Japan to Boost Aid to Developing Countries : Asia: Increase of more than 40% to $120 billion over five years shows Tokyo’s interest in promoting stability.

Significantly boosting its international aid, Japan announced today that it will contribute $120 billion over five years to developing countries in a move to demonstrate its “proactive stance” in promoting stability in the post-Cold War world.

The financial package, approved by the Cabinet just days before the leaders of the Group of Seven leading industrial nations gather here for a summit, represents a 40% to 50% increase in bilateral aid over the previous five-year plan.

The contribution represents the centerpiece of a scheme to use Japan’s swelling trade surplus, now at a politically hazardous level of $126 billion, to aid needy areas of the world. Officials also believe the contribution will place Japan squarely in the forefront of development issues at the summit, since it is the only nation able to boost its aid substantially.

Japan surpassed the United States as the world’s largest aid donor in 1991.

About $70 billion to $75 billion will be paid out through Japan’s Official Development Aid program, which involves loans, grants and technical assistance. Although Japan has been criticized in the past for tying its foreign aid to projects allowing only Japanese bidders, more than 90% of the aid announced today will not carry such conditions, officials said.

Officials also pledged that they will increase the proportion of outright grants in the package but did not specify actual figures. The nation’s proportion of grants has consistently ranked as one of the lowest among donor nations.

In addition to the bilateral aid, Japan pledged $40 billion in loans through the Export-Import Bank and $10 billion in export insurance.

The aid, to be paid out between this year and 1997, would be particularly aimed at the environment, population problems, basic human needs and development of roads and other infrastructure.

Meanwhile, the question of just how much the G-7 nations--Britain, Canada, France, Germany, Japan, Italy and the United States--will contribute to a fund to help Russia with privatizing its state-owned industries and businesses remains unclear after an exchange of statements and retractions between Tokyo and Washington.

On Tuesday, Japanese Foreign Minister Kabun Muto ridiculed the $4-billion figure championed by President Clinton after an April summit with Russian President Boris N. Yeltsin. He called it “preposterous” and said it would be scaled back to $500 million, according to Kyodo News Service.

Tokyo has expressed concern that the Russians are not sufficiently trained in private enterprise to use the money effectively.

But even as U.S. officials conceded Wednesday that Muto might be right, Japanese Foreign Ministry officials quickly distanced themselves from their minister’s remarks, saying the issue is still under discussion. And Muto formally retracted his statement, saying he had been over-excited by the current political turmoil in Japan.