From Aid Recipient to Aid Donor

Despite a long history and continuous efforts to improve socio-economic conditions in recipient countries, Japan's aid giving activities have rarely received positive evaluations on the international level. A reputable publication, The Economist (March 6, 2004), observed that despite an impressive amount of money given as foreign aid, Japan has received little respect as an aid giver. However, the Japanese government has used every chance to glorify Japan's aid giving past and present and marked the year 1994 as the 'fortieth anniversary' of Japan's foreign aid policy. On this occasion, Japan's Ministry of Foreign Affairs (MOFA) produced a detailed report on Japanese aid policy and aid giving activities. The main aims of the publication were to review economic cooperation that Japan had extended in the past and to map out the future of Japan's ODA program (MOFA, 1994a).

According to this document, there were five periods in Japan's aid giving history, namely;

• Period One (1945-1953): the period of post-war economic restructuring (during this period Japan was a recipient of economic assistance from the United States and the World Bank);
• Period Two (1954-1963): the period of post-war reparation payments (when Japan was giving foreign aid in a form of war reparation payments);
• Period Three (1964-1976): the period of a quantitative expansion of aid (it was characterized by a diversification of the types of assistance);
• Period Four (1977-88): the period of a systematic aid expansion (the pace of the expansion of aid was determined through new Medium-term targets);
• Period Five (1989-present): the period of top donorship (when Japan became the top foreign aid donor) (MOFA, 1994a: 10).

This official classification has a number of shortcomings. Among them are:

1. the inclusion of the period when Japan was an aid recipient into the country's aid giving history,
2. the incorporation of the war reparation payments as a part of aid giving,
3. the separation of Period Three and Period Four.

First of all, an attempt has been made to 'expand' Japan's history of foreign aid giving. Some researchers argue that it is not appropriate to include the period when Japan was an aid recipient as a part of its aid giving past. For example, Yokota (1997: 8-9), who finds the official classification of Japanese foreign aid history as overall acceptable, disagrees with the inclusion of Period One into Japan's aid giving history. Indisputably, having had an experience as an aid recipient produced a strong impact on Japan's foreign aid policy because it gave Japan the potential ability to understand the sensibilities of aid recipient countries. This understanding has affected Japan's aid-giving mechanism and shaped its philosophy of providing foreign aid. In the present study, Period One is termed as the 'Pre-Donor Period One (1945-1953)'.

Secondly, the payment of war reparations cannot be viewed as foreign aid giving. There are obvious differences between the ODA and the war reparations in terms of their purposes and backgrounds. The former is given to developing countries for the purpose of assisting their economic development while the latter is paid as a compensation for damages inflicted. In other words, considering the war reparations as provision of foreign aid may be seen as another attempt to 'expand' Japan's aid giving history. Yokota (1997: 9) mentioned a controversy surrounding the decision to include the period of war reparations into the official history of Japan's aid giving, while Nishigaki and Shimomura (1993: 133) pointed out that the reparation payment does not contain a sufficient element of ODA. Nevertheless, the Development Assistance Committee (DAC) of the Organisation for Economic Co-operation and Development (OECD) recognised the reparation payment as a part of development assistance (Hasegawa, 1975: 37). This could be a reason why the Japanese government does not differentiate between foreign aid and reparations payments. As Alan Rix (1980: 24) put it, 'At one point, it (economic co-operation) was said to comprise reparation and foreign aid, since countries not claiming war damages were entitled to receive foreign aid'. In the present study, war reparations payments are not considered to be aid giving. However, due to the fact that the experience of paying war reparations has strongly influenced institution building in Japan's ODA, this study includes the period into the discussion and refers to it as the 'Pre-Donor Period Two (1954-1963)'.

Thirdly, the rapid expansion of foreign aid to developing countries could be attributed to Japan's search for new supplies of natural resources to support the needs of its industry and new destinations for its production. The economic drive was a strong motive for Japan to increase its presence abroad, especially in the resource rich developing countries. Aid giving was one way to get access to natural resources and new markets. Despite the fact that during Period Four the Japanese government began setting Medium-Term Targets in order to regulate the aid budget and to monitor the distribution of aid funds in a more systematic manner, there were no stark differences in the approaches to aid provision during Period Three and Period Four as classified in Japanese official documents. During that time span, Japan provided vast amounts of money for physical capital accumulation in developing countries. For this reason, the present study does not distinguish between Period Four and Period Three and refers to that time span as the 'Aid Giving Period One (1964-90)'.

The announcement of new aid guidelines was aimed at clarifying fundamental principles for Japan's aid giving. According to Japanese official documents, the new guidelines were set to alter ideologically muted attitudes and to articulate Japan's support for 'universal values', such as human rights and democracy. Before the new aid guidelines were introduced, the Japanese government was reluctant to impose political conditionalities on and kept providing foreign aid to abusive and repressive regimes in aid recipient countries. For example, the Japanese government provided foreign aid to the authoritarian Marcos administration in the Philippines (Furuoka, 2006; Potter, 1996). Considering the importance of the new aid guidelines for Japan's ODA program, we argue that the starting point of the following period in Japan's foreign aid history should be not the year 1989, when Japan became the leading aid donor, but 1991, when the 'Four Guidelines of ODA' were officially announced. Accordingly, in this article we divide the sixty-five years during which Japan has transformed itself from a recipient of foreign aid to one of the leading aid donors into the following four periods:

• Pre-Donor Period One (1945-53): the Period of Aid Receiving
• Pre-Donor Period Two (1954-63): the Period of Paying War Reparations
• Aid Giving Period One (1964-90): the Period of a Quantitative Expansion of Aid
• Aid Giving Period Two (1991- present): the Period of the New Aid Guidelines.

We believe it is instructive for the future development of aid regimes worldwide to research how an aid-receiving country, such as Japan was after the end of World War Two, could become one of the top foreign aid providers forty years later. What were the government policies that could bring the country to that elevated position? There is still a lack of systematic and comprehensive studies on Japanese aid history and the country's amazing transformation of its status in the aid regime. This article aims to address this gap. It reviews Japan's foreign aid policy by critically examining the country's experience as an aid recipient in the late 1940s to its becoming a leading aid donor in the 1980s. The study scrutinizes the official views of Japan's foreign aid history and its aid policy. We contend that our new analysis of the historical background provides a clearer insight into the current transformation of Japan's ODA priorities and the country's foreign aid policy that has been changing in accordance with developments in domestic and international affairs.

After this introductory section, Section Two analyses Japan's experience as an aid receiver. Section Three examines the period when Japan was paying war reparations while Section Four reviews the rapid quantitative expansion of Japan's foreign aid program. Section Five focuses on Japan's aid policy after the introduction of the new aid guidelines; it examines a new priority in Japan's foreign aid policy, which is giving support for human resource development in the aid recipient countries. Section Six concludes the article.

