Yen Loans: Between Norms and Heterodoxy

Abstract

Yen loans are long-term, low-interest loans provided to developing countries as part of Japan’s Official Development Assistance (ODA), mainly for infrastructure development as a foundation for the economic growth of recipient countries. They have been a continuing object of criticism based on dominant norms, championed by the United States and European countries, that development assistance is a form of charity by rich countries for the sake of poor countries, and thus should take the form of grants and technical assistance. Yen loans have become symbolic of the heterodoxy that flows through the history of Japan’s ODA, and was adapted for assistance to less developed countries in Southeast Asia. This chapter questions the nature of this heterodoxy and examines how discord has been navigated between Japan as norm-taker and norm-makers—the United States and European countries—who generally lack flexibility with respect to different ways of providing development assistance.

1 Yen Loans as a Symbol of Heterodoxy

Development assistance norms—the dominant values and institutions dictating what development assistance should be—were shaped in the period after the Second World War, mostly under the initiative of the United States and European countries. These norms are based on the premise that development assistance is a form of charity undertaken by rich countries for the sake of poor countries. Because charity is “help, especially in the form of money, given freely to people who are in need,”¹ it is only natural that grants and technical assistance—the transfer of money, goods, and services to developing countries for no return or consideration—are seen as the ideal modes of assistance. Under these norms, loans, although not rejected outright, have been characterized as “lower quality” assistance than grants and technical assistance.² The development assistance provided by Japan, mainly in the form of concessional loans, often referred to as “yen loans,” has been a continuing object of criticism based on these “international” norms.

Yen loans are long-term, low-interest loans provided to developing countries as part of the Japanese government’s Official Development Assistance (ODA). The loans are administered by the Japan International Cooperation Agency (JICA) in accordance with diplomatic agreements between the Japanese government and the government of the country receiving assistance. Loans are mainly allocated to infrastructure development, a purpose for which commercial loans are unsuitable. Yen loans have been characterized as typical of Japanese development assistance for two reasons. First, they have accounted for the largest monetary component of Japan’s development assistance throughout its history stretching back more than 60 years (Yamada 2021, p. 5). This contrasts sharply with the Netherlands and the Scandinavian countries, which have rarely used loans as a means of development assistance, and with the United Kingdom, which provided loans in the past but cut back dramatically from the 1970s onward. Even compared with countries such as Germany and France, which also provide loans, Japan is notable for providing a significantly larger proportion of its total monetary assistance in this form.³ Second, yen loans are closely associated with other elements considered characteristic of “Japanese-style assistance.” Yen loans play a pivotal role in Japan’s approach to development assistance, based on the so-called “Trinity” of assistance, investment, and trade. Specifically, yen loans have functioned to facilitate the building of core infrastructures such as electric power stations, communications, and transport, and have thus worked to stimulate and encourage foreign direct investment by Japanese companies. Yen loans not only embody the nature of Japan’s approach to assistance—its focus on infrastructure and economic growth—but are also associated with Japan’s ideal of “assistance for self-help efforts” (Shimomura 2020, p. 180; Yamada 2021, p. 3).

Yen loans are symbolic of “the heterodoxy that flows through the history of Japan’s development assistance policy” (Shimomura 2020, pp. 1–2). This chapter questions the nature of this heterodoxy, and how discord is navigated between Japan, which is normally regarded as norm-taker, and the norm-makers—the United States and European countries—who generally “lack flexibility with respect to difference” (Shimomura 2020, p. 17). The chapter begins by presenting an overview of Japan’s history of providing loans and examines why Japan adopted yen loans as a method of assistance, how this approach was unique, and developments to the present day. Section 3 outlines how Japanese-style assistance was and is assessed from the perspective of dominant development assistance norms. Section 4 examines how Japan has responded to this assessment. Finally, Sect. 5 touches on changes in these norms in the context of significant changes in the international political and economic order in recent years.

