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RR RUEHDBU RUEHPW
DE RUEHKO #0740/01 0920638
ZNR UUUUU ZZH
R 020638Z APR 09
FM AMEMBASSY TOKYO
TO RUEHC/SECSTATE WASHDC 1968
INFO RUCNAFG/AFGHANISTAN COLLECTIVE
RUEHIL/AMEMBASSY ISLAMABAD 2141
RUEHFK/AMCONSUL FUKUOKA 3305
RUEHNH/AMCONSUL NAHA 5651
RUEHOK/AMCONSUL OSAKA KOBE 7101
RUEHKSO/AMCONSUL SAPPORO 3847
RUEHGV/USMISSION GENEVA 3493
RHEHAAA/NSC WASHDC
RUEKJCS/SECDEF WASHDC
RUEATRS/TREASURY DEPT WASHDC
RHMFISS/CDR USCENTCOM MACDILL AFB FL

UNCLAS SECTION 01 OF 02 TOKYO 000740 
 
SENSITIVE 
SIPDIS 
 
STATE FOR S/SRAP, SCA/PB, EAP/J 
AID FOR A/AID - FULGHAM 
TREASURY FOR DOHNER 
 
E.O. 12958: N/A 
TAGS: EAID ETRD PREL PK JA
SUBJECT: RECENT TRENDS IN JAPAN'S TRADE WITH AND AID TO 
PAKISTAN 
 
REF: A. TOKYO 620 
     ¶B. TOKYO 640 
 
TOKYO 00000740  001.2 OF 002 
 
 
¶1. (SBU) SUMMARY: Japan's aid to Pakistan focuses on human 
security and creating a favorable trade and investment 
climate.  The GOJ has been looking to amplify Official 
Development Assistance (ODA) to priority areas, such as 
health and human development, economic infrastructure, trade 
faciltation, and poverty reduction.  However, perceptions 
among Japan's business people that the trade and investment 
climate in Pakistan is deteriorating can undercut the effect 
of Japanese aid programs even while business figures argue 
for increased aid as a means to further development.  END 
SUMMARY. 
 
------------------------------------ 
GOJ ASSISTANCE STRATEGY FOR PAKISTAN 
------------------------------------ 
 
¶2. (U) Japan has a long history of assistance to Pakistan and 
consistently ranks among the country's top five donors.  The 
basic thrust is to support Pakistan's development as a 
"moderate Islamic state" in the face of social, economic and 
political instability in the region, according to Japan 
International Cooperation Agency (JICA) officials.  To this 
end, Japan has provided approximately $1.3 billion in 
assistance since developing a coordinated Country Assistance 
Program in February 2005.  The JICA program for Pakistan 
centers on three areas: (1) Human Security and Human 
Development, including basic, higher and technical education, 
medical and health programs, and clean water and sanitation; 
(2) Sound Development of the Market Economy, with a focus on 
industrial diversification, trade-facilitating 
infrastructure, and poverty reduction; and (3) Balanced 
Regional Socio-economic Development, including leveraging 
public funds to induce private investment and promoting 
development of Western Pakistan from the Indus River Valley 
to the Afghan border.  Much of Japan's recent assistance has 
focused on Punjab, Balochistan, and the Federally 
Administered Tribal Areas (FATA). 
 
---------------------------- 
RECENT ASSISTANCE: GRANT AID 
---------------------------- 
 
¶3. (U) Japan's ODA commitment to Pakistan since April 2008 
has amounted to approximately $565 million, including $75 
million in grant aid and $489 million in yen loans.  Japanese 
Ambassador to Pakistan Chihiro Atsumi and GOP Secretary for 
Economic Affairs and Statistics Farrakh Qayyum signed an 
agreement February 23 to make JPY2.5 billion ($25.5 million) 
in non-project grant aid available for economic 
stabilization, debt relief and balance of payments support. 
The Japanese and Pakistani governments continue to negotiate 
the details for disbursing funds.  In addition, MOFA 
committed up to JPY422 million ($4.3 million) January 29 
through UNICEF for polio eradication in the FATA; Japan has 
assisted UNICEF in this endeavor since 1996.  Japan also 
announced a grant of up to JPY4.4 billion ($45 million) to 
improve the water supply-related infrastructure in Punjab 
province and Faisalabad. 
 