Japan is the leading part of the Asian success story of the second half of the twentieth century. The country has overcome the destruction of World War Two and become an economic superpower. When the war ended in August 1945, Japan's land and industries had been completely devastated, and the country suffered from the worst economic crisis in its modern history before it began to recover from the war's consequences in the 1950s. Immediately after the war, production capacity in Japan's manufacturing sector was diminished to one-tenth of its pre-war level; textile production was reduced to one-fifth, while the food industry produced only one-fourth of its pre-war volume (Nakamura, 1985: 55)

Due to serious shortages of food and other daily necessities Japan received various kinds of assistance from abroad and this helped to restore the country's war-torn economy (Kokusai Kyoryoku, February 1991: 6). From 1946 to 1951, Japan received a total of USD5 billion in US aid from The Government Aid and Relief in Occupied Areas Fund (GARIOA) and The Economic Rehabilitation in Occupied Areas Fund (EROA) (MOFA, 1994a: 11-12). The GARIOA money was used to finance the emergency procurement of daily needs (see Table 1), while EROA's funds were spent on financing imports of industrial materials. It should be noted that there were criticisms that the US aid programs were not motivated by purely humanitarian considerations. Mason (1964: 14-15) who examined US economic assistance in the Cold War period, concluded that 'It is doubtful that humanitarianism can be considered important either in explaining the actions of this country since 1947 or in laying the basis for a reasonable expectation of future actions'. In a similar vein, Wolf (1960: 284) maintained that 'Humanitarian objectives are not, nor do they appear to be, prominent among the continuing objectives of US foreign aid'

Source: Keizai Kyoryoku, February 1991: 6

Japan also received large amounts of foreign aid from the World Bank. From 1953 to 1966, the World Bank provided USD860 million for 34 development projects in the country. The money was allocated for the construction of basic infrastructure projects and for the development of key industries. The first project carried out with the World Bank's aid was the construction of the Tanagawa Dam by Kansai Electric Power Company. Other projects included the Tokaido Bullet Train (from Tokyo to Osaka), the Tōmei Highway (from Tokyo to Nagoya), and the Kurobe hydroelectric dam (one of Japan's largest hydroelectric dams) (Kokusai Kaihatsu Janaru, July 1990). Throughout the 1960s, Japan was the second largest recipient of aid from the World Bank and it was only in 1990 that the country completed the payment of debts to this organisation (MOFA, 1994b: 5).

Other international organisations that helped Japan to overcome the economic hardship were the United Nations International Children's Emergency Fund (UNICEF) and Cooperative for Assistance and Relief Everywhere (CARE). From 1949 to 1962, Japan received USD18 million in economic assistance from the UNICEF; CARE started giving foodstuffs and medicine to Japanese children in 1948. The aid not only contributed to Japan's economic recovery but also had a significant impact on the development of the country's human resources. For example, in 1949, the US government awarded the GARIOA scholarship (which later became the famous Fulbright scholarship) to Japanese students for pursuing their studies in US universities. More than six thousand youths have benefited from this scholarship (Kokusai Kyoryoku, February 1991: 8).

An important feature of this period is that Japan effectively used the foreign aid for the restoration and rehabilitation of its economy. Nishigaki and Shimomura (1993: 134-136) observed that the foreign aid was used to revive the most critical areas of the Japanese economy. For the most part, the Japanese government used the funds from abroad for physical capital development. In other words, it allocated the foreign aid for the implementation of various infrastructure projects, such as the transportation system and power generation plants, and key industries, namely, the automobile, steel and shipbuilding industries. These measures were instrumental in stimulating and sustaining the economic boom that Japan experienced in the 1960s and 1970s. The wise allocation of aid funds shows that Japanese policymakers had a clear plan and a good strategy for the country's economic recovery and development. Evidently, the first priority was physical capital development. Former Foreign Minister Saburo Okita remembers that when he was drafting Japanese Prime Minister's letter to US occupation authorities asking for financial assistance, the emphasis was made that the aid should be provided not only to relieve starvation and prevent the spread of contagious diseases but also to revive the country's key industries, such as the coal and steel industries (Kokusai Kyoryoku, February 1991: 9-11).

Japan's aid-receiving experience has made a big impact on the country's aid giving philosophy and methods. Three important implications that arise from this experience are:

1. the importance of summoning up a spirit of self-help,
2. the realization that aid receiving in the past calls for aid provision in the present, and
3. an enhanced ability to understand the sensibilities of aid-receiving countries.

First of all, the Japanese government's emphasis on 'self-help' efforts by the aid recipients is an important part of Japan's aid-giving philosophy. This thinking derives from Japan's own experience of economic rehabilitation that it went through after the end of World War Two. According to Japan's ODA 1994, Japan could achieve economic revival only by summoning up the spirit of self-help and making it work in tandem with the money it received as foreign aid (MOFA, 1994a). Later, the concept of 'self-help' was incorporated into the basic philosophy of Japan's ODA Charter which states that Japan would support self-help efforts by developing countries towards their economic success (MOFA, 1992a). Secondly, the aid receiving experience is used to remind the importance of, and even to stress Japan's duty to provide foreign aid. The argument is that Japan was given foreign aid when it was too poor to alleviate poverty single-handedly; since Japan has become a rich nation it has an obligation to help poor countries (Kokusai Kyoryoku, February 1991: 9-11). The Japanese government often stresses this sense of obligation (giri) to justify Japan's generous ODA program. Especially in the post-Cold War political reality, when keeping the provision of foreign aid as a part of a shared responsibility between 'Western' camp members appears unnecessary.

After the Cold War ended, the Japanese government had to find a new rationale for allocating vast amounts of money for the ODA budget. As an official document on foreign aid, Japan's ODA 1994 stated,

Japan started to rebuild its war-torn economy with foreign economic aid…The burden of post war economic co-operation in the early years was borne almost single-handedly by the United States... Due to US aid, Japan was able to tide over the worst post war economic crisis' (MOFA, 1994a: 10-11).

Other official documents as well as the Japanese mass media described the provision of aid by the United States as a favour (on) bestowed on Japan. The same rationale has been used to explain why Japan must give foreign aid to developing countries. The Japanese government places emphasis on the obligation (giri) to repay favours (on) because the Japanese ordinarily do not have a sense of charity to outsiders. As Rix (1993: 16) put it, in Japan 'a sense of charity towards the less fortunate is weak. This has been widely commented on in relation to the aid program and its perceived absence of humanitarian values'. Arguments that employ the sense of giri and on are often used in MOFA's publications. In 1991, Kokusai Kaihatsu, the journal published by the Japan International Co-operation Agency (JICA), published a special issue on Japan's experience as a foreign aid recipient. The emphasis was on reminding the Japanese people about the help that the country received in difficult times and stressing the importance of repaying the favour (on-gaeshi) (Kokusai Kyoryoku, February 1991).

