No. 23 — June 16, 2000


Weekly Review

--- by Marc Castellano

For the ninth year running, Japan was the world's top provider of official development assistance in 1999. According to preliminary figures released in mid-May by the Paris-based Organization for Economic Cooperation and Development, Tokyo disbursed a record $15.3 billion in ODA, 26.2 percent more in adjusted terms than in 1998 (see Table). The jump was due in large part to the appreciation of the yen, which bolstered the dollar value of Japan's contributions. But it also reflected continued implementation of the Miyazawa Plan, the $30 billion fund designed to support East Asian countries affected by the 1997-99 regional financial and economic crisis (see JEI Report No. 6A, February 12, 1999).

Notably, despite the tremendous size of the Miyazawa Plan and related initiatives geared to helping neighboring countries recover, only $3.3 billion from these programs counted toward Japan's 1999 ODA total. This outcome was attributable to the fact that a significant portion of the crisis aid was provided through the Export-Import Bank of Japan in the form of trade and loan guarantees. In the OECD's accounting, that type of assistance falls under the heading of other official flows rather than the category of official development assistance.

The 22 members of the Development Assistance Committee, the OECD's aid body, disbursed in total a net $56 billion in 1999 &emdash; up $3.9 billion, or an inflation- and currency-adjusted 4.9 percent, from 1998. Total ODA accounted for 0.24 percent of DAC countries' combined gross national product, far short of the United Nations' ODA target of 0.7 percent of national economic output for the world's wealthiest countries. In 1999, only four nations &emdash; Denmark, the Netherlands, Norway and Sweden &emdash; met the U.N. goal, the same as in 1998 and in earlier years. Yet 16 of the 22 DAC participants reported a rise in ODA disbursements, producing the second straight year of recovery from the slide of the 1996-97 period. From 1992 through 1997, overall assistance from DAC countries contracted a real 21 percent.

Japan's 0.35 ODA/GNP ratio ranked it eighth in 1999, up from 13th the year before. Bringing up the rear was the United States, whose contribution again equaled just 0.1 percent of GNP. In absolute terms, however, this country was the world's second-largest donor, disbursing $9.1 billion-plus worth of ODA in 1999. France and Germany were third and fourth, respectively, each providing about $5.5 billion.

Despite a booming economy, the United States has become less charitable in recent years. In the 1980s, Washington allocated an average of 0.2 percent of GNP to ODA, twice the current rate. The decline in relative terms is due to waning public support for aid projects, fueled by criticisms that money often is wasted, ending up in the pockets of corrupt developing-nation governments. Anarchy in the 1990s in such countries as Bosnia, Rwanda and Somalia provoked additional doubts on Capitol Hill about the overall effectiveness of the U.S. foreign aid program. Moreover, with the collapse of the Soviet Union and the end of the Cold War, Americans turned their attention to problems at home. Little has changed in the new decade, which suggests that Washington's comparative stinginess is likely to continue. Observers predict that the FY 2001 foreign aid budget will reduce the ODA/GNP ratio for the United States to a 50-year low.

Japan also has experienced declining public support for its massive aid program (see JEI Report No. 6A, February 11, 2000). The 1990s were a dismal decade for the world's second-largest economy. In an effort to combat the economy's chronic underperformance, the government introduced a series of huge fiscal stimulus packages that became more frequent over time and generally larger with each attempt at jump-starting a recovery; in the process, the budget went deeper into the red. Pressure for fiscal retrenchment affected virtually every area of government operations, including foreign aid. The general account allocation for ODA was slashed 10.4 percent in FY 1998 &emdash; the first cut since Japan began extending development assistance in FY 1976 (see JEI Report No. 5A, February 6, 1998). Budgetary concerns only intensified as the century came to a close and the public debt ballooned to historic levels.

Last December, the cabinet approved ¥1.1 trillion ($10 billion at ¥110=$1.00) in general account funding for ODA in FY 2000. This figure represented a 0.2 percent decline from the FY 1999 level, which also had been trimmed 0.2 percent. However, against the backdrop of significant fiscal strain and diminishing domestic support for foreign aid programs, it is remarkable that the development assistance budget sustained such a tiny cut for the second consecutive year.

Exchange rate movements may turn the decline in FY 2000 ODA financing into an increase in dollar terms for 2000, just as they did last year. However, Tokyo no longer will be spending huge sums of money on East Asia, which appears to be recovering from the economic devastation of the late 1990s. Nonetheless, given the expected drop in ODA funding by the United States, Japan likely will be the world's largest donor once more in 2000.

The views expressed in this report are those of the author
and do not necessarily represent those of the Japan Economic Institute

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