VZCZCXRO5692
PP RUEHFK RUEHKSO RUEHNH
DE RUEHKO #0841/01 0870501
ZNR UUUUU ZZH
P 270501Z MAR 08
FM AMEMBASSY TOKYO
TO RUEHC/SECSTATE WASHDC PRIORITY 2924
INFO RUEHBJ/AMEMBASSY BEIJING PRIORITY 2448
RUEHRL/AMEMBASSY BERLIN PRIORITY 1365
RUEHBR/AMEMBASSY BRASILIA PRIORITY 0405
RUEHJA/AMEMBASSY JAKARTA PRIORITY 4342
RUEHKL/AMEMBASSY KUALA LUMPUR PRIORITY 1876
RUEHLO/AMEMBASSY LONDON PRIORITY 1999
RUEHME/AMEMBASSY MEXICO PRIORITY 0497
RUEHMO/AMEMBASSY MOSCOW PRIORITY 2187
RUEHNE/AMEMBASSY NEW DELHI PRIORITY 8479
RUEHOT/AMEMBASSY OTTAWA PRIORITY 9622
RUEHFR/AMEMBASSY PARIS PRIORITY 6029
RUEHSA/AMEMBASSY PRETORIA PRIORITY 0275
RUEHRO/AMEMBASSY ROME PRIORITY 2063
RUEHUL/AMEMBASSY SEOUL PRIORITY 8489
RUEHFK/AMCONSUL FUKUOKA PRIORITY 6904
RUEHNH/AMCONSUL NAHA PRIORITY 9287
RUEHOK/AMCONSUL OSAKA KOBE PRIORITY 0571
RUEHKSO/AMCONSUL SAPPORO PRIORITY 7500
RHEHAAA/NSC WASHDC PRIORITY
RUEHBS/USEU BRUSSELS PRIORITY
RUCNDT/USMISSION USUN NEW YORK PRIORITY 9038
RUEHGV/USMISSION GENEVA PRIORITY 3280

UNCLAS SECTION 01 OF 03 TOKYO 000841 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE PASS TO S/F AND AID ADMINISTRATOR FORE 
USAID FOR AFRICA/AA ALMQUIST AND ODP/AA TURNER 
NSC FOR BROWN 
STATE ALSO FOR EEB, EAP/J, E AND F 
 
E.O. 12958: N/A 
TAGS: PGOV PREL ECON EAID JA
SUBJECT: SCENESETTER FOR G-8 DEVELOPMENT MINISTERS MEETING 
APRIL 5-6 
 
¶1. (SBU) Summary -- Japan is the world's third largest 
national aid donor, despite on-going budget cuts.  The GOJ 
has been able to keep the ODA budget between $10-$13 billion 
using an increased reliance on yen loans to compensate for 
large cuts in grant aid (40 percent over the past eleven 
years).  Despite domestic fiscal pressures, the GOJ wants to 
remain a significant actor in international development, both 
in terms of programs - whether in Asia, (its traditional 
focus), Iraq and Afghanistan, or in Africa where it is 
looking to increase its role in light of growing Chinese aid 
activity -- and as a foreign policy tool.  Japanese officials 
note their desire to engage China as an emerging donor, 
trying to compare notes with Chinese officials as to best 
practices and, quietly, helping China understand and accept 
policies and practices that have been agreed to over the 
years among the U.S., Japan, EU and other established donors. 
 Japanese officials expect this point to be one of the themes 
for the April 5-6 Development Ministerial in Tokyo.  In 
addition to the discussions with the G8 and outreach 
countries, Administrator Fore's visit is an opportunity to 
explore with Japanese counterparts, in MOFA and in the 
soon-to-be-reorganized Japan International Cooperation Agency 
(JICA), how the U.S. and Japan can expand or enhance 
development cooperation programs through mechanisms such as 
the Strategic Development Alliance.  End summary. 
 
Japan's ODA Strategy 
--------------------- 
¶2. (SBU) Japan considers ODA to be one of its main foreign 
policy tools.  In the 1990s, Japan was the world's largest 
provider of development assistance, primarily targeting Asia 
through loans, grants and technical assistance.  Towards the 
end of the 1990s, despite Finance Ministry (MOF) pressure to 
reduce ODA, Japan continued to take bold steps, providing 
support for Southeast Asian countries during the Asian 
financial crisis, leading the initiative during the G-8 
Okinawa Summit to target infectious diseases -- out of which 
the Global Fund (GFATM) was born -- and founding the Tokyo 
International Conference on African Development (TICAD), that 
brought together for the first time African heads-of-state to 
discuss development issues. 
 
¶3. (SBU) Over the last decade, Japan's ODA strategy has 
sought to  both promote national interests and to address 
global issues.  The GOJ is focused on poverty reduction 
through economic growth, human security (health, water and 
education), consolidation of peace, and environmental 
challenges including climate change.  In addition, while 
current interpretation of the Japanese constitution limits 
the deployment of troops to conflict areas, Japan is the 
second largest aid donor after the U.S. for Iraq 
reconstruction and post-Taliban Afghanistan.  The GOJ has 
also contributed to rebuilding efforts in Timor Leste, Sudan, 
and the Palestinian area. 
 