2 Japan’s History of Providing Loans

In this context, “loans” refer to the long-term provision of credit between the governments or public institutions of sovereign nations.⁴ From the nineteenth century onward, loans were used extensively by the great imperial powers. Japan’s first experience came as a borrower, at the end of the Edo period. In 1865, Japan accepted a loan of 2.4 million US dollars from France’s Société Générale for the construction of the Yokosuka Ironworks. These ironworks were later to become the Yokosuka Naval Arsenal, which provided warships to the Imperial Japanese Navy, which in turn played a leading role in Japan’s victory in the Russo-Japanese War.

Japan successfully used its borrowing as a foothold for reaching national prosperity and strengthening its military to gain a place among the great powers. With this, by the early twentieth century, it had transformed from a borrower to a lender. Now the borrower was China (the Qing dynasty and, later, the Republic of China), where the great powers were engaged in a power struggle.⁵ Interestingly, a framework reminiscent of the discord between dominant norms and heterodoxy concerning postwar yen loans can be observed in prewar lending to China. At the time, China was seen as “the only remaining giant undeveloped market in the world” (Sakai 2001, p. 100), and the great powers, comprising the United Kingdom, the United States, Germany, France, Russia, and subsequently Japan, jointly provided it with loans to prevent any single one of them gaining a particularly advantageous position. Japan, while ostensibly adopting an attitude of international cooperation through participation in the consortium formed for the purpose of mutual containment, attempted to secure “special interests in Manchuria.” However, this attempted “heterogeneous” behavior by Japan was forced into compliance by the prevailing norms of international finance, led by the United Kingdom, under the rubric of “standards of a civilized country” (Sakai 2001).

After the Second World War, advanced countries endeavored to support the economic and social development of “developing countries” newly freed from colonial rule, in order to bring as many of these countries as possible into the capitalist camp. Loans, which had previously been used as a means of achieving imperial ambitions, were now transformed into a way of supporting developing countries.⁶ The International Bank for Reconstruction and Development (World Bank) was established in 1945 with the mission of providing loans for development. From the 1950s through the early 1960s, the United States, the United Kingdom, West Germany, and the USSR actively provided loans to India and other developing countries. It was in this context that Japan joined the ranks of loan providers, making its first yen loan in 1958 for a steelworks construction project in India.⁷

Specific circumstances led to Japan’s adoption of yen loans as its primary mode of providing development assistance. Almost all major cities in Japan were reduced to rubble in the Second World War, and conditions were so dire that people were dying of starvation in the streets. Nevertheless, immediately after the Pacific War, there was already consensus among Japan’s policy circles, including members of the ruling party and government officials, concerning the critical importance of “economic cooperation (Keizai kyōryoku).” There was a perception that economic autonomy was vital for Japan’s political independence, and that “economic cooperation”—the injection of Japanese money and technology and the strengthening of trade and investment relationships with Asian countries—was needed to achieve Japan’s economic autonomy. The problem was finding the necessary financial resources. Thus arose the idea of combining war reparations to Asian countries with economic cooperation. This meant using Japanese materials, equipment, and technology, provided in the name of reparation, to build infrastructure in developing countries, effectively incorporating economic cooperation into Japan’s fulfillment of its duty of compensation (Shimomura 2020, pp. 40–47; Sato 2021, pp. 19–22, p. 191). The resulting projects included the construction of core infrastructure still in use today, such as the Baluchaung Hydropower Plant in Burma (now Myanmar), and projects that later developed into large-scale yen loans, such as the projects to develop the Brantas River basin in Indonesia. Japan’s development assistance thus began with war reparations. It was certainly not assistance as charity provided by a rich country to poor countries.

