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. She has con­ tinued as a leading shareholder among the 83 member coun­ tries of IFC and the Corporation's operations to date have provided opportunities for a working collaboration between IFC and Japanese industrial and financial interests in a number of countries. In Ethiopia, Nigeria and the Sudan, IFC has been associated with Japanese industrial enterprises in financing private business ventures. In Malaysia, Nigeria, Pakistan, the Philippines and Thailand, IFC is a shareholder along with Japanese investors in local private development finance com­ panies-institutions which provide venture capital, carry out underwriting, promote new enterprises and extend technical assistance to local entrepreneurs. In addition to the Japanese Government's direct contribu­ tions to the capital of the World Bank Group, funds have been

6 ...

provided also by Japanese investors. The Bank augments its subscribed capital by selling its bonds on the world's capital markets. It also sells to investors participations in its loans, as a means of promoting international investment and of turning over its capital. Japanese investors and financial institutions have joined the ranks of those contributing to the Bank's re­ sources through purchase of Bank bonds and participations in Bank loans. At June 30, 1966, Japanese investors, including official institutions, held $15 million (¥ 5,400 million) of the Bank's outstanding U.S. dollar debt. Through the purchase of participations in Bank loans-either at the time of commit­ ment of the loans or through purchase from portfolio­ J apanese financial institutions had contributed another $38. 7 million (¥ 13,932 million) to the total of funds available to the Bank for development lending.

JAPAN'S SHARE OF DISBURSEMENTS It is the policy of the Bank and IDA to require their bor­ rowers to obtain goods and services required for projects on an international competitive basis, unless special circumstances apply. In recent years a rising proportion of the external orders financed by World Bank disbursements has gone to Japanese export firms. At the end of fiscal year 1958, Japan was next to last on the list of ten major suppliers of imports financed from disbursement of World Bank loans. At that time the cumulative total value of imports drawn from Japan under World Bank finance amounted to $37 million (¥ 13,320 mil­ lion). Eight years later, at the end of fiscal 1966, the cumula­ tive total value of such imports from Japan had risen to $213 million (¥ 94,680 million) bringing Japan into sixth place on the cumulative list of major suppliers of imports financed from disbursement of Bank loans. For fiscal year 1966 itself, Japan occupied fourth place-after the United States, Britain and Germany-on the list of major suppliers of imports financed by disbursements of World Bank loans in that year. Bank projects outside Japan in which more than 10 per cent of disbursements to date have gone to finance import orders

7 - - .

I 8 from Japan include railway project loans to Thailand, Taiwan, New Zealand and a series of six railway loans to India; power projects in El Salvador, Chile, Colombia, the Philippines, Thailand, Singapore, Costa Rica, Malaysia, Venezuela; irriga­ tion projects in Thailand; industrial development finance pro­ grams in Pakistan, the Philippines, Taiwan and Malaysia; a toll road project in Mexico; a fishing fleet development project in Taiwan; a gas pipeline in Pakistan and water supply proj­ ects in Malaysia and the Philippines. (See Appendix II.) Altogether, by the end of fiscal 1966, borrowers in 38 of the 79 countries or territories in which the Bank has financed projects have entered the Japanese market to buy equipment or services financed by Bank loans. Japan has featured, too, as a major supplier of goods and services financed by disbursement on credits from IDA, the member of the Bank Group specializing in assistance to de­ veloping countries where external balance difficulties have reduced capacity to service conventional lending. At June 30, 1966, Japan ranked third on the list of countries supplying the direct import components of IDA projects. At that point, the amount of IDA disbursements which could be identified as flowing directly from the foreign exchange components of IDA projects to finance imports from specific countries totaled $531 million ( ¥ 191,200 million). Of this, $8 7. 7 million (¥ 31,572 million) had gone to finance imports from Japan, putting Japan behind only Britain and the United States as a supplier of goods financed by IDA credit disbursements. IDA projects in which more than ten per cent of foreign exchange outlays to date have gone to finance supplies from Japanese industry include railway projects in Korea and Paki­ stan and railway improvement programs in India; ground water developments and water supply projects in Taiwan; flood control and drainage in the Indian Punjab; a power project and a telecommunications project in India; an inland ports development project in Pakistan; an industrial develop­ ment finance program in Pakistan and a private industrial finance program in Taiwan.

9 RECORDED DISBURSEMENTS BY BORROWERS FOR IMPORTS FROM JAPAN (Bank/IDA) ¥million $million equivalent Cumulative total through 1955 0.7 252 Fiscal year (ending June 30) 1956 ...... 0.5 180 1957 ...... 5.2 1,872 1958 ...... 30.6 11,016 1959 ...... 23.7 8,532 1960 ...... 9.6 3,456 1961 ...... 10.5 3,780 1962 ...... 21.5 7,740 1963 ...... 24.8 8,928 1964 ...... 45.6 16,416 1965 ...... 62.9 22,650 1966 ...... 65.1 23,440 Total ...... 300.7 108,262

