WDPo?ZU MA"C 1qq4 Public Disclosure Authorized 2 2 1 1z1 World Bank Discussion Papers Public Disclosure Authorized Policy-Based Finance The Expenrence of Postwar Japan Public Disclosure Authorized The Japan Development Bank The Japan Economic Research Institute Kozo Kato Yuichiro Miwa Tsutomu Shibata Yoshikaz Niwa Public Disclosure Authorized Koichiro Fukui Nobuhiko Ichikawa Aiichiro Mogi Masahiro Furuta Recent World Bank Discussion Papers No. 163 n,e Balanttcebetuen Pblic andPrivateSector Actiitides in tli DeIhtry of LivestockSen'ices. Dina L. Umali, Gershon Feder, and Comclis dc Haan No. 164 HIoulLDo Natio,aalPolices Afect Lon.-rnmGrouN)I?: A RescardcAgenda. William Eastcrly. Robert King. Ross Lcvine. and Sergio RcbW-o No. 165 FisheriesDevelopment. Fisheries Mana.ement, and Extgernalities. Richard S. Johnston No. 166 TheButildin,y Blocks of Parnidpationu:Testingt Bottom-ntp Planniw 4'. Michacl M. Cemca No. 167 SecdSysten Development: 7Te AppropriateRoles of teCPnrate and Public Sectors. Stevcn jaffic andJitctndra Srivastava No. 168 EnvironmentalManagement atitd Urb I 'uilerability.Alcira Kreimer and Mohan Munasinghe. editors No. 169 ComnnonPiopweiy Resorees: A MissingDimnesion of DevelopmentStrategies. N. S. Jodha No. 170 A ChiinescPrvittit asa RefirmE*xrimrnt: 7he Caseof Hahia. Paul M. Cadixo, K2zuko Ogawa, and Yin-Kann Wcn No. 171 issiae;foryf%astntaaare Management in thte1990s. Arturo Isrmcl No. 172 JapaneseNational Railuays Privattzation Study: Thc Ex-perienfeofjapan and Lessotsfor Developirqq CoNItries. Koichiro Fukui No. 173 TheLivestoek Sectorin EasterniEurope: Consrainmts and Opportunities. Comclis dc Haan, Tjaart Schillhom Van Vecn, and Karcn Brooks No. 174 AssessingDevelopmoet Firtance hIstitutions: A PublicInterest Analysis. Jacob Yaron No. 175 ResourceMatagement and Pastoral Instittion Buildingind fl WestAfrican Sahel. Nadarajah Shanmugaratnam, Trond Vedeld, Annc Mossigc. and Mcttc Bovin No. 176 P blic andPrivate Sector Roes in AgriaclturatResarch: 7hewy and Experiietn. Dina L. Umali No. 177 TheRegulatoty beqdunens to the Pivateindistrial Seaetr DeLpmt in Asia:A Coptive Study.Dccna Khaddtlh No. 178 Ctina: Refornmig&Intevgvemmnertal Fiscal Relations. Ramngopal Agarwala No. 179 Nippon Telegraphand TelephonePrivatization Stuidy: Experientce ofJcpan and Lessonsfor Develpirg Countries. Yoshiro Takano No. 180 China'sRefonm Experienceto Date. Pctcr Harrold No. 181 CombattingAIDS and Other Sexmally TransmnittedDiseases in Africa:A Review of ile World Bank's Agendafor Aaion. Jean-Louis Lamborny and A. Edward Elmcndorf No. 182 PrivatizationProblems at Indifstry Level:Road Haulagein Gmtral Ejerope.Esra Bcnnathan and Louis S. Thompson No. 183 Partiipatory DEvelopmentand the World Bank: PotentialDiretionsfor Chargte.Bhuvan Bhatnagprand Aubrcy C. WiRiams, editors No. 184 Agria lturalResearch in SouthernAfica: A FramevorkjorrAction.Andrew Spurling, Tcck Y. Pec, Godwin Mk2mangp. and Chriswophcr Nkwanyana No. 185 Military Expenditure and EconomicDevelopment: A Symposiumon ResearchIssues. Edited by Gcofiircy Lamb with Valeriana Kallab No. 186 Efidencyand Substitution in PollutionAbatement: Three Case Stuidies. Dcnnis Andcrson and William Cavendish No. 187 The Statc Holding Company:Issues and Options. Anjali Kumar No. 188 Indigenous Vieusofnd miandthe Environment.Shelton H. Davis. cditor No. 189 Povety, Population,and the Enironment.Stephen D. Mink No. 190 Nantral Gas in Devdoping GCuntries:Evaluating the Benefitsto the Environment.John Homer No. 191 ApproppiateMacroeconomic Magnmt in Indonesia'sOpen Ecnomy. Sadiq Abmed (Continued on the inside back cover.) 