When Japan’s rapid economic growth began in earnest in the 1960s, the country’s policymakers began to adopt the optimistic view that Japan was now firmly on “the road to becoming an advanced country.” The volume of yen loans was increased to take the place of fulfilled war reparations in funding infrastructure development in Asia. In 1961, Japan established its Overseas Economic Cooperation Fund (OECF) as an aid organization, especially for providing yen loans. The policy of the Ministry of Finance at the time was one factor behind Japan’s adoption of yen loans as its main method of development assistance. Concerned over increases in the assistance budget in response to pressure from the United States and Europe, the Ministry of Finance promoted yen loans as a form of assistance with less impact on the general account budget (Shimomura 2020, pp. 80–82).⁸

The design of the yen loan system and its features reflected Japan’s so-called Trinity approach to development assistance, with the aim of supporting overseas expansion by Japanese companies. In particular, yen loans were “tied aid.” Only Japanese companies could be contracted to carry out infrastructure construction works funded by yen loans. Tied aid accounted for almost 100% of all yen loans up to the mid-1970s (Yamada 2021, p. 24). Moreover, the major recipients of yen loans were countries in Asia in which Japanese companies had an interest, such as South Korea, Thailand, the Philippines, Indonesia, and Burma.

The Japanese approach to development assistance did not just reflect circumstances on the Japanese side, however. The focused injection of yen loans into infrastructure projects was also consistent with the national development plans of the recipient countries. Asian countries were desperate to improve their investment environments through infrastructure improvement so that they could attract foreign direct investment, strengthen their international competitiveness, and promote exports. In other words, both Japan and its recipient countries in Asia shared a tacit understanding of the importance of linking assistance, investment, and trade. This approach was distinct from that adopted by the United States and European countries, which perceived assistance as charity and rejected the pursuit of profit by the assistance provider. This approach, however, was not clearly articulated by Japan until 1987, when the Ministry of International Trade and Industry announced the New AID Plan (New Asian Industrial Development Plan). As examined below, this lack of clarity about the intent of ODA provision led to criticism of the Japanese assistance ideal from the United States and European countries.

The geographical spread of the recipients of yen loans expanded greatly from the 1980s onward. The People’s Republic of China, already a recipient of yen loans in 1979, was joined by Middle Eastern countries such as Turkey and Jordan, and African countries such as Kenya and Ghana. In the 1990s, immediately after the end of the Cold War, yen loans were also provided to formerly socialist countries, including members of the former Soviet Union, Eastern European countries, Mongolia, and Vietnam. The range of projects targeted under yen loans also became more diverse, including peace building, support for small- and medium-sized enterprises, human resources development, and, recently, the construction of patrol boats to strengthen the maritime law enforcement capabilities of developing countries concerned about China’s maritime expansion. However, the fundamental characteristic of yen loans—their focus on support for infrastructure development in Asian countries in cooperation with Japanese private sector companies—remains unchanged today.

3 Criticism of Yen Loans from the Perspective of the Norm-Makers

How, then, have yen loans, and the Japanese-style approach, been perceived and criticized from the perspective of the norm-makers?

Critics of Japan’s development assistance included journalists, researchers of assistance policy, and international NGOs. From the 1960s to the early 1970s, journalists criticized Japan’s development assistance as serving Japan’s own interest in promoting exports, rather than the interests of developing countries. For example, Håkan Hedberg, a Swedish journalist, disparaged Japanese assistance as implemented not to benefit developing countries in Asia and Africa, but rather “for Japan, or for Japanese industry” (Hedberg 1970, p. 257). In the 1980s, Japanese ODA came under severe criticism for supporting corrupt dictatorships such as the Marcos and Suharto regimes.

Meanwhile, the main forum for discord between the dominant norms championed by the United States and European countries and Japanese heterodoxy was the Development Assistance Committee (DAC) established by the Organization of Economic Cooperation and Development (OECD) in 1961.⁹ This coincided with an era of escalating tension in the Cold War, with the erection of the Berlin Wall in 1961 and the Cuban Missile Crisis in 1962. Competition between the United States and the Soviet Union over assistance to newly emerging developing countries, mostly on the African continent, also intensified during the 1960s. DAC’s system of peer review, whereby member states assessed each other’s assistance programs, was aimed at achieving effective, closely coordinated assistance to counter the assistance being aggressively provided by the Soviet Union.

