01/08/2001

Reconsidering Official Development Assistance (ODA) in Light of the Koizumi Structural Reforms

Keiichi Yonezawa 

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Introduction

Ever since the Koizumi Cabinet assumed power in April, the mass media has fixated on the call forsweeping reforms “without fear or favor.” Supposedly, critical reforms postponed or shelved since theearly 1990s are to be carried out in what some have described as "Japan's second postwar reconstructionperiod." More specifically, it refers to thoroughgoing institutional and organizational reforms toquickly dispose of the mountain of bad loans as well as to rein in the issuance of deficit financingbonds, while holding accountable the parties in both private and public sectors responsible for contributingto or impeding the resolution of these problems. This reform agenda has proved to be exceptionallypopular, which explains Mr. Koizumi’s unprecedented of approval rating of over 80 percentsince assuming office. Meanwhile, his political enemies (most of whom seem to be fellow LDP members)realize they have nothing to gain from a direct confrontation.

However, the reform agenda will inevitably encounter problems once specific measures are addressed.Previous premiers have skirted around the bad loan problem in vaguely worded policy speeches, vowingto stake their political career on the issue but becoming evasive when pressed for a specific solution.As a result, even the tallying method for bad loans held by financial institutions has yet to bestandardized, while disclosure by companies and the bureaucracy is completely inadequate in bothquality and scope. The mass media has angrily denounced corrupt politicians, businessmen, andbureaucrats, saying that the public should take the matter into their own hands.

Understandably frustrated by this state of affairs, the general public has decided to back Mr. Koizumi’ssweeping reforms, and now waits in anticipation for Mr. Koizumi to deliver on his promises.

The reader may wonder how this description of recent political developments is relevant to officialdevelopment assistance (ODA), the topic of this paper. Quite simply, it is because ODA is essentially aproduct of both political and policy-related considerations. With tax revenue flagging in the prolongedrecession, and sustained public works spending yielding few results, spending priorities must bereviewed based on cost effectiveness. Ever since the collapse of the bubble economy, ODA appropriationshave repeatedly been eyed as a target for cutting, including the 30 percent cut advocated prior tothe recent election for party president by Mr. Shizuka Kamei, former chairman of the LDP’s PolicyResearch Committee.

However, questions arise as to whether ODA is actually cost ineffective, and what the desirable appropriationlevel should be. If ODA turns out to be producing results that meet or exceed expectations,spending cuts would be unwarranted. Below we discuss what value ODA has for Japan, and how toproperly assess its value.

Keiichi Yonezawa

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