Some researchers, among them Nishigaki and Shimomura (1993: 133-134), focus on another angle of Japan's ODA program and use it to explain particular traits in the Japanese approach to providing foreign aid. They suggest that Japan's aid-receiving experience gave the country a unique ability to understand the feelings, sensibilities, vulnerabilities, and the logic of the aid recipients. As the researchers maintain, aid donors with no such experience tend to disregard the recipient countries' particular circumstances and impose many, often inappropriate, demands on the aid receivers. However, Japan's professed 'unique ability' to understand the recipients' needs and sensibilities can also serve as a convenient pretext to avoid imposing strict measures against repressive regimes in aid recipient countries.

3. Pre-Donor Period Two (The Period of Paying War Reparations)

To conclude the San Francisco treaty with the Allied countries in the 1951, Japan agreed to make reparations payments for damages it had inflicted during the war. The details of the payments were sorted out later during bilateral negotiations between the relevant countries. The negotiations on war reparations went smoothly because Western countries and the US were keen to have Japan as an ally during the West-East ideological confrontation. The first country that signed a reparation payment agreement with Japan was Burma (1954). It was followed by the Philippines (1956), Indonesia (1958), and South Vietnam (1959). Initially Burma claimed more than USD1 billion in damages, a sum the Japanese government could not afford to pay, but later Burma conceded to accept USD200 million to be paid over ten years. On top of that, the Japanese government agreed to provide an additional USD140 million to Burma as economic assistance. The payment to the Philippines amounted to USD550 million while the war reparation to Indonesia was USD223 million. The government of South Vietnam agreed to accept USD39 million from Japan (Hasegawa, 1975: 46). China renounced the claim for the war reparation payment from Japan. The then Chinese premier, Zhou Enlai, told his Japanese counterpart, Kakuei Tanaka, that Japanese military government during the war must be viewed separately from the vast majority of the Japanese people. Premier Zhou expressed an opinion that both Chinese and Japanese people suffered from the Japanese military government during the war. Instead of war reparations, Japan provided 'economic and technical co-operation grants' to Laos and Cambodia, the countries that had relinquished their right to receive reparations payments. Similarly, in 1967, Japan signed agreements to provide economic assistance instead of reparations to the former British colonies of Singapore and Malaysia. In 1965, the Japanese government signed an agreement with Japan's former colony, South Korea, and promised to provide USD300 million to the country. Financial grants were extended to Thailand as compensation for bills issued by the Japanese military authority during World War Two.[i] Besides, the Japanese government pledged to give grants to some other countries, among them Micronesia (1969), Mongolia (1977), and the Democratic People's Republic of Vietnam (1975) (see Table 2).

Source: Hasegawa (1975: 46) and Arase (1995: 29)

In 1953, the Japanese government expressed an interest in joining the Colombo Plan group and sent an observer to the organization's consultation meetings.[ii] On October 6, 1954, Japan was formally admitted into the Colombo Plan group. To commemorate this event the Japanese government announced the 6th October as International Cooperation Day.

Following the admission, in 1955, the Japanese government allocated JPY38.4 million (equivalent to USD106,000) as a technical co-operation fund. Under the Colombo Plan, Japan received 16 trainees from abroad and dispatched 28 specialists to foreign countries (Kokusai Kyoryoku, August 1994: 20-21). It should be noted that in this early stage in the aid giving activities Japan was making some steps towards contributing to human resource development in the poor countries through its technical co-operation programs. It is interesting to note that the Japanese government tried to distance itself from being directly involved in the implementation of the aid programs. For example, it had established a non-profitable foundation called the 'Asia Association' which was put in charge of technical co-operation. This was done in order to enable the enactment of the 'Economic co-operation policy with Asian countries' (Ajia Shokoku ni Taisuru Keizai Kyōryoku Hōshin) while remaining in the background (Japan's ODA 1994, MOFA, 1994a: 12).

In the 1950s, Japan joined other international organisations, such as the International Monetary Fund (IMF) and the World Bank (1953). In 1954, Japan became a member of the Economic Committee of Asia and the Far East (ECAFE). In 1955, it joined the General Agreement on Tariffs and Trade (GATT); and in 1957, Japan's ambition to fully participate in the life and activities of the international community was fulfilled when the country became a member of the United Nations (UN).

Japan's aid administration mechanisms were formed during the period of war reparations payments. In 1955, the Asian Economic Co-operation Office was set up within the MOFA's Asian Affairs Bureau; it was the first separate section in charge of foreign aid. In 1962, the section was upgraded to the Economic Co-operation Bureau, and in 1964, the Bureau was merged with the Reparation Division that had existed independently since 1955. Thereafter, the Bureau became the only legally competent Bureau (Kyoku) within Japan's aid-giving mechanism. Currently, there are 10 bureaus (Kyoku) within MOFA, including the Economic Cooperation Bureau. Furthermore, in 1962, MOFA's rival ministry, the Ministry of International Trade and Industries (MITI), established under its jurisdiction the Economic Co-operation Division. Another two aid implementation agencies – the Overseas Economic Co-operation Fund (OECF) and the Overseas Technical Co-operation Agency (OTCA), which was the predecessor of the Japan International Co-operation Agency (JICA) – were established in 1961 and 1962, respectively.[iii]

As stated earlier, the experience of paying war reparations had a big impact on Japan's foreign aid policy. According to Araki, the Editor of Kokusai Kaihatsu Jānaru, the experience helped to shape the philosophy of Japan's ODA – Yoseishugi (meaning 'giving priority to the recipient country's requests') (Kokusai Kaihatsu Jānaru, November 1994: 12-13). In some researchers' opinion, the period of reparations payments has negatively affected Japan's foreign aid policy. For example, Kusano (1993: 46) pointed out that strong business links between the leaders of some Asian countries and the Japanese companies in these countries were formed during this period. The links were established with support and encouragement from the Japanese government because its priority had been to use every opportunity to ensure Japan's economic development. These business connections retained a strong influence on, and even determined, the mechanism of Japan's aid giving in the following decades.

However, some researchers maintain that it was the only feasible way for the Japanese government to establish good ties, both commercial and political, with its Asian neighbours and to penetrate Asian markets. For example, Langdon (1973: 3) notes that using the reparations payments Japan was able gradually to re-establish good diplomatic relations with its non-communist neighbours in Asia and eventually built flourishing trade with them. Kusano (1993: 46) agrees that the reparations payments helped Japanese goods to penetrate Asian markets, but maintains that because of the lack of natural resources, Japan had no other choice but to adopt this strategy. In a similar vein, Hasegawa (1975) points out that the reparation payments played a positive role in the rehabilitation of the Japanese economy. As he states,

The baisho (reparation payments) seemed to contribute to the post-war recovery and expansion of the Japanese economy, firstly by constituting a stimulus to the economy, which reached its pre-war level by the middle of the 1950s, and then by becoming an instrument for some industries and firms to expand their production for export (Hasegawa, 1975: 47).

