Wed, Oct 05, 2005 - Page 8 News List

'Dollar diplomacy' must be tweaked

By Tsai Zheng-jia 蔡增家

During his visit to Central America, President Chen Shui-bian (陳水扁) announced the "Jung Pang Project," pledging investment worth NT$7.5 billion (roughly US$250 million) to assist the nation's diplomatic allies in the region with their development. Whether or not this project is a repeat of dollar diplomacy or genuinely aims to assist our allies with their economic development has become a bone of contention.

In fact, to formulate an economic assistance project, a donor country not only has to consider its foreign policies, but also has to integrate such a project into its foreign trade and enterprise investment strategies. In this case, we may use the following key elements employed by Japan's Official Development Assistance (ODA) project to review the current economic assistance policy that the government has adopted.

First, economic assistance should not just focus on the monetary dimension. The content of Japan's ODA project includes a combination of grants, loans and technical expertise. Besides, with Japan's assistance, recipient countries have no obligation to repay the financial aid and goods or materials they have received from Tokyo.

Second, economic assistance should proceed according to the needs of domestic industries. Looking at the details of Japan's ODA project, we have noticed that such a project is usually integrated into Japanese enterprises' overseas investment projects. For instance, for underdeveloped nations with low inbound investment such as African countries and Afghanistan, Japan mostly provides goods and funds.

For developing nations with low inbound investment such as nations in the Middle East and West Asia, the Japanese government provides direct loans rather than gratuitous financial support. As to nations with high inbound investment such as Southeast Asian countries and China, the Japanese government would introduce technical cooperation to these countries so that Japanese enterprises can gain easy access to these nations' markets.

Third, economic assistance should adapt to diplomatic strategy, overall national development and the interests of corporations. When the relationship between Japan and the recipient nation becomes strained, the Japanese government will reduce the amount of the financial aid it offers.

For instance, as a result of the 1989 student-led protests in Tiananmen Square and the announcement of new guidelines for the US-Japan Security Treaty in 1995, the Japanese government provided China with much less financial aid. Besides, we have also found that the more investment Japan makes in a nation, the more non-gratuitous loans and technical support the Japanese will provide, and the less gratuitous funds. This is an approach that Japan has adopted in dealing with Southeast Asian nations since 1980.

Last, the formulation and implementation of economic assistance projects should be institutionalized. In Japan, the government agency in charge of coordinating economic assistance is the Ministry of Foreign Affairs (MOFA). Thus, when the MOFA is planning the budget for financial aid, it has to negotiate with the Ministry of Economy, Trade Industry and Finance and jointly collaborate on affairs relating to outbound investment, financial planning and economic development.

In the past, to cement diplomatic ties with our allies, the allotment of financial aid to our allies has been conducted under the table and regarded as top secret. Since such an aid program lacks detailed planning, the government has been unable to integrate its foreign trade strategy with the investment strategy of private-sector enterprises. This has allowed politicians in recipient nations to pocket public funds they have received from us.

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