Asia Times: COMMENTARY: Canceling debts is bad business for Japan



	April 27, 1999	atimes.com

Japan Economy

COMMENTARY: Canceling debts is bad business for Japan
By Suvendrini Kakuchi

TOKYO - The Japanese government is studying how torelieve the debt burden of 41 heavily indebted poor nations inAfrica and other regions, an issue that ranks high on the agendaof an upcoming summit of major powers in Germany.

But critics say this initiative is unlikely to result in amassive reduction, given the economic costs Japan would have toswallow in outright cancellation.

While Tokyo is unable to undertake a wholesale cancellation ofits debt, it says its outstanding loans to these nations will beeffectively canceled by expanding programs of relief grants,according to the Foreign Ministry.

''We are looking into the proposal'' by industrializedcountries to cancel the debt of the poorest nations, said anofficial of the Foreign Ministry who declined to be named. ''But it is not possible to follow the G-7 proposal that callsfor canceling debt outright."

In trademark fashion, the official was reticent about whatJapan intends to do instead, saying only that Tokyo is looking atplans for ''meeting the cancellation plan as best as possible."

Earlier, German Chancellor Gerhard Schroeder, who will host theG-7 summit in June, proposed that the creditor nations cancel allofficial development loans to the 41 nations, termed HIPCs (heavily indebted poor countries) as identified by theInternational Monetary Fund, by the end of 2000.

Among these countries, 32 are concentrated in sub-Saharan Africa. Burma, Vietnam and Laos are among the HIPCs of Asia.

Japan, the world's largest aid donor, accounts for around 40percent of the $20 billion in bilateral aid loans to HIPCsprovided by the G-7 countries.

France follows with 25 percent, Germany 15 percent and theU.S. 10 percent. Japan's loans for 41 HIPCs totaled 980 billionyen in 1998. The United Kingdom has also unveiled a 4-point planfor helping poorer countries, including a $50 billion reduction of debt by 2000.

Japan, mindful that among the G-7 it would bear the heaviestburden of the proposal, has been a reluctant partner in the debt relief plan. In fact, observers say Tokyo was forced to say it goes alongwith the G-7 proposal to avoid the image of an ungenerous donor.

And because it feels compeled to pay the highest price for thedebt initiative of industrialized countries, Japan wants to ensurethat other G-7 members bear their share of the pain too.

This is why in return for the possibility of writing off someloans, Tokyo plans to ask the United States and European countriesto contribute more money to programs under the InternationalMonetary Fund and the World Bank designed to help poor nations andease their debt burden.

Since loans make up close to half of Japan's huge aid budget, debtrelief remains a troublesome policy

Tamaki Tsuda, of the loan-aid division of the Foreign Ministry'sEconomic Cooperation Bureau, in factsays Japan wants to nurture sustainable development in developingcountries and this means encouraging recipient countries to beresponsible in repaying loans.

In response to external pressure, Japan has already embarked onproviding debt relief to 19 HIPCs under a system where grants areextended to a country for the repayment of a prior debt. Japan also provides 10 million dollars to a World Bank trustfund set up to give credit relief to developing countries.

Officials here say that Tokyo cannot cancel its loans wholesale - for the simply reason that it cannot afford to. Doing so would hurt the average Japanese citizen, becauseJapan's aid loans come from the government's fiscal loan andinvestment program that in turn relies on the country's postalsavings and postal life insurance.

''The money [for loans] has to be repaid to Japanese peoplewho put their savings into the postal saving system because ofhigher returns compared to banks,'' explained Ikuko Matsumotoof the Friends of the Earth.

The Nikkei Weekly newspaper saidthis week that it will be difficult to give outright debt relief,given this system which could harm the assets of Japanesenationals. This may well explain why, as the foreign ministry says, anydebt cancellation will be conducted under different conditions.

''Every country has a different situation. Japan will try hardto meet Germany's proposal in its own way,'' said the foreignministry official. Thus, Matsumoto says that while Japan's announced policy ofdebt relief is commendable, it remains to be seen how far it willbe extended.

''Japan's [overseas aid] is too reliant on loans, which is not really aidbut actually business, because recipient countries must repay theloans with interest,'' she pointed out.

Japan's Asian Development Fund, designed to help Asiancountries weather the current recession, is also under fire fromaid watchers who question the real benefits that these huge loansbring to countries like Thailand and Indonesia, which are alreadybattling debt problems.

''The loans are to help Japanese companies which are involvedin the expensive infrastructure projects in Southeast Asiancountries, not really for poverty reduction,'' said Matsumoto.

In short, as the debate over the G-7 proposal for debtcancellation shows, Tokyo may have to pay more and more of apolitical price for running its aid program as a business.

(Inter Press Service)

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