Furthermore, the Korean War helped revive the Japanese economy. According to Nakamura (1985), Japan was in economic recession in 1949. For Japan, the Korean War was 'a much needed shot in the arm for her economy, and the resultant boom induced strong plant and equipment investment. Of great importance was the inflow of foreign exchange stemming from expenditures by U.S. military that were called special procurements' (Nakamura, 1985: 61).

Another specific trait of this period is that the inclusion of the private sector into Japan's ODA program took place during the 1950s. Since then, the private sector has been playing a key role in forming Japan's aid policy. The views of and policy recommendations from corporate figures were voiced through official advisory councils and were incorporated into Japan's ODA programs. As Arase (1994: 174) observed, 'The Baisho Jisshi Kondankai (Reparation Implementation Deliberation Council) was created by the Foreign Ministry in 1954 to give private sector leaders a hand in shaping the policy'. In some cases, Japanese firms were even able to influence the government's decision as to where the reparation payments would be channelled. For example, an engineering consultant, Yutaka Kubota, persuaded the Japanese government to include physical capital investment projects, such as dam construction, as part of reparations payments (Sumi 1990: 130-33).

According to Sumi (1990), Kubota had built several dams in Asian countries before he lost his business after Japan's defeat in World War Two. In the beginning of the 1950s, Kubota visited Burma and found a potential dam site there. In 1953, when the negotiations on the reparations payment between Japan and Burma were in progress, he pressed the government to include the construction of a dam into the discussions. At first, the government refused to consider his proposal. Then, Kubota appealed directly to Prime Minister Shigeru Yoshida and persuaded him that the project would benefit Japanese companies. After Prime Minister Yoshida's intervention the Japanese government included the construction of a dam as a part of reparation payment to Burma (Sumi, 1990).

Japan's reparations payment agreements included similar projects in other Asian countries, such as Indonesia, Laos, and Vietnam (Sumi, 1990). As Sumi notes, this pattern of including big infrastructure projects to be implemented by Japanese companies as a part of economic assistance, which had originated during the time of reparations payments, became a prototype for Japan's ODA policy. According to this model, as a first step, consultants are engaged to identify a project that would be viable to be implemented under Japan's ODA program; then pressure is put on the government to include the project as part of the aid program; finally, Japanese companies are appointed to carry out the project's implementation.

By the 1960s, Japan had achieved substantial economic growth for itself. The growth rate of Japan's GNP from the mid-1950s to 1973 was recorded at more than 10 percent annually (Nakamura, 1985: 65). In the middle of the 1960s, there began a gradual increase in the amounts of foreign aid given by Japan to developing countries (see Figure 1). On a dollar basis, in the period from 1964 to 1976, Japan's ODA grew nearly ten-fold from USD115.8 million to USD1.1 billion. As Shinji Takagi (1995: 15) noted, 'From the middle of the 1960s… Japan rapidly expanded its concessional loans and began to provide an even larger amount of other official financing'. Beginning from the mid-1970s, Japan's ODA expanded dramatically. According to Balassa and Noland (1988: 168), 'The dollar value of Japanese ODA more than quadrupled between 1977 and 1986, placing Japan second only to the United States in terms of total assistance'.

Figure 1: Quantitative Expansion of Japan's ODA (1965-1990)

Source: Japan's ODA Annual Report, various years

During the Period of quantitative expansion of aid (1964-1990), there were two periods of a sharp growth of Japan's ODA. The first lasted from the mid-1970s to the early-1980s (see Figure 1). It occurred due to the completion of the war reparations payments. In 1976, Japan made the final reparation payment to the Philippines; after that the Japanese government could fully concentrate on the provision of foreign aid and it began allocating larger amounts of money for that purpose. The second rapid quantitative expansion of Japan's ODA lasted from 1985 to 1990. This sharp increase was caused by the appreciation of the Japanese Yen (JPY) against the US dollar. In the year following the Plaza Agreement (1985), the value of the US currency fell from JPY240 to JPY160 per dollar. This rapid appreciation led to a nominal increase in the value of Japanese aid in US dollar terms.

By the end of the 1980s, Japan became one of the leading providers of foreign aid to developing countries. Unger (1993: 157) commented on Japan's dominant position as an aid donor thus,

Japan now provides a quarter of net resource flows to developing countries. In 1989 the funds included more than USD8.9 billion in ODA, USD13 billion in direct investment, and USD36 billion in commercial lending. Japan and the United States are the world's leading donors of ODA.

In short, during the Aid-Giving Period One, Japan transformed itself from a minor provider of aid to being the leading aid donor. The following sub-sections focus on the features and important issues of the Period of quantitative expansion of Japanese ODA.

On April 28, 1964 Japan joined a high-profile international development organisation, the Organisation for Economic Co-operation and Development (OECD). This event marked the beginning of Japan's serious commitment to aid giving. Though the membership entailed numerous obligations it also enhanced the country's international status. An important benefit that Japan derived from the membership was an opportunity to co-ordinate its aid policy with that of other donor countries. As Rix (1980: 30) comments, 'Japan was able to evaluate other donors' programmes and assess its own in the light of this knowledge'. Entry into the OECD was mutually beneficial to Japan and other industrialised nations that welcomed Japan's willingness to share a burden of providing foreign aid to developing countries. The Japanese government considered membership as an opportunity to improve the country's international standing and aimed to cultivate an image of Japan as a caring nation.

Another important event that occurred at that time was the establishment of the Asian Development Bank (ADB). The Japanese government came up with this initiative and later played a pivotal role in the creation and operation of the Bank. Beginning from 1963, a study group headed by Takashi Watanabe of the Ministry of Finance (MOF) worked on a blueprint for a new Bank (Kokusai Kaihatsu Jānaru, July 1990). In 1965, Watanabe officially proposed the group's ideas to Finance Minister Tanaka and Prime Minister Ikeda and received a positive reply from them. A grand opening ceremony of the ADB was held in November 1966 in Tokyo. In December of the same year the Bank started its operation. The ADB's Headquarters were set up in Manila, Philippines, and Watanabe became the Bank's first president (Kokusai Kaihatsu Jānaru, July 1990).

Between 1964 and 1969, the total amount of Japan's ODA increased from USD115.7 million to USD435 million, making Japan the fourth largest aid donor among DAC members. However, Rix (1980: 31-32) observed that in comparison to the country's GNP growth, the total flow of Japan's ODA was increasing in a relatively small proportion. Even though Japan's ODA as a percentage of GNP increased from 0.15 percent in 1960 to 0.26 percent in 1969, these figures were still lower than the DAC countries' average of 0.36 percent.

