Japan's International Contributions and the Role of Its Economic Cooperation in the Post-Cold War Era

Developing New Economic Cooperation For Sustainable Global Economic Growth

December 20, 1994
Keidanren
(Japan Federation of Economic Organizations)

Introduction

At the same time, there are expectations for Japan to play the role of the top donor under the Fifth Medium-Term Official Development Assistance Target as well as new capital cooperation plans. However, it is difficult to administer ODA allocations efficiently and effectively, because of the following reasons: a) the implementation structure for ODA has not kept up with increases in volume; b) as a result of the appreciation of the yen, some recipient countries are moving away from yen loans; c) Japanese corporations are increasingly openly distancing themselves from ODA, as yen loans become increasingly untied; and d) there has been little progress in the creation and construction of an assistance program which meets actual conditions in developing countries.

During 1994, Keidanren dispatched economic cooperation policy dialogue missions to the United States, Canada and Europe, and exchanged opinions with governments, parliaments, assistance implementation organizations, privately-based NGOs, research organizations and international organizations such as the World Bank. Through such dialogue, it has become obvious that there is worldwide recognition of the fact that there is a limit to the amount of economic development that can be achieved in developing countries solely through public funds such as bilateral ODA, and of the fact that there is a worldwide shift towards incorporating corporate investment and trade, as well as grass-roots level cooperation through NGOs, into economic cooperation.

The world trend in economic cooperation has opted for the path of using the private sector, and the time has come when Japan, too, must effect a fundamental transition in the modality of economic cooperation, which currently places government bureaucracies in the primary role. There is a need to recognize that, without effecting a transition in the framework for consideration of modalities for Japan's economic cooperation, it will be extremely difficult to achieve Japan's goal of international contributions through economic cooperation.

Needless to say, in the development of corporate operations in developing countries, based on the spirit of the Keidanren Global Environment Charter, we must strive to increase the welfare of humankind and environmental conservation on a global scale through sound economic activities.

I. The Goals of Economic Cooperation in the Post-Cold War Era

The role of economic cooperation as the most important pillar of Japan's international contributions

Economic cooperation is the sector best suited for reflecting Japan's international leadership in international contributions; and in Japan's foreign policy, international contributions are identified as the most important pillar. After gaining the understanding and support of the people of Japan, and with the broad participation of the people at all levels, we must implement aid which will be welcomed by the recipient country.

Japan's international contributions in the economic sphere consist of: first of all, expanding domestic demand and implementing market-opening measures, deregulation and the results of agreement reached during the Uruguay Round of talks, in order to provide markets and opportunities which will promote world economic growth, including growth in developing countries; and secondly, preparing an environment which can promote stable economic growth in developing countries through economic cooperation in the form of a comprehensive assistance system encompassing capital, technology, know-how and personnel. When these are supported by private-sector direct investment and self-help efforts by developing countries, economic cooperation is able to achieve great results.

With the conclusion of the Cold War, the circumstances affecting international security have drastically changed, and we have entered a period in which crisis control has become difficult. In such a period, even more important than military force or peace-keeping operations are other forms of comprehensive security guarantees; such guarantees are needed to stop conflict before it arises, through the promotion of economic development which brings domestic stability, and through the establishment of social order. In this regard Japan, as a small country militarily but a big country economically, has an extremely important international role to play. In this way, Japan's contributions are linked to maintaining and developing the free trade regime under which Japan stands, and any burden which the people bear towards that end is a burden which should be borne for the next generation, and is appropriate to the interests of the people of Japan.

Sustainable global economic growth as a common goal for the world

As mentioned above, global circumstances affecting security guarantees have drastically changed, and we are now forced to address global issues, such as population growth and environmental issues. It is in precisely such a period that sustainable global economic growth has become important in the effort to maintain and improve the foundation for the activities of all of humankind.

This is why the international community should recognize the importance of economic cooperation towards the realization of sustainable global economic growth, and it is time to review the framework for economic cooperation which was formed during the Cold War.

In order to respond to many issues in the post-Cold War era, it has become absolutely essential that, with the common world goal of sustainable global economic growth leading to world peace and prosperity, the partnerships, on the international scene, among States and international organizations, and on the domestic scene, between the government and the private sector (corporations, NGOs, academic institutions, etc.) be enhanced.