Decline in Grant Aid Offset by Increased Loans 
--------------------------------------------- -- 
¶4. (SBU)  Reaching a high in 1997, Japan's grant aid has 
declined nearly 40% over the past eleven years.  The GOJ 
again cut the 2008 grant budget 4% to $7.2 billion.  This 
continuous decline has been driven by Japan's financial 
situation.  Japan's public debt is 195% of GDP, the highest 
 
TOKYO 00000841  002 OF 003 
 
 
in the OECD.  The interest payment alone to service this debt 
is greater than the entire economy of Venezuela.  To offset 
cuts demanded by MOF, the Ministry of Foreign Affairs (MOFA) 
has sought and received a supplemental budget every year to 
augment the regular budget.  In addition, the GOJ 
significantly increased its yen loan portfolio through the 
Japan Bank for International Cooperation (JBIC).  Yen loans 
now comprise nearly 50% of the total ODA budget.  These 
offsets have allowed the GOJ to keep ODA between $10-$13 
billion per year.  Japan has begun to explore public-private 
partnerships as well as ways to get the private sector more 
involved in development efforts but has had limited success 
to date. 
 
ODA Reform 
---------- 
¶5. (SBU) To use its resources more efficiently, the GOJ is 
overhauling its ODA decision-making and disbursement system. 
In 2006, the GOJ formed the Overseas Economic Cooperation 
Council -- with the participation of the Prime Minister, 
Foreign Minister, Minister of Finance and the Minister of 
Economy, Trade and Industry (METI) -- to set overarching ODA 
policy. It consolidated the decision making process within 
MOFA into the International Cooperation Bureau and charged 
that bureau with linking policy to specific diplomatic goals 
and guiding overall programming accordingly. 
 
¶6. (SBU) Perhaps one of the most important aspects of the 
overhaul, however, is the October 2008 merger of the Japan 
International Cooperation Agency (JICA) with the Japan Bank 
for International Cooperation (JBIC).  The "new" JICA will 
administer 60% of Japan's grant aid as well as all soft loans 
and technical assistance.  The new entity will be one of the 
world's largest development organizations, with $9.5 billion 
under management, nearly 3,000 employees and 97 overseas 
offices. 
 
Geographic Coverage 
------------------- 
¶7. (SBU) Traditionally, over 60% of Japan's aid went to Asian 
countries. China has been a primary beneficiary, receiving 
nearly $28 billion between 1978 and 2003, mostly in the form 
of low-interest yen loans for infrastructure projects.  Japan 
discontinued its yen loan program China in 2007.  Indonesia 
is another large recipient, with grants, loans, and technical 
assistance topping $1 billion in fiscal year 2007.  The GOJ 
is increasingly turning its attention to African development 
and will host TICAD IV in May.  Aid to Africa doubled from 
2005 to 2007 and now accounts for 23% of Japan's total ODA. 
Africa is seen as key to Japan's efforts to win a permanent 
UN Security Council seat, a source of vital natural resources 
and a battleground for contesting China's rising 
international influence. 
 
Keeping an Eye on China 
------------------------ 
¶8. (SBU) China's increasing role as economic competitor, 
whether for oil and other key commodities, and its growing 
profile as an aid donor is a chief focus for the GOJ and a 
matter MOFA will raise at various times and in various ways 
at the April Ministerial.  Government and private sector 
officials note China's increased profile in Africa. 
 
TOKYO 00000841  003 OF 003 
 
 
Government officials often state concerns that China's 
programs in Sudan and other African countries undercut 
international efforts to foster development, human rights, 
and peace.  They also state China has not accepted the 
policies, practices, and mind-set that Japan, the U.S., and 
other established donors have developed and agreed upon in 
the OECD's Development Assistance Committee and other fora. 
Japanese officials report they have begun quiet conversations 
with Chinese counterparts on these topics and expect the 
Ministers to look at this question in their opening, G8-only 
session. 
 
Outlook for U.S.-Japan Development Cooperation 
--------------------------------------------- - 
¶9. (SBU) There is great interest within MOFA in expanding the 
Strategic Development Alliance (SDA) launched by former 
Foreign Minister Machimura (now Chief Cabinet Secretary, the 
equivalent of a Deputy Prime Minister) and Secretary Rice in 
¶2005.  Currently, there are two programs, one targeting 
improving the business and investment climate in Indonesia, 
and the other in Pakistan focusing on workforce 
development/human capacity building. 
 
¶10. (SBU) In addition to SDA, the U.S. and Japan cooperate on 
a number of development assistance projects.  The U.S.-Japan 
Clean Water for People Initiative, signed by former FM 
Kawaguchi and then Secretary Powell in 2002, has provided 
safe water and sanitation to the poor, improved watershed 
management, increased water productivity and has created 
innovative public-private financing.  The U.S.-Japan 
Partnership for Global Health targets infectious diseases 
(HIV/Aids, TB, malaria, NTD,polio), avian influenza, maternal 
child health, and health systems in Asia and Africa. 
 
Comment 
-------- 
¶11. (SBU) Japan truly wants to be a significant player in the 
world of development assistance despite fiscal constraints. 
China's growing presence as a donor has strengthened Japanese 
desire to maintain its profile in the development world and 
also to play a role in working with China's authorities to 
have them adopt practices, procedures and policies long 
accepted by developed country donors.  There is great concern 
within the GOJ, academia, and even the private sector that 
Japan has slipped from first to third place (as of 2006) of 
world donors and could even slip further if budget cuts 
continue.  The GOJ, therefore, is actively seeking ways to 
use its ODA more creatively and effectively.  Administrator 
Fore's visit could be an opportunity explore enhancing 
existing initiatives or developing new areas of cooperation 
where synergies might exist with USG programs. End comment. 
 
SCHIEFFER