In the 1970s, styles of assistance quite different from Japan’s approach were becoming mainstream. One of these was grant assistance. The United Kingdom, for example, established a policy of mainstreaming grant assistance in the 1970s and drastically reduced the volume of its loans (Iijima and Sakuma 2004, p. 127, p. 156). Moreover, through the advocacy of the United States Agency for International Development (USAID), support for the fulfillment of basic human needs (BHN) such as food, health and medical services, and basic education became the norm for development assistance. In this context, the “heterodoxy” of Japan’s development assistance, which focused on infrastructure development through loans, became yet more marked. For example, the report from a 1995 peer review of Japanese development assistance carried out by DAC criticizes Japan for having the lowest quality assistance of any DAC member in 1993, measured on the basis of its grant element, as a result of the fact that “Japan relies more on loans and less on grants than most donors” (OECD 1996, p. 7, p. 44).

The gap between dominant development assistance norms and Japan’s approach to assistance widened even further in the second half of the 1990s. This time, the formation of norms was again led by the United Kingdom, under the Blair administration which came to power in 1997 (Iijima and Sakuma 2004, p. 124). The United Kingdom advocated poverty reduction as the goal of aid and attempted to bring it to the center of international assistance efforts. In this context, criticism was leveled at Japan’s focus on economic growth: “Japan needs to more fully mainstream poverty reduction” (OECD 2004, p. 101). The United Kingdom also proposed common funds to which donors would make joint contributions, and general budget support where funds are provided into the recipient country’s general account budget, to replace traditional project-based assistance, in which each donor country funds its own individual projects. The Netherlands and the Scandinavian countries sympathized with this approach, and it came to dominate the mainstream of development assistance. In the second half of the 2000s and the first half of the 2010s, with the major developed nations increasingly focused on closely coordinated efforts to enhance the effectiveness of the assistance they provided, Japan’s assistance efforts, which emphasized support for individual projects, became subject to new criticism by other DAC member countries that they were uncooperative with the trend of closer aid coordination.

In the 2000s, yen loans faced significant adversity. Debt relief measures for Heavily Indebted Poor Countries (HIPCs) became a focus of international attention, and Japan, a major lender, was left with no alternative but to substantially reduce or exempt these borrowers from the repayment of yen loans. The assertion that loans are not an appropriate method of assistance, to begin with, was echoed among international NGOs and in academic circles. In the DAC peer review conducted in 2004, it was recommended that Japan should raise its proportion of grant assistance. In the 2010 peer review, Japan’s economic growth-centered approach, with its focus on supporting infrastructure development, was again subject to criticism, and Japan was yet more bluntly advised to strengthen its assistance linked to poverty reduction.

4 Japan’s Reaction

Faced with mounting pressure from norm-makers, Japan was left with no option but to begin a process of “reform.” A representative example of this was the tied aid conditions attached to yen loans, which had been criticized as unprincipled commercialist assistance. As a result of the progressive shift to untied aid since the mid-1970s, allowing European and US companies to bid for infrastructure projects funded by yen loans, the proportion of tied yen loans had fallen to 32% in 1983. By 1996, no yen loans were delivered as tied aid (Yamada 2021, p. 24).¹⁰

However, Japan made no attempt to change its loan-centered, infrastructure-focused assistance approach, which had consistently been the target of criticism. Faced with the need to justify this approach, Japan put forward the principle of “assistance for self-help efforts” (see Chap. 8, this volume).¹¹ Assistance for self-help efforts was listed as part of Japan’s assistance philosophy in its ODA Charter established in 1992. It stated that making developing countries responsible for repayment would encourage autonomous efforts to ensure repayment in the future, including efforts to use funds efficiently. This was not only a response to criticism of Japan’s assistance efforts as unprincipled but also aimed at justifying yen loans as a method of assistance.

An important factor in Japan’s persistent implementation of loan-based assistance, apart from fiscal reasons, was the massive demand for infrastructure funding among developing countries in Asia. With Europe and the United States intent on positioning BHN and poverty reduction as the main focus of assistance and steering toward an emphasis on the social sector through grants and technical cooperation, Japan’s “rarity value” increased, as a bilateral donor willing to provide long-term, low-interest loans to meet the demand for infrastructure development. Even as it was being criticized as an “unprincipled donor,” Japan continued to respond conscientiously to the demands of recipient countries as a “sensible donor” (Shimomura 2020, p. 176).

