U.S. Becoming No. 2 Donor : Poor Nations Increasingly Looking to Japan for Aid

In a striking show of how economic triumph can lead to global influence, Japan now appears on the verge of becoming the world’s leading donor of economic aid to poorer countries, with a 1988 budget that exceeds America’s for the first time.

Already, it seems, the yen is beginning to supplant the dollar as a symbol of hope to needy governments. “Everyone is making their pilgrimages to Tokyo to get their piece of the pie,” said Dennis T. Yasutomo, an associate professor of government at Smith College, in Northampton, Mass., and the author of a book on Japanese foreign aid.

Japan’s apparent future as the leading donor became clear at the June economic summit in Toronto, when Prime Minister Noboru Takeshita announced that Japan will give at least $10 billion worth of grants, low-interest loans and consulting help to poorer countries in each of the next five years. By comparison, the U.S. budget for such economic aid is $8.65 billion this year, down from $9.25 billion in 1987. The U.S. aid level is not expected to rise much in the foreseeable future, according to foreign aid experts.

“From our perspective, it’s probably the most important development in foreign aid in 20 years,” Richard E. Bissell, an assistant administrator at the U.S. Agency for International Development, said of Japan’s growing contribution.

To a large degree, Japan’s emergence as top provider has been propelled by the rising value of its currency. At the same time, it reflects Japan’s response to criticism that it has not done enough to help the needy. Whether the support goes to a soybean farm in Brazil, a telephone system in Jordan or the battle against malaria in Haiti, Japan is digging deeper into its pockets than ever before to establish a new, far-reaching role in the world.

“It’s another way of saying the Japanese are trying to determine for themselves what their own national interests are, rather than relying on an American definition of what those interests are,” Yasutomo explained.

A list of projects the Japanese have helped sponsor in recent years suggests that those interests span the globe: a prawn farm in French Guiana, a sewer system in Colombia, uranium prospecting in Niger, a power station in Botswana, a pediatric hospital in Cairo and a bridge in Turkey are just a few examples.

Focused on Asia

But Japan’s interests remain focused most keenly on Asia, which gets about two-thirds of Tokyo’s aid. To cite just a few Asian projects, Japan has supported projects involving a flood-warning system in the Philippines, new diesel locomotives for Malaysia, a gas pipeline in India, steel production in Bangladesh, road projects in Pakistan, bridges in Burma, improved drinking water in Sri Lanka and new medical equipment in China.

Last year, 1,200 Tokyo-based consulting teams scurried through Indonesia alone, monitoring aid projects and considering others for financing, according to Bruce M. Koppel, a foreign aid specialist with the East-West Center, a U.S. government-financed research institution in Honolulu.

“There’s a whole new perception of the importance of Japan in the aid picture,” said Joseph C. Wheeler, the top foreign aid official with the Organization for Economic Cooperation and Development in Paris. “I think people are trying to absorb what it means.”

The questions arise from Tokyo’s unique approach to foreign aid, one that sometimes has been seen as a device for bolstering the sales of Japanese companies, not just as a way to ease poverty.

Aimed at Improving Industry

On one occasion, for instance, the government lent Japanese corporations money to help build a hotel in Mexico City to promote tourism. Most typical of Japan’s approach, however, are projects--designed by Japanese engineers and using Japanese products--aimed at improving a nation’s industrial base.

“They (the Japanese) are saying that if you’re going to develop, you’re going to need electricity and you’re going to need communications, and why shouldn’t we help?” Wheeler observed. “There’s a point in that.”

Now the Japanese are saying that they wish to direct a greater amount of help to regions in the most dire need. Last month, for example, Japanese officials released a statement promising to pay more attention to the world’s poorest nations and cited those in sub-Saharan Africa as likely beneficiaries. Some close followers of the aid situation also are convinced that Japan is moving to make its aid projects less linked to particular Japanese firms and therefore even more helpful to recipient countries.

“Everything we’re seeing says it’s going to change,” said Koppel of Japan’s approach. “They are in a transition.”

Purpose Changed in 1970s

It will not be their first transition. After World War II, when a defeated Japan was a timid, second-tier player in global politics, its modest aid program took the form of war reparations to Burma and other Asian nations. The assistance grew in the 1960s, but a pivotal turn came in the 1970s when Japan began to use assistance with strategic considerations clearly in mind, aid experts say.

At the time, Japan began to steer projects toward Middle East oil producers, as a way to strengthen its relations--and preserve oil sources. Only in recent years has Japan begun to establish aid programs oriented toward basic human needs, such as relieving hunger and disease in the manner of U.S. and European efforts.

“When we talk about Japan being a bona fide donor, we’re really only talking about the past 10 years,” said Robert M. Orr, an assistant professor of political science at Temple University’s Tokyo campus and a former official in the Agency for International Development.

The leap from bona fide donor to bona fide leader is even newer. As recently as 1985, Japan was the world’s No. 3 provider, behind the United States and France. It is on course to become No. 1 as soon as it can give out the assistance already budgeted.