These statistics apply only to external orders filled by J apa­ nese industry as a result of Bank lending in other countries. In addition, Japanese industry has obtained the bulk of orders for goods and services flowing from Bank lending to Japan it­ self. Up to the end of fiscal 1966, the Bank had disbursed $558.8 million(¥ 201,100 million) on its commitments under 30 loan agreements made for projects in Japan since 1953. Of this $558.8 million disbursed, $425.4 million (¥ 153,100 mil­ lion )-or more than three-quarters-had been disbursed for goods and services purchased within Japan itself. Analysis of the industrial goods and services drawn from Japanese firms under Bank Group financing for projects in other countries underlines Japan's role as a supplier of heavy industrial goods for capital investment. In particular, the pattern of these supplies in recent years brings out Japan's expanded place in such industries as iron and steel and heavy electrical supplies. At June 30, 1963, an analysis of goods shipped from Japan to fill orders financed by Bank loan

10 disbursements showed that 56.5 per cent of all known Bank loan-financed purchases in Japan were made from Japanese suppliers of steel and steel manufactures while 21 per cent of disbursements at that date were to suppliers of electric power equipment. By June 30, 1966, this pattern of supplies financed by Bank loans had changed. Suppliers of electric power and communications equipment had come to the fore by that time to take 34 per cent of the cumulative total of these Bank dis­ bursements, while the share of steel and steel manufactures was at 33 per cent. Of the remaining 33 per cent of identifiable Bank disbursements at that date, suppliers of railway equip­ ment (mainly rolling stock) accounted for 9 per cent, suppliers of machinery, tools and hardware accounted for another 12 per cent. Fishing boats and other vessels supplied by the ship­ building industry accounted for 6 per cent and another 2112 per cent of disbursements had been for engineering and con­ sulting services (principally those associated with installation of engineering and electrical equipment supplied to Bank proj­ ects by Japanese firms). The principal disbursement under this heading to date has been $1,175,000 (¥ 423,100,000) to a dredging and harbor engineering firm for services in connec­ tion with the widening and deepening of the Suez Canal. In the case of supplies originating as a result of disburse­ ment of IDA credits, the pattern of orders to Japanese indus­ tries is only slightly different to that applying to supplies financed by Bank loan disbursements. At June 30, 1966, the largest segment ( 39 per cent) of the total of IDA credits so far disbursed for purchases from Japan was for orders from the Japanese iron and steel industry, while 30 per cent was for supply of electric power and communications equipment. An­ other 23 per cent had gone to Japanese suppliers of railway rolling stock and other transport equipment and another six per cent for machinery and tools. The remaining two per cent was for miscellaneous items. [Appendix III lists firms in each of the main sectors of industry concerned which have obtained orders worth at least $50,000 (¥ 18,000,000) as a result of Bank and IDA disbursements for projects abroad.]

11 BANK LOANS IN JAPAN The World Bank has provided a substantial volume of financial assistance for the great-and homegrown-economic drive which has lifted Japan to her current position among the leaders in the field of international development. Japan has received more finance from the World Bank than any other country except India. As of July 31, 1966 Japan had received 31 loans totaling $857 million ( ¥ 308,500 million), net of cancellations. These loans have covered a wide variety of projects: electric power production, the manufacture of iron and steel, land reclamation, irrigation, the building of express highways and the construction of the world's fastest railway link.

Amount Purpose and Number of Bank Loans $ million ¥ million Agriculture 1 4 .12 1,483 Industry 11 162.57 58,524 Multipurpose 1 4.87 1,754 Power 9 175.49 63,170 Transportation 9 510.00 183,600 Total 31 857.05 308,500

STEEL The rise of the Japanese steel industry to its current position of international strength is a considerable achievement. Inter­ nal mineral resources available to Japan are generally well below her domestic requirements and Japan has built a steel industry, now ranking as the world's third, substantially around imported raw materials drawn from sources all over the world. To keep steel production costs down Japanese pro­ ducers have had to import materials of as high a grade as pos­ sible and to adopt production methods drawing the highest possible yields from these raw materials. Transport costs have been kept to a minimum by use of large-scale bulk carriers. As a result Japanese steel producers have achieved an interna­ tional competitiveness sufficient to allow the industry to pro­ vide an important share of the country's foreign exchange

