Emergency fiscal stimulus measures would help boost the economy, but a comprehensive approach with deregulatory and bank-strengthening steps holds the key to recovery, the top economist at the Organization for Economic Cooperation and Development said April 20.
Ignazio Visco, head of the OECD’s Economics Department, said in Tokyo that an extra stimulus package worth about 2 percent of Japan’s gross domestic product would boost growth by around 1 percentage point in both 1998 and 1999.
Tokyo currently plans to draw up by the end of the week a pump-priming package worth 16 trillion yen that would include about 10 trillion yen in so-called real water measures involving fiscal spending to boost demand.
Prime Minister Ryutaro Hashimoto has said he will add another 2 trillion yen in income and resident tax cuts for the current calendar year, with another 2 trillion yen in tax cuts to be returned next year. “The magnitude (of the planned stimulus measures) is proper,” Visco said, adding that he hopes the composition of the package, such as its public works spending, is well-targeted and that the tax cuts go to consumers and companies in a form that will increase their propensity to spend.
The economist said that while he does not view Japan as being on the brink of recession, “it is on the brink of needed transformation.” He cited the need for the government to take proper steps to restore confidence in the banking sector, such as recapitalization and consolidation, and called for more legal and supervisory reforms to be taken.
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