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Japan to slow down on foreign aid after S$27b splurge last year

TOKYO — Japan’s foreign aid agency must slow its pace of lending, said its chief, after committing US$20 billion (S$27.1 billion) last year to a financing splurge to support Prime Minister Shinzo Abe’s diplomatic agenda.

Japan Prime Minister Shinzo Abe (third from left) with leaders of the Mekong region at the 7th Mekong-Japan Summit last year. Tokyo has recently been supporting ‘east-west’ infrastructure, such as new railways, by backing billion-dollar projects. Photo: Reuters

Japan Prime Minister Shinzo Abe (third from left) with leaders of the Mekong region at the 7th Mekong-Japan Summit last year. Tokyo has recently been supporting ‘east-west’ infrastructure, such as new railways, by backing billion-dollar projects. Photo: Reuters

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TOKYO — Japan’s foreign aid agency must slow its pace of lending, said its chief, after committing US$20 billion (S$27.1 billion) last year to a financing splurge to support Prime Minister Shinzo Abe’s diplomatic agenda.

Last year, the Japan International Co-operation Agency (Jica) financed new urban rail systems in cities across Asia, such as Jakarta, Manila, Bangkok, Chennai and Ahmedabad, as well as backing billion-dollar projects in strategic hotspots such as Iraq, Ukraine and Myanmar.

But in an interview with the Financial Times, the agency’s boss said that Jica’s pace of lending last year was unsustainable and it must now concentrate on the projects that most benefit recipient countries — and Japan.

Mr Shinichi Kitaoka’s comments highlight the tensions between last year’s surge in concessional lending, which followed Mr Abe’s rewrite of the Jica charter, and the limits on largesse imposed by Japan’s wobbly public finances.

“Last year our commitments became twice what they were the previous year,” said Mr Kitaoka. “That’s a big jump. I came to feel it’s dangerous financially for us.”

Mr Abe has sought to align Japan’s aid with its foreign policy, partly by enshrining the “national interest” in Jica’s charter for the first time, as Tokyo remains locked in a geopolitical contest with Beijing over the future of Asia.

Mr Kitaoka said his top priority was to ensure all the agency’s projects benefit the recipient country, but he added: “If we have to choose, we must choose a project with a country that is very important to us. That is partly why we are trying to do a lot of things in India, Vietnam, the Philippines and so on.”

The appointment of Mr Kitaoka, who took office last October, also symbolises Jica’s shift away from a pure focus on development. He is a former ambassador to the United Nations and adviser to Mr Abe on national security, as well as a prominent historian and political scientist.

The Jica chief also said that, ideally, the agency’s yen loans should benefit Japanese business and should not hurt Jica’s financial discipline. Last year it made loans to countries with low credit ratings.

Japan has always given out much of its foreign aid in the form of concessional loans, rather than grants, arguing that this kind of “development cooperation” gives the recipient country greater ownership of the project.

Mr Kitaoka suggested rich and successful Asian democracies were good for Japan, regardless of who provided the investment to help them grow.

“If the Indian economy is boosted ... by Japan’s assistance or with their own money or by Korean businesses or even by China, that is not bad for us,” he said. “Japan and India are kind of natural partners, while China and India, geopolitically, are natural rivals.”

Competition between Japan and China is strongest in the Mekong region, where Tokyo tends to support “east-west” infrastructure — connecting Vietnam, Cambodia, Thailand and Myanmar — while Beijing backs “north-south” routes that connect the countries to China.

Japan has also stepped up aid to Myanmar, on the westernmost side of the Mekong region.

Mr Kitaoka said the shorter east-west routes could have big economic benefits, by opening up trade across international borders: “Some people may say this is competition between Japan and China. I don’t think so. I don’t deny there’s an element of competition in this project but more important is the economic effectiveness of east-west.”

He added that, even though national interest was a consideration for Jica projects, Japanese aid did not come with strings attached. “The national interest in the 21st century is not the same thing as in the 19th century,” he said. “For Japan, the national interest boils down to the safety, freedom and prosperity of the Japanese people — which needs stable international relations and the promotion of universal values.” FINANCIAL TIMES

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