--------- 
YEN LOANS 
--------- 
 
¶4. (U) On the loan side, Japan announced a JPY47.9 billion 
loan package ($489 million) for Pakistan in May 2008 
centering on four infrastructure projects.  The largest, a 
JPY15.5 billion ($158 million) tied-aid loan for the 
East-West Road Improvement plan, will connect Quetta and 
Lahore to improve market access for the mining and 
agriculture sectors.  Japan also pledged up to JPY11.94 
billion ($122 million) to construct electricity transformer 
stations and improve the transmission grid in Punjab, where 
70% of Pakistan's electricity is reportedly consumed.  Japan 
 
TOKYO 00000740  002.2 OF 002 
 
 
and Pakistan signed a loan agreement of up to JPY11.4 billion 
($116 million) to improve the water supply system in Punjab, 
which produces 80% of Pakistan's wheat and cotton.  Finally, 
Japan pledged up to JPY9.1 billion ($93 million) for 
farm-to-market road construction in the Sindh region. 
 
------------------- 
DISASTER ASSISTANCE 
------------------- 
 
¶5. (U) Japan regularly responds to emergency appeals for 
humanitarian assistance in the wake of natural disasters. 
Most recently, the GOJ provided in-kind assistance worth 
around JPY11 million ($112 thousand) following the magnitude 
6.5 earthquake in Balochistan. 
 
--------------- 
TRADE PROMOTION 
--------------- 
 
¶6. (U) Japan's $2 billion annual trade with Pakistan centers 
on autos and machinery in exchange for textiles, with Japan 
enjoying a roughly $1.1 billion trade surplus.  More than 
thirty Japanese firms have a presence in country, and the 
Japan External Trade Organization (JETRO) office in Karachi 
includes two direct-hire Japanese staff engaged in trade 
promotion.  At the urging of trade groups such as the 
Pakistan Japan Business Forum, the GOJ has pushed the GOP to 
undertake reforms to improve the investment climate.  For 
instance, the countries enacted an amended tax treaty in 
November 2008 to prevent double taxation and discourage tax 
evasion.  The Ministry of Economy, Trade and Industry (METI) 
also supports training programs in Japan for Pakistani 
employees of Japanese auto manufacturers with operations in 
Pakistan.  The METI financed training supports Pakistan's 
trade-related human capital development efforts. 
 
---------------------------- 
DECLINING BUSINESS SENTIMENT 
---------------------------- 
 
¶7. (SBU) A JETRO survey released March 30, 2009, however, 
revealed a steep decline in Japanese firms' appraisal of 
Pakistan's trade and investment climate.  Of the 29 firms 
surveyed, more than half reported revenues dropped in 2008 
compared to the previous year.  Nearly 70% of the 
manufacturing firms surveyed reported a decline in 
Pakistan-related revenue.  Moreover, 72% of Japanese firms 
predicted the business outlook would either stay the same 
("difficult") or deteriorate further.  Over 90% of 
respondents cited political uncertainty as the number one 
threat to the investment climate.  More than two-thirds of 
firms also cited inflation due to the depreciation of the 
rupee and infrastructure problems such as a lack of a 
reliable electric supply as challenges to doing business in 
Pakistan.  JETRO officials are not optimistic that private 
sector trade and investment in Pakistan will expand given the 
declining business sentiment and hurdles restricting business 
activity.  Therefore, JETRO officials place greater 
importance on official development assistance to fund 
projects that will improve the business climate to pave the 
way for further private sector investment. 
ZUMWALT