Public Disclosure Authorized THE World Bank Public Disclosure Authorized Group AND JAPAN Public Disclosure Authorized INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL FINANCE CORPORATION INTERNATIONAL DEVELOPMENT ASSOCIATION January 1967 Public Disclosure Authorized BASIC STATISTICS AREA: 142,313 square miles POPULATION ( 1966 est.): 98.6 million Rate of growth: 1 per cent per annum GROSS NATIONAL PRODUCT: Per capita (GNP) 1965: $857 Real rate of growth in GNP per capita ( 1959-1965 average): 10.8% CONTRIBUTION TO NATIONAL INCOME Sector Percentage Agriculture, forestry and fisheries . 12.0 Manufacturing, mining, construction . 37.3 Utilities, transportation and communication . 9.6 Other services . 41.1 , , . L !\TE DUE: ~~:::f\t)ts ~~~~ ?. 7 \985 c19198 THE WORLD BANK GROUP AND JAPAN ] anuary 1 967 AMONG MEMBER NATIONS of the World Bank Group, ft.Japan occupies an exceptional position. Within the first 20 years of the Bank Group's history Japan has emerged, at dramatic tempo, from the status of a war-damaged, still rela­ tively underdeveloped economy, to that of a sophisticated modern economy> at or near world leadership in some aspects of industrial technology and output, and expanding rapidly in the role of a major supplier of aid to the less developed countries. Against such a background, a text under the heading "The World Bank Group and Japan" falls naturally into two compart­ ments. The first concerns Japan's current position as a leader among the group of about 18 Bank member nations which pro­ vide the bulk of financial and technical assistance flowing to the less developed world and upon whose cooperation the World Bank must draw in pursuing its own tasks as an inter­ national development agency. The second concerns Japan's recent position as a substantial user of development assistance channeled through the World Bank into key sectors of the Japanese economy. With a total of $857 million committed in World Bank loans for projects in Japan between October 1953 and July 1966, Japan stands as the second largest client-after India-for World Bank finance. Thus, World Bank assistance-stretching over the span of years in which Japan achieved her extraordinary postwar growth-has played a part in the development of the Japanese economy to its present level of strength. The phenomenon of Japanese economic growth can be graphically sketched by reference to rates of increase in the nation's gross national product since 1951, by which time war 1 damage had been overcome and output restored to prewar levels. During the years 1951-1958, the annual growth rate of GNP averaged 7.5 per cent. After a slowdown in 1957-1958 caused by balance of payments difficulties, economic expan­ sion accelerated to an average of 15 per cent in the years 1959-1961. Since 1961, GNP growth has averaged about 10 per cent a year. Throughout this expansion, the leading sector has been manufacturing industry. Between 1951 and 1955 manufactur­ ing output increased by about 50 per cent. After that, the pace of growth accelerated and between 1955 and 1964 total manu­ facturing output multiplied four times. This upsurge has now placed Japan among the largest industrial producers of the world and has considerably changed the overall complexion of her manufacturing output. Whereas, before the war, Japan's industrial production was characterized by a relatively large production of light consumer goods, the country now ranks third internationally in the field of such heavy industries as iron and steel, cement and heavy electrical equipment. Since 1957 Japan has been the world's largest ship builder and in recent years has ranked either first or second in the output of buses and trucks, rolling stock and locomotives, synthetic fibers, television and radio receivers. NATIONAL INCOME AND EMPLOYMENT BY SECTORS NATIONAL INCOME EMPLOYMENT 1951 1960 1965 1951 1960 1965 Agriculture, Forestry, Fisheries ........ 25% 15% 12% 43.5% 28.5% 25.5% Manufacturing, Min- ing, Construction .. 32% 38% 37% 23.5% 29.0% 31.6% Utilities, Transporta- tion and Communi- cations .......... 7% 10% 10% 5.5% 5.5% 6.4% Other Services . 36% 37% 41% 27.5% 37.0% 36.5% -- --- Total ............ 