The government is planning to break up the Japan Bank for International Cooperation (JBIC) as an integral part of reforms aimed at the nation’s official development assistance (ODA) program. The bank’s international finance division will be reorganized into a new government-run financial institution, while the yen-loan division — which makes yen-denominated loans on easy terms — will be merged into the Japan International Cooperation Agency (JICA), which is in charge of technical assistance. At the same time, free financial-assistance projects, now under the control of the Foreign Ministry, will be transferred to JICA.

As a result, JICA will become the sole implementing agency for ODA, concessionary aid to developing countries. Also in the works is a plan to create a “strategy council on external economic cooperation” reporting directly to the prime minister.

The purpose of these plans is to establish an integral ODA system so that Japan can provide more efficient and effective assistance from the strategic perspective. Now that the role of JICA has been broadly redefined — how to handle the agency had been left unresolved due to controversy over the proposed integration of government-managed financial institutions — the government is ready to send an administrative reform bill to the Diet this month.

ODA is financial and technical assistance that helps promote economic and social development and welfare in poorer countries. It is provided either bilaterally or through international organizations like the World Bank. In 2004, Japan disbursed 962.7 billion yen worth of such aid, down 6.5 percent from the year before.

For 10 years beginning in 1991, Japan had been the world’s largest provider of ODA. Beginning in 2001, though, it slipped to second place behind the United States due to aid cuts necessitated by growing fiscal deficits.

The U.S. has increased its ODA since the Sept. 11, 2001, terrorist attacks in the belief that chronic poverty in developing countries encourages terrorism.

Japan’s quest for a permanent seat on the United Nations Security Council is believed to depend partly on its commitment to expand ODA to 0.7 percent of gross national product (GDP). Already the government has redirected its aid policy toward achieving this target. At last July’s summit of the Group of Eight industrialized countries in Gleneagles, Scotland, Prime Minister Junichiro Koizumi stated that Japan would increase the volume of ODA projects by $10 billion in the next five years.

In fiscal 2006, which begins April 1, the amount of ODA under the general-account budget is expected to drop from the previous year. Yet the total volume of ODA projects is expected to rise through increases in yen loans and debt relief. The question is whether ODA, be it in the form of yen loans, free aid or technical assistance, is being effectively used to meet the development needs of recipient countries.

The significance of ODA will be reduced if an adequate process for checking its effects, from planning to implementation, is not in place.

In the past, a vertical system of administration has led to aid overlaps as the foreign, finance and trade ministries carried out similar projects in the same country. There is, to be sure, an overall coordinating body, the Ministerial Council on External Economic Cooperation, chaired by the chief Cabinet secretary. In reality, though, this 15-member forum is said to have been rudderless for the most part.

The task for the planned strategy council on external economic cooperation, comprising five members (the prime minister, the chief Cabinet secretary, the foreign minister, the finance minister and the trade minister), should be to determine the contents of aid in a systematic and integrated manner. As for JICA, its role as the implementing agency will increase, but it must steer clear of ministerial turf wars.

It is necessary to eliminate waste in ODA, which uses taxpayer money. Full-scale, third-party evaluation is, therefore, indispensable for evaluating free financial assistance. It is important to promote cooperation with nongovernmental organizations, which are active in areas such as poverty reduction and AIDS relief, and are familiar with local conditions.

The question at issue for Japanese ODA is how best to make it a major pillar of Japan’s diplomatic strategy. The answer depends on how seriously, and effectively, the nation can meet the challenge of taking into account not only the interests of donee nations but also those of itself as a donor.

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