Japan provides US$185m development loan to Sri Lanka

[TamilNet, Thursday, 02 March 2006, 11:58 GMT]
Japanese Government Thursday announced a new package of loan of US$185 million (Yen 21,560m) for three projects, Galle Port Development (US$125m)), Infrastructure Development of Eastern Province (US$38m), and Tourism Resources Improvement (US$22m). This 37th yen brings the total loan provided by Japan to Sri Lanka in the last 14 months to $370m.

Full text of the press briefing held by the Japanese Ambassador, Mr. Akio Suda, follows:

Yesterday, I informed the Government of Sri Lanka that the Japanese Government had decided to provide Sri Lanka with a new package of the yen loan (to be lent by JBIC) amounting to \ 21,560 million for three projects. On this occasion of announcing another package of the yen loan, I would like to say a few words on Japan’s economic assistance in relation to the socio-economic development and the peace process of Sri Lanka. Japan, as the largest donor for development on the one hand and one of the co-chairs of the Tokyo Conference on the other, is especially concerned with both development and peace in Sri Lanka, and may be in a good position to discuss what is needed to achieve development together with the peace of this country.

The gravity of Japan’s Official Development Assistance in Sri Lanka:

The new package is the 37th yen loan package counting from the first yen loan provided in 1965. The loan this time is to finance three important projects for development of the country; namely, Galle Port Development (\14,500 million), Infrastructure Development of Eastern Province (\4,460 million), and Tourism Resources Improvement (\2,600 million).

Since January, 2005 only, the Japanese Government has already provided Sri Lanka with \ 8,000 million grant aid and \10,000 million yen loan for the purpose of tsunami relief and reconstruction. Besides, Japan is also extending grant aid as well as technical assistance to many non-tsunami projects. As a whole, the total financial and technical assistance that the Japanese Government has provided or pledged in the last fourteen months for development projects as well as tsunami relief amounts to around \42,000 million (US$370 million).

Japan is the single largest donor to Sri Lanka in terms of the total amount of assistance since 1986, and Sri Lanka is one of the largest recipients of per head assistance from Japan in the world. Japan has been extending financial and technical assistance towards socio-economic development of the island since the 1970’s.

In the sector of port and aviation, it provided \78,200 million for a series of projects of construction and expansion of the Colombo Port, which now functions as the mother-port of the whole Sri Lankan economy. Japan has financed the renovation and expansion of the Bandaranaike International Airport, which now provides a high level of services for international cargoes and passengers. And yesterday, another significant port project of Galle was pledged.

In land transportation, Japan assisted in building the Baseline Road in Colombo and local roads and bridges in many provinces. Now the Southern Highway, which is co-financed with ADB, is under construction. In the power sector, Samanalawewa Hydropower, Kukule Ganga Hydropower, Kelanitissa Power Plant, Upper Kotmale Hydropower, Colombo City Electricity Distribution, and most recently, Vavuniya-Kilinochchi Transmission are, among others, all built or being built by Japan’s official development assistance. In rural and agricultural development, Mahaweli Development, Walawe Leftbank Irrigation, and SMILE, SIRUP and PEACE projects are among Japan funded projects. In the health and medical sector, Sri Jayewardenepura Hospital, Peradeniya Teaching Hospital were built by Japan’s grant aid and numerous other hospitals and medical facilities all over the country received grant aid and technical cooperation.

Our financial and technical assistance covers many other areas such as telecommunication, water supply, education, industrial estates, small and medium industries, plantation, urban environment, etc. In a word, Japan has been extensively involved in most areas essential to socio-economic development in Sri Lanka .JICA (technical assistance) and JBIC (financial assistance) have been working on all these projects as implementing agencies of Japan’s official development aid.

Japan’s assistance and development of Sri Lanka:

The Government of Japan highly appreciates the development potential of Sri Lanka and also believes in the capability of the Sri Lankan Government and people of effectively carrying out the development. In many projects and sectors, Sri Lanka has quite effectively utilized Japan’s assistance for furtherance of development on its own feet. Besides various big projects which were mentioned above, officials, volunteers, villagers and other people prove to be good undertakers of assistance projects in many sectors like health and medical care, rural and agricultural development, water supply, education, telecommunication, information technology, etc. The Japanese Government, JICA and JBIC are happy to be able to work with those Sri Lankan people who truly appreciate our assistance and try to make full use of it for the benefit of the people and the country.

However, I should also point out some difficulties or questions that the Japanese Government, JICA and JBIC face from time to time in carrying out their large volume of assistance in this country. They include (1) frequent change of plan and delay of implementation of important development projects, (2) prolonged delay of important reform, and (3) question of financial position in the future. We are certainly very much concerned with peace-building as well, but that I will discuss later.

Sri Lanka has lost many years in its development process by frequently reviewing and changing once-decided plans of important development projects, in particular, infrastructure projects. It took fourteen years to start actual work on the Upper Kotmale Hydropower Project since the first plan was designed in 1991. The plan of a coal power plant in Norochcholai was designed by the Japanese fund in 1994 but is yet to be realized. Several basic highway projects are still dragging on. I am not saying that you should not spend enough time to study a plan carefully and objectively with the participation of various groups concerned before formally making a responsible decision on the plan. But once it is approved through due procedures, it is to the benefit of the whole country and the people to efficiently implement and to complete a project on schedule. Otherwise, it would cause increment of opportunity cost which would be additional burden on the country and the people. There may be exceptional cases where serious environmental or other problems are discovered afterwards. But exceptional cases should be really exceptional. Otherwise there is something wrong in the whole system of decision-making, which may be too susceptible to occasional intervention.

