The Middle East enjoys a privileged position when it comes to Japanese aid. Since 1966, the Middle East and North Africa have received more than Y1,197,416 million in soft loans from the Overseas Economic Co-operation Fund (OECF) - about 10 per cent of total lending.

Over the past 30 years, OECF money has spread around eight low income countries in the region: Egypt, Iran, Jordan, Syria, Turkey, Yemen, Morocco and Tunisia. Egypt and Turkey have been the two biggest recipients, accounting for 2.5 per cent and 2.1 per cent of total OECF funding respectively.

The OECF fiercely defends its independence and allocates funds strictly on the basis of economic need. 'Our criteria for dispensing loans is similar to the World Bank,' says Junichi Hasegawa, an OECF director. However, strong US pressure prompted the government in 1994 to step in and suspend assistance to Iran. The second $460 million tranche for the Godar-E-Landar dam project remains frozen, with little prospect of disbursement until there is a change in US policy towards Tehran. 'We understand that Iran is waiting for the second phase of the loan. We are considering it. There is no other answer I can give you,' says one foreign affairs ministry official delicately.

OECF policy is to identify and fund projects which bring the most benefit to the recipient economy. Annual interest rates on loans are set according to the income of the country, and range from a low of 1 per cent to a maximum of 5 per cent. The average interest rate charged is 2.6 per cent with most recipients opting either for repayment over 25 years with seven years grace, or 30 years with 10 years grace.

No preference

The loans are untied, and officials are sensitive to claims that preference is still given to Japanese firms and goods in the award of OECF-funded contracts. When pressed about the award of three separate OECF-funded power contracts to Mitsubishi Heavy Industries, Hasegawa is adamant about the absence of any links. 'I don't even receive a Christmas card from them,' he retorts.

Power projects make up nearly a third of all OECF commitments to the Middle East and Syria has done particularly well out of this financing. In 1986, funds were committed to the Banias power station expansion project; in June 1991 a Y51,600 million loan was provided for the Jandar power plant; and last year Y46,200 million was allocated for construction of the 600-MW Al-Zara thermal power plant. On completion of Al-Zara, the OECF will have funded the construction of 29 per cent of the Syrian power sector.

Jordan has also received strong support from the OECF. In the past 30 years, it has received 14 commitments worth Y175,625 million. In 1995, the OECF provided Y7,520 million to assist Amman's economic reform programme and in April this year Y10,813 million was committed for phase 2 of the Aqaba thermal power station expansion project. The project involves the supply of two-by-130-MW generating units and the upgrading of power transmission lines from Aqaba to Amman.

OECF loans to Turkey, which total Y347,100 million, have tended to fund large-scale infrastructure projects such as the Altinkaya hydroelectric power project and the second Bosporus bridge. This theme continued in September this year when the OECF provided a Y42,310 million towards the second phase of the Istanbul water supply project. Work includes the construction of an intake weir on the lower reaches of the Melen river and a 180-kilometre water pipeline to Istanbul.

Egypt can now again benefit from OECF largesse, after years of delay following the rescheduling of past loans. The first project likely to receive OECF funds will be a bridge over the Suez canal, a project much favoured by the government although critics believe it offers little direct benefit to the Egyptian economy.

Elsewhere, Japan has demonstrated its support for the Middle East peace process in financial terms by donating $100 million a year towards the World Bank co-ordinated development programme in Gaza and the West Bank. Japan is, with Saudi Arabia, the third biggest donor to the Palestinian development programme after the US and the EU. Says Akira Yamada at the Economic Co-operation Bureau of the Foreign Affairs Ministry: 'We want to encourage the peace process and one of the most important tools we have is aid.'