One of the rare instances in which Japan showed interest in the creation of development assistance norms was “The East Asian Miracle” research carried out by the World Bank in the first half of the 1990s by the request of Japan, in which Japan aimed to gain international recognition for the role of government in stimulating economic growth as aid, as well as to provide an indirect justification for its own infrastructure-centered assistance policy.¹² By 1989, Japan had overtaken the United States to become the largest assistance donor in the world. Moreover, many of the main recipients of Japanese assistance in Asia had achieved rapid economic growth with some, such as South Korea, Thailand, and Malaysia, becoming donors in their own right. With deepening confidence in its own assistance policy, Japan (and specifically the Ministry of Finance and OECF) expressed disagreement with the policies adopted by the International Monetary Fund (IMF) and the World Bank, which were based on the neoclassical economic theory in vogue at the time. The report, The East Asian Miracle—Economic Growth and Public Policy, published by the World Bank in 1993, concluded that it was the establishment of basic conditions by East and Southeast Asian governments, such as appropriate infrastructure development, together with macroeconomic stabilization and human resources development, that had enabled them to sustain rapid economic growth.

However, Japan never again took the initiative in the establishment of development assistance norms. The norms championed by the vocal member countries of DAC became increasingly dominated by the perception of assistance as “charity,”¹³ which gained traction after the end of the Cold War, and by an ideology focused on poverty reduction. Even while it was the largest assistance donor in the world, Japan was unable to become a norm-maker.

5 An Example of the Successful Establishment of Norms?—The Proposal of “Principles for Promoting Quality Infrastructure Investment”

Ironically, it was not until the second half of the 2010s, long after its glory as the top donor in the 1990s had faded¹⁴ and it had fallen behind the United States, Germany, and France in terms of the amount of assistance it provided, that Japan began to exert an influence on the formation of development assistance norms. Faced with the need to differentiate its own approach from assistance efforts by China, which had become the target of harsh criticism from the international community, Japan embarked on the formation of assistance norms supporting infrastructure development. China, which had ramped up its assistance efforts in the 2000s in the context of continuing rapid economic growth, was criticized by Europe and the United States for using these efforts to secure resources and gain overseas markets. Some in the United States even denounced Chinese assistance efforts as “rogue aid,” recklessly supporting “rogue states” such as North Korea, Iran, and Venezuela (Naím 2007).

Wariness and criticism of Chinese development cooperation became more pronounced with the appearance of the Xi Jinping administration, which strengthened self-assertion under the banner of the “Chinese Dream.” The Belt and Road Initiative of 2013 was perceived as a clear indication of China’s will and ability to meet the enormous infrastructure demand across both the land and sea routes between China and Europe. It was in this context that an event occurred in 2016 that became known in the international assistance community as the Hambantota Shock. In return for complying with the Sri Lankan government’s request for debt relief concerning the money it had borrowed from the Export–Import Bank of China to fund the construction of Hambantota Port, Chinese authorities forced the Sri Lankan government to agree to a 99-year lease of the port. This action gave rise to criticism from those who claimed China was setting “debt trap.” They argued that China was providing massive loans to poor countries to fund unprofitable infrastructure projects, leaving these countries unable to repay their debt, then using this situation to secure key strategic bases (Chellaney 2017).

