The government announced Friday it will lift a three-year-old moratorium on financial aid to Pakistan and India in an effort to help stabilize the region adjacent to war-torn Afghanistan.

The Cabinet has approved a plan to lift the ban, which prohibited new grants and official development assistance, imposed in May 1998 after the two nations conducted a tit-for-tat series of nuclear tests.

"Japan highly values the ongoing efforts by India and Pakistan to help unite the international community in our battle against terrorism," Chief Cabinet Secretary Yasuo Fukuda said in a statement released later Friday.

"The stability of and cooperation from Pakistan are extremely important in the fight against terror, and we need to support that country, embattled with many domestic difficulties, from mid- and long-term perspectives."

He added that Japan will also seek to strengthen its ties with India, a country that "is expected to play a significant role for a stable South Asia as well as future antiterror operations."

As a basis for lifting the ban, the government cited pledges by both India and Pakistan to maintain a moratorium on further nuclear testing.

Pakistani President Gen. Pervez Musharraf, who spoke with Prime Minister Junichiro Koizumi over the phone on Oct. 17, asked for the ban to be lifted, claiming that Pakistan would suffer annual economic losses of up to $2.5 billion due to domestic disorder.

During this conversation, Musharraf also asked Koizumi to write off Islamabad's debts to Tokyo, which total $5 billion.

"As for the debt cancellation, we cannot accept that at the moment," said Shinzo Abe, deputy chief Cabinet secretary. "But we will continue to watch the situation surrounding Pakistan."

The Foreign Ministry is now considering the amount and timing of fresh economic assistance packages to be extended to both nations, ministry sources said.

Diplomatic maneuver

A special envoy from Islamabad will visit Tokyo next week to fill in Prime Minister Junichiro Koizumi on conditions in Pakistan amid the U.S.-led military activity in Afghanistan.

Pakistani Financial Minister Shaukat Aziz will visit Koizumi and other Japanese officials between Wednesday and Saturday, the government said.

This diplomatic maneuver was agreed on by Pakistani President Gen. Pervez Musharraf and Koizumi during their telephone conversation on Oct. 17, government officials said.