Japanese Economic Woes May Limit Aid

SHANGHAI, China -- A dozen years ago, as the United States and its allies went to war in the Persian Gulf, Japan contributed about $14 billion toward the effort. This time, with its economy in the doldrums and its debts mounting, senior Japanese officials are now suggesting that the island nation cannot again afford to pay a large share.

"The government of Japan is suffering from a huge deficit; I am afraid that our ability to assist is rather limited," a spokesman for Japan's Foreign Affairs Ministry, Hatsuhisa Takashima, said in a statement.

But according to sources in the office of Japanese Prime Minister Junichiro Koizumi, President Bush already has been assured that Japan would make a significant contribution to the war effort, though not as large as during the 1991 war. Japan may shift funds in its Overseas Development Aid program to assist in Iraq's reconstruction and may also take on expanded responsibilities in Afghanistan to ease the burden on the United States, sources said.

The costs of the war in Iraq are likely to range from $8 billion to $10 billion per month, according to a March estimate by the Council on Foreign Relations. Programs aimed at distributing food, rebuilding the country and establishing a new government once the fighting ends could cost another $20 billion per year, the council said in a March report. Bush plans to tell congressional leaders that the war will cost about $80 billion.

Japan, the world's second-largest economy, was once precisely the sort of deep pocket that could be counted on to help cover those costs. For one thing, Japan is a solid U.S. ally. Even as France and Germany have criticized the Bush administration for pursuing military hostilities, Koizumi has remained a stalwart backer. Last week Koizumi said Japan's friendship with the United States was more important than whether the war had the approval of the United Nations Security Council.

For another, Japan has historically been one of the larger donor nations in the world, sending contingents to help with peacekeeping, refugee and public health problems around the globe. With virtually all of its oil supply imported, Japan is keenly interested in the Middle East and maintaining stable access to supplies there. In 1991, Japan funded its Gulf War contribution by imposing a special levy on taxpayers of about $90 for every citizen.

Today, Japan carries twice the national debt of 1991 in terms of the percentage of national output. Years of government efforts to stimulate the economy by building roads, bridges and rail links has taken Japan's public debt to 140 percent of its gross domestic product.

At the same time, the government is grappling with a banking system with as much as $1 trillion in bad loans, according to private economists, a situation long seen as a potential trigger for a financial crisis. Japan's financial regulators, along with a team from the International Monetary Fund, are auditing the books at Japan's larger financial institutions in a process that could leave the government looking at an expensive bailout of the worst-off banks.

All of which leaves Japan far less able than a dozen years ago to help with the costs of the war effort.

Japan has nominally pledged to help with humanitarian assistance to refugees and it has also promised financial assistance to countries bordering Iraq, but it has yet to attach any numbers to those promises. The government on Sunday announced a $100 million aid package for Jordan.

Japan is particularly eager to see the war and any reconstruction paid for using revenue from Iraq's own oil fields.