JAPAN'S ASSISTANCE TO PAKISTAN SHIFTING FROM

C O N F I D E N T I A L SECTION 01 OF 02 TOKYO 001009

SIPDIS

SIPDIS

STATE FOR S/P, EAP/J, EEB/ODF AND F
STATE PASS USAID/ODP FOR NICHOLSON

E.O. 12958: DECL: 04/09/2018
TAGS: PREL PGOV EAID PK JA
SUBJECT: JAPAN'S ASSISTANCE TO PAKISTAN SHIFTING FROM
GRANTS TO LOANS

REF: A. STATE 29860

B. TOKYO 5268

Classified By: Charge W. Michael Meserve for reasons 1.4 (b/d)


1. (SBU) Summary: The GOJ's initial estimates indicate
Japanese grant aid and technical assistance to Pakistan in FY
2007 declined from the 2006 total of JPY 7.7 billion ($75.7
million) in funding, according to an official in the Ministry
of Foreign Affairs (MOFA). Yen loan assistance, however,
more than doubled to JPY 479 billion ($4.7 billion),the
official said. While Japan cooperates with the U.S. in
building schools in the Federally Administered Tribal Areas
(FATA),most other aid is provided bilaterally. Although
Japan's fiscal situation could portend further declines in
grant aid, additional yen loans remain a distinct possibility
as long as Pakistan can convince the GOJ of its credit
worthiness. End Summary.


2. (SBU) Japan has high hopes Pakistan's newly elected
government will bring stability and economic growth to the
country, MOFA First Country Assistance Planning Division
Deputy Director Hitomi Sato told Econoff April 9. According
to a written summary on GOJ development efforts in Pakistan
provided econoff, Japan's goal is to contribute to help
consolidate peace and stability throughout Asia, and see
Pakistan as having a critical role in the fight against
terror. Japan's Country Assistance Program strategy,
formulated in 2006, focuses on three priorities: ensuring
human security and human development through education and
health programs; developing a sound market economy through
agricultural and infrastructure assistance; and achieving
more regionally balanced socio-economic development. Sato
said Japan reviews its Country Assistance Programs once every
five years.


3. (C) Sato stated exact figures for development assistance
for FY 2007 will not be available until July. She estimated
grants and technical assistance fell slightly from 2006
levels at which time Japan provided JPY 7.7 billion ($75.7
million) in funding. Yen loans, however, have more than
doubled to JPY 479 billion ($4.7 billion). Sato cautioned
that while Japan had pledged the full JPY 479 billion, the
GOJ did not actually disburse any of the funds in FY 2007.
She explained the Japanese government "quietly" withheld the
loans as a way to "encourage" the Musharraf government to
hold fair and democratic elections. "Maybe that helped," she
commented. Japan has not provided any debt relief to
Pakistan since the 1990s.


4. (SBU) The GOJ has a wide variety of programming in
Pakistan. Sato gave various examples as listed below (Note:
this list is not comprehensive).

Education
--------------
- Built eight schools in the FATA in cooperation with the
U.S. and another 35 schools are under construction. The GOJ
has given an additional $4.4 million in counterpart funding
to increase the total number to 65 schools.
- Provided a scholarship fund of $6 million to a program
initiated by USAID to allow 90 students to attend university
in Pakistan for 3 years. Sato noted 10 percent of this
funding is designated for students from the FATA, but none
have yet applied.
- Exchanged notes to provide $68 million in non-project grant
aid to purchase equipment for educational purposes in the
FATA. Sato was uncertain as to the kind of equipment this
was earmarked for, but stated some of the aid would be "tied"
to purchases from Japan.

Health Programs

TOKYO 00001009 002 OF 002


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- Provided grass roots funding of $59,000 to NGOs and local
governments for 18 projects related to drinking water,
sanitation, and first aid facilities.
- Provided vaccinations in the FATA through the UN Children's
Fund.
- Delivered food for a maternal health clinic through the
World Food Program.

Infrastructure
--------------
- Approved yen loans to build power plants, irrigation
systems, rural roads, and national highway 70.
- Gave grant aid to improve the Kararo-Wadh section of
national highway 25.

Technical Assistance and Capacity Building
--------------
- Provided vocational training at the Construction Machinery
Training Institute and the Pakistan Industrial Technical
Assistance Center through the Japan International Cooperation
Agency (JICA).
- In 2006, JICA received 4,539 Pakistani trainees in Japan
and dispatched 1,052 experts to Pakistan (2007 numbers not
yet available).


5. (SBU) With the exceptions noted above, Japan provides most
of assistance on a bilateral basis. Japan works closely with
the U.S. on certain projects, but does little with other
countries. Japan does participate in coordination meetings
among donors to Pakistan.

Comment
--------------

6. (SBU) Japan's grant aid dropped nearly 40 percent over
the last 11 years, though yen loans have steadily increased,
largely offsetting this decline. According to an OECD report
released April 7, Japan now ranks fifth in ODA disbursements,
down from third in 2006. While the Foreign Minister has
vowed to reverse this trend, it is unclear whether he will be
able to do so in light of Japan's difficult fiscal situation.
Consequently, Japan may not be able to increase its grant
aid or technical assistance commitments to Pakistan in the
foreseeable future. Nevertheless, additional concessional
lending my be a possibility if Pakistan's new government can
persuade Japanese officials of the country's
creditworthiness.
MESERVE