New development of Japan's economic cooperation

In light of the new world trend in economic cooperation towards an increasing role for the private sector, there is a growing need to strive for new development in Japan's economic cooperation. To achieve this, the following measures must be taken.

1. The traditional decision-making process in which the bureaucracy takes the initiative should be reviewed, the barriers resulting from the overcompartmentalized structure of bureaucratic agencies in charge of ODA should be removed, and ODA budget allotments should be made less rigidly.
2. In order to respond to the expansion in the volume of ODA, the private sector (corporations, NGOs, academic institutions, etc.) and local governmental bodies should be urged to participate; their respective roles should be expanded, and increasingly effective economic cooperation should be implemented through coordination between the government and the private sector.
3. International assistance should be made the most important element of Japan's international policy, and ways must be found to obtain Japanese people's understanding and support for international contributions. A highly transparent, effective ODA implementation structure should be created, and public relations and educational activities focusing on ODA should be enhanced.

II. Proposals

The following four principles will serve as the basis for proposals:

1. Moving away from economic cooperation centering on the government towards greater cooperation with the private sector (corporations, NGOs, academic institutions, etc.);
2. Development of comprehensive economic cooperation;
3. Placing greater emphasis on the role of NGOs;
4. Promotion of sustainable development.

Proposal 1.
Demonstrating leadership and implementing a comprehensive assistance policy by Japan

In addition to economic development in developing countries, there is a need to: a) formulate comprehensive and specific policies dedicated to resolving global issues and assisting economies in transition; b) create a framework which can make full use of Japan's personnel, technology and know-how; and c) promote the establishment of a research institute to study matters related to economic assistance for developing countries. Japan, too, making use of the experiences of East Asia, should advance comprehensive assistance policies which support the building of a foundation for the development of developing countries through the training of human resources, institution building and technical cooperation.

The need for a vision and an assistance strategy, and revamping the Council on Foreign Economic Cooperation

Through broad-based participation of the private sector (corporations, NGOs, academic institutions, etc.) and a free exchange of opinions, progress must be made on the creation of a vision for economic cooperation that meets the needs of the 21st century (promoting Japan's peaceful diplomacy, contributing to the resolution of global issues, promoting economic development that is harmonious with the environment, emphasizing the private sector, etc.).

In order to achieve that, the Council on Foreign Economic Cooperation, which serves as an advisory organization to the Prime Minister, should be revamped, and such steps should be taken as greatly increasing the number of private-sector Committee members, with a view to revitalizing economic cooperation.

Reviewing administrative and budgetary facets of ODA in order to respond to new needs

As can be seen in the adoption of the ODA Charter, the promotion of policy dialogue with developing countries, reviews of request-based ODA, and the positive approach taken to deal with global issues, a new direction is now being taken in Japan's economic cooperation. However, the actual decision-making process and fiscal and implementation structures of ODA remain, for the most part, unchanged. There are restrictions which stem from the fiscal structure: the ODA budget suffers from an unbalanced ratio of the General Account to fiscal investments and loans -- the source of grants is the general account, while the source of fiscal investments and yen loans is postal savings). Another problem is the overcompartmentalized nature of budgets implemented by each ministry and agency. The end result has been a delay in responding to new policies. There is a fundamental need to review this rigid and hardened ODA modality, with a view to responding to new needs.

In particular, efforts are needed to increase the effects and results of ODA, namely, by eliminating the structural divisions set up by ministries responsible for ODA (e.g., the Ministry of Foreign Affairs and the Ministry of Finance), thereby linking the financial assistance provided by the OECF (Overseas Economic Cooperation Fund) with the technical cooperation provided by JICA (Japan International Cooperation Agency). Furthermore, bearing in mind that there will be a review of semi-governmental organizations, there is a need to solve the issue of settling the division of responsibilities between the OECF and the Export-Import Bank of Japan, thereby removing any factors which inhibit cooperation between private-sector and public-sector funds.

Considering modalities for yen loans and diversification of the assistance menu

In recognition of the fact that appreciation of the yen has a great impact on countries which have been provided yen loans, consideration must be given to: a) program identification and the formation of programs by the private sector; b) optimum ways to offer ODA in the form of yen loans; c) the appropriate amount for yen loans; and d) higher levels of grant aid and technical cooperation.