12 income and to provide a substantial part of the base for do­ mestic economic growth. Behind this exceptional growth in steel has been a huge capital investment program combining new capacity with technological adaptation and advance. World Bank financing provided assistance for the Japanese steel industry in the earlier years of its development. Six steel companies in Japan have received Bank loans and all the works financed with the help of the Bank have been completed. Yawata Iron and Steel Company, the largest steel firm in Japan, borrowed $5.3 million (¥ 1,908 million) in 1955 to replace three old plate mills at its Yawata works with one modern plant. In 1959 it borrowed $20 million ( r 7 ,200 million) more to install new equipment needed to raise its Tobata works to the status of a fully integrated steel plant. The Japan Steel and Tube Corporation (Nippon Kokan Kabushiki Kaisha) received $2.38 million(¥ 859 million) out of a larger loan of $7.56 million (¥ 2,722 million), made to the Japan Development Bank in 1956, to pay for a new tube mill. A further loan of $22 million (¥ 7,920 million) in 1958 financed the extension of this mill, and covered the foreign exchange cost of the first stage of construction of a new inte­ grated steel mill at Mizue near Tokyo. The Kawasaki Steel Corporation borrowed $20 million ( ¥ 7 ,200 million) in 1956 for a s~mi-continuous hot and cold strip mill for its Chiba plant near Tokyo, returning to the Bank in 1958 for another $8 million ( ¥ 2,880 million) for a new blast furnace for Chiba and in 1960 for a loan of $6 million (¥ 2,160 million) for a new plate mill and other equipment for the same works. The 1960 loan was linked with the private placement in the United States investment market of $4 mil­ lion (¥ 1,440 million) of notes issued by Kawasaki, the Bank's support thus opening up for the company a new source of funds for its investment program. The largest single loan made by the Bank for the develop­ ment of the Japanese steel industry went in 1958 to Sumitomo Metal Industries, which borrowed $33 million ( "T 11,880 mil­ lion) to finance the construction of a blast furnace and bloom-

14 ing mill at the company's plant at Wakayama near Osaka. The company also borrowed $7 million (¥ 2,520 million) from the Bank in 1960, the transaction being linked, like the loan to Kawasaki of the same date, with a private placement of $5.8 million (¥ 2,088 million) of notes in the United States. A fifth borrower, the Kobe Steel Works, received $10 million (¥ 3,600 million) from the Bank in 1958, largely to finance equipment for a mill at Nadahama on Osaka Bay. The loan covered a blast furnace, harbor installations and a 16,400- kilowatt thermoelectric power plant. Finally, the Fuji Iron and Steel Company, which in size ranks second as a producer only to Yawata, borrowed $24 million(¥ 8,640 million) in 1959 to finance a blast furnace, sintering plant, converters and a slab­ bing mill at Hirohata on the Inland Sea. Three companies outside the steel industry shared, with Japan Steel and Tube Company, in the $7.56 million(¥ 2,722 million) loan made in February 1956 through the Japan De­ velopment Bank. The $5.17 million (¥ 1,862 million) lent to them paid for machines and machine tools imported from six countries. Mitsubishi Shipbuilding and Engineering Company bought machines and machine tools needed to manufacture turbosuperchargers and heavy diesel engines. Mostly installed at the company's Nagasaki shipyards, these machines made it possible for Mitsubishi to meet a shift in demand from com­ paratively small diesel engines to higher-powered supercharged units. Ishikawajima Heavy Industries Company bought ma­ chine tools needed in manufacturing steam turbines and other heavy industrial machinery. The remainder of the loan went to the Toyota Motor Company, and financed machines needed to modernize the company's production of trucks and bus chassis.

ELECTRIC POWER The growth of Japanese industrial capacity in combination with rising living standards and a concomitant rise in demand for modern household consumer durables has set a formidable pace for expansion in electric power generating capacity. The

15 task has been complicated by Japan's limited local oil and coal resources. The country is, however, richly endowed with re­ sources for hydro power generation and these have been widely and efficiently exploited. Japan ranks fourth among nations of the world in total electric power generation and is second in terms of hydro power generation, exceeded in this field only by the United States. In recent years, the relative position of thermal capacity within total power supply capacity has risen rapidly due to difficulty in finding suitable sites for more hydro plants and a reduction in the relative cost of thermal produc­ tion. Japan's generating capacity is now almost equally divided between water power and thermal power. World Bank lending has played a significant role in the postwar growth of invest­ ment in both thermal and hydro capacity. During the past 13 years the Bank has lent more than $175 million (r 63,170 million), largely through the Japan Development Bank, to finance a variety of urgently needed power projects. The Bank's first three loans in Japan, made in October 1953, were for electric power development. Three privately owned companies received loans totaling $37.5 million (r 13,500 million) to build thermoelectric generating plants. Although these companies were responsible for over a third of all power generated in Japan, much of their capacity consisted of run-of­ the-river hydroelectric plants whose output fell when the rivers were seasonally low. The thermoelectric plants were needed to help firm up system capacity. More than half the money lent for electric power develop­ ment in 1953 went to the Kansai Electric Power Company, one of the largest privately owned power companies in the world. It received $20.6 million (r 7,408 million) to cover the foreign exchange cost of a 150,000-kilowatt plant built at Tanagawa on Osaka Bay in central Japan. The plant, completed in 1956, serves the most important industrial area of Japan, including the cities of Osaka, Kobe, Sakai and Amagaski, and provides power for the manufacture of metals, machinery, chemicals, ceramics, textiles and ships. Kansai borrowed a further $3 7 million (r 13,320 million) in June 1958 toward the cost of a

16 dam and a 258,000-kilowatt underground power station on the Kurobe River in a remote part of the central range of the J apa­ nese Alps. To provide access to the site, which otherwise is inaccessible for heavy equipment, it was necessary to drive a

