Asia Times: Merger creates enormous development infrastructure finance agency



	April 22, 1999	atimes.com

Japan Economy

Merger creates enormous development infrastructure finance agency
By Suvendrini Kakuchi

TOKYO - The Japanese government is putting thefinishing touches on the merger of two of its biggest aidagencies, a step that will make the new institution, to be formedin October, one of the world's largest lending agencies.

Analysts here say the new body, to be called the Japan Bank forInternational Cooperation, or JBIC, will have internationalfinancing capabilities on a par with the World Bank.

Following a cabinet decision in 1995, the parliament last week passed a bill supporting theintegration of the Export-Import Bank, provider of crucial exportcredit, and the Overseas Economic Corporation Fund, Japan's yen-loan arm.

The JBIC will have a budget equivalent to $24.5 billion. By way of comparison, the World Bank, including its soft-loan window, made new loancommitments of $28.6 billion for the financial year 1998,which ended on June 30. Of that amount, it disbursed $25.5 billion.

The new bank will cover the preserves of the two separateinstitutions it combines, and its formation is part ofrestructuring efforts by the Japanese government in the currentrecession. Operations will be expanded and those that the Ex-Im Bank has been unable to begin, such as guaranteeing foreign government bonds and underwriting bank loans, will start.

The Ex-Im Bank is under the jurisdiction of the Ministry of Finance, while the OECF is supervised by the Economic Planning Agency. Responsibility for the merged bank will be divided, with international finance operations placed under the MOF and economic cooperation activities under the EPA.

Development experts are watching out for theeffects of the merger, asking whether it will lead to a basicreview of policies by the world's largest aid donor. But officials say no major changes in aid policy are expected, but that apart from reducing extra management costs the mergerseeks to make Japan's aid programme more effective through thecombination of staff .

The 35 overseas outlets belonging to Export-Import Bank and theOECF will be consolidated into a network of 28, including two newoffices in Singapore and Lima, Peru.

The bank will be financed by the state budget for government-affiliated institutions, with separate accounts for its two keyareas of operations - official development assistance (ODA) and non-ODAactivities.

Non-ODA activities cover the business of the Export-ImportBank, which was providing credit for trade and investment-relatedfinance, and investment finance projects, untied loans andguarantees as well as lending aimed at the stabilization of theinternational financial system.

Private aid monitors remain cautiously optimistic about themerger. They point out that it could bring a change for thebetter if handled properly, although it does not really address manyof the old drawbacks of Japan's ODA programme.

Keisuke Omura, a respected commentator on the subject, says themerger reflects the Japanese government's desire to make theworld's largest aid budget more effective.

''The move signals a new era in Japan's ODA, which until nowtended to follow the World Bank or International Monetary Fund.Japan is now telling developing countries that lending will be onits own terms,'' he explained.

The new bank will be the one to carry out many programs underthe Miyazawa plan, which was launched last year to help Southeast Asiancountries struggling to overcome a severe recession. Then-FinanceMinister Kiichi Miyazawa pledged $30 billion under theplan.

Omura also notes that for the first time Miyazawa told theIndonesian government, one of the foremost beneficiaries of thefinancial aid package and one of the largest recipients ofJapanese aid, that Tokyo would be implementing a surveillanceprogram with the loans.

The fact that the loans were also aimed at helping marketreforms rather than extended to traditional ODA projects alsoreveals a shift in Japan's aid policy, which has traditionally lined up fordeveloping infrastructure or improving social standards.

The JBIC will be dealing with this new policy further, pointsout Omura.

The bank also hopes to handle what it views as the weakeraspects of the traditional lending institutions such as the IMF,especially in the wake of criticism that IMF-prescribed policieshurt struggling Asian economies further.

Parliamentary deliberations focused on the need for the new aidinstitution to develop stricter guidelines to make sure its hugefinancial disbursements go along with social and environmentalassessment studies on new projects.

The OECF has often been the target of criticism from non-governmental organisations for supporting projects such asexpensive dams and power projects that displace local communitiesor hurt the environment in developing countries.

Critics here point out that part of the problem lies in thefact that the OECF, which handles a financial lending budget alongthe lines of the World Bank's, has only one-tenth of the World Bank'spersonnel strength.

''Against the backdrop of a skeleton staff, the situation willonly worsen with the new bank, which has no plans to increaseresearch programs towards improving accountability,'' explainsIkuko Matsumoto of the Friends of the Earth Japan.

NGOs want the government to adopt new provisions forimproving transparency in JBIC, as well as a clear checklist thatwould slap prohibitions on projects that are unsustainable in thelong run.

Matsumoto also urges the government to review a decision madelast year to increase the number of tied loans, which require aidrecipients to work with Japanese companies.

This step was taken in the wake of pressure from businessesreeling from the recession, but aid activists said Tokyo should bemoving away from such a policy instead of strengthening it.

Added Matsumoto: ''We want a clear description of how the newbank will work to protect the environment in developing countries,an important area that has not been addressed."

(Inter Press Service/Asia Pulse)

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