In particular, in responding to global environmental issues and to least developed countries (LLDCs) in Africa and elsewhere, in addition to grant cooperation, there is a need for the Second World Bank (International Development Association) to offer soft loans with considerably flexible conditions -- for example, no interest, and a 40-year repayment period. Furthermore, consideration should be given to creating assistance methods which combine technical cooperation, grant cooperation, and soft loans with extremely flexible conditions.

Increasing support for global environmental issues and for economies in transition

In addition to assistance for economic development, cooperation on global issues and matters affecting economies in transition should be advanced as the new style of Japanese economic cooperation, and the time has come when Japan should demonstrate leadership in the formation of multinational frameworks. In that process, a framework should be created in which not only capital cooperation but also Japanese personnel, technology and know-how can be directly applied, flexible use should be made of ODA and OOF (Other Official Flows -- that is, the flow of Export-Import Bank of Japan loans and other non-ODA loans), and cooperation should be enhanced with the private sector.

Creating a framework for assistance research and enhancing assistance personnel expertise

In order for Japan to increase its ability to create a vision for economic cooperation, efforts must be made to expand development research and education in universities, and to foster and enhance development-related think tanks such as FASID (Foundation for Advanced Studies on International Development). Furthermore, the respective research which is being implemented by the government and by the various assistance implementation organizations should be compiled, and a process in which the results of that research are actually reflected in the formulation of assistance policy should be established. Furthermore, the results of this research should be made publicly available in a manner that will allow the public to access them easily.

Moreover, it is an urgent task to train assistance experts who can appropriately respond to the new needs for assistance, and therefore, further training of assistance personnel through ODA should be pursued.

The need for wide-area assistance which crosses multinational borders

In responding to issues of a regional or global scale which cross multinational borders, such as environmental issues, it has become difficult to respond solely with the traditional project-based or country-based bilateral ODA approach. We now face the urgent task of considering a framework for economic cooperation to regions which extend over more than one international border.

Promoting institution building and human resource development for economic and social development in developing countries

With a view to increasing the capacity of developing countries to accept assistance, cooperation should be extended for institution building through the dispatch of advisors to assist in the development and implementation of economic policies in developing countries, the development of proposals for industrial policies and foreign capital policies, the creation of legal systems and financial systems and the promotion of small and medium enterprises; and the investment environment of developing countries should thereby be improved and market mechanisms developed.

Furthermore, at the industrial level as well, it would be desirable to further expand policies through ODA and OOF to promote the establishment and operation of training organizations, to further expand the implementation of human resource training programs in Japan and in third countries, and to foster the private sector in developing countries (small and medium enterprises, private-sector organizations, etc.).

Promoting recipient countries' understanding of sustainable development

In responding to the new global-scale need to simultaneously achieve environmental conservation and economic development, there is a need to gain the understanding of the governments and peoples of developing countries. Towards that end, there is a need for donor countries and international organizations to enhance policy dialogue and to advance educational and public relations activities directed at the people of recipient countries. In order to gain understanding both in Japan and abroad, there is a need to greatly increase the budgetary allocations for public relations activities focusing on ODA, with a view to ensuring Japan's assistance programs are recognized as "visible, human-oriented ODA."

Proposal 2.
Enhancing cooperation between ODA and the private sector for economic development in developing countries

So that ODA and private-sector activities might function effectively as a team in the economic development of developing countries, we must further enhance a framework which will allow these two elements to be more effectively linked and to create a synergetic effect. ODA should be used to support private-sector investments, private-sector corporate assistance for developing countries, and NGO activities, and further trials should be conducted on ways these elements can be put to work for economic development in developing countries. Furthermore, depending on the specific project theme, as for the main implementation body for ODA, private-sector corporations and NGOs should be used, and greater efficiency aimed for. In particular, in the dispatch of experts to developing countries, the further use of corporate human resources (for example, the "Experienced Japan Overseas Cooperation Volunteers" (provisional name) is needed).

Expanding public resources for the promotion of private-sector loans and investments, and enhancing capacity for government guarantees

Although Japanese corporations have a large role to play in private-sector economic cooperation, through such measures as investments, loans and technical cooperation, in light of the political and economic risks involved in developing countries, there is a limit to what can be achieved if all is left solely to the mechanisms of the market. There is a need to enhance the fiscal foundation of the export-import insurance system, and to ensure flexible operation and transparency in the operations. Furthermore, consideration should be given to fundamental reform measures, for example, by privatizing the management of such insurance schemes over the medium to long term.

