Japan Revises Foreign Aid Law, Aims to Attract Private Investment for Development Projects

Tokyo, LOGIC.co.id – The Japanese government has officially revised its Official Development Assistance (ODA) law to boost efficiency and encourage greater private sector involvement in development projects across developing countries.

The revision, which came into effect on Thursday (April 17), grants expanded authority to the Japan International Cooperation Agency (JICA), including the ability to purchase bonds and provide credit guarantees to support sustainable and environmentally friendly projects.

ODA as a Tool to Stimulate Private Investment

This major policy shift in Japan’s ODA strategy comes in response to limited government budget capacity amidst growing global development demands. Under the new framework, JICA is now able to:

• Assist in bond issuance by companies in developing countries,
• Purchase bonds at early stages to attract private investors,
• Offer credit guarantees to local banks to channel funding into small businesses and key sectors.

This move signals Japan’s new strategy to transform ODA into a catalyst for private investment, particularly in sustainable development projects and efforts to address global challenges such as:

• Climate change
• Poverty
• Human rights

Fiscal Pressures Push for More Efficient ODA

According to government data, Asia’s current economic landscape is under fiscal strain, with public debt in the region surpassing twice its total gross domestic product (GDP).

Japan’s ODA budget has also declined significantly—from its peak in 1997 to ¥566.4 billion (approximately IDR 67 trillion) for the 2025 fiscal year. As a result, a more flexible and strategic approach to ODA spending is deemed essential.

Greater Flexibility for JICA

Under the revised law, JICA is granted greater financial management flexibility. The agency is now allowed to:

• Take out long-term loans from international financial institutions,
• Reclaim funds from canceled grant projects,
• Redirect unused funds to more targeted assistance programs.

As of March 2024, a total of ¥156.1 billion in allocated ODA funds remained unpaid due to several factors, including:

• Political instability in recipient countries,
• The impact of the COVID-19 pandemic,
• Natural disasters, and other administrative obstacles.

ODA as a Strategic Diplomatic Instrument

The Japanese government refers to ODA as its “most important diplomatic tool,” especially in promoting a free and open Indo-Pacific region. It also serves as a counterbalance to China’s growing economic and military influence.

With a new focus on closer collaboration between the public and private sectors, Japan hopes its ODA program can become a driving force for inclusive and sustainable development in the years ahead.