Boosted by Rise of Yen

In part, Japan has leapfrogged the United States as a result of exchange-rate changes that have doubled the value of the yen relative to the dollar since 1985. But it has also significantly increased its assistance in “real” terms throughout the 1980s.

Japan’s aid--60% grants and 40% loans--jumped 13.5% last year alone, independent of exchange rates, according to the Organization for Economic Cooperation and Development, which is the main authority on global aid levels. At the same time, the OECD calculates that America’s contributions--mostly in the form of grants--plunged 11% last year. (These calculations do not include U.S. military aid or private financing, such as Japan’s plan for its corporations to recycle $20 billion of trade revenues to poorer nations.)

Advocates of foreign aid salute Japan’s growing role, while also lamenting the apparent U.S. retrenchment. “We’re asking Japan to pick up our defaulted leadership here,” contends John W. Sewell, president of the Overseas Development Council, a nonprofit organization concerned with conditions in the Third World.

That, at least, seems to be the view within some of the countries that rely most on outside help. Last year, for example, Japan’s contribution to India was at least $100 million greater than America’s $137-million aid level, according to statistics from Japan and the United States. And the disparity has not gone unnoticed.

Aid Heightens Influence

As Koppel of the East-West Center sees it, Indian officials look at the different sums they get from America and Japan and conclude one thing: “Obviously, Japan thinks we’re much more important than the Americans do.”

Koppel recalls a telling exchange he had with an Indian government official on a visit there in March. When the U.S. researcher asked the Indian about the potential for U.S.-Japanese cooperation in aid, the official brushed his question aside, asking, “What would Japan possibly have to gain?”

Such stories underscore an important aspect of aid that the rich provide the poor: There is more involved than altruism. Japan has a huge stake in keeping good trade relations with other countries to ensure its own supply of raw materials and also to cultivate growing markets for its exports. For example, it has financed zinc and lead explorations in South America, in part to secure new Japanese supplies of those substances, according to government publications.

Moreover, Japan’s constitution restricts it from building up its military, so economic aid stands out as an especially potent tool for pursuing foreign policy aims. “The Japanese aren’t going to spend foreign aid money just because it’s a nice thing to do,” said Orr. “They have interests. They don’t talk about those interests, but they’re there.”

Regional Growth, Stability

Japan is especially sensitive to the need for political stability in Asia and the benefits of regional economic growth, analysts say. That may explain why China has emerged as Japan’s single largest aid recipient in recent years, now getting almost 15% of Japan’s total foreign assistance. Japanese officials also may hope that by providing large amounts of assistance, they will quiet anti-Japanese trade sentiment in the United States and elsewhere.

Taken together, said Yasutomo, “Aid is the No. 1 diplomatic tool that fits into just about all the major aspirations the Japanese are talking about right now.”

Yet the tool is potentially troublesome in at least one respect: It ultimately could cause friction with the United States--even though Japan is doing exactly what many U.S. officials have requested.

In a sense, the stakes in foreign aid, from the donor’s perspective, are no less than stature and influence within the developing world. As Japan’s investment in emerging countries grows, for example, it will speak with new authority on such issues as Third World debt--issues in which America has until now played the primary role. Similarly, if countries come to rely more on yen than dollars to help in their struggle to modernize, the implications for U.S. prestige are obvious.

National Self-Interest

“Like motherhood and apple pie, everybody assumes that the more spent, the better,” said Gerald L. Curtis, director of the East Asian Institute at Columbia University. But, he added, national self-interest is also a factor. “From the U.S. point of view, the more the Japanese spend, the more Japan’s influence is going to increase.”

Already, Japanese aid exceeds America’s in parts of this hemisphere, even though Japan devotes only about 10% of its total to Latin America. While the United States classifies Mexico and Brazil as too affluent to qualify for its aid, both countries remain on Japan’s list, with Mexico getting $80.8 million and Brazil getting $32.3 million worth in 1986, the most recent year for which figures are available.

As Curtis put it: “If we see the Japanese increasing aid substantially in Latin America--in our own back yard--and it results in more Japanese exports to the region instead of American exports, I think there are going to be problems.” Japan’s growing role, he said, “isn’t the end of the story. It’s the beginning.”

Others question whether Japan’s harried bureaucracy will bog down under an avalanche of aid requests in the future. The United States has about 5,000 people administering assistance in Washington and in the field, according to the U.S. government. By contrast, Japan’s aid staff numbers about 1,500, most of whom go abroad only for visits.

U.S.-Japan Partnership

“Money alone will not do the trick,” warned Seiji Naya, an economist with the East-West Center. “They have to think a lot more about how to lend money and where to lend money.”

As a result, some analysts foresee a natural partnership emerging, in which America’s more experienced aid personnel help coordinate the U.S. and Japanese efforts. But the Japanese seem to be saying, “Slow down.” The message is that their policy will be made where their money is--in Tokyo.