Wednesday, August 2, 2006

A perspective Nepal-Japan Cooperation

Dr. B. P. Shrestha, Senior Economist, Nepal

Introduction

The present paper intents to present a brief analysis of Nepal-Japan economic cooperation beyond the official development assistance and suggest some policy responses to emerging issues for further promotion of bilateral economic relations between the two countries.

Official Development Assistance (ODA)

Japan ’s economic growth may be attributed, among others, to imported raw materials and external markets. Nepal is neither a source of raw materials for the Japanese industries, nor is the sizable market for their products. Nepal , perhaps, lies in the periphery of the Japanese strategic importance as well. And yet, Nepal is ranked high among some 150 countries around the world which receive Japan ’s official development assistance (ODA). Among the countries, where Japan is their largest donor country, Japan’s ODA on net disbursement basis in total ODA of Nepal during the recent five years period (1997-2001) averaged more than one-third’. Nepal is one among the 30 countries that received the most bilateral ODA from Japan in 2002 with the share of more than 2 percent which is comparable to that of Bangladesh and Sri Lanka (2.5% each) in South Asia . South Asia , as a region, accounted for 17.2 percent of total bilateral ODA of Japan.

Japan ’s ODA is guided by much deeper and broader considerations than self-interests. It is an important mission for Japan , as a peace loving nation, to play a role commensurate with its position in the world to maintain world peace and ensure global prosperity. As the world second largest economy, Japan is prepared to shoulder the responsibility of contributing to sustainable social and economic development in developing countries. Japan is fully aware of the increasing interdependence among nations and the need of stability and development in the poor countries for peace and prosperity of the entire world. It is with such global perspective, the following four principles are enshrined in the “ Japan ’s Official Development Assistance Charter” which was formally adopted by the government of Japan in June, 1992: (i) “Environmental conservation and development should be pursued in tandem.

(ii) Any use of ODA for military purposes or for aggravation of international conflicts should be avoided.

(iii) Full attention should be paid to trends in recipient countries’ military expenditures ... that developing countries should place appropriate priorities in the allocation of their resources in their own economic and social development.

(iv) Full attention should be paid to efforts for promoting democratization and introduction of a market-oriented economy and the situation regarding the securing of basic human rights and freedom in the recipient country”

While retaining these four fundamental principles of ODA as they arc, the Japanese government revised its 1992 ODA Charter in August 2003 to address the emerging developments and challenges such as the gap between the rich and the poor, ethnic and religious conflicts, armed conflicts, terrorism, environmental problems, infectious diseases, gender issues, human rights, democracy, globalization etc. in line with the underlying ODA philosophy and objective of making Japan’s contribution to peace and development of the international community, ensuring thereby its own security and prosperity . The priorities accorded by the revised ODA Charter are (i) poverty reduction, (ii) sustainable growth, (iii) peace building and (iv) globalization issues like those mentioned above.

Because of severe economic and fiscal situation in Japan and the critical view of ODA held by the Japanese people in recent years, ODA budget is now in decline. ODA declined in 2002 by 5.7 percent from the previous year, by 5.8 percent in 2003 and by 4.8 percent in 2004. In total, the ODA budget is reported to have been reduced by 30.1 percent in the past seven years . The public opinion survey of 2003 reported 19 percent of the respondents saying that ODA should be vigorously increased and 43.5 percent supporting the current level of ODA, while 25.5 percent holding the view that ODA should be reduced as much as possible and 3.4 percent saying that it should be stopped entirely. Fully aware of the public sentiment, the revised ODA Charter of 2003 emphasized, among others, the strategic values, transparency, efficiency, flexibility and promotion of broad public participation.

While each recipient country’s request for assistance is comprehensively examined on the basis of its socio-economic conditions and bilateral relations, Japan’s ODA is governed by the above four principles of ODA Charter as well as those of the UN Charter (especially those of sovereign equality and non-intervention in domestic matters). In the case of Nepal , Japan has been taking into account the following:

(i) “ Nepal has amicable relations with Japan ; (ii) Nepal has the lowest income level of any country in Southwest Asia . The fact that Nepal is a land-locked nation makes its situation all the more severe. Consequently, Nepal has a strong demand for foreign aid.

(iii) Since democratization in 1990, Nepal has pursued economic development in an environment in which democracy has taken root and the economy has been liberalized”.