Furthermore, privatization is currently underway in developing countries and in nations whose economies are in transition, and a situation exists in which assistance for ODA cannot be gained regarding the creation of infrastructure through the BOT (Build, Operate and Transfer) method. In order to promote the participation of private capital in infrastructure-sector BOT, there is a need to enhance the guarantee capacity for BOT projects of the OECF (Overseas Economic Cooperation Fund) and the Export-Import Bank of Japan.

For countries whose public debt has been reduced, and for countries whose debt has been rescheduled, fiscal authorities should consider the international political and economic environments, and should take a flexible approach, so that the Japanese private sector can provide new money. In particular, from the perspective of enhancing the government's guarantee capacity, there is a need, when determining conditions of Japan's export-import insurance policies, to provide flexible treatment for countries whose public debt has been reduced and for countries whose debt has been rescheduled, providing full consideration on a case-by-case basis.

Establishing assistance policies and creating programs utilizing joint efforts of the public and private sectors

With a view to achieving overall economic development in a balanced manner in developing countries, the Japanese government and the private sector should work together, coordinating assistance policies and drawing up plans for the regional and sector-specific development of developing countries; the government and the private sector should also pool their expertise when planning comprehensive regional-development programs. Furthermore, in policy dialogue with developing countries, corporations, NGOs, academic institutions, and the like should be added, with the goal of identifying projects and formulating programs which match the aspirations of people and corporations, and efforts should be made to further promote practical cooperation and communication between the government and the private sector (in such ways as sharing information and developing a common understanding). As one aspect of that, in order to proceed with the creation of programs incorporating the technical and management know-how that has been acquired by Japanese corporations, it would be desirable to establish a "Program Formation Fund" and promote Japanese assistance which is "visible, human-oriented ODA," so that programs can be proposed, planned and implemented through the initiative of the private sector.

JAIDO (the Japan International Development Organization, Ltd.), which advances projects aiming at the promotion of industries which will earn foreign exchange for developing countries, is an important model of cooperation between the government and the private sector, and has extremely high expectations from abroad. JAIDO is being counted upon to play the role of a bridge for transferring the experiences, technology and management know-how of the private sector to developing countries, and efforts should be made to expand its fiscal and functional capacities so that it can play the role of filling the gap between the government and the private sector in ODA.

Furthermore, efforts should be made to introduce human resources from the private sector into executive positions of OECF, the Export-Import Bank of Japan and JICA, which implement Japan's ODA and OOF (Other Official Flows), in order to advance personnel exchanges among the related government and private-sector organizations.

Drawing upon private sector expertise

Although JICA has played a central role in technical cooperation, due to the increase and diversification of assistance needs, the JICA staff alone is unable to respond sufficiently. In particular, regarding issues such as industrial technology, environmental and pollution problems and privatization, the private-sector corporations have greater human resources, technology and know-how, and mechanisms should be devised to further use private-sector corporation human resources in ODA. Furthermore, there is a need to make great effort to make use of the wisdom and experiences of academics, research organizations, NGOs and other knowledgeable sources.

After making the cost of human resource dispatches more appropriate, ODA should bear these costs, thereby enabling the use of private-sector corporation personnel for economic cooperation. The government dispatches experts to developing countries using a complicated system which is operated separately by each relevant ministry and agency. This overcompartmentalized and inflexible system should be integrated into a single, uniform one.

Furthermore, although Keidanren is presently considering a system for the dispatch of experts on a private-sector corporate basis, provisionally called the Experienced Japan Overseas Cooperation Volunteers, the question of how this volunteer group would draw upon ODA resources remains an important issue.

Proposal 3.
Enhancing international assistance coordination

Furthermore, there is a need to review the overcompartmentalized control exercised by individual ministries and agencies in their dealings with international organizations, and to create broad-based cooperative relations in which can be conducted free dialogue among international development financing institutions and assistance implementation organizations, such as JICA and the Japanese private sector.

In addition, Japan should play a leadership role in the creation of a framework that further promotes an exchange of experiences and that links together the international assistance efforts of the industrialized countries of Europe and North America, and industrializing countries.

