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No. 6 — February 12, 1999

 

Feature Article

JAPANESE FOREIGN AID: A LIFESAVER FOR EAST ASIA? by Marc Castellano

Summary

Continued turmoil defined 1998 for the economies of East Asia. Japan — itself in the throes of a stubborn recession — was no exception. However, the condition of its neighbors had a profound effect on Japan's foreign aid policy, focusing it on facilitating their recovery. With the general account-funded part of the official development assistance budget taking a big hit in FY 1998, other forms of aid took on greater significance.

The most important of these were the $30 billion Miyazawa Plan introduced in October and a ¥600 billion ($5 billion at ¥120=$1.00) loan facility announced in December. Each is geared toward helping East Asian economies cope with problems that show no signs of going away quickly. With prospects for regional recovery interconnected, Tokyo incorporated other assistance provisions in its record-breaking November fiscal stimulus package. Yet another idea was put forth at last year's Asia Pacific Economic Cooperation forum summit. The Asian Growth and Recovery Initiative would pool as much as $10 billion from Japan, the United States, the World Bank and the Asia Development Bank to fund restructuring and reform efforts in developing East Asia.

Japan has contributed more than any other nation to East Asia since the regionwide financial crisis began in Thailand in July 1997. Its efforts certainly are welcome but are not necessarily as noble as may be commonly perceived. Japan's two-way trade with and investments in the countries of East Asia are important to its business prospects. Equally significant, part of the new aid is tied, meaning that substantial benefits will flow directly back to Japan. Tying its aid to domestic procurement likely will draw criticism from abroad, but political support at home for this course seems firm.

The East Asian-directed initiatives Tokyo has announced to date could indicate that Japan finally is prepared to play a greater role as a world power, one commensurate with its economic might. Development assistance, traditionally defined, long has been the government's primary foreign policy tool. With economic turmoil roiling East Asia, a new, broader form of aid has moved to center stage. How effectively Japan implements its commitment to help neighboring countries will profoundly affect not only its often shaky standing in the region but also its much-criticized international position.

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Weekly Review

WASHINGTON USES DAVOS CONFERENCE TO PRESS TOKYO ON ECONOMIC ISSUES by Douglas Ostrom

The World Economic Forum, held annually in Davos, Switzerland, has evolved during the 1990s into an important venue for discussions of the state of the global economy and the responsibilities of economic superpowers. With Japan apparently in the tank, the business and government participants at this year's late January sessions probably would have been surprised had the Clinton administration officials in attendance not said anything about the world's second-largest economy.

 

NTT REORGANIZATION LIGHTS UP JAPAN'S TELECOMMUNICATIONS SWITCHBOARD by Jon Choy

With the importance of the Internet growing, Japanese government officials and business executives lament that their country seems to lag behind the United States and Europe in the construction and the use of advanced telecommunications networks and services. Most experts identify the Ministry of Posts and Telecommunications' "go-slow" approach to deregulation as the cause of the perceived gap. As the parable of the rabbit and the tortoise shows, however, a slow yet steady approach to a problem still can be effective. Many analysts now agree with MPT that the cumulative impact of regulatory reforms is driving major changes in the use of telecommunications services in Japan and in the market's structure.

 

TOKYO GUBERNATORIAL RACE STIRS POLITICAL POT AT LOCAL, NATIONAL LEVELS by Barbara Wanner

Tokyo Governor Yukio Aoshima's February 1 decision not to seek a second four-year term in the April 11 gubernatorial election has had political repercussions at both the local and national levels. The major political parties now must rethink who they will run as candidates to succeed the independent prefectural chief. Immediately following Mr. Aoshima's surprise announcement, it appeared that the ruling Liberal Democratic Party would join forces with the Democratic Party of Japan, the largest opposition group, in backing DPJ deputy chief Kunio Hatoyama. By February 7, however, the LDP had reversed itself, indicating that it would put up its own candidate. Mr. Hatoyama, who at first seemed uncertain even whether to accept his party's nomination, surprised some observers February 9 by announcing, three days earlier than planned, that he would run for the Tokyo governor's seat as an independent.

 

NOTES

Tokyo announced February 5 that it will provide $2.4 billion in aid to Jakarta through the Miyazawa Plan, the $30 billion initiative announced last fall to help crisis-hit economies in East Asia (see JEI Report No. 6A, February 12, 1999). Approximately $1 billion of the total will take the form of yen credits; unconditional loans from the Export-Import Bank of Japan will make up the rest. The funds will be made available to Indonesia before the country's general elections in June.

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