Nepal ’s overall policy orientation to address its own emerging challenges is very much in line with the principles of ODA Charter as well. The topographical and climatic conditions as well as the mounting pressure on limited cultivable land causing massive deforestation made Nepal most vulnerable to environmental degradation and as such, it has been the policy of the government to internalize the environment management as an integral part of the development programmes. The government is also committed to implementation of the international conventions and agreements related to environment protection and preservation on priority basis with action plans appropriate to Nepalese context.

Defense expenditure, while increasing primarily due to insurgency, is yet the lowest as proportion of GDP in South Asia . As a peace loving nation, Nepal has no intention, nor has capacity to arm itself as a deterrent against external threat. As a matter fact, military options are neither feasible, nor arc even desirable for small countries like Nepal . Poor countries are more vulnerable to instability from within due to their own deep rooted problems of poverty, hunger, inequality, exploitation and exclusive development.

Since the restoration of multi-party system of democracy in 1990, Nepal has already implemented several market-oriented liberal economic policies and programmes initiated in mid-1980s with stabilization and structural adjustment programmes. As a member of WTO, SAFTA and BIMST-EC , Nepal is committed to further opening of the economy to comply with the regional and multilateral obligations. Given the ground realities, Nepal cannot just look back and get away from these obligations. What Nepal needs most to-day is its own capacity-building in an environment of peace to maximize the potential benefits and minimize the impending risks from the market-led growth strategy for a better and more satisfying life of tile people. This is where Nepal needs cooperation from the international community so that it can pass over the most formidable hump of development. Once a country successfully passes through such difficult transition, growth gains momentum by its own force in a sustainable manner.

(a) Grant Assistance

The cultural contact between Nepal and Japan was established more than 50 years before the diplomatic relation was formalized in 1956. It was in 1899 the first Japanese Bhuddhist monk Rev. Ekai kawaguchi visited Nepal . During his third visit to Nepal , Rev. Kawaguchi wrote a long letter to then Rana Prime Minister Chandra Shamsher, offering several suggestions for development of education, administration, industrial and social infrastructure-building in Nepal . In 1902 a group of 8 Nepalese youths went to Japan for technical training. For about 3 years, they studied paper and soap making, mining, agriculture and mechanical engineering. These two events may be taken together as the beginning of technical cooperation between Nepal and Japan .

Since the opening of the Japanese Embassy in Kathmandu in 1968, both economic and technical cooperation between the two countries was extended and expanded to several areas of our priority. Such cooperation has passed through the three phases. In the first decade (1968-1977), Japan provided grant assistance for increasing production in our major economic sector, namely, agriculture and loan assistance for harnessing our major natural resource, namely, water. This initial phase was followed by a decade of “expansion phase” (1978-1987). A number of major projects, both in economic and social sectors, were initiated and completed during this period with the quantum increase in Japanese assistance, placing Japan on the forefront among our bilateral donors. Incidentally, this phase coincided with my tenure of office in Tokyo . The third phase, beginning from 1988 is characterized as the adolescent phase. During this phase, a number of transports, communications and energy related infrastructure projects have been implemented or underway. The following Table I summarizes Japan ’s ODA to Nepal from Japanese fiscal year 1970 to 2004.

Over the period of 34 years (1970-2004), the total ODA amounted to 281 billion with grant assistance accounting for almost 60 percent followed by the loan assistance (22.73%) and technical assistance (18.33%). Another 3.2 billion of grant assistance is committed for 2005. Year wise analysis shows that in the first phase (1970-1977), annual grant assistance was less than a billion yen with 8 years total amounting to 4 1.89 billion, which is not even half of the 2004 annual grant assistance of 4.13 billion. During the expansion phase (1978-1987), the grant assistance recorded continued increase which reached the high peaks of Yen 8.35 billion and Yen 7.18 billion in 1987. During the present adolescent phase, the highest peaks of Yen 8.66 billion in 2001 were recorded. Since then, grant assistance started declining and reached the lowest level of Yen 4.12 billion in 2004.

Looking into the Future

Nepal and Japan do not have any political issues. So our concentration was (and should be) on expansion of economic and technical cooperation through further promotion of goodwill and understanding at various levels, on the one hand, and further improvements in our performance and capacity to absorb assistance with proper and efficient management of our economy. More sincere and serious efforts are necessary in several areas such as domestic resource mobilization, effective use of public resources, proper prioritization of development activities, further liberalization and de-bureaucratization of the economy and above all, restoration of peace in the country.