Increasing Japanese staff and executives in international organizations

There is an urgent need to create a structure for dispatching human resources to international organizations. Therefore, as a transitional measure ODA financing is required to train Japanese trainees at international organizations.

Furthermore, the number of Japanese executives working at international organizations should be increased, and directors of such organizations should be selected in a flexible manner that does not depend upon the Ministry of Finance.

In order to increase the number of staff seconded for long-term periods from private-sector corporations to international organizations, there is a need to urge greater flexibility in the application of the necessary qualifications for selection by international organizations (possession of a Ph.D., etc.).

Also, the government and the private sector should jointly study such matters as the establishment of incentives. These incentives could take such forms as: a) compensation for seconded individuals during the time they are posted to an international organization, to make up the difference in salary between their private-sector compensation package and their compensation from such international organizations; b) tax exemptions for their pension and health insurance schemes; and c) a qualification system which allows their experience abroad to be included when considering their candidacy for promotion in their corporations after they return to Japan.

Furthermore, in addition to regular full-time employees, there is a need to consider methods to dispatch teams of Japanese to international organizations in the capacity of consultants.

Increasing Japan's ability to communicate ideas on ODA

In order to increase Japan's ability to communicate ideas regarding development assistance, international research into development assistance theory and policy should be enhanced, and academic and research-oriented organs should be upgraded.

Also needed are efforts to provide information throughout the world by, for example, creating a model for economic and social development based on the experiences of Japan and of East Asia.

Enhancing cooperation and dialogue on assistance with the industrialized countries of Europe and the United States, and with industrializing and other countries

In order to effectively use the limited assistance resources available, and thereby work towards the existence of even one more country which has graduated from assistance, it is important to maintain coordination among donor countries. With the spread of global problems to specific regions, there is a need for further assistance cooperation in issues which require international coordination. Each donor country has its own respective principles, methods and implementation structure for assistance, and in actual assistance coordination, the particular characteristics of each nation should be made use of, and it would be desirable to build relations that are mutually complementary, in which the respective parties share their wisdom. In addition, there is a need for participation of the private sector in dialogues on government policy.

The East Asian region is now regarded as the center of world economic growth. Japan should strengthen its links with this region, giving greater support to East Asian countries' assistance programs for lessor developed Asian countries, and supporting South-South cooperative efforts providing aid to the world's least developed nations everywhere, particularly in Africa. As concrete examples of significant forms of assistance, Japan should give aid-related support to countries which formerly received international assistance but are now providing it, and should offer layered assistance that uses Japan's ODA resources to finance training programs for trainees from less developed countries; this training would be conducted mainly in Asian countries which are in the process of industrializing.

Proposal 4.
Enhancing economic cooperation in which the people can participate

Securing budgetary resources for NGOs

The procedures philanthropic organizations must take to gain government approval as non-profit organizations should be simplified. In addition, tax incentives, such as tax exemptions and deductions from taxable income, should be used to promote individual and corporate donations to NGOs.

Enhancing the human resources of NGOs

Many of the operations of NGOs in Europe and the United States are supported by NGO staff who have highly specialized knowledge, and the Government of Japan, too, should make use of ODA and other means to provide cooperation in the education and training of specialists involved in international cooperation. However, in the handling of such assistance, it is necessary to give consideration to not weakening the independence of NGOs.

Expanding the activities of NGOs

In order to foster the people's appreciation of the importance of international contributions, NGO operations should be covered at schools and at adult education courses, in addition to which companies should, as good corporate citizens, establish measures within their organizations which promote international activities.

Keidanren, too, is enhancing its assistance to NGOs, through the activities of its Nature Conservation Fund. We intend to deepen our dialogue with NGOs.

Proposal 5.
Advancing ODA which can gain the support of the people

In both Japan and countries receiving Japanese assistance, more emphasis should be given to educational and public relations activities, as a way to ensure that people truly understand the role ODA performs, and the need for international assistance programs.

