Japan emerged as one of the largest foreign aid donors in the world during the 1980s.
In 1991 Japan was the second largest foreign aid donor worldwide, behind the United States. Japan's ratio of foreign aid to GNP in this year was 0.32%, behind the 0.35% average for the OECD's Development Assistance Committee member countries, but ahead of the United States ratio of 0.20%.
The foreign aid program began in the 1960s out of the reparations payments Japan was obliged to pay to other Asian countries for war damage. The program's budget remained quite low until the late 1970s, when Japan came under increasing pressure from other industrial countries to play a larger role. During the 1980s, Japan's foreign aid budget grew quickly, despite the budget constraints imposed by the effort to reduce the fiscal deficit. From 1984 to 1991, the Official Development Assistance (ODA) budget increased at an average annual rate of 22.5%, reaching US$11.1 billion by 1991. Part of this rise was the result of exchange rate movements (with given yen amounts committed in the budget becoming larger dollar amounts). During the 1980s, foreign aid rose at a lower, but still strong, rate of between 4% and 12% annually in the government budget, with an average annual rate of growth from 1979 to 1988 of 8.6%.
During the 1970s, the government took positive measures to increase its Official Development Assistance (ODA) to developing countries and to contribute to the stabilization of the international trade and monetary system. These measures were generally welcomed abroad, although some countries felt that the steps taken were not executed as rapidly or were not as extensive as similar efforts by some other advanced industrialized nations. Japan's ODA increased tenfold during the decade and stood at US$3.3 billion in 1980, but this ODA as a percentage of GNP was still below the average of other donor countries.
In the 1980s, Japan's ODA continued to rise rapidly. ODA net disbursements, in nominal terms, averaged around US$3 billion per year in the early 1980s and then jumped to US$5.6 billion in 1986 and US$9.1 billion in 1990. Japan's share of total disbursements from major aid donors also grew significantly, from nearly 11.8% in 1979 to about 15% in the mid-1980s, and later to more than 19% in 1989 dropping back to under 17% in 1990. Japan's ODA as a percentage of its GNP, however, did not increase substantially during the 1980s, remaining at about 0.3%.
Japan continued to concentrate its economic assistance in Asia (about 60% of total commitments in 1990), reflecting its historical and economic ties to the region. Japan made modest increases in aid to Africa with the announcement in 1989 of a US$600 million grant program for the next three years. In 1990, Japan also pledged large amounts of assistance to Eastern Europe, but most of that aid was to be in the form of market rate credits and investment insurance, which did not qualify as ODA. In other regions, Japan appeared likely to continue allocating relatively small shares of assistance. Nevertheless, by 1987 Japan had become the largest bilateral donor in twenty-nine countries, nearly double the number in which that had been the case ten years earlier.
The continued growth of Japan's foreign aid appears to be motivated by two fundamental factors. First, Japanese policy is aimed at assuming international responsibilities commensurate with its position as a global economic power. Second, many believed, the growing Japanese foreign aid program comes largely in response to pressure from the United States and other allies for Japan to take on a greater share of the financial burdens in support of shared security, political, and economic interests.
Such assistance consisted of grants and loans and of support for multilateral aid organizations. In 1990 Japan allocated US$6.9 billion of its aid budget to bilateral assistance and US$2.3 billion to multilateral agencies. Of the bilateral assistance, US$3.0 billion went for grants and US$3.9 billion for concessional loans.