Although separated by a long physical distance and situated in an altogether different geographical setting, Nepal and Japan have many things in common to share with each other as two Asian countries and many binding factors bringing the countries closer to each other. One such binding factor is the common historical experiences. Japan like Nepal was a divided and fragmented country. In the process of national integration and unification in both the countries, the contribution of the institution of monarchy is well known. The process of modernization in Japan began with the Meiji Restoration in 1868 after about three centuries (1602—I868) of Tokugawa era, while in Nepal it began with the restoration of King Trihhuvan to the Throne in 1951 after a century of the Rana era. In the process of democratization as well, the role of monarchy is duly acknowledged.

Secondly, at different times in history, both Nepal and Japan had to face external threats and aggressions and make great sacrifices for safeguarding national independence, sovereignty and territorial integrity. In 1 853 when Commodore Perry landed in Tokyo bay with arms and ammunitions, Japan had only two choices - either accept colonization or prepare for modernization. With their unbounded love for the nation, the Japanese people opted for modernization, not colonization. In my humble opinion, the primary source of inspiration for modernization in Japan was the fear of colonization and the overriding objective of catching up with the west” was the driving force behind modernization. To-day , Japan not only achieved the objective of catching up with the west, but also surpassed the West in many respects, occupying rightly the second place, only next to the United Slates of America , as the second largest economy in the world. Nepal also had to engage in several such encounters against aggression. Even to—day, the smaller countries are haunted by the ghosts of colonization and hegemonism.

Thirdly, the modern Japan and Nepal arc both peace loving countries with abiding faith in peace. The post World War II constitution of Japan is known as “peace constitution”. Its Article 9 prohibits Japan to produce, procure or possess any potentiality of war or belligerency. Nepal ’s peace zone proposal as well as the directive principles of the present constitution is testimony to our total commitment to peace.

Cultural affinities are yet another factor bringing the two countries together. In culture and the way of life, there are many commonalities. The harmony and happy blending of Sintoism and Buddhism in day—to—day life in Japan , for instance, is like our own harmony and happy blending of Hinduism and Buddhism.

In my humble opinion, these commonalities and common experiences also should serve as the building blocks and major planks for further strengthening and rein forcing of Nepal-Japan relations.

Bilateral relations between any two countries can remain strong, stable and sustainable only when they are rooted deep in mutual understanding of each others history, culture and way of life, perception of the outside would — just to mention a few. In this respect, we are very weak-weak in the sense that we know very little about other countries and their peoples with whom we have bilateral relations. In the case of Nepal-Japan relations, perhaps the Japanese friends know more about Nepal than we know about Japan . There are many Japanese scholars who have done or have been doing serious research works on various aspects of Nepal , ranging from language and literature to agriculture and anthropology. While in Tokyo , a Japanese scholar came to see mc. As usual, I greeted him in. To my pleasant surprise, he reciprocated in Newari (Nepal Bhasa), my mother tongue. Probably he knows more about Newari language than many of our Newari language scholars. He is Prof. Iishi. I also met a couple of Japanese scholars who spoke fluently in Thakali language. They had done research work in Mustang area. Prof. Tabata knows perhaps, more about vegetation in Nepal than many of our own specialists in this area. I came to Nepal several times, visited the remotest parts of Nepal and spent many years in studying vegetation in Nepal . Prof. Kawakita is one of the earliest visitors of Nepal after 1951. He was honored with the prestigious Magsaysay Award for his rural works in Nepal . These are only few random samples from my memory since I left Japan some twenty years ago. Some Nepalese scholars have also done commendable works on various aspects of the Japanese life and culture even without any specialized library, or Japanese study centre, serving as primary sources of reading materials on Japan and bringing Nepalese and Japanese scholars together at one place for interaction. Somehow, our understanding of Japan should he expanded, so that it can serve as a rock-bed foundation of Nepal-Japan relations.

The spectacular success of Japan in development should he attributed largely to the great human virtues of the Japanese people themselves. Perhaps, the incredible achievement of Japan has no comparable precedent or parallel in the post-war history of nation—building. The capacity of the Japanese people to work together as a team, profound sense of discipline, habit of hard work and humility, respect for the senior and elders and above all, love for the nation are sonic of the virtues which are worthy of emulation by countries like Nepal. We should look to Japan not only for cooperation but also for inspiration and emulation of the human virtues which made Japan so great and so soon.