Economic cooperation based on clear priorities and policies

In order for the Japanese people to gain a deeper appreciation of ODA, and in accordance with the thrust of polices such as those set out in the ODA Charter, the Government should state, in a more concrete manner, its vision of economic cooperation, a vision based on a long-term, comprehensive perspective. In order to respond to the criticisms that ODA has traditionally been implemented in a piece-meal manner, by collecting recent information, appropriate, country-specific assistance policies should be created. Further, through policy dialogue, efforts should be made to implement fully consistent economic cooperation. Moreover, there is a need for flexibility in the distribution of assistance budgets, which should be made in conformance with policies.

ODA which will meet with the approval of the people of Japan as well as of the people of recipient countries

In order to increase the evaluation of Japan's assistance by recipient countries, there is a need to implement programs that can be clearly recognized by the people of those recipient countries as having definite assistance results, such as enhancing socioeconomic infrastructure, expanding employment opportunities, and complementing the basic humanitarian needs (BHN) of the people. Furthermore, there is a need to enhance follow-up and after-care activities based on evaluations made after the completion of assistance in the implementation of ODA which is clearly visible and meticulous. Furthermore, public relations activities, both in Japan and abroad, regarding Japan's ODA for recipient countries, should be strengthened.

Conclusion

Recognizing at this time that it is the duty of every Japanese to contribute to sustainable global economic growth leading to world peace and prosperity, and to contribute also to the international community, we must fundamentally review the modalities for Japan's economic cooperation as we approach the 21st century and create a new modality for economic cooperation in which broad-based participation by the people can be achieved through activities by corporation, NGOs, academic institutions, etc.

We hope that these proposals will serve to light the spark for the promotion of mutual understanding among wide-sweeping grass-roots levels, beginning with government, corporations, NGOs, academic institutions, etc., and for a new, concrete approach with a view to the development of new economic cooperation by Japan.

Endnotes

1. ODA: Official Development Assistance
   
   1. ODA is a flow of capital which meets the following three conditions:
      1. Assistance provided by governments or official agencies.
      2. Assistance whose primary aims are the promotion of the economic development and welfare of developing countries.
      3. The financial assistance has a grant element of at least 25%, to ensure that conditions of assistance do not result in a severe burden on recipient countries.
   2. ODA is provided in a number of ways, mainly in the form of grant aid, technical cooperation, capital subscriptions and contributions to an entity such as a United Nations organization or a multinational development bank, and government loans.

2. NGOs: Non-Governmental Organizations
   The term, NGO, was originally used by the United Nations. NGOs are private, non-profit organizations doing philanthropic work at the international level. The International Red Cross is an example of an NGO. In this policy proposal, the term is used in the sense of a voluntary, citizen-based organization involved in international philanthropic activities. This definition of an NGO therefore does not include quasi-government organizations established as part of government policy, even though such organizations are, legally speaking, private, nonprofit foundations.

3. OOF: Other Official Flows
   
   1. OOF are flows of government funds, other than ODA, from a developed country to a developing country.
   2. One example of OOF is capital assistance provided by a source such as the Export-Import Bank for export credits, direct investments, or development projects.

4. FASID: Foundation for Advanced Studies on International Development
   FASID was established in March, 1990, by Keidanren and the Ministry of Foreign Affairs of Japan, as a core organization promoting the concept of an "International Development University." Since its establishment, FASID has worked in association and in cooperation with Japanese and foreign universities, other institutions of higher learning, research centers and organizations providing assistance. FASID provides training and does research in Japanese assistance-related skills.

5. BOT: Build, Operate and Transfer
   A method whereby private companies build infrastructure, plants and the like in developing countries; these facilities are then operated by the companies for a specified period of time, with revenues being used to recover the total cost of construction. Thereafter, ownership of the facilities is transferred to the government or the public organization in the country concerned.

6. JAIDO: Japan International Development Organization, Ltd.
   JAIDO was established in April, 1989, by Keidanren, with assistance from the Government of Japan. JAIDO supports investment projects and joint projects, enabling developing countries to obtain foreign currency and create jobs, thereby promoting economic growth in developing countries. During the five years since its establishment, JAIDO has approved investments worth approximately 4.9 billion yen, for 35 projects in 19 countries. These projects have a total budget of 107.6 billion yen, creating jobs for 43,000 people.

7. BHN: Basic Human Needs
   Basic human needs are the minimum requirements in food, housing and clothing, and indispensable services which local communities need, such as safe drinking water, equipment to maintain sanitary conditions, the means of public transport, health care and education.