17 31/2-mile tunnel through a mountain range from a pal'allel valley. Another tunnel, six miles long, connects the dam to the power station. Because the dam also regulates the flow of the Kurobe River, it has increased the output of existing power plants further downstream. The Kyushu Electric Power Company, received $10.4 million (¥ 3,762 million) from the lending of October 1953, toward the cost of a 75,000-kilowatt thermoelectric station at Karita on the northeast coast of Kyushu. This plant serves an area where more than half Japan's output of coal is mined, and which is also a center of basic metal and chemical manufacturing. The third borrower in 1953 was the Chubu Electric Power Com­ pany, which received $6.4 million (¥ 2,324 million) to meet the foreign exchange cost of a 66,000-kilowatt unit at the new Mie power plant on Ise Bay in central Japan. It serves the Nagoya area, providing power for companies making china­ ware, textiles, and sewing and textile machinery. Both Kyushu and Chubu have since borrowed again from the Bank. In September 1958, Chubu borrowed $29 million (¥ 10,440 million) for its 170,000-kilowatt Hatanagi hydro­ electric project in central Honshu. This consists of a high dam and reservoir to direct the flow of the Ohi River successively through an upper power station, a second reservoir, a long tunnel and finally a lower station. A pump-back installation at the upper station permits increased output during hours of peak demand, while silt control and regulation of the river's flow by the reservoirs improves the operations of power plants further downstream. Kyushu borrowed $12 million (¥ 4,320 million) in March 1961 to finance its new Shinkokura thermo­ electric plant, built on reclaimed land at Kokura on the coast of northern Kyushu. The plant, with an initial capacity of 156,000 kilowatts but designed for future expansion to 532,000 kilowatts, uses local low-grade coal. In June 1958 the Bank lent $25 million ( ¥ 9,000 million) to the Hokuriku Electric Power Company, a privately owned firm serving the Toyama area on Honshu. Most of this com­ pany's output is consumed by industry which, although at-

18 tracted into the area by the cheap electricity generated by run­ of-the-river hydroelectric plants, has been able to work only part-time during the winter months when the river's flow is reduced. The project for which the loan was made now pro­ vides more reliable supplies of power throughout the year: the 450-foot-high Arimine Dam, on the Joganji River in the Japa­ nese Alps, stores water to drive the turbines of five new power stations built at successively lower levels downstream. The project also included enlargement of an existing power station, so that in all a total of 261,000 kilowatts has been added to Hokuriku's capacity. The Bank's lending in Japan reached a new stage in Febru­ ary 1959, when for the first time a joint borrowing operation in the United States investment market was arranged. The Bank lent $10 million (r 3,600 million) to the Japan Develop­ ment Bank; at the same time, the Japanese Government issued $30 million (r 10,800 million) worth of bonds on the New York market. The combined proceeds were re-lent to the Elec­ tric Power Development Company, a government corporation established in 1952 to develop special power sources and to·sell power in bulk to private companies. The finance was for con­ struction of the 215,000-kilowatt Miboro hydroelectric project on the Sho River, near the west coast of Honshu. The output of this plant is sold to the Kansai Electric Power Company. Because the new dam now regulates the flow of the river, Kansai's own plants, downstream from Miboro, are able to operate more efficiently than before. In January 1965 the Bank again assisted the Electric Power Development Company with a direct $25 million (r 9,000 million) loan to help finance another hydro project on the Kuzuryu River-a 220,000-kilowatt pumped-storage station with an associated dam and reservoir at Nagano, and a 54,000- kilowatt conventional type station at Yugami. Power from the plants was to be fed into a large interconnected system which serves the central region of Japan, the fastest growing indus­ trial region in the country.

19 AGRICULTURE Japan's population of almost 100 million lives in a group of relatively small volcanic islands with limited arable land. The cultivated area, amounting to only 60,600 square kilometers, is approximately 0 .4 per cent of the total cultivated area in the world. This inherent limitation on agricultural capacity has been a problem of both social and economic significance during Japan's period of rapid growth. On the one hand, the necessity to import a significant proportion of the nation's food needs has been a factor in the constraint placed on Japanese internal expansion from time to time by balance of payments difficul­ ties. On the other hand the traditionally small scale of J apa­ nese farming has limited productivity per man engaged in Japanese agriculture. This in turn-in a period of rapid indus­ trial growth-has produced social problems in the form of an income gap between agriculture and other industries. However, in recent years, Japanese agriculture has been turning gradually but substantially from a traditional stress on high productivity per acre to a more commercialized em­ phasis on high productivity per man employed. Wherever pos­ sible, small holdings are being extended and consolidated to allow greater application of machinery to farming. In the mid­ dle 1950's the Bank acted to assist in this process. Following the advice of a Bank mission, the Japanese Government estab­ lished the Agricultural Land Development Machinery Public Corporation for the purpose of applying capital intensive meth­ ods to land clearance and land reclamation work in selected areas. With the assistance of.a $4.1 million (¥ 1,476 million) loan from the Bank-largely for the import of land-working machinery not then available from Japanese sources-the Agricultural Machinery Corporation launched itself into three initial projects. Two of these involved the clearance and im­ provement of wild forest land for establishment of new farms -and the extension and consolidation of existing ones-in the Konsen area of eastern Hokkaido and the Kamikita area of northern Honshu. The third involved the drainage of peat bogs