It is interesting to note that Japan's bilateral loans increased nearly six-fold from USD37.5 million in 1964 to USD216 million in 1969. The ratio of bilateral loans to the total amount of Japan's ODA increased from 31 percent in 1964 to 49 percent in 1969 (Rix, 1980: 32). These bilateral loans were mainly allocated for physical capital development, such as implementation of various infrastructure projects in developing countries. At the same time, bilateral grants within Japan's ODA increased from USD68.7 million in 1964 to USD123.4 million in 1969. This means that during the same time span, bilateral grants as a percentage of total ODA decreased considerably from 59 percent to 28 percent. Japan's multilateral aid, which consisted of contributions and subscriptions to international organisations, increased ten-fold from USD9.5 million in 1964 to USD95.9 million in 1969 (Rix, 1980: 32). As these figures show, despite a considerable quantitative expansion of bilateral grants, bilateral loans increased at a much faster pace. Overall, the share of bilateral grants in the total amount of Japan's foreign aid decreased during the period.

From a geographical perspective, throughout the 1960s, Japan's ODA was heavily concentrated in Asia, especially in ASEAN countries. In 1963, Japan's bilateral aid to Asia amounted to USD124 million, or 98.7 percent of total ODA; from this amount of money, USD118 million was given to ASEAN countries. In 1969, Japan's bilateral aid to Asian countries reached USD339 million (or 96 percent of Japan's total ODA); ASEAN countries received USD162 million (Rix, 1980: 32). This concentration of Japanese aid in Asia, especially in ASEAN, was due to the fact that the Japanese government was keen to establish good relations with these countries in order to secure a continuous supply of natural resources for Japanese companies and new markets for Japanese goods.

4.2. The Transition of Japanese Foreign Aid in the 1970s

In contrast to a steady economic development Japan experienced in the previous decades, in the 1970s, the Japanese economy faced serious economic problems following 'The Nixon Shock' in 1971, and the first 'Oil Crisis' in 1973. First of all, the so-called 'Nixon shock' was caused by the US government's announcement that it would not maintain a gold standard for its currency, which lead to a drastic depreciation of the US dollar. Following this announcement, one US dollar depreciated to JPY308 (compared to the previous rate of JPY380 for one American dollar). The appreciation of the Japanese Yen brought a host of problems to the Japanese economy, especially to the export-oriented industries (Nakamura, 1985: 89-90).

Secondly, the 'Oil Crisis' of 1973 happened when the Organization of Petroleum Exporting Countries (OPEC) demanded an increase in the oil prices. In just one year, oil prices increased four-fold from USD2.8 per barrel in 1973, to USD11 per barrel in 1974. This threw the world economy into turmoil. The Japanese economy was badly affected due to its heavy dependence on imported petroleum from the Middle East. As rumours of oil shortage spread in Japan, so did the panic among the consumers. People rushed to shops to buy and stockpile dairy products and other goods. This caused serious inflation, and wholesale prices climbed 32 percent in February 1974. The economic chaos badly affected manufacturing activities. From 1974 to 1975, the production of the manufacturing sector fell by nearly 20 percent. As a result, Japan faced the most serious economic recession since World War II (Nakamura, 1985: 91-92). The recession reached its bottom in 1974, when Japan recorded a minus economic growth. In the following year, the situation improved slightly and the economic growth was 3 percent. However, the negative developments had undermined the country's aid program.

Due to these economic woes, Japan's ODA budget in the 1970s fluctuated. There was a slight increase in the ODA program from 1972 to 1975. In 1976, the foreign aid funds decreased to USD1.104 billion from USD1.147 billion given as foreign aid in the previous year. Following economic recovery, Japan's ODA expanded again and reached USD1.424 billion in 1977. In 1978, Japan gave USD2.215 billion in economic assistance. In 1979, there was a further 20 percent growth in Japan's ODA when it reached USD2.637 billion (JICA, 1984: 12). As these figures show, unlike the First Oil Crisis in 1973, the second Oil Crisis that happened in 1979-1980 did not lead to a reduction in Japanese foreign aid as it had a limited impact on the Japanese economy. This was partially because in order to control the inflation, the Japanese government had adopted tighter fiscal and monetary policies. Also, efforts were made to transform Japan's industrial structure into an energy-saving one. Due to these measures, the Japanese economy was able to absorb the negative impacts produced by sharp increases in oil price in 1979-1980.

In 1974, an important aid implementation body – the Japan International Co-operation Agency (JICA) – was founded. Furthermore, in 1975, to distinguish the function of the Overseas Economic Co-operation Fund (OECF) from that of Japan Export-Import Bank (Eximbank), all bilateral loans activities were transferred to the OECF.[iv] Since then, the OECF has been playing the main role in distributing Japan's ODA funds for physical capital development in recipient countries.

In addition to economic woes, in the 1970s Japan faced some problems in the international arena. In 1974, when the Japanese Prime Minister visited Southeast Asian countries, anti-Japanese riots erupted in Thailand and Indonesia. Among the factors that caused the political tensions was the aggressive penetration of Japanese goods and businesses into the region. Japan's ODA was too commercially oriented, and this gave rise to anti-Japanese sentiments in some Asian countries. In other words, although the Japanese government provided vast amounts of funds for physical capital development in the region, the Japanese foreign aid was considered – and indeed it acted – as a tool to promote Japanese companies' commercial interests.

According to David Arase (1995), in 1971, a Japanese publisher, Sankei Shinbun, published a book that gave a critical review of Japan's ODA policy and aimed to warn Japanese policymakers of the mistakes in implementing the ODA activities. As Arase observed,

The main concern expressed in this volume is that Japan's reparations and ODA were so out of touch with any effort to improve living standards in Southeast Asia that anti-Japanese sentiment was growing. In this sense it foretold the hostile reception Prime Minister Tanaka Kakuei would receive when he toured Southeast Asia in 1974. (Arase, 1995: 66)

Another important development during the 1970s was the introduction of the Medium-term Target. In 1977, the Japanese government adopted a five-year plan to double the amount of Japan's ODA on a US dollar basis. After the Japanese Yen's appreciation against the US dollar, the time span to achieve the target was reduced from five years to three years. The first Medium-term Target was successfully implemented from 1977 to 1980. The total amount of Japan's ODA in 1977 was USD1,424 million, and it doubled in 1980.

In the 1970s, the composition of Japan's ODA was similar to that of the 1960s. Bilateral loans retained the largest share of the aid, or approximately 50 percent. These funds were mainly spent for physical capital development in recipient countries. On the other hand, the share of bilateral grants increased slightly from 20 per cent in 1972 to 23 percent in 1979, while the share of multilateral loans increased sharply from just 20 percent in 1979 to 29 percent in 1979 (JICA, 1984: 14).

