Japan on Tuesday distanced itself from British proposals to reduce debt and provide extra grant aid to help the world's poorest countries, arguing that loans are still useful as long-term development tools. "There has been discussions of reducing debt and providing more grant aid. But from our point of views, that debate is a bit simplistic," Finance Minister Sadakazu Tanigaki told Reuters in an interview.
"Japan has experiences of contributing to Asia's development by providing official development assistance (ODA). Rather than just expanding grant aid, we need to improve the quality of aid," he added.
Britain has been a strong advocate of writing off the debts of the poorest countries, but Tokyo, whose aid programme is still heavily focused on loans, has been reluctant to forgive debt.
It believes that extending credit will boost incentives for those countries to work harder to reform and repay debt. Writing off debt could also mean an extra burden on Japan's taxpayers.
"Our stance is a bit different. People talk about debt reduction. But we are the one who are lending the most," Tanigaki said.
Tanigaki said Japan believes that it should nurture an environment in which poor countries with strong policy performance can take on credit.
"That will help long-term development (of those countries)," he added.
Tanigaki also said it was difficult for Tokyo to back a proposal by British finance minister Gordon Brown to establish an International Finance Facility (IFF) to help poor states.
Brown has said the IFF would raise an extra $50 billion a year by issuing bonds using donors' long-term funding commitments as collateral - effectively securitising national aid budgets.
"Britain has been eager, but it will be hard for Japan to back the proposal," Tanigaki said.
For instance, it is difficult for Tokyo to make budgetary spending commitments for the next few years in advance due to its single-year budgetary planning procedure.
In addition, Tanigaki said frontloading aid through such a scheme would result in a huge drop in aid when the framework ends.
Regarding Tokyo's own proposal to help African nations, Tanigaki said it was too early to say how his counterparts will react the proposal at a meeting of Group of Seven (G7) industrial nations on Friday and Saturday.
Japan said last week it would propose to set up a special fund within the African Development Bank to promote areas such as assistance for smaller firms at the G7 meeting in London.
It said it would aim to pool $200 million over five years, of which Japan would contribute 20 percent.
Japan also called for an expansion of the Poverty Reduction and Growth Facility (PRGF) at the International Monetary Fund and to make PRGF loans interest-rate free.
To expand the PRGF, a loan facility for poorer nations, Japan proposed to use gold reserves held by the IMF, either by selling the reserves or reassessing their value.