The issue for Japan was that China’s approach to assistance was similar to its own. China not only made extensive use of loans to support infrastructure projects in developing countries but also used this assistance to support the overseas expansion of its domestic companies—a method of assistance reminiscent of Japan’s Trinity approach (see Chap. 13, this volume).¹⁵ This was deeply concerning for Japan. Struggling against the worst fiscal conditions of any advanced country, Japan had no option but to place increasing reliance on yen loans, which carry a relatively light fiscal burden, to combat China’s aid offensive. At the time, Japan was in the process of responding to calls from business circles to increase yen loans delivered as tied aid in order to bolster the domestic economy, which was suffering from long-term stagnation. Yen loans were fast becoming Japan’s “flagship product.” Chinese assistance, however, was a “similar product,” and Japan had to avoid becoming caught up in the international criticism that this “similar product” was attracting. Diplomatically, therefore, Japan needed to distinguish its approach from Chinese assistance. Japan’s Ministry of Foreign Affairs (MOFA) and JICA, concerned about the state of Chinese assistance, carefully considered differentiation strategies. They came to the conclusion that Japan should emphasize the difference in “quality” between its approach and the Chinese one.

The concept of “quality infrastructure” was a concrete expression of this. Quality infrastructure was defined as the infrastructure which would be “easy to use and durable, as well as environmentally friendly and disaster resilient,” and although it “may first appear costly,” it is “indeed cost-effective in the long run” (MOFA 2015). This definition was aimed at striking a contrast with the infrastructure produced through China’s assistance, which was criticized as being low-price but poor quality infrastructure with little development benefit and a negative environmental impact (Naím 2007). However, in order to articulate a normative concept of infrastructure, this definition was too long and too intuitive. “Quality infrastructure” was therefore redefined using three standards: “resilient,” against natural disasters and other risks, “inclusive,” leaving no one behind, and “sustainable,” taking into account its impact on society and the environment (MOFA 2021).

Moreover, as China came under increasing criticism for using excessive loans to set “debt traps,” Japan was pressured to lead the establishment, not only of norms concerning infrastructure but also of norms for the conduct of creditor nations. Its first attempt to do this was the “G7 Ise-Shima Principles for Promoting Quality Infrastructure Investment,” endorsed at the G7 Ise-Shima Summit in 2016. At the G20 Osaka Summit in 2019, Japan went on to propose the “G20 Principles for Quality Infrastructure Investment.” These principles require countries providing loans for infrastructure projects in developing countries to consider factors including transparency, openness, economic efficiency, and debt sustainability. According to the Japanese government, the principles are aimed at preventing “poor quality” infrastructure investment (assistance) impeding growth in developing countries. The principles of “transparency” and “openness,” which require that completed infrastructure is operated in a transparent manner with all users allowed equal access, and the principle of “debt sustainability,” which requires the lender to consider whether the borrower is able to sustain the debt, were, of course, formulated with the criticism of Chinese assistance efforts in mind.

What is important here is that the Japanese government clearly aimed for the “international standardization of quality infrastructure” and succeeded in gaining the endorsement not only of developed countries, but also of emerging countries such as China, India, Brazil, South Africa, and Indonesia. China undoubtedly understood that its country was the target of Japan’s actions, but the framing of the principles—as a code of conduct to which responsible lenders should adhere for the sake of developing countries—left it unable to refute them. This can be regarded as a successful attempt to establish development assistance norms.

There were specific reasons why Japan, which had not previously taken a leadership role in establishing development assistance norms, was able to succeed this time. The first was the rise in demand for infrastructure development. With numerous developing countries incorporated into value chains as a result of economic globalization, demand for logistics infrastructure had grown phenomenally.¹⁶ Private sector investment in infrastructure through private–public partnership (PPP), however, had not progressed as originally anticipated. Another important reason was the growing influence of developing countries in the establishment of international norms. In contrast to the Millennium Development Goals (MDGs), which were created mainly through the leadership of developed countries and international institutions, and which leaned heavily toward poverty reduction and BHN, the Sustainable Development Goals (SDGs) were formulated to reflect a wide range of development needs, including infrastructure development. Behind this change lay the increased influence of developing countries. Japan obtained the support of developing countries such as Indonesia, which demanded stronger infrastructure development, and used this support as a tailwind to promote the adoption of the Infrastructure Principles at the G20 Summit in 2019.