100% 100% 100% 100.0% 100.0% 100.0% - - - - -- 2 JAPAN'S CONTRIBUTION TO DEVELOPMENT FINANCE Japan's growth has given her a special role to play on the contributary side of international development and develop­ ment financing. She is a country geographically identified with a largely underdeveloped region, but risen herself to a position of economic strength where she is able to give positive leader­ ship in the development tasks of her neighbors. Japan's readi­ ness to pursue this role vigorously is illustrated by recent events. Japan was a prime mover in the creation of the Asian Development Bank, and has backed up her interest by matching the United States' $200 million (¥ 72,000 million) contribution to the $1,000 million (¥ 360,000 million) au­ thorized capital of the new institution. Thus, with the United States, she shares the title of major shareholder in the new regional bank. In April 1966, Japan strengthened her position as regional development leader by initiating an exclusively Asian Minis­ terial Conference for Economic Development of Southeast Asia, held in Tokyo and attended by nine nations-Cambodia, Indonesia, Laos, Malaysia, the Philippines, Singapore, Thailand and Vietnam as well as Japan. During this meeting, Japan out­ lined her intention to lift her total contribution to economic development finance-through both bilateral and multilateral channels-to the equivalent of one per cent of her national income. The Japanese Government has undertaken to reach this target "at the earliest practicable date." Japan's total devel­ opment finance outflow amounted to $414 million (¥ 149,040 million) or 0.63% of national income in calendar year 1965. On current growth rate prospects one per cent of national in­ come by 1968 will amount to around $870 million (¥ 313,200 million). It is envisaged that Japanese external assistance will be largely-but not exclusively-outlayed within the South­ east Asian region. In June 1966, Japan further extended the pattern of her aid outside the Asian region. The Export-Import Bank of Japan . extended a loan of $10 million (¥ 3.6 billion) in freely con­ vertible yen to the Inter-American Development Bank for use 3 I by the Bank in its program to foster development of its Latin American member countries. The 20-member Inter-American Development Bank-consisting of the United States and 19 Latin American republics-operates to promote economic and social growth among its members. The June borrowing from the Export-Import Bank of Japan was the sixth time the IDB has borrowed in non-member countries to augment its develop­ ment capital, but it was the first time that an Asian country has been associated with IDB's capital raising efforts. The loan was for a term of 15 years, including a five-year grace period, at an interest rate of 5 per cent annually on amounts actually drawn. Japan's individual initiatives to increase the scope of her external assistance program have not reduced her activity as a contributing World Bank Group member. With a share sub­ scription to the Bank's capital stock amounting to the equiva­ lent of $772,600,000 (¥ 278,136 million), Japan is among the first seven in Bank membership voting strength. In line with the Bank's articles of agreement-and in common with other members of the Bank-Japan has paid in ten per cent of this capital subscription._Within this ten per cent, one per cent, or $7,726,000 (¥ 2,781 million), has been contributed in United States dollars, and the other nine-tenths, or $69,534,000 (¥ 25,030 million) has been contributed in freely convertible Japanese yen. The whole of this paid in capital, amounting to $77,260,000, is available to the Bank for its lending operations. In 1960, Japan became a founding Part 1 member of the International Development Association-meaning that the en­ tire amount of the $74,840,000 (¥ 26,942 million) she has contributed, in capital subscription and supplementary contri­ butions to IDA's resources, has been available for disbursement on concessionary credits to less developed countries. Japan has been willing to take this major donor role among capital ex­ porting members of IDA, despite the fact that her own path of economic progress requires her to continue as a net capital importer. 5 Within the Bank Group generally, Japan is taking an active part in the evolution of development policy. She has readily responded to the Bank's efforts to maximize the benefits of the total flow of assistance (both multilateral and bilateral) through the formation of groups to coordinate assistance to countries receiving aid from several different sources. Of the ten World Bank groups of this kind so far formed, Japan is a member of nine-those for India, Pakistan, Colombia, Nigeria, Sudan, Malaysia, Thailand, Peru and Korea. Japan is also a member of the less formally constructed group of nations and institutions organized to coordinate emergency balance of pay­ ments assistance to Ceylon. Among a group of seven countries who have combined to finance the Nam N gum hydroelectric power project on the Mekong River in Laos, Japan is the second largest contributor after the United States. The finances pro­ vided by this group will be paid into the Nam N gum Develop­ ment Fund, which the World Bank has undertaken to ad­ minister. Japanese engineers were responsible for the original feasibility study on this project and will continue to have re­ sponsibility for its detailed engineering. Japan was a founding member of the International Finance Corporation (IFC), the Bank affiliate created in July 1956 to concentrate upon private sector development.