benefits" for Japan.

Another stumbling block was the dilemma between yen loans and free grants. Grants clash with the unwritten principle of the Japanese government agencies, namely, "to lend money, start a business, make a profit, and repay the lender." Under pressure from Western donors, the share of grants continued to increase until the 2000s saw the transfers begin to include roughly equal amounts of loans and grants. An important factor in this regard is the approach promulgated in the 1990s that provided aid on milder terms to partner countries with a lower starting level of development. The least advanced countries today receive aid from Japan almost exclusively for free. For all that, the share of grants in Japan‘s overall aid volume still puts it in the last place among other DAC members .

Meanwhile, the propensity of Japanese ODA agencies to build infrastructural projects has come to contradict the global trend associated with such global issues as environmental degradation. Only a few countries in Asia Pacific are in a position to control the state of the environment, while Japan has and can use its enormous positive experience in dealing with ecological problems. Of particular interest in this respect is a large-scale integrated development project in the Mekong River basin, a meeting place of the interests of five developing countries. Japan has promised them not only large funds to develop infrastructure, but also to fight the greenhouse gases and climate changes.

The economic "maturation" of a number of ASEAN countries (Malaysia, Thailand, and others) has reduced their need for outside assistance. At present, the main priority in this field is collaboration in aligning the levels of development between the "old" and the "new" ASEAN members - which, incidentally, promises some benefits to Japan as well. Worthy of note are shifts in aid allocated to Vietnam and Myanmar (Burma), both of which were earlier largely ignored for political reasons. As a result of the interest on the part of Japanese corporations in the new economy of Vietnam this republic received more preferential payments from Tokyo in the early 21st century than China.

A decade later, when Myanmar shed off its designation as one of the "rogue states," it started attracting private Japanese investors like a magnet, which has compelled Tokyo to promise powerful ODA transfers to pull it out from the dire state of its infrastructure.

Adding particular urgency to the situation with aid to Southeast Asia is a tough and growing competition for influence on the part of China. Its foreign exchange reserves enable China to offer virtually unlimited economic assistance to the region, and one can already see not a few examples to this effect. What makes the task all the more complex for Japan is how not to "lose" all of Indochina and Southeast Asia and, at the same time, to minimize friction with China and check the flames of political rivalry in the region.
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