Even the developed countries that had persistently criticized Japanese-style assistance could no longer deny the enormous need for infrastructure development loans. This was because Europe and the United States were also left with no option but to resist the swift response of Chinese lenders to the vigorous demand for infrastructure in developing countries. Even the United States and the United Kingdom, which had been critical of loans, each recommenced the provision of loans for infrastructure development support. The United States, for example, established the International Development Finance Corporation (DFC) in 2019 and began to provide loans for infrastructure projects in developing countries. The DFC website clearly states that its purposes include providing “the developing world with financially sound alternatives to unsustainable and irresponsible state-directed initiatives” and making “America a stronger and more competitive leader on the global development stage” (DFC 2022). Loans are no longer simply a way to promote development. They are increasingly recognized as a tool of strategic competition between great powers, and a tool for the pursuit of the national interests of the lender.

6 Conclusion: The Significance of the Discord Between Norms and Heterodoxy

An overview of the discord between norms and heterodoxy regarding yen loans reveals anew the tenacity of the development assistance norms championed by Europe and the United States. As indicated in The East Asian Miracle, the three decades of growth experienced by countries in East and Southeast Asia from the 1960s to the 1980s was, when compared to other regions, nothing short of “miraculous.” Japan was the main donor to these countries. Since yen loans formed the backbone of Japan’s development assistance policy, it could be argued that Japan’s development assistance policy should be given more credit than it has received. As it turned out, however, displacing the dominant norms in place would have been next to impossible, supported as they were by the unassailable principle that assistance should be charity under the overpowering influence of universities, think tanks, and others.¹⁷

That is not to say that Japan has capitulated to dominant norms. Infrastructure support through yen loans remains a characteristic of Japan’s development assistance, and the Trinity-style approach has been adopted by emerging donors such as China, South Korea, and Thailand, and adapted for assistance to less developed countries in Southeast Asia, such as Laos and Vietnam. China, in particular, is challenging the development assistance norms championed by Europe and the United States by providing huge amounts of loans, effectively positioning loans as the new standard for development assistance. Confronted with the power of Chinese cash, the United States and European countries, too, have begun to provide loans, which reverses the principles they championed with such vigor. The decision by the United Kingdom and the United States to recommence development assistance loans was made for the sake of resisting China—in other words, geopolitical national interests. This is not a reason that can be justified in terms of the norms that they had previously emphasized, such as assistance as charity and “noblesse oblige.” The hypocrisy of the norms dictated by the great powers has been laid bare.

So, what should Japan learn from its many years of being unable to join the ranks of the norm-makers? Simply speaking, Japan was unable to present the convincing principles or generally applicable theories needed to refute the dominant norms. This includes, for example, Japan’s experience of using postwar loans from the World Bank to build the foundations for the economy and society, becoming one of the world’s great economic powers through the resulting period of rapid economic growth, which was presented to DAC by MOFA to justify loans as “assistance for self-help efforts” (MOFA 2003). DAC’s report on the 2003 peer review pointed out the danger of applying Japan’s postwar experience to the rest of Asia, which faces quite different conditions (Shimomura 2020, p. 195). Nevertheless, Japan persisted in trying to justify its approach to development assistance in terms of “Japan’s experience.” It would be difficult to claim that sufficient effort has been made to explain why Japan’s experience is applicable to developing countries with different political, economic, historical, and cultural backgrounds, by transforming the individual anecdotes that make up Japan's experience into a theory that can be applied to other countries.

Perhaps Japan never really aspired to be a norm-maker. This may be because Japan had become used to being regarded as heterogeneous since the time of the Meiji Restoration. Historically, Japan has prided itself on the wakon-yōsai approach (Japanese spirit with Western learning), molding “advanced” systems and technologies from the West to fit its own political, social, and cultural conditions. The unique Japanese derivatives that resulted were perceived and criticized by Europe and America as heterogeneous, or even heretic. Japan has had many such experiences. When Japan became a member of DAC, it was aware of the fact that “development assistance,” and its Japanese translation “kaihatsu-enjo,” would be evaluated on the basis of the norm of “charity” and that, although superficially similar, this was in substance quite different from Japan’s concept and practice of “keizai-kyōryoku (economic cooperation)” based on yen loans, which had originated from war reparations.

