India will replace economically booming China as the top recipient of Japanese soft loans for the first time due to its widespread poverty and importance to regional stability, a Japanese official said on Thursday.
Japan's low-interest yen loans to China are likely to have been cut by 20 per cent from a year ago to 96.7 billion yen ($871.2 million) on a commitment basis for the year to March 31, the government official said.
The sum, the lowest in 14 years and less than half the peak level of 214.3 billion yen three years ago, would demote China to the third largest yen loan recipient, after about 120 billion yen for India and 104.6 billion yen for Indonesia.
Aid amounts determined in a given budget year are in fact delivered in subsequent years.
Japan had decided to start cutting back Official Development Assistance to China in 2001, given a public outcry about continuing massive aid to China and Japan's own fiscal deficits, the official explained.
But he stressed it was "totally wrong to think the re-allocation (of loans) is taking place because China's strategic importance for Japan fell while that of India surged."
"China's importance for Japan has not changed or will not change," he said.
The official, who spoke on condition of anonymity, admitted it was "true that there is strong downward pressure" on loans to China as some parliamentarians argue Japan does not have to help such a growing economy as China which spends huge amounts on its military.
"We should get understanding from taxpayers and parliamentarians who represent taxpayers' voices" in extending loans to China, he said.
He added the government was gradually winning the public's recognition that Japan is now shifting a Chinese-aid focus away from huge dams and other infrastructure projects to smaller programmes aimed at environmental protection, infectious disease prevention and human resources development.
The official said Japanese loans to India would increase by some 8 per cent year on year, given 36 per cent of people in the world living on less than $1 per day are in India.
"India is also lagging behind in attracting foreign investment due to a great lack of infrastructure," he said, calling it a "bottleneck" when it comes to luring foreign companies.
He argued Japan needed to help India build more roads, power generation facilities and other infrastructure for its economic development as it would contribute to the stability of South Asia.
The official warned nuclear tests by India could affect Japanese aid.
"If there is a major setback in their nuclear non-proliferation efforts, we must consider how to cope with it," he said without elaborating.
Japan temporarily halted loans to India in 1999 after India conducted a nuclear weapons test in May 1998, triggering a tit-for-tat test by archrival Pakistan.
In contrast to India, "China is boasting great infrastructure at least in coastal areas," he said. "We are quite proud about having contributed to it."
The official noted China had a good record of repayment.
"If I were president of Mizuho, it would be troublesome that the number of good borrowers decreases," he said referring to Japanese banking giant Mizuho Financial Group.
"But as a government we are happy to see other countries 'graduating' (from being a borrower) and becoming great," he said.
The official acknowledged "China must have felt perplexed" when Japan made the policy change.
China has since then come to understand Japan's focus shift in aid, he said.
- AFP
