[ Keidanren ] [ Policy ]

Policy Proposal on
Japanese ODA and the Japan Bank for
International Cooperation

(Tentative Translation)

(Japan Federation of Economic Organizations)

September 21, 1999

Keidanren has been proposing a variety of measures to more effectively implement economic cooperation through concentration of the administrative authority for policy making on and execution of official development assistance (ODA) into one body each, as well as emphasizing the necessity of good coordination between business and the government.
It is a fact that, from January 2001, policy making on ODA will be conducted under a new administrative body since the Diet passed the Basic Law on the Administrative Reform of the Central Government last year.
Meanwhile, on October 1, the Japan Bank for International Cooperation (JBIC) will be created by unifying the Overseas Economic Cooperation Fund (OECF) and the Japan Export and Import Bank (JExim) as an ODA implementation body. JBIC will not only possess outstanding loans comparable in scale with the World Bank but will also become a unique government organization equipped with all the investment and loan provision functions required to formulate and implement projects in developing countries.
At this important juncture, Keidanren intends to renew its call for the improvement of Japanese ODA as well as to point out the requests from business sector for the JBIC to function to its full capacity.

  1. Renewing our call for the improvement of ODA
    1. Assistance means transferring business sector experiences
    2. Following its defeat in World War II, Japan regained its strength thanks to the generous assistance of the international community. The level of technological sophistication and vast know-how of today's Japan could not have been achieved without them. For such a country, contribution toward the economic prosperity of other developing countries is an act of international obligation.
      To accomplish this duty of transferring Japan's know-how, it is absolutely necessary that the government listen to the business sector, which has accumulated experience and technology over the years. With such a business-government coalition in technology transfer at the heart of assistance policy, Japan's assistance will be better appreciated not only by its recipients but also by Japan's own people.

    3. Plan assistance together with business and ensure transparency
    4. According to an OECD-DAC report in 1997, 75% of the capital flow into developing countries was from the private sector. Of funds contributing to the prosperity of developing countries, increase in the proportion of private sector funds is on the increase. Since 1997, it has been Keidanren's stance that business-government cooperation is from the very beginning stages of assistance planning. International assistance organizations are also following in its path. For example, the World Bank's Comprehensive Development Framework (CDF), made public in January 1999, calls for utilization of private sector experience in its own activities.
      Japan's Medium-Term Policy on Official Development Assistance (ODA), released in August, is worth mentioning in this context, as it emphasizes the importance of the private sector and recognizes the necessity of a thorough approach to business in order to deepen ties. However, the process of drafting the Medium-Term Policy was not made open to the public, nor was the involvement of the private sector satisfactory. This obviously reveals that there is still a room for improvement in the business-government relationship.
      The government is expected to draft country-specific assistance plans. At this time and during the next drafting process of the Medium-Term Policy, the government must further promote business-government dialogue while making its policy making process transparent by fully disclosing its intentions well in advance.

    5. Grants and Yen Loans
    6. Currently, Support for Economic Reforms by Setting up an Emergency Special Interest Rate System for Yen-denominated Government Credits with Quick Disbursement, a program specially targeted to assist Asian countries and under which Japanese companies would become initial contractors, is under implementation. Keidanren appreciates this program, as it will effectively utilize the know-how accumulated by the private sector during the post-war period. To effectively transfer Japanese business know-how to developing countries, Keidanren requests the Japanese government to effectively expand Japan-tied assistance that will be well received internationally, as was the case with this special loan program for Asia. This type of assistance must be implemented, however, as a regular practice and as the core of the Yen Loan programs.
      To effectively contribute toward the economic prosperity of assistance recipients through timely implementation, the current implementation procedures must be overhauled and shortened. For example, the length of time required for development surveys, the length of time required between the request and pledge of assistance, and the length of time between the pledge and exchange of notes must all be shortened. Also, as the length of time between the pledge and loan contract is very long, bidding must be permitted once the pledge is made, based on the urgency of the project concerned whereas at present bidding is forbidden until the loan contract is complete. Provision of Yen Loans to on-going projects must also be considered when necessary for the recipient country, suddenly troubled by changing economic conditions as has happened in Asian countries in recent years.
      Keidanren recognizes that there is a move to untie grants (and technical cooperation) toward LLDC countries. However, grants are for the purpose of providing the technological know-how of each donor nation to the recipient, and it is therefore essential that tied nature of grant assistance be maintained.

