Staff writer The government and the ruling Liberal Democratic Party are considering creating a multibillion yen fund using low-interest yen loans to provide financial aid to foreign students in Japan, according to government and LDP sources.

The fund would benefit students coming to Japan — especially from developing countries in Asia — at their own expense rather than their governments’, the sources said.

Those students would be eligible to receive yen loans on favorable terms through the fund to finance their travel, living costs and tuition.

The fund would be designed to contribute to the development of human resources in developing countries as well as helping Japanese universities strengthen their international competitiveness through accepting more foreign students.

The fund would also help the government achieve its longtime goal of increasing the number of foreign nationals studying in Japan annually to 100,000, the sources said.

A decision on whether to create the fund will be made by the end of August, when government ministries and agencies submit their budgetary requests for fiscal 2001, which begins next April.

Although the government and the LDP are considering appropriating several billion yen for the fund for fiscal 2001, the amount could exceed 100 billion yen in the future if the scheme proves successful, the sources said.

The government began considering the fund in response to instructions from top LDP officials to work out a new scheme to provide financial assistance to foreign students in Japan.

The top LDP officials include Kazuo Aichi, chairman of the LDP’s special committee on overseas economic cooperation, and Taro Aso, chairman of the LDP’s special committee on issues regarding foreign students in Japan, the sources said.

A senior official of the Education Ministry’s Science and International Affairs Bureau confirmed the government is considering the new scheme.

“The discussions are still in their initial stage,” the official said on condition of anonymity. “Although details of the new scheme have still to be worked out, our basic position is that any increase in financial assistance for poorer Asian students in Japan will be welcome.”

Japan has retained its status as the world’s largest aid donor for the past nine consecutive years.

Yen loans are the main pillar of Japanese official development assistance extended bilaterally to developing countries. The low-interest loans are usually used to finance infrastructure projects, such as power and transport schemes. There are two other types of bilateral Japanese ODA: grants-in-aid and technical cooperation. In the early 1990s, the government introduced a system

of providing yen loans to developing countries to help offset the costs of sending students to Japan.

The problem with that approach is that the governments of developing countries cannot utilize the system unless they shoulder the greater cost of sending students to Japan to study. As a result, only Indonesia, Thailand and Malaysia have so far received yen loans under the system.

Unlike the government-to-government loan system, the planned new fund would target citizens of developing countries who wish to study in Japan at their own expense, not at the expense of their governments.

Although details of the new fund are still to be worked out, one specific proposal is circulating within the government and the LDP, the sources said.

Under the proposal, the new fund would be set up either within a new organization to be established in Japan or within an undetermined existing organization that is engaged in activities to help foreign students in Japan, the sources said.

The organization the fund is set up in would make yen loans available from the Japan Bank for International Cooperation at the lowest possible interest rate of 0.75 percent, the sources said. The JBIC is the government-affiliated aid organ created in October through the merger of the Export-Import Bank of Japan and the Overseas Economic Cooperation Fund.

Students from developing countries would be able to receive yen loans from the organization on favorable terms, the sources said. The yen loans would be repayable for up to 40 years, including a 10-year grace period.

The organization would also recruit foreign students, provide them with Japanese language training and offer them services after they return home, the sources said.

While there is support in some ministries for extending yen loans to individuals rather than governments, the Finance Ministry has expressed reservations. It fears the loans might not be repaid unless some repayment-guarantee system is established. In the case of traditional yen loans, the governments of loan-recipient countries guarantee their repayment.

In the 1980s, the government set a goal of increasing the number of foreign nationals studying in Japan to 100,000 by the year 2000, but the number of such students stood at only 55,700 in 1999 — an 8.7 percent increase from the 1998 figure.

Apparently alarmed by the government’s failure to achieve its goal, Education Minister Hirofumi Nakasone declared recently that Japan will try to double the number of foreign students in the country as soon as possible and within the next decade.

It remains to be seen what effect the proposed yen-loan fund would have on this goal.

Japanese universities and colleges are struggling to survive in the face of tougher competition for students amid a declining birthrate

Accepting more foreign students may be one way to cope with the deteriorating management condition of many universities and colleges. Critics contend, however, that universities and colleges must first improve the quality and quantity of their education to make them more attractive to foreign students.

There is also a growing call at home, especially from economic experts, for acceptance of more foreign workers to cope with an anticipated labor shortage in the future caused by the rapid aging of Japanese society. Foreign citizens who have studied in Japan may prove to be more acceptable to Japanese companies. But many Japanese companies, especially large ones, remain reluctant to hire foreigners who have studied in Japan. According to the Education Ministry, about 14,000 foreign students graduate from Japanese schools annually but only around 2,400 of them remain in the country — although more wish to do so.

Of the foreign students who work in Japan after graduation, more than 60 percent are employed by small and medium-size companies.