20 in the Ishikari River valley in western Hokkaido and the con­ version of this land-through soil replacement and improve­ ment-into paddy fields and high quality grass land. The Bank-inspired Agricultural Machinery Corporation has gone on from these initial projects to expand and diversify its operations both geographically and functionally. With a high­ caliber engineering staff and a substantially extended stock of specialized equipment the Corporation today operates in a variety of ways and on a variety of levels throughout Japan. It assists farmers' cooperatives in the process of consolidating land holdings to allow more efficient use of farm machinery; it repairs and rebunds rice fields after typhoon damage; it ex­ ecutes major projects for the Japanese Government, such as the reclamation from the sea of the 54,000-acre Lake Hachiro­ gata, connected to the sea by a narrow channel on the north­ west coast of Honshu.

MULTIPURPOSE PROJECT Agriculture has also benefited from a loan of $4.9 million ( ¥ 1, 764 million) made to the Aichi Irrigation Public Corpora­ tion in 1957. In the Aichi region of central Japan, the Bank has supported a project which will irrigate more than 30,000 farms, supply drinking water for many towns and villages, increase the supply of water for industrial use to three cities (including Nagayo ) , and provide 10,000 kilowatts of electric power. When in full operation, the project will irrigate some 70,000 acres of land, including about 27,000 acres of rolling uplands. Formerly, such hilly areas could be irrigated only through ex­ pensive leveling. Under the project, contour furrow irrigation was introduced for the first time in Japan in an effort to dem­ onstrate the possibilities for development of ridge lands. A dam, built at Makio Bridge on the Otaki River, impounds a reservoir whose outflow drives the turbines of a 10,000-kilowatt power station for the Kansai Electric Power Company, and feeds a 68-mile main irrigation canal and some 780 miles of secondary canals on the Chita Peninsula.

22 TRANSPORTATION The southeastern coast of Honshu is the industrial heart of Japan. In the strip of land between Tokyo and Kobe are con­ centrated all of Japan's cities with a population exceeding one million, 40 per cent of her population, 70 per cent of her indus­ try and a quarter of her agricultural production. As already indicated, many of the Bank's loans to Japan have been made to help the expansion of industry and electric power produc­ tion in this area. In more recent years, basic infrastructure lending for roadworks has predominated. Japan's total road network, excluding municipal roads, exceeds 93,500 miles. But less than 20 per cent of this is paved. Expansion of invest­ ment in roadworks-especially in the heavily trafficked indus­ trial heart-is essential to provide the basis for continuation of balanced growth. The emphasis on major roadworks in World Bank lending to Japan in more recent years thus fits naturally into the pattern of investment required for balanced growth. The Bank has committed a total of $430 million(¥ 154,680 million) in eight separate loans for road projects in Japan's industrial heartland. Six of these, made over the past six years and totaling $380 million (¥ 133,800 million) have been for different stages of the 333-mile Tokyo-Kobe toll expressway, scheduled for completion over its whole length (important sec­ tions are already operating) in April 1969 at a total cost equivalent to nearly $1.5 billion (r 540 billion). This great new highway traverses the Tokaido region, the most highly industrialized and densely populated area in the country, and will link five of Japan's six largest cities. Except for a 22-mile six-lane section near Tokyo, the ·new expressway is a four­ lane divided highway. To avoid densely populated areas and valuable rice land, it has been necessary to drive several long tunnels for the road, while bridges and viaducts have carried it over areas subject to flooding, across major rivers, other roads, railways and, in some cases, urban residential areas. The Bank has extended its finance for the expressway to the Nihon Doro Kodan (Japan Highway Public Corporation), a government agency responsible for the construction, operation

23 and maintenance of many of Japan's toll facilities which in­ clude highways, tunnels, bridges and ferries. The Tokyo-Kobe Expressway is its largest undertaking. The two other items in the Bank's eight-loan program for highway development in Japan were for separate expressway projects. In December 1964, the Bank made a $25 million (¥ 9,000 million) loan to the Tokyo Expressway Public Corpo­ ration, a public entity attached to the Ministry of Construction, for construction of an eight-mile expressway from Haneda­ Tokyo's International Airport-to Yokohama. The expressway is designed to relieve the severe congestion of city streets be­ tween Tokyo and Yokohama, thereby reducing vehicle operat­ ing costs and travel time in one of the most densely populated and heavily industrialized regions of the world. In September 1965, the Bank extended a loan, also of $25 million, to the Hanshin Expressway Public Corporation to assist financing construction of an elevated toll expressway to pro­ vide a fast through-traffic route across the city of Kobe in both easterly and westerly directions. For nearly 70 per cent of its length, the expressway will be built as an elevated viaduct above existing city streets which are being widened to accom­ modate ramps and toll facilities. The Bank's contribution to transport development in the Tokaido region has not been confined to highway projects. A Bank loan made in May 1961, and amounting to $80 million ( ¥ 28,800 million), has helped the Japanese National Rail­ ways to construct a new express railway line providing the fastest service in the world. The New Tokaido Line, com­ pleted in October 1964, runs between Tokyo, Yokohama, Nagoya, Kyoto and Osaka, and is used only for express passen­ ger services, at speeds up to 125 miles per hour. The new line covers the 311-mile passenger run from Tokyo to Osaka within four hours. Built parallel to the existing railway, which was greatly overloaded, it is an electrified system with standard gauge double track.