Regarding geographical distribution, Asia remained the largest recipient of Japanese foreign aid in the 1970s. This was despite the fact that the region's share of Japan's ODA decreased from 88 percent in 1973 to 69 percent in 1979. As a result, the ASEAN share in the total aid given by Japan decreased from an impressive 42 percent in 1973, to 29 percent in 1979. By contrast, Africa's share of Japan's ODA increased from 2.5 percent in 1973, to 9.7 percent in 1979, whilst the share for Latin America increased from 4.6 percent in 1973 to 8.6 percent in 1979 (MOFA, 1982: 169). The decrease in Asian countries' share of Japan's ODA and the increase in non-Asian countries' share may indicate that the Japanese government was making efforts to balance its foreign aid program and to diversify the distribution of aid funds. Besides, the Japanese government might have aimed to increase its influence in the United Nations; providing more foreign aid to African and Latin American countries was a way to achieve this.

4.3. The Transition of Japanese Foreign Aid in the 1980s

In 1989, for the first time in Japan's aid giving history the total amount of foreign aid provided by Japan exceeded US foreign aid. This was partially due to the Japanese government's efforts to promote the country's ODA program. However, for the most part this became possible due to a rapid appreciation of the Japanese Yen against the US dollar in 1985. For example, if in 1984, one US dollar was exchanged for approximately JPY240, in 1985, one US dollar was exchanged for JPY210 (Hiromatsu and Kobayashi, 1997: 9). Becoming the leading aid donor was a huge national achievement for Japan, especially in view that just a few decades earlier Japan had been a recipient of foreign aid. Top donor status demanded a reappraisal of the country's aid policy.

The total amount of Japan's ODA had increased from USD3.171 billion in 1981 to USD3.797 billion in 1985, when Japan became the third biggest provider of foreign aid among DAC members after the US and France. Following the Plaza Accord (1985), which induced the appreciation of the Japanese Yen, Japan's ODA increased by more than 20 percent within 1985, and reached USD5.634 billion in 1986 when Japan became the second largest aid donor among DAC members. During the following three years, the total amount of Japan's ODA had expanded by nearly 20 percent and reached USD9.134 billion in 1988. In 1989, Japan's ODA amounted to USD8.965 billion. This elevated Japan to the position of top donor of foreign aid. This achievement was partially possible due to a sharp decrease in US foreign aid, which fell by 25 percent from USD10.141 billion in 1988 to USD7.659 billion in 1989 (Kusano and Watanabe, 1997: 25-6).

In the 1980s, the Japanese government placed emphasis on bilateral loans as a core element of its aid policy. The quantitative expansion of Japanese foreign aid during this period included a rapid increase in the provision of bilateral loans which were spent on physical capital development in recipient countries. On average, the share of bilateral loans in total Japan's ODA in the 1980s increased from 35 percent in the first half of the decade (1980-1984) to 45 percent in the second half (1985-1989) (MOFA, 1992b: 10-2). To compare, the share of bilateral grants in total Japan's ODA increased from 25 percent in the first half of the decade (1980-1984) to 35 percent in the second half of the decade (1985-1989). On the other hand, Japan's multilateral aid decreased from 30 percent in 1980 to 21 percent in 1982. However, in 1983, it bounced back and made up 38 percent of Japan's ODA. During the 1980s, the amount of multilateral aid fluctuated between 20 to 30 percent (MOFA, 1992b: 10-2).

Asian countries remained the main recipients of Japan's bilateral ODA in the 1980s, although their share decreased from 70.5 percent in 1980 to 67.7 percent in 1985, and further diminished to 62.8 percent in 1988. During the 1980s, the Japanese government maintained its preference for providing aid funds for physical capital development in Asian countries, which included implementation of various infrastructure projects (MOFA, 1992b: 10-12). During the decade, Africa's share of the ODA funds continued to grow. It increased from 9.3 percent in 1981 to 9.9 percent in 1985, and reached 13.8 percent in 1988. The share of Latin America also rose from 6.0 percent in 1980, to 8.8 percent in 1985, but then decreased to 8.0 percent in 1987 and diminished again to 6.2 percent in 1989 (MOFA, 1992b: 10-2).

Japan's efforts to promote its ODA program bore fruit and the country became the leading foreign aid donor in 1989. This achievement was possible due to a quantitative expansion of aid. However, the main characteristics of Japan's ODA program remained unchanged since the 1960s. This means that Japanese foreign aid was heavily concentrated in Asian countries, it was commercially motivated, and its quality was rather low.[v] In other words, during this period the Japanese government continued providing foreign aid for physical capital development in Asian countries. Moreover, various infrastructure projects that had been implemented with the support of Japanese aid were often more beneficial to Japanese companies than to recipient countries. Although in the late 1980s the Japanese government had made a considerable effort to improve the quality of foreign aid the primacy of Japan's economic interests was by no means forsaken. As Dennis T. Yasutomo (1989/1990: 497) observed, despite the fact that 'in the beginning of the 1980s aid had become a multi-purpose diplomatic instrument, the economic-commercial dimension and concentration on Asia did not disappear'.

Japan's ODA was repeatedly criticised for being motivated by economic interests only. Lincoln (1993) pointed out that the details of Japanese aid program in the 1980s indicated its strong commercial orientation. He maintained that though the Japanese government denied that the main motivation for the aid giving was promoting the interests of Japanese companies in reality Japan's foreign aid program was commercially driven. According to Lincoln, the overall increase in the country's ODA program during the 1980s was primarily aimed at reducing Japan's insecurity concerning the supply of raw materials for its industries. As Lincoln (1993: 118) commented on Japan's ODA funds distribution, 'The manner in which those monies have been spent indicates the strong influence of commercial interests'. Rix (1993: 22) concurred that official evidence over the period from 1957 to 1982 does not alter the view of the purpose of Japan's ODA program. The Japanese government pursued three objectives when giving foreign aid, namely,

1. to improve the Japanese economy,
2. to ensure a continuous supply of raw materials,
3. to gain international recognition.

It was not only Japan's motivation for the provision of ODA but also the quality of its foreign aid that was often scrutinized. In comparison with other donor countries' aid, Japanese aid had a higher percentage of bilateral loans and a lower percentage of bilateral grants. In 1989, the ratio of bilateral loans in the total of Japan's ODA was 41.5 percent while the ratio of bilateral grants was only 33.9 percent. These figures show that Grant Share, or the share of bilateral grants in the total Japan's ODA, was the lowest among the aid donors (Kusano and Watanabe, 1997: 27-28). While not disputing Japan's status as a major provider of foreign aid, Rix (1989/1990) suggested that the country's standing as an aid giver should be measured by criteria other than the volume of aid it provided. For example, considering the share of ODA in the country's GNP, which was only 0.32 percent in the case of Japan, it would rank only twelfth out of the eighteen aid donors. Furthermore, as Japan's overall grant element decreased from 81.7 percent in 1989 to 75.3 percent in 1990, 'Japan has a long way to go if she wants to match its West European counterparts in aid quality' (Rix, 1989/1990: 464).