    7. Assistance for project operations and maintenance
    8. Over the years Keidanren has been calling for an effective combination of ODA tools, such as grants, technical assistance and Yen Loans. In renewing its call, it also requests the incorporation of assistance for operation and maintenance of project following their planning and construction phases.
      For example, Yen Loans could be used for construction assistance, while technical assistance and grants for project rehabilitation could be used for operation and maintenance. The aim of this renewed call is to further enhance and improve project effectiveness and to increase the appreciation of the recipient country by providing a packaged assistance when construction on the project is done by Japanese companies. In another words, only through such a packaging can the assistance be fully recognized as a Japanese aid program.
      In conjunction with this renewed call, The Private Sector Advisor Scheme of the Japan International Cooperation Agency (JICA) must be further promoted as this scheme facilitates the transfer of business sector know-how to developing countries by businesspeople on the government's behalf.

    9. Direct investment of government funds must be multiplied
    10. Keidanren highly appreciates the New Initiative announced by the Japanese Finance Minister Mr. Kiichi Miyazawa in October 1998, which is playing a part in relieving the financial crunch in Asian countries. It is also known that the Initiative in effect includes loans and guarantees to the private sector, including the local subsidiaries of Japanese companies. On the other hand, as assistance targets the economic prosperity of developing countries under the principle of local ownership, additional support for local businesses through direct investment is necessary.
      It is also essential for the Japanese government to inject public funds directly into the equity of the private sector of developing countries, including the subsidiaries of Japanese companies. Through such direct investment, it will enable the promotion of projects that support key industries in the developing countries.
      In implementing injection of public funds into the private sector of developing countries, the government should make efforts to maximize the effect of these investments by utilizing Japan International Development Organization (JAIDO), which was established as the fruit of business-government cooperation.

    11. Further reform of implementing organizations required
    12. As it has been decided to reform the central government ministries and agencies in January 2001, JICA investment and loan programs for development (for experimental projects and investment-related infrastructure) must be transferred to JBIC. At the same time, all implementing organizations under the umbrella of almost all central government ministries must be removed: grant and technical cooperation schemes must be integrated into JICA, and public financing related to economic cooperation must be integrated into JBIC.

  2. Calling on JBIC to:
    1. Maximize the effects of integration
    2. In a paper issued in January 1998, Keidanren made a call to maximize the effects of integrating JExim and OECF into JBIC, especially by removing all redundancies and improving efficiencies. JBIC must be applauded for having been equipped with integrated sections not only for screening and research but also for the overseas investment section of the OECF's merger with the investment financing section of JExim. The resulting JBIC is expected to have a single section dealing with privately funded infrastructure projects.
      It is hoped that the effects of integration will be further enhanced by removing superfluities, as well as by promoting flexible and timely services.

    3. Achieve flexible coordination between the economic cooperation and international finance sections
    4. In order to realize the positive effects of integration, flexible and close coordination between the economic cooperation and international finance sections within JBIC is essential. Of course, the two accounts must be clearly distinguished, but the two sections must stay in close contact, be flexible in approach, and be coordinated in approaching projects taken up by Japanese companies.
      For example, in privately organized infrastructure projects, the Yen Loan could be provided for the portion less feasible for the private sector (i.e., basic infrastructure such as water, sewerage, electricity, and access roads) and Export and Investment Credit could be provided for the more feasible portion (i.e., construction of industrial park). Through such support, the feasibility of privately funded projects will improve, and developing countries will have a better chance of enhancing their economies.
      In addition, JBIC should display a positive attitude towards privately funded infrastructure projects required by developing countries through offering project finance.

    5. Speed up screening procedures
    6. JBIC must effectively utilize the expertise accumulated by JExim and OECF, as well as other feasibility study support schemes, in order to promote and speed up screening of the Yen Loan and investment/loan projects. For example, the length of time necessary for screening and formulating finance schemes for Yen Loan and project finance must be drastically reduced. JBIC should also disclose standard screening procedure based on published procedure manuals so that recipient countries and companies involved will more easily be able to predict the outcome.
      Keidanren will keep its eyes on the flexibility and timeliness of JBIC as it will be governed by several different ministries.

    7. Better collaborate with JICA
    8. OECF/JICA collaboration has been taking place, such as utilization of the JICA scheme for detail design of Yen Loan designated projects, though not sufficiently. A new system to materialize the results of surveys into actual projects must be created through close collaboration between JBIC and JICA.
      The material development surveys of JICA must be conducted in collaboration with project formulation promotion surveys so that project formulation becomes smoother.

    9. Conduct frequent consultations with Japanese companies
    10. Japanese companies possess extensive experience doing business in developing countries, especially regarding local requirements, accumulated through years of business activities. JBIC must, from its inception, hold frequent consultations with JICA and Japanese companies in order to ensure, based on business experience, the smooth and effective implementation of the assistance tools available, such as feasibility studies, project formulation, provision of ODA, and provision of other official funds.

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