TERMS OF BANK LOANS TO JAPAN Bank loans to Japan have ranged in terms from 14 years to 26 years and have carried interest rates ranging from 45/s per cent to 65/s per cent. This range of terms encompasses an adjustment in lending policy made by the Bank in fiscal 1965 toward the more developed of its borrower member countri~s. In that year the Bank considered whether it was justified in continuing to make loans to more developed countries, able to cover the bulk of their requirements for external capital direct from market sources, at the same interest rate as it charged to its less developed members. As a result of this consideration, the Bank decided that it would charge such countries rates of interest roughly comparable to those they pay when borrowing in the market. The rates to these "market eligible" countries would be up to one per cent higher than the Bank's standard interest rate. The first application of this policy was to a $75 million (¥ 27,000 million) 25-year Bank loan in May 1965 for the Shizuoka-Toyokawa section of the Tokyo to Kobe ex­ pressway. In accordance with the new policy the rate for this loan was fixed at 61/2 per cent at a time when the standard interest rate for Bank loans was at 51/2 per cent. Later, in February 1966, the Bank was forced to raise its standard rate on new loans to the less developed countries

25 from 51/2 per cent to 6 per cent to reflect the higher price the Bank itself was having to pay for its borrowings in the capital markets. Hence in July 1966, when the Bank extended a fur­ ther $100 million (r 36,000 million) loan for the Tokyo-Kobe Expressway for a term of 15 years, interest was fixed at the rate of 65/s per cent. This July 1966 loan for the Tokyo-Kobe Expressway marked the culmination-at least as far as the future can be foreseen -of the Bank's development lending operations in Japan. In this respect, it forms a landmark for Japan's rapid passage from an economy in which Bank assistance could appropriately supplement the locally generated development drive, to an economy operating at a level of self-sustained growth where continued Bank assistance is no longer necessary or fitting. From this point onward, the World Bank Group's association with Japan will continue as one of partnership in assisting other countries to follow Japan's development example.

APPENDIX I JAPAN'S PARTICIPATION IN THE CAPITAL STRUCTURE OF THE WORLD BANK GROUP MEMBERS (Figures as at June 30, 1966, expressed in Millions of US Dollars)

JAPAN Total Amount % of Total 1. WORLD BANK CAP IT AL SUBSCRIPTION Subscribed capital ...... 22,426.4 772.6 3.45 Funds available from paid-up sub- scriptions ...... 1,808.6 77.26 4.3 2. IDA SUBSCRIPTION AND SUP­ PLEMENTARY CONTRIBUTION Subscriptions ...... 999.1 33.6 3.4 Convertible funds from subscrip- tions ...... 784.4 33.6 4.3 Supplementary contributions ... . 7631 41.3 5.4 3. IFC SUBSCRIPTION Subscriptions to capital stock .... 99.4 2.8 2.8

1 Excludes $5 million paid by Sweden in July, 1966.

26

APPENDIX II BANK LOANS UNDER WHICH MORE THAN 10% OF DISBURSEMENTS FOR PURCHASES WERE IN JAPAN1

Japanese Japanese Loan Disbursed2 share2 share2 No. Country Date Purpose $millions $millions %

167 India 7/57 Railways 24.0 24.0 100

N) 128 Thailand 8/55 Railways 12.0 8.1 67.5 00 320 Pakistan 9/62 Railways 17.82 2.37 13 325 Philippines 11/62 Power 2.58 1.51 59 317 Mexico 6/62 Toll Roads 29.8 3.02 10.2 262 India 7/60 Railways 70.0 17.0 24 298 India 10/61 Railways 50.0 10.0 20 221 El Salvador 2/59 Power (Rio Lempa) 2.7 0.56 20 263 El Salvador 7/60 Power (Rio Lempa) 3.47 0.59 17 236 Pakistan 9/59 Industry (PICIC) 9.94 1.4 14 207 India 9/58 Railways 85.0 11.2 13 241 Pakistan 11/59 Railways 12.37 1.39 11 233 India 7/59 Railways 50.0 6.1 12 282 Colombia 5/61 Power 20.01 2.13 11 170 India 7157 Railways 35.7 7.99 22 244 Chile 12/59 Power 26.63 3.18 12 280 Thailand 4/61 Railways 10.65 3.70 35 297 Philippines 10/61 Power 29.10 4.40 15 298 India 10/61 Railways 50.00 10.03 20 327 Thailand 12/62 Irrigation 2.58 0.27 10.5 328 Thailand 12/62 Irrigation 4.6 0.56 12 331 Philippines 2/63 Industry (PDCP) 8.53 1.69 20 333 Thailand 3/63 Power 6.35 1.16 18 337 Singapore 5/63 Power 11.51 4.67 41 342 Et Salvador 6/63 Power 5.16 2.14 42 346 Costa Rica 7/63 Power 15.78 2.42 15 350 Malaysia 8/63 Power 24.18 5.69 23 356 China (Taiwan) 9/63 Fishing 7.55 7.26 96 377 Pakistan 5/64 Pipeline 9.23 3.09 34 386 Philippines 7/64 Water Supply 2.38 1.36 58 391 Venezuela 8/64 Power 10.55 2.24 21 t-.:> 394 Thailand 11/64 Irrigation 4.37 3.26 75

