JBIC Goes Green

Amid the global financial crunch and regime change at home, the Japan Bank for International Cooperation is gearing up for a new mission: environmental investment.

JBIC became part of the world's largest bilateral donor after a series of reforms culminated in its 2008 merger with the Japan International Cooperation Agency. Now, the financial institution is at the heart of efforts to shape Asia's environmental future through an initiative called Leading Investment to Future Environment, or LIFE.

Talking to Devex on the sidelines of a Jan. 14 economic forum in Manila, JBIC President Hiroshi Watanabe said the two-year, $5 billion initiative fits the agenda of Japan's new ruling party, even as the state itself grapples with the effects of the economic slump. The Democratic Party of Japan swept into power in August 2009, ending a 54-year rule of the Liberal Democratic Party and promising to heal a sickly economy through fiscal reform and spending discipline.

Watanabe forecast continued support to Asia - already a recipient of two-thirds of JBIC's funding - as the agency targets investment in green power and energy, efficient urban transport, and sustainable water supply.

What are JBIC's investment targets this year, particularly in the Asian region?

Even though we don't have any geographical constraint - we have global operations - but since Japan is located in Asia, frankly speaking, more than the majority of operations has been done in the Asian region. So, that I think will be kept in the coming days. But there's no strict mandate, like we use 25 percent [for Association of Southeast Asian Nations member states], 25 percent for another region - such kind of restrictions.

But very naturally, the Japanese industries work in [and have a] very important share in Asian countries. So, we are going [to] support their operations in the region. So, that means still, [the] majority of operations is in the Asian region, not only the ASEAN, but South Asia and southwestern Asia.

What were the effects of the financial crisis on JBIC's operations?

Of course, up to now, Asian countries are still our very big customers. And since the financial crisis, in November 2008, we have started four initiatives, mainly what we've been discussing with our neighbors, with the ASEAN [countries], like more provisions for infrastructure investment and also more provisions for trade financing.

We first made contact with Asian countries on that. So even the outcome, as far as we see, more than the majority or more than two-thirds of our operations will be forecast in the Asian or ASEAN countries. It's a very natural situation. So, even though in the case of resource issues the Japanese companies might be going into Latin America or the developed countries, most of the operations still remain in Asia. So, that is very much reflected in our operations.

What sectors are top priority for JBIC?

Of course, this morning, I said we have been observing contracting of the financial flows in the region. So, there is going to be some lack in the investment, investment for trade financing and environmental preservation issues.

Of course, after [recent climate change talks in] Copenhagen, we didn't have any agreement at the time. But anyway, up to 2012, we have to make new the regime, or after 2013. In that case, we have to put more emphasis on environmental issues.

And also, the government has decided that they are going to give another mission to JBIC. So, JBIC should play a more important role in environmental preservation. So, they are now in the process of changing the law covering our service to that. So, it will be submitted sometime in February or March, and I hope it will be decided by May or April. And now, we have a new issue to work on - the environment - in the coming days. So, that will be one of the big forecasts.

We have started one initiative, LIFE, which is originally aimed at more provision for infrastructure investment. So, even in this program, we have some selection of the sectors which are more friendly to the ecology. This is why we called [it] LIFE: Leading Investment to Future Environment.

And then, we have chosen four categories: clean power generation, energy efficiency improvement, water, and urban transportation. These are very much important for the environment issues. So, even under the new mission, I think these four categories, probably with two additional [ones], will be the core of our operations.

What kinds of programs will be undertaken as part of the new initiative? Will there be tangible infrastructure projects or technical assistance?

Technical assistance will be included. But I think in the case of Japan, most of technical assistance is provided by the JICA, not JBIC. I think in the case of technical assistance, it [JICA] is very much suited for such kind of ODA [official development assistance] operations.

But in the case of financial market issues, the more sophisticated environmental issues - in that case, the JBIC will have some seminars or trainings. So, in that case, we can provide some kind of knowledge training contribution to that. But in the case of technical assistance, it's more the JICA.

What were the effects of the recent political change in Japan on JBIC's operations?

Even the new administration, under the Democrats, they have placed the emphasis on regional cooperation in Asia. And, also, the Democrats are putting a very high priority on the environment. So, I think that our operations are very much along the new policies.

I didn't see any big change from the LDP [Liberal Democratic Party] to the Democrats on our operations. So, I think we can continue our operations on that. So, maybe giving the new mission is another reflection of their confidence in our institution.

How is JBIC's budget amid this change in administration?

In the case of JBIC, we do not have any [government] budget support for our operations. In order to pay the wages, keeping our [headquarters] building, in that case, it should be financed by the [government] budget. But in case of [the] operation of trade financing, we have the fund in the market.

So, I think a reduction in the budget doesn't have any big change on our operations, even under the contracting budget situation … From 2001 to 2007, we have been operating at about $10 billion every year. But in 2008, we were asked to operate at $15 billion. In 2009, though, the fiscal year that will end on March 31st of this year, we were asked to operate on the range of $30 billion. So, from $10 billion to the $15 billion, to the $30 billion.

Maybe, in 2010, the market has a little bit improved. But still, we are going into much larger operations, even under the constraints of the budget. So, that means our budget is not directly influenced by the budget reduction.

What is your forecast on JBIC's 2010 budget?

Maybe less than $30 billion, but maybe… I'm not sure, we are still working on that. But already, the government, under the current budget, it's going to be $15 billion - [and] they are still thinking of putting in additional [money]. So, maybe less than $30 billion but more than $15 billion, that's my current understanding. But it should be decided sometime February or March, before the end of the fiscal year.

But anyway, the government has already decided to extend the emergency operations, [which started around] December 2008, January 2009. It's supposed to end March 31 of this year. The government said they are going to extend the period, but at the time, they didn't say how long they're going to extend. Maybe half a year or one year, but we will see.

So, the budget, I can say more than $15 [billion] but less than $30 [billion], but anyway, much, much higher than our ordinary budget of $10 billion.