Environmental soft loan program in Asian countries: industrial pollution control or mal-use of foreign aid resources?

Abstract

Several Asian countries have tried to establish environmental soft loan program as a measure for industrial pollution control, with financial and technical assistances from Asian Development Bank, Germany and Japan. However, the program may contradict with OECD's Polluter Pays Principle and may result in inefficient allocation of foreign aid, and may disturb financial market development. This article examines conditions and contexts in which environmental soft loan program can be justified from theoretical arguments and a case study of Japan. Then, it tries to clarify how the recipient countries satisfied the above conditions and contexts through comparative analysis of the program in Indonesia, Thailand, China, the Philippines and Sri Lanka. The author documents that the required conditions and contexts are so severe that only the Philippines could satisfy them, mainly due to mission, impartiality and competency of the Development Bank of the Philippines, as well as availability of environmental technologies and competent consultants.