The Japanese government's preference for allocating larger shares of foreign aid to Asian countries was another issue that attracted criticism. Rix (1989/1990) observed that over the period 1957-1987, the geographical distribution of Japan's aid remained unchanged. Asian countries' share remained the largest and the region received more than half of total Japanese ODA. As Rix (1989/1990: 466) commented, 'The demands of Japan's wider relations with Asian countries – especially its economic relations – were the dominant force in the development of the Japanese aid program'. Sumi (1990) pointed out that while giving generous economic assistance to relatively rich Asian countries the Japanese government was depriving other developing countries, especially the Less Developed Countries (LDCs), of humanitarian aid for basic human needs (BHN). According to Sumi (1990: 15-6), in 1988, out of ten major recipients of Japan's ODA, only two were LDCs. These facts support the proposition that there was a strong commercial streak in Japan's ODA because Asian countries remained not only the main destination for Japan's foreign aid but they were also the main market for Japanese products. The foreign aid given to Asian countries was used for upgrading the infrastructure in these countries and for increasing the purchasing power of their population, all of which benefited Japanese businesses.

As in previous decades, Japan's ODA program was not concerned with promoting human rights or a democratic form of government in the aid recipient countries. Until the announcement of the 'Four Guidelines of ODA' in 1991, an official publication, Japan's ODA Annual Report, had never mentioned a case of Japan using its ODA to improve the situation of human rights or democracy in recipient countries. According to Inada (1995: 4-5), as far as the official statements and documents are concerned, until the 1990s there had been no specific references to institutional or political conditions in recipient countries, such as the promotion and protection of human rights and democracy, for allocations of Japanese foreign aid.

In the late 1980s and the early 1990s, there occurred major changes in the international political arena. The collapse of the Soviet Union in 1991 was seen as a triumph of liberal democracy over communist ideology and as a victory of Western democracy over other types of political system. In the beginning of the 1990s, there was an increased international awareness for the need to promote the 'universal values' of human rights and democracy. Japan responded to this new global trend by reviewing the principles for the provision of foreign aid in its ODA program.

Until the end of the 1980s, Japan's ODA policy had been a quantitative expansion of aid and political non-involvement. However, after achieving the status of the leading aid donor in 1989, Japan could no longer afford to ignore the political situation in recipient countries. In addition, the new post-cold war political environment had induced the Japanese government to review the country's ODA program and policy. In the beginning of the 1990s, to establish a basis for using foreign aid as a tool to influence aid-receiving countries, the Japanese government hammered out the new aid guidelines.

After the introduction of the new aid guidelines the Japanese government began paying attention to the political situation and the institutional conditions in the aid recipients. In several instances Japan fully or partially suspended foreign aid to aid-receiving countries where undesirable moves in the light of these guidelines had taken place. The first application of the new aid guidelines occurred in Haiti when the Japanese government fully cut foreign aid after a military coup in that country in October 1991.[vi] The same measure was taken in 1991 against Zaire where riots lead to a serious deterioration of the political situation. In the same year, the Japanese government partially suspended aid to Kenya (MOFA, 1992a: 29).

There were more cases of aid suspension during the following years. The Japanese government cut foreign aid to Sudan and Sierra Leone in 1992, after serious human rights violations had occurred in these countries. In 1993, Japan withdrew foreign aid from Guatemala due to a reversal of the democratisation process (MOFA, 1993: 8-9). In November 1993, the military took over the Nigerian government, dissolved the national assembly and prohibited political parties. The Japanese government expressed concern about the political situation in Nigeria and, when improvements failed to materialise, suspended foreign aid to Nigeria in March 1994 (MOFA, 1994a: 57). Japan cut off foreign aid to other two African countries, namely, Togo (in January 1993) and Gambia (in September 1994).

The Japanese government showed a certain degree of flexibility when dealing with abusive regimes; it did not always and immediately decide to introduce the full suspension of aid. In Peru and Thailand, instead of suspending the aid, Japan urged the governments to improve the political situation. In Zambia, the Japanese government concluded partial suspension of aid by reducing the balance of payment support assistance (MOFA, 1995: 53-54). In Zaire, emergency and humanitarian assistance was continued after the suspension of aid in 1991. Besides, grassroots assistance projects amounting to JPY44 million (about USD43,000) were carried out in Zaire in 1996 (MOFA, 1997: 70). Aid suspension to Myanmar following the military coup in 1988 was reviewed after the release of Aung San Suu Kyi in July 1995. The Japanese government considered this step by the military junta as a sign of improvement of the country's political situation and, in October 1995, after reviewing aid policy to Myanmar provided funds in grant aid for the expansion of the Institute of Nursing (MOFA, 1996: 41).

Some researchers were quite sceptical about the Japanese government's new zeal to promote human rights and democracy through its aid program. For example, Rix (1993: 172) expressed his doubts that the new aid guidelines would have a major influence on and change the decision-making process of Japan's ODA program. He pointed out that while the Japanese government rewarded some of the countries that had made desirable policy moves it remained lenient toward several other countries with abusive political regimes. For example, the assistance to Eastern European countries was named as 'assistance for democratisation' and was aimed at rewarding the nations that adopted democratic principles of government. At the same time, the Japanese government continued providing aid to the countries that did not uphold these values, such as Indonesia. Rix (1993) asserted that in the cases of Indonesia and Myanmar, the principles of the ODA Charter would not be applied rigorously because ensuring a continued delivery of bilateral commitments would remain more important for Japan.

In other words, the Japanese government tended to apply political conditionalities more rigidly to those recipient countries that were less economically, diplomatically and politically important for Japan. By contrast, it was more lenient towards aid recipients that represented a considerable economic and political interest for Japan.[vii] Okuizumi (1995) commented on a 'vagueness' of the ODA Charter that allowed an excessive discretion on the part of Japanese policy makers when taking decisions about the ODA program and lead to inconsistencies in the implementation of the new aid guidelines. He maintained that 'any criticism regarding Japan's compliance with its ODA Charter is thus weakened by the absence of specific standards by which to measure government's actions' (Okuizumi, 1995: 403). In a similar vein, Orr (1993) pointed out a selective application of aid sanctions by the Japanese government. According to him, the problem with applying the new ODA principles is that it was done selectively, and that the Japanese government disregarded the ODA guidelines if Japan's interests demanded this. According to Orr (1993: 14), '…Cases like China's democracy and human rights will be handled very delicately and perhaps not aggressively enough'. Murai (1992) agreed that the Japanese government implemented aid sanctions only when it chose to do so. He maintained that no policy change in ODA program implementation had occurred since the announcement of the new aid guidelines. As Murai commented, 'The Foreign Ministry is making a big campaign out of this (new aid guidelines)... Other countries don't trust these guidelines... I don't think anything will change' (AMPO Japan-Asia Quarterly Review, January, 1993: 44).

