Japan and the International Development Association (IDA). The World

Japan being a high developed and market-oriented economy is the third-largest economy in the world by nominal GDP and is the world’s second largest developed economy, Japan recovered from devastation to become the world’s second largest economy, All of this was only possible after Japan joined World bank in 1952. The help of World Bank allowed Japan to transform their economy and to become from a borrower of the world bank to a creditor to the World Bank. This transformation interested me and therefore selected this topic.

Origin And Nature

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The World Bank is an international financial institution that provides loans to countries of the world for capital programs. It comprises two institutions: the International Bank for Reconstruction and Development (IBRD), and the International Development Association (IDA). The World Bank is a component of the World Bank Group.

The World Bank’s stated official goal is the reduction of poverty,Its decisions must be guided by a commitment to the promotion of foreign investment and international trade and to the facilitation of capital investment.

The World Bank has expanded from the single institution that was created in 1944 to a group of five unique and cooperative institutional organizations. The first organization is the International Bank for Reconstruction and Development (IBRD) , an institution that provides debt financing to governments that are considered middle income. The second organization within The World Bank is the International Development Association (IDA), a group that gives interest-free loans to governments of poor countries.

The International Finance Corporation (IFC), the third organization, focuses on the private sector and provides developing countries with investment financing and financial advisory services. The fourth part of The World Bank is the Multilateral Investment Guarantee Agency (MIGA), an organization that promotes foreign direct investments in developing countries. The fifth and final organization is the International Centre for Settlement of Investment Disputes (ICSID), an entity that provides arbitration on international investment disputes.

World Bank consists of 189 member countries. Japan joined the World Bank in August 1952, the year after the signing of the San Francisco Peace Treaty. Starting in 1953, a number of projects were implemented in Japan with World Bank loans for the development of the nation’s economic foundation, such as electric power generation, basic industries development, transportation, water, and infrastructure.

Japan hosted the Annual Meetings of the World Bank Group and International Monetary Fund for the first time in 1964, a symbolic year that clearly showed Japan’s post-war reconstruction and return to the international community. In 1966, Japan signed its final World Bank loan, and graduated from borrower status in the following year.

Japan strengthened its status as a creditor in the 1970s, and became the second-largest shareholder of the World Bank in 1984, gaining a greater voice as one of the most important partners.

Literature Review

The world Bank, initiated informal discussions with Japan on membership in early 1950. Japan was still occupied, a peace treaty between Japan and the allied powers was under preparation, and Japan’s economy was being rebuilt. Inflation had finally been tamed with implementation of strong stabilization policies, reconstruction programs were under way, and exports and imports increased. Japan was gaining confidence in its capability to effectively manage its economy, thus feeling ready to regain full sovereignty, and was set to reintegrate internationally through membership of international organizations, such as the IMF and World Bank. In August 1951, a formal application letter signed by Prime Minister Shigeru Yoshida was transmitted to the IMF.2,3 With the peace treaty, Japan regained sovereignty on April 28, 1952, and the accession agreements with the IMF and the Bank were signed in August 1952. (Abe, Y., & Katsu, S. 2016)

2011 marks the 40th anniversary of the first public bond issue by the International Bank for Reconstruction and Development (the World Bank) in Japan. That issue, a eleven billion Japan Yen bond launched in June 1971, represented an important step in the evolution of the World Bank’s relationship with Japan. Japan became a member of the World Bank in 1952, and throughout the 1950s and 1960s, as Japan relied on capital inflows to rebuild from the devastation of World War II, the World Bank provided more than 850 million US dollars of loans to the country. In all, the World Bank made more than thirty loans to Japan during that time, funding important economic development projects throughout the country (Arima, Yoshiyuki; Bennett, Michael S.; Dore, Andrea. 2012.)