If Japan had expressed compelling opposition to the dominant norms, then it might have been able to ignite a fruitful debate about the diverse range of approaches to development assistance. Today, with loan aid for infrastructure development no longer perceived as “heterodoxy,” perhaps Japan has the opportunity to seize the initiative to discuss its vision of development assistance.

Notes

• 1. Cambridge Dictionary (https://dictionary.cambridge.org/dictionary/english/charity).

• 2. The Organisation for Economic Co-operation and Development (OECD) Development Assistance Committee (DAC) collects data on the assistance provided by its member countries, and measures and compares the quality of this assistance on the basis of its “grant element.” This index measures how close the assistance is to a grant, with pure grants receiving a score of 100%. The higher the score, the higher the “quality of assistance” is assessed to be.

• 3. For example, loans accounted for 51% of Japan’s ODA in fiscal 2008. This is much higher than the DAC as a whole, where grants accounted for 89.4% of aid last year.

• 4. International institutions and private sector financial institutions with close ties to their national government sometimes act as lenders or borrowers in place of the government.

• 5. The series of Nishihara Loans, made by Japan’s Terauchi Masatake administration through the Prime Minister’s secretary Nishihara Kamezo to the Republic of China’s Duan Qirui government from 1917 to 1918, is a famous example. The possible impact of Japan’s experience of prewar loans to China on postwar yen loans is a topic for future research.

• 6. However, until the OECD defined ODA, there was no clear distinction between development loans and export credit provided to support domestic companies.

• 7. The joint declaration on this loan by Japan and India was the first official document to use the term “yen loan” (Yamada 2021, p. 173).

• 8. Funding for yen loans comes from fiscal investment and loan funds of the Japanese government, which are sourced from postal savings deposited by the general population rather than from the general account budget.

• 9. The predecessor of DAC was the Development Assistance Group (DAG) established in 1960 in response to pleas from the US.

• 10. The shift to untied aid was partly an effort to address criticism by the United States, made in the context of intensifying US–Japan trade frictions in the 1980s, but also as a response to resistance among Southeast Asian countries to Japan’s economic expansion. In the 2000s, tied loans began to increase again in response to requests from the business community against the backdrop of Japan’s prolonged economic stagnation.

• 11. It is necessary to remember that Japan began to emphasize assistance for self-help efforts only in the 1980s (Shimomura 2020, p. 180). It was not always put forward as Japan’s development assistance ideal. In fact, in the 1960s, DAC peer review of Japan’s development assistance actually pointed out a lack of consideration for self-help efforts (Sato 2021, pp. 192–193).

• 12. Another example is Japan’s efforts, at around the same time, to introduce the “human security” concept into the mainstream. Also, Japan was active in an endeavor to mainstream the agenda of Universal Health Coverage in the 2010s. These concepts are not directly related to yen loans however, and are thus beyond the scope of the current paper.

• 13. Clare Short, who served as the United Kingdom’s Secretary of State for International Development from 1997 to 2003, wrote that “we all have a moral duty to reach out to the poor and needy” (UK Government 1997).

• 14. Japan became the largest aid donor in the world in for the first time in 1989, surpassing the United States, and remained the largest donor for a decade (with the exception of 1990), until the United States reclaimed the top spot in 2001.

• 15. According to Shimomura, China combined Japan’s Trinity approach with its own economic development strategy, the “grand economic and trade strategy” (Shimomura 2020, p. 196–197).

• 16. According to a forecast by the Asian Development Bank (ADB), as much as USD 26.2 trillion in infrastructure development will be needed between 2016 and 2030 in the four areas of electric power, transport, communications, and water and sanitation, for developing countries in Asia to maintain their current economic growth (ADB 2017). Recent estimations also point to a USD 15 trillion supply–demand gap by 2040 (G20 Global Infrastructure Hub).

• 17. For example, the Commitment to Development Index published by the Center for Global Development, a US think tank every year since 2003, adopts assistance assessment criteria that disadvantage loans, leading to an objection from Japan’s MOFA.