1 Does not include the 30 loans made to Japan between 1953 and June, 1966. 2 Figures as at June 30, 1966. APPENDIX II-Continued IDA CREDITS UNDER WHICH MORE THAN 10% OF DISBURSEMENTS FOR PURCHASES WERE IN JAPAN

Japanese Japanese Credit Disbursed1 share share1 No. Country Date Purpose $millions $millions %

25 Korea 8/62 Railways 13.99 13.52 99 17 China (Taiwan) 12/61 Private Industry 4.89 1.71 35 9 China (Taiwan) 9/61 Municipal Water Supply 3.98 2.03 51 28 India 9/62 Telecommunications 35.55 13.52 38 7 China (Taiwan) 8/61 Ground Water Development 2.06 0.72 35 36 India 3/63 Railways 67.50 17.14 25 w 0 16 Pakistan 11/61 Inland Ports Project 1.66 0.30 18 15 India 11/61 Flood Control and Drainage 9.43 1.33 14 30 Pakistan 11/62 Industrial Estates 1.88 0.39 21 37 India 5/63 Power 13.46 9.58 71 56 Pakistan 6/64 Railways 1.07 1.04 97 57 Pakistan 6/64 Railways 4.63 1.54 33 67 India 10/64 Railways 62.00 14.97 24

1 Figures as at June 30, 1966. APPENDIX III WORLD BANK LOAN DISBURSEMENTS FOR PURCHASES IN JAPAN FROM JANUARY 1959 TO JUNE 1966 PRINCIPAL SUPPLIERS [Disbursements of $50,000 (¥ 18,000,000) or more over the period] : (a) Trading and Manufacturing Firrr;is Supplying Electric Power and Communications Equipment Daiichi Bussan K.K. Mitsui Bussan K.K.1 Gosho K.K. Nippon Gaishi K.K.1 K.K. Hitachi Seisakusho1 Nissho K.K. Itochu Shoji K.K.1 Nichimen Jitsugyo K.K. Kinoshita Shoten Sumitomo Shoji K.K. Kyoei Sangyo Tokyo Shibaura Denki K.K.1 Marubeni-Iida K.K.1 K.K. Hokushin Denki Seisakusho Mutsubishi Shoji K.K.1 Shofu Industrial Co. A. Takahashi Co. (b) Trading and Manufacturing Firms Supplying Steel and Steel Manufactures Mitsui Bussan K.K.1 Nissho K.K. Ataka Sangyo K.K.1 Okura Shoji K.K. Ishikawajima-Harima Ju- Sumitomo Kinzoku Kogyo K.K.1 kogyo K.K. Toyo Menka K.K. Iwai Sangyo K.K.1 Kanematsu & Co.1 Marubeni-Iida K.K.1 K.K. Kinoshita Shoten1 Mitsubishi Shoji K.K.1 Meiko-Sangyo Co. Nichimen Jitsugyo K.K. Osaka-Kozai Co.1 Nippon Sharyo Seizo K.K. Fuji Sanki1 Fuji Industries, Osaka ( c) Trading and Manufacturing Firms Supplying Rolling Stock Mitsui Bussan K.K. Sumitomo Shoji K.K.1 Fuji Sharyo K.K.1 Tokyo Sangyo K.K. K.K. Hitachi Seisakusho1 Abeko & Co. Kawasaki Sharyo K.K.1 Iino Shipbuilding & Engineering Marubeni-Iida K.K. Co. Shin Mitsubishi Jukogyo K.K.1 Bei~ei Trading Co. Ltd.1 Nippon Sharyo Seizo K.K.1 Osaka-Kozai Co. (d) Trading and Manufacturing Firms Supplying Machinery and Tools Daido Shingo K.K. Sankyo Seiko K.K. K.K. Hitachi Seisakusho Toyota Jidosha Hambai K.K. Itochu Shoji K.K.1 Toyo Menka K.K.1 Ishikawajima-Harima Ju- Kinsho-Mataichi K.K. kogyo K.K.1 K.K. Tokyo Kikai Seisakusho K.K. Kobe Seikosho K.K. Kinoshita Shoten

