Financial Times

Sri Lanka more developed than India, Pakistan-JBIC

Japan is playing a crucial role in Sri Lanka's peace process, hosting a special donor summit last year and trying to get the peace talks back on track. Shinya Ejima, Chief Representative of the Japan Bank for International Cooperation (JBIC) office in Colombo, talks to The Sunday Times FT about the role of his organisation and other aspects of Japanese support. The newspaper was also, for the first time, able to pin down the difference in new assistance and the normal flow of aid that comes into the country on an annual basis. In the Japanese case, the amount of new aid to Sri Lanka (pledged at the Tokyo meeting for the next three years) is some $250 million out of $1 billion.

Excerpts of the interview:

We are limited to two operations - Overseas Development Assistance (ODA) and handling soft loans like the World Bank and ADB.

We also help and support Japanese companies who want invest here. JBIC was established four years ago as a merger of two organisations - Exim Bank of Japan and the Overseas Economic Cooperation Fund (OECF). Exim handled the private sector while OECF handled ODA.

This office is mainly handling ODA - government-to-government business. The level of Japanese private sector investments here is not that much (in recent times). We are promoting investments after the ceasefire but not many companies have expressed an interest in investing here.

There is a Sri Lanka-Japan Chamber of Commerce but the number of members has not expanded.

Has there been any development after the Tokyo donor meeting and any increase in private investment?

The Japanese don't find any particular reason to invest here because China is a more favoured place and is the dominant market for the Japanese investor. After China there are many other countries that the Japanese are interesting in investing.

One of the possibilities we are promoting is for Japanese companies to look at the huge market potential in India due to the Free Trade Agreement between India and Sri Lanka. If Japanese firms can export to India without any tax, that is an advantage. As far as a market in Sri Lanka is concerned, the population is too small.

Some months back, two PR consultants came from Japan to look at the issue of whether people here were aware of the extensive level of Japanese aid similarly to the reception that other donors from the west get?

ODA funds have been cut for five consecutive years and this trend is going on. The primary reason is that the Japanese economy has been shrinking in the last decade. Maybe this year looks to be a recovery year. The budget constraint is a big issue and ODA is one of the targets to be squeezed. There is a need to explain why aid is being provided in spite of these constraints

The other reason is the public awareness or the perception. The Japanese public does not fully understand how public money is spent overseas and whether it is welcomed by the recipient countries and its people. There is a view that the reception from the recipient country is less than expected. However the reception for Japanese ODA here is much better than some other countries (which Japan funds).

The general public here has a better understanding of Japan and what it does here.

What has JBIC being doing since the last Tokyo donor meeting and is there a collaborative exercise with the World Bank?

Japan made a pledge of $1 billion in Tokyo over three years. A majority of that money comes through JBIC as a soft loan. Our fiscal year starts from April to March 2004 with next month being the end of fiscal year 2003-04. Also remember the $1 billion is for the entire country - not only for the north and east.

Frankly speaking the development needs, other than the north and east, are also very large. This year we are going to finance projects in the whole country - not infrastructure in one particular area. It would be many infrastructure, power projects etc to create medium and small micro scale industries. These funds are available in any district.

How much has been utilised since last June?

Roughly 20 billion Japanese Yen (about $200 million) and much of it in ongoing projects. We are working hard with executing agencies and line ministries here to accelerate the implementation of these projects.

In what sectors?

The biggest sector is power, transportation including roads and port development and also rural development and water supply. This money utilisation has been from last April to now. Our target in the year to March 2004 is $240 million.

A recent JBIC delegation arrived to discuss cooperation with the World Bank. Any comment?

The World Bank, ADB and JBIC cover 80 percent or more of the official inflows to Sri Lanka.

The three parties also cover various infrastructure projects. We felt it was reasonable and practical to coordinate more closely between these three organisations to avoid duplication. Hence we agreed to have this kind of close coordination.

The World Bank is involved in the Poverty Reduction Support Credit (PRSC). We have been asked by the Sri Lankan government to participate in the PRSC. We have not taken a decision as yet as we are still studying the programme.

The PRSC programme is on hold because of elections and a possible new government. Any comments?

We will also wait for the new government because if the government changes the PRSC may be modified. However as far as other infrastructure projects are concerned I don't see any of it being affected by the elections.

Has there been any slowdown in projects funded by the Japanese after parliament was dissolved?

So far there is little impact. I don't see any serious effect.

Would the $1 billion be disbursed over a three-year period?

No --- this is a commitment. Normally a JBIC project takes three to four years to complete. Over three years means fiscal year 2003, 2004 and 2005 ending in March 2006. If we commit some money in March 2006, the disbursement would take two to three years which is normal.

The government says donor aid has got stalled due to the suspension of the peace talks and the political crisis in the south. Any comment?

At the Tokyo meeting, all the donors agreed to work on immediate and humanitarian aid regardless of the peace talks. But larger scale reconstruction and rehabilitation is subject to progress in the peace talks.

We are yet to set aside any monies from the $1 billion for the north and the east. It depends on the project.

We have not identified any large-scale project in the northeast as we need time to study potential projects.

It may be difficult to commit to a large-scale infrastructure project in the northeast within the 3-year period because some time is required to prepare. But we would still be working with the government after 2006 or 2007.

Some European donors were not active in this country before the ceasefire because Sri Lanka is relatively a developed country compared to India or Pakistan. These European donors came back immediately after the ceasefire only to take care of northeast needs. That is different from World Bank, ADB or JBIC which works all over the country.

How much of the $1 billion is for new projects and not ongoing ones?

This money is only for new commitments. Money for ongoing projects was already committed earlier.

So the $240 million that would be spent in the year to March 2004 would be old pledges and is not part of the $1 billion?

That is correct.

What about the year to March 2005?

It is the same coming from earlier pledges.

On the Tokyo aid commitment, there is a school of thought that this $4.5 billion is nothing new and would have been annually pledged even without a special meeting. Any comment?

I am sure there are additional amounts.

Okay, take Japan for instance. What would be the annual commitment from Japan to Sri Lanka?

Annually Japan provides roughly $200 to $250 million. This works out to $750 million (over three years), which means the additional new amount is $250 million. Also our government doesn't make multi pledges. This is one of the rare occasions when the government has made a three-year pledge. There was a big debate over this but this was considered a special case to support reconstruction efforts. In the Iraq case too we made a multi pledge.

What about the political crisis and the impact on aid flows?

In some countries, the politicians are not good. But in this country, the politicians have a strong interest in the government and economic policy. Thus for investors it is (only) wait and see until a new government emerges.

The government is promoting foreign direct investment. This is one of the pillars of their policy. But nobody knows what would happen after a new government takes over. In such a case we expect a renegotiation of aid with a new government.

Do you see the coordination efforts of World Bank, ADB and JBIC continuing in the future?

Yes.

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