Another problem that hinders the efficient development of the country is delay of reforms of institutions, either organizational or social. Sri Lanka has many valuable institutions and traditions that you should not lose or easily change. But there are various issues of important reforms which have been discussed for a long time and are believed by majority of people to be absolutely necessary. For instance, most people accept the necessity of structural reform of the CEB, if not privatization, to make this vital public enterprise more efficient and competitive. Japan, along with the ADB, pledged \7.4 billion financial support for the reform of the CEB three years ago. Only half of this JBIC fund was utilized before March, 2005, the expiry date of the loan agreement, because the Government has never reached a final decision on actual reform while the power sector is accumulating big losses every day. JBIC twice extended the expiry date up to December, 2005, hoping that a decision would be made on viable reform by that time. It decided, however, not to extend the expiry date beyond that. The CEB case is just an example. By delaying necessary reforms and decisions for long, the country loses chances and time in its challenge of growth and development.

My third concern is about the recent increase of the financial deficit of the Government. The budget deficit widened from around Rs.150 billion to Rs.200 billion in 2005 and is reported to go up to Rs.250 billion in 2006. We understand some difficulty of suppressing growing expenditure against the hike of oil prices and the tsunami damage. We can appreciate the eagerness of the Government to undertake various infrastructure projects for further development. It is also true that the foreign debt service ratio remains at a sound level of around 10%. So, maybe we need not worry too much about the financial situation in a long term.

However, the future of the financial position largely depends on the growth of the whole economy, efficient revenue system, and rational expenditure policy. To realize a high level of economic growth, you need substantial improvement of infrastructure, electricity and transportation in particular, and you need further development of human resources, practical education in particular. To enhance the revenue system and to rationalize expenditure, you need to carry on various reforms. Thus, development, reform and the financial position are all inter-related and the Japanese Government is concerned with them together.

Japan’s assistance and the peace process:

Last week the Sri Lankan Government and the LTTE had a successful round of talks on the CFA in Geneva. Japan, together with the other co-chairs, has supported and encouraged both parties to have constructive talks and looks forwards to both parties making further progress through continuous meetings. Now I believe that it is useful and timely to explain Japan’s assistance for development and reconstruction in relation to the peace process.

Japan hosted the Tokyo Conference on Reconstruction and Development of Sri Lanka in June, 2003 in order to encourage the peace process of Sri Lanka. For that purpose, the Tokyo Conference made a pledge of assistance of the international community amounting to US$ 4.5 billion over four years. Though this pledge is not being fully implemented because of little progress made in the peace process, still Japan, for instance, is extending a substantial amount of assistance for development and reconstruction since 2003 up to today. The total amount counts roughly \110 billion (nearly US$ one billion), including Tsunami related assistance and the new yen loan package announced yesterday.

This means that even in the latest years when the peace process stalled, Japan continuously provided a large scale of development assistance to Sri Lanka, because we knew that a need to develop the whole country never ceased. In the same period, Japan continued also to assist humanitarian and rehabilitation projects in war affected areas in the North and East, because we believed that actual rehabilitation and improvement of socio-economic life of those who suffered would be one of the best advocates of the peace process.

We highly appreciate the consistent policy of the Sri Lankan Government to eagerly promote reconstruction works in the North and East. Responding to requests of the Government, Japan has assisted several projects like reconstruction of the Killinochchi Hospital, vocational training, livelihood enhancement, etc. Japan is by far the largest financial supporter of landmine clearance since 2003 and so far a sum of one billion yen has been granted to various demining activities in Sri Lanka. Further, more than half of the tsunami grant aid went to rehabilitation and reconstruction projects in the North and East, including the LTTE controlled areas.

Now, in order to accelerate reconstruction in the North and East, Japan is to provide assistance to new significant projects. They include “renovation and expansion of the Jaffna Teaching Hospital”, “reconstruction of the Mannar Bridge”, “development of coastal roads and other facilities in the Eastern Province”. All these reconstruction works will, I hope, help confidence-building and the peace process. At the same time, enhanced observance of the ceasefire and improved confidence can help speedy implementation of reconstruction works. The thing that matters is not how much money or funds are committed, but rather how much and how usefully actual projects are implemented. A good example is the Japan’s tsunami grant aid of eight billion yen. In only the fourteen months after the tsunami, almost 100% of this grant has been used or contracted to be transformed to real schools, causeways, bridges, houses, renewed harbors, fishing boats, etc. throughout coastal areas in the South, East and North. It was all done through intensive regular consultation between my Embassy and the Sri Lankan Government. Why cannot we do the same thing to rehabilitate and reconstruct the war damaged areas including those controlled by the LTTE? I am confident that we can do that in a short time if the ceasefire prevails and if all the parties approach in a more practical way rather than tirelessly arguing formula or conditions.

Closing remarks:

The Japanese Government is ready to continue its development assistance to Sri Lanka and even to accelerate rehabilitation and reconstruction assistance to the North and East. It depends, however, on (1) whether you can carry on a consistent development policy, necessary reform, and sound financial management, and (2) whether the Government, the LTTE and all other parties can work closer to realize the non-violent process of peace. A violence free Sri Lanka will invite more development assistance and investment from all over the world, strengthen the financial position of the country and activate further reconstruction in the North and East. Development and peace-building have to go hand in hand, and the Japanese Government remains mostly willing to support both.


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