In short, when the Japanese government announced the 'Four Guidelines of ODA' in 1991 and the ODA Charter in 1992, it pledged to use the foreign aid to promote human rights and democracy. However, the promotion of the 'universal values' did not become the driving force of the Japanese ODA policy in the post-Cold War era. Moreover, as Seiichiro Takagi (1995: 30) commented, 'Given historical reluctance to be assertive politically, the Japanese government is unlikely to enforce the guidelines strictly in the coming year'.

In the past few years, the Japanese government has begun considering human resource development as an important policy priority in the ODA program. According to MOFA (2005:149),

The development of individual is the basis for the development of a country, assistance for human resources development is one of important pillars of Japan's assistance.

The Japanese government distinguishes four components within Japan's ODA program aimed to support human resource development in the recipient countries. They are:

1. accepting foreign students in Japanese universities,
2. giving assistance to improve the capacity of government administration in the recipient countries,
3. providing assistance for the development and improvement of occupational capacities, and,
4. giving assistance for the improvement of industrial competitiveness (MOFA 2005).

First of all, the Japanese government has made serious efforts to increase the number of foreign students in universities in Japan. It has offered financial support to and increased the number of scholarships for the international students; it also offers financial aid to privately financed foreign students (MOFA, 2005). The Japanese government's initiative to play a key role in human resource development globally has been translated into numerous concrete actions. For example, to assist human resource development in Bangladesh, the Japanese government began accepting annually about 20 Bangladeshi students to study in Japan (Embassy of Japan in Bangladesh 2006). Various kinds of scholarships are given to these students. Some of the funds come from Japanese Grant Aid for Human Resource Development Scholarship (JDS). This initiative has been positively accepted by the mass media and general public in Bangladesh. According to a Bangladeshi newspaper, 'Japan has now become a very lucrative destination for Bangladeshi youngsters to materialize their dreams. Currently a significant number of Bangladeshi students is studying in various Japanese universities in different disciplines' (The Daily Star, April 6, 2008). Besides, Japan has emerged as a new destination for talented Bangladeshi youths.

Secondly, the Japanese government began introducing various human resource development programs in order to improve the government administration in the aid recipient countries. Japan's MOFA (2005) explains that it is important to address the issues of governance in developing countries because it is often a case that the people perceive their government as lacking in administrative capacity. In one such program, the Japanese government assisted the Indonesian government's efforts to improve the administration of the civilian police. In 2001, Japan dispatched to Indonesia experts to advise the chief of the national police. Under the 'Project on Enhancement of Civilian Police Activities', the Japanese government assisted in setting up a model police station in a suburb of Jakarta in order to strengthen the civil policy function (MOFA 2005). The Japanese-style civilian police (tōban) system was well-accepted among the Indonesian police. As evidence of the tōban system's popularity in Indonesia may serve a fact that Indonesian police authority has decided to form an association of the alumni of the Japanese civilian police enhancement course. The institution named 'Ikatan Sakura Indonesia' was established under the initiative of Indonesia's Chief Police Inspector on August 10, 2010. Among its basic objectives is to communicate and share experience among Indonesian police officers who were trained in Japan. The association also serves as a forum for exchanging ideas as to how to improve the police system in Indonesia (Ikatan Sakura Indonesia, 2010).

Thirdly, the Japanese government began assisting aid recipient countries to improve vocational capacity by dispatching experts to and receiving trainees from these countries under various technical cooperation programs. For example, the Japanese government has been implementing numerous technical cooperation projects in Nepal. Until 2005, Japan dispatched 1,424 technical experts, 873 young volunteers, 57 senior volunteers to the country, and received 3,491 Nepalese trainees (Embassy of Japan in Nepal 2006). Finally, the Japanese government helps the recipient countries to improve industrial competitiveness through various programs aimed at developing human resources in these countries. The main focus has been on small and medium-sized enterprises (SMEs). For example, the Japanese government has provided foreign aid for the Small Industry Development Bank of India (SIDBI). The Bank was established by the Indian government in 1990, and one of its functions is to pass loans provided by the Japanese government to small business borrowers. According to MOFA (1996), 71,732 Japanese loans have been extended to small business borrowers which created jobs for 920,000 individuals (MOFA, 1996).

In short, in recent years Japan's ODA program has shifted its focus from physical capital development to human capital development in aid recipient countries through various educational programs, technical cooperation programs, support of SMEs, and so on. These programs reflect the Japanese government's belief that the development of human resource is the 'key' to nation-building and economic development in the aid recipient countries.

This article critically reviewed Japan's aid receiving and aid giving history. It traced Japan's transformation from a poor aid recipient country that it was after the end of the Second World War to Japan's becoming a leading donor of Official Development Assistance (ODA) in the 1980s. Financial assistance that Japan received after the war helped the country to recover after the wartime destruction. The experience as an aid receiver has been indispensable for Japan to better understand the sensibilities of aid receiving countries; also, it influenced Japan's philosophy and views on aid giving.

In the 1950s, Japan had recovered sufficiently to begin paying war reparations to Asian countries. Institution building in Japan's foreign aid program was shaped during that period. From the 1960s to the 1980s, the amount of Japan's foreign aid steadily expanded. In 1989, Japan became the top aid donor in the world. For several decades, the attention of Japanese policy makers was focused mainly on quantitative expansion rather than qualitative improvement of aid. Another specific feature of Japan's ODA program was that the Japanese government avoided imposing political conditionalities on aid recipients. It was only after the end of the Cold War that Japan introduced the new aid guidelines, namely, the 'Four Guidelines of ODA' (1991) and the 'ODA Charter' (1992). These guidelines placed emphasis on promotion of universal values, such as human rights and democratic governance in aid recipient countries, and set those values as conditions for the provision of foreign aid. The move was partially a response to a new political and economic order that was forming after the collapse of the Soviet Union and partially it was a response to criticisms of Japan's ODA program. However, even after the introduction of the new aid guidelines, some observers remained sceptical that the principles proclaimed in these documents would be applied by the Japanese policymakers in an uncompromising manner.

Another significant change that occurred in Japanese aid program after the announcement of the new aid guidelines is that more support is given to the development of human capital in the aid receiving countries. The Japanese government identifies human resource development as a crucial factor to ensure steady economic growth and sustainable economic performance in the recipient countries.

More recently, a major shift has occurred in Japanese politics when the Democratic Party of Japan (DPJ) won an overwhelming majority in the parliament and replaced the Liberal Democratic Party (LDP) as the ruling party. Despite the similarities in the LDP's and DPJ's political platforms, it is likely that shifts in foreign policy, including the implementation of the ODA program, will occur under the new administration. The new developments in Japanese ODA program would be an interesting topic for future research.