1 Companies supplying goods valued at $500,000 ( ¥ 180 million) or more over period.

31 APPENDIX III-Continued WORLD BANK LOAN DISBURSEMENTS FOR PURCHASES IN JAPAN FROM JANUARY 1959 TO JUNE 1966 K.K. Kyosan Seisakusho Sanwa Machinery Co. Marubeni-Iida K.K.1 Toyoda Tsusho K.K. Mitsubishi Shoji K.K.1 Moritani & Co. Mitsui Bussan K.K.1 Toyo Kikai Boeki K.K. Nissho K.K.1 Nippon Kijuki Seisakusho Nichimen Jitsugyo K.K.1 F. Kanematsu Tokyo Shin-Etsu Kagaku Kogyo K.K. Toyo Musen Co. Sumitomo Shoji K.K. ( e) Suppliers of Engineering and Construction Equipment and Services Asahi Kasei Kogyu K.K. Japanese National Railways Mizumi Gumi Co.1 Nippon Gaishi K.K. Mitsubishi Shoji K.K. Tokyo Shibaura Denki K.K. K.K. Hitachi Seisakusho Sankyo Transport & Engineering Maeda Kensetsu Kogyo K.K. Tokyo1 Nichimen Jitsugyo K.K. (f) Miscellaneous Suppliers Kinsho-Mataichi K.K. Nichimen Jitsugyo K.K. K.K. Kinoshita Shoten Nippon Trading Co. Kure Shipbuilders & Engi- Takota & Co.1 neering Co. Nippon Gyomo Seng K.K.1 Mitsubishi Shoji K.K.1 East-West Enterprises Tokyo1 Mitsui Bussan K.K.1 Toyo Kanetsu Kogyo K.K. Nissan Motor Co.

1 Companies supplying goods valued at $500,000 (¥ 180 million) or more over period.

32 APPENDIX III-Continued IDA CREDIT DISBURSEMENTS FOR PURCHASES IN JAPAN FROM JANUARY 1959 TO JUNE 1966 PRINCIPAL SUPPLIERS [Disbursements of $50,000 (¥ 18,000,000) or more over the period]: (a) Trading and Manufacturing Firms Supplying Steel and Steel Manufactures Okura Shoji K.K. Nichimen Jitsugyo K.K.1 Iwai Sangyo K.K.1 Nissho K.K.1 K.K. Kinoshita Shoten1 Sumitomo Kinzoku Kogyo K.K.1 Marubeni-Iida K.K. Hitachi Ltd. Mitsui Bussan K.K.1 Nikko-Boeki K.K. Mitsubishi Shoji K.K.1 Tokyo Menka K.K.1 (b) Trading and Manufacturing Firms Supplying Electric Power and Communications Equipment K.K. Kyosan Seisakusho Hosoda Trading Co. Mitsui Bussan K.K.1 Hitachi Ltd.1 Mitsubishi Shoji K.K.1 Nichimen Jitsugyo K.K.1 Sumitomo Shoji K.K.1 Nippon Denki K.K.1 K.K. Kinoshita Shoten Nippon Gaishi K.K.1 Itochu Shoji K.K. Nissho K.K. Daido Shingo K.K. ( c) Trading and Manufacturing Firms Supplying Rolling Stock Daiwa Shoji Co. Sumitomo Shoji K.K. 1 Hitachi Ltd.1 Mutsubishi Manufacturing Co., Shin Mitsubishi Jukogyo K.K.1 Tokyo1 Mitsui Bussan K.K.1 Nichimen Jitsugyo K.K.1 Nissho K.K.1 Toyota Motor Sales (d) Trading and Manufacturing Firms Supplying Machinery and Tools Fair Trade & Engineering Co., Toyoda Tsusho K.K. Tokyo Hitachi Ltd. Kyosan Denki K.K. F. Kanematsu & Co. Marubeni-Iida K.K. K.K. Kobe Seikosho Mitsui Bussan K.K. Nissho K.K. Mitsubishi Shoji K.K. Sumitomo Shoji K.K. Nippon Trading K.K. Shinwa Shoji, Nagoya Okura Shoji K.K. Takekoshi & Co., Tokyo Sanwa Machinery Co. Nichimen Jitsugyo K.K. Chori K.K. ( e) Miscellaneous Suppliers Mitsubishi Shoji K.K.1 Moritani & Co.

1 Companies supplying goods valued at $500,000 (r 180 million) or more over period.

33 ...

PHOTOGRAPHS

Page 4 . A new farm in northern Hokkaido

Page 8. Two turbo-alternators of Japanese manufac­ ture installed at a new thermal power plant in Singapore.

Page 13. Steel framework for a new semi-continuous hot and cold strip mill at the Kawasaki Steel Corporation plant at Chiba.

Page 17. Winter at the Kurobe IV hydroelectric power plant in the Japanese Alps.

Page 21. The Iruka Aqueduct crossing a secondary road and river in the Aichi Region of Central Japan.

Page 24. One of the entrances and exits of the Ten­ nezan Tunnel, the longest tunnel on the new Tokyo-Kobe Expressway.

Page 27. Part of the Tokaido line with one of the new Bullet trains.

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT 1818 H Street, N.W:, Washington, D. C. 20433 U.S.A. Telephone number: EXecutive 3-6360 Cable address: INTBAFRAD

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