Amid the nation’s continued tight finances, the Finance Ministry proposed Monday a 3.8 percent cut in foreign aid in fiscal 2005 for the sixth straight year of decrease in the initial budget.

The ministry allocated 786.2 billion yen, or roughly $7.5 billion, for official development assistance in the draft budget for the fiscal year starting April 1, down from 816.9 billion yen in the initial budget for the current fiscal year.

The proposed cut came despite the Foreign Ministry’s call for ending the downtrend in ODA expenditures since fiscal 2000. The ministry argues that ODA is Japan’s most important diplomatic tool.

Of the proposed 786.2 billion yen in ODA expenditures, 308.7 billion yen will cover bilateral technological cooperation projects, down 1.0 percent from the initial fiscal 2004 budget, and 208.5 billion yen will be used as grant aid, down 3.5 percent.

Of the remainder, 174.4 billion yen will go to the Japan Bank for International Cooperation for use in yen loans, down 6.5 percent.

According to the Finance Ministry, Japan was the second-largest donor of aid to developing countries in 2003. The United States was the largest.

Japanese aid stood at $8.9 billion in 2003 on a net disbursement basis, compared with the U.S. at $15.7 billion. France placed third at $7.3 billion, followed by Germany at $6.7 billion.

A senior Foreign Ministry official recently voiced concern that if major donors, including France and Germany, overtake Japan, it could undermine efforts led by the ministry to obtain a permanent seat on the U.N. Security Council.

But the Finance Ministry rejected the Foreign Ministry’s call for the first year-to-year increase in the ODA budget since 1999.

A Finance Ministry official said ODA spending should not be exempt from the government’s goal of reassessing various expenditures “without sanctuary,” as the ministry expects the snowballing national debt to reach 774 trillion yen at the end of fiscal 2005.

The government has yet to thrash out a breakdown of the envisaged aid programs for fiscal 2005, including exactly how much money will go to which country, the Finance Ministry official said.

With the continued austerity in the ODA budget, Prime Minister Junichiro Koizumi’s government may face greater pressure to end aid to China. Proponents of halting aid to China say country’s economy has developed to the point where it needs no more foreign aid.

The Finance Ministry accepted the Foreign Ministry’s call for 57.6 billion yen in emergency grant aid to countries that include Iraq and Afghanistan.

Japan has pledged to pay $5 billion, including $1.5 billion in grants, to help Iraq’s reconstruction between 2004 and 2007.