Among member nations of the World Bank Group, Japan occupies an exceptional position. Within the first 20 years of the Bank Group’s history Japan has emerged, at dramatic tempo, from the status of a war-damaged, still relatively underdeveloped economy, to that of a sophisticated modern economy at or near world leadership in some aspects of industrial technology and output, and expanding rapidly in the role of a major supplier of aid to the less developed countries. Against such a background, Japan’s current position as a leader among the group of about eighteen Bank member nations which provide the bulk of financial and technical assistance flowing to the less developed world and upon whose cooperation the World Bank must draw in pursuing its own tasks as an international development agency. Japan’s recent position as a substantial user of development assistance channeled through the World Bank into key sectors of the Japanese economy. Japan’s growth has given her a special role to play on the contributary side of international development and development financing. (World Bank. 1967)

The World Bank said advanced economies were showing signs of improvement, especially Japan and Europe, while the seven largest emerging markets – China, Brazil, Mexico, India, Indonesia, Turkey and Russia – were again helping to drive global growth. The bank boosted its 2017 growth forecast for Japan by 0.6 percentage point since January to 1.5 percent (Lawder,David.2017)

The World Bank predicts that the global economy will grow 3.1 percent this year, which would be its best showing in seven years. It foresees growth of 2.1 percent in the Eurozone and 1.3 percent in Japan.(Crutsingr,Martin.2018)

 

Current Situation

International trade contributes significantly to the Japanese economy, with exports equivalent to approximately 18 per cent of GDP in 2015. Key merchandise exports include vehicles, machinery and manufactured goods. In 2016, Japan’s major export destinations were the United States (20.2 per cent), China (17.7 per cent) and the Republic of Korea (7.2 per cent).

Japan has few natural resources and its agricultural sector remains heavily protected. Japan’s main imports include mineral fuels, machinery and food. In 2016, leading suppliers of goods imports were China (25.8 per cent), the United States (11.1 per cent) and Australia (5.0 per cent).  Recent trends in Japanese trade and foreign investment have reflected a much greater engagement with China, which overtook the United States as Japan’s largest merchandise trading partner in 2007.

The Japanese economy faces challenges over its energy policy, as well as external risks including weak economic conditions in Europe. To address these challenges, the Japanese government is encouraging firms to secure stable energy and commodity supplies through increased investment in overseas natural resources.

Economic reform and trade liberalisation will be important in helping Japan cope with these challenges by making its economy more open and flexible. Since his election to office in 2012, Prime Minister Shinzo Abe has pursued a reformist economic agenda, implementing fiscal and monetary expansion as well as elements of structural reform that could liberalise the Japanese economy. Although progress has been made in a number of sectors, including in agricultural reform, continued reform efforts will be needed to revitalise Japan’s business environment. The Bank of Japan introduced negative interest rates in February 2016 to encourage spending and investing. The IMF forecasts Japan’s economy to grow 0.8 per cent in 2017 and 0.5 per cent in 2018.

The rapid ageing of Japan’s population will reduce the size of the workforce and tax revenues, while placing increasing demands on health and welfare expenditure. Labour-market reforms, are being implemented to increase participation to counter this trend. In April 2014, the Japanese government took measures to increase tax revenues by raising the consumption tax from 5 per cent to 8 per cent. Plans to raise the rate to 10 per cent have now been postponed until 2019.

 

 

Lessons Learned

Projects were implemented in Japan with World Bank loans for the development of the nation’s economic foundation, such as electric power generation, basic industries development, transportation, water, and infrastructure, this allowed the Japan economy to grow and in 1966, Japan signed its final World Bank loan, and graduated from borrower statusJapan’s influence and voting rights in the World Bank and IMF and other multilateral development banks increased. Japan’s financial and policy positions become more prominent. Tokyo had assumed a leading role at the Asian Development Bank for a number of years. At the World Bank, Japan’s voting share represented about 9.4 percent, compared with 16.3 percent for the United States. Japan also made several “special” contributions to particular World Bank programs that raised its financial status but did not alter its voting position.