The ruling Liberal Democratic Party on March 26 proposed the nation's largest-ever economic stimulus package, worth at least 16 trillion yen.

LDP officials explained that the figure is equivalent to 3 percent of the nation's gross domestic product, which is roughly the gap between supply and demand in the economy.

According to a rough outline, the package calls for:

1) frontloading more than 80 percent of fiscal 1998 public works projects in the early part of the year;

2) injecting more public funds into the stock market;

3) and inviting corporations to engage in public works as project administrators rather than as contractors -- an idea known in Britain as PFI, or private finance initiative.

The plan lacks the big tax cuts that domestic businesses, politicians and the United States have been calling for, but says the party will "swiftly consider the desirable state of individual income taxation." The LPD was to seek final approval from its non-Cabinet allies -- the Social Democratic Party and New Party Sakigake -- in the evening.

Senior LDP lawmakers said that Prime Minister Ryutaro Hashimoto's government will formally accept the plan once the fiscal 1998 budget bills clear the House of Councilors in mid-April. They also said a supplementary budget will be immediately prepared to cover the outlays. The party is expected to come up with specifics by the end of April.

The frontloading of public works projects is considered a key pillar. The government is expected to give special attention to industrial sectors that show future promise in choosing the projects. Sectors being eyed include: housing, scientific research, health and welfare, environmental protection and telecommunications.

The LDP hopes to revise the Public Finance Law so construction bonds can be issued to finance projects in these fields. The outline also mentions the need to incorporate steps that would help Asian economies engulfed in liquidity crises.

As for income tax cuts, the party said it chose to forgo them for the time being because they would go against the government's fiscal reconsolidation pledge. It instead will look into ways of putting corporate and income taxation in line with rates used in other industrialized countries.

The package also was affected by the Fiscal Structural Reform Law, which was enacted late last year and is considered a barrier to some pump-priming measures like tax cuts because it stipulates the fiscal deficit must be shaved to no more than 3 percent of gross domestic product by fiscal 2003. It also states that the issuance of deficit-covering bonds must be reduced annually to zero by fiscal 2003.

Despite the reform law, many LDP lawmakers maintain that tax breaks are needed to boost domestic demand. LDP Secretary General Koichi Kato has indicated the law might be revised so the reconsolidation timetable is pushed back to fiscal 2005. But top officials, including Taku Yamasaki, chairman of the LDP policy affairs research council, remain concerned that this would doom fiscal reconsolidation efforts and hurt the nation in the long run.

Meanwhile, Vice Finance Minister Koji Tanami told an afternoon news conference that the government would "deal seriously" with the measures brought over by lawmakers. He also jumped into the tax-cut debate, stressing that he does not believe fiscal reconsolidation efforts can be cast aside so suddenly, and said there was still a strong consensus among various circles to reduce the fiscal deficit.

As for the opposition, Minyuren, the largest opposition parliamentary group, criticized the LDP package, saying it focuses on conventional public works projects that it says will not help revitalize the nation's stagnant economy. Minyuren also noted that the 16 trillion yen plan requires the compilation of a supplementary budget, and that would run counter to the government's refrain that the fiscal 1998 budget bills, which cleared the Lower House last week, best address the situation. Minyuren has been calling for the implementation of 6 trillion yen in tax cuts by revising the Fiscal Structural Reform Law.

Shoichiro Toyoda, chairman of the Japan Federation of Economic Organizations (Keidanren), which urged the LDP to include 5 trillion yen worth of additional tax cuts for this year in the stimulus package, nevertheless welcomed it. "The size of the package (16 trillion yen) is bigger than what had been expected, and I think that is good. It is a matter of mood," said Toyoda.

Concerning public works projects included in the package, Toyoda noted that the important thing will be what projects are chosen and requested that the government wisely invest in the future.