2 2 1 *)1World Bank DiscussionPapers Policy-Based Finance The Experience of Postwar Japan The Japan Development Bank The Japan Economic Research Institute Kozo Kato Yuichiro Miwa Tsutomu Shibata Yoshikaz Niwa Koichiro Fukui Nobuhiko Ichikawa Aiichiro Mogi Masahiro Furuta The Wolld Bank Washington,D.C. Copyright 0 1994 The InternationalBank for Reconstruction and Developmcnt/THE WORk-) BANK 1818 H Street, N.W. Was%hington,D.C. 20433,U.S.A. All ights reserved Manufacturedin the United Statesof America Firt ijrintingMarch 1994 DiscussionPapers present resultsof country analysisor researchthat are circulatedto encouragediscussion and comment within the developmentcommunity. To present these resultswith the leastpossible delay, the typescriptof this paper has not been prepared in accordancewith the proceduresappropriate to formal printed texts, and the World Bankaccepts no responsibilityfor errors. 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[SSN: 0259-210X Library of Congress Cataloging-in-Publication Data Policy-basedfinance: the experienceofpostwarJapan / The Japan DevelopmentBank [and]The Japan Economic Research Institute ; Kozo Yato ... [et al.]. p. cnL - (World Bank discussionpapers ; 221) Includesbibliographical references. ISBN 0-8213-2716-X 1. Governmentlending-Japan. 2. Finance,Public-japan. 3. Finance-Japan. 4. Industryand state-Japan. 5. Nihon Kaihatsu Ginko. I. Kato, Kozo, 1935- . I. Nihon KaihatsuGinko. InI. Nihon Keizai ChosaKyogikai. [V. Intentional Bank for Reconstruction and Development. V. Series. HG4245.3.P65 1993 336.52-dc2O 93-31025 CIP CONTENTS FOREWORD...................................................................... vn ACKNOWLEDGMENTS....................................................................... ix EXECUTIVESUMMARY ....................................................................... xi INTRODUCTION....................................................................... xvii Chapter I. FISCAL INVESTMENTS AND LOANS AND POLICY-BASEDFINANCE .................. I 1. Fiscal Investments and Loans...................................................................... lI A. The Characteristicsof Fiscal Investments and Loans.......................................... I B. The Institutional Evolution of the Fiscal Investments and Loans System............ 3 C. Structure of the Fiscal Investment and Loan Program........................................ 4 D. The Role of Fiscal Investments and Loans: Historical Transition........................ 19 E. Business Cycle Adjustments:The Function of Fiscal Investments and Loans...... 24 2. Policy-Based Finance ...................................................................... 24 A. Policy-Based Fmance Institutions: Classification, Scale, and Trends................... 25 B. Policy-Based Fmance: Historical Perspective...................................................... 34 C. Policy-Based Finance: Its Multfunctional Role.................................................. 47 D. Policy-Based Finance: Operations and Activities................................................ 54 E. Related Laws: the JDB Example...................................................................... 61 Chapter II. INDUSTRIAL POLICY: POLICY FORMATION AND TOOLS.................................... 65 1. The Concept of Industrial Policy...................................................................... 65 A. Industrial Policy Trends...................................................................... 66 2. The Policy-Formation Process...................................................................... 68 A. Formulating the Economic Plan.69 B. Formulating Industral 'Visions"...................................................................... 70 C. Drawing up Special Legislation...................................................................... 74 D. Private-Level Participation in the Policy-Formation Process............................... 75 3. The Tools of Industrial Policy...................................................................... 81 A. Classification of Policy Tools...................................................................... 8 1 B. The Characteristics and Function of Policy Tools .............................................. 82 C. Selecting