and YOSUKE NAITOStaff writers
Keizo Obuchi, the newly elected president of the ruling Liberal Democratic Party, is not expected to radically shake economic policymaking for better or for worse when he becomes prime minister next week.
More important is who will be named finance minister in Obuchi’s first Cabinet and whether Obuchi or the new finance chief takes the initiative on economic issues, a senior ministry official said.
Another senior official said the LDP must be united in tackling the daunting task of reviving the moribund economy and quickly resolving bad-loan problems in the banking sector. Who becomes prime minister matters less, the official added.
Some time is needed for specific policies to be formed by the new government, the officials said.
Obuchi basically inherits the economic policies of Prime Minister Ryutaro Hashimoto.
His position on a government plan aimed at resuscitating the nation’s financial system, for one, does not deviate from Hashimoto’s. The comprehensive plan includes a framework for creating “bridge banks” that would take over failed banks and extend loans to their sound borrowers.
Obuchi has pledged tax cuts worth 6 trillion yen during fiscal 1999, which starts next April. The cuts would include lowering the income tax rate for the highest income bracket, now at 65 percent, to 50 percent, and also reducing rates for medium income brackets.
Before the July 12 Upper House election, Hashimoto promised to reduce income tax rates but did not mention a specific rate or the total amount.
Obuchi says the pledged tax cuts would be financed by issuing deficit-covering bonds, adding that the fiscal austerity law should be frozen to get the economy out of recession. Freezing the law will inevitably increase the burden on future generations. But a senior official indicated that the nation may have to accept this “for the time being” to achieve urgently needed economic recovery. It is not intended to promote “reckless” fiscal policy, the official stressed.
Meanwhile, economists viewed Obuchi’s election as LDP president with an increasing sense of urgency. Masaru Takagi, a professor of economics at Meiji University, said,”Obviously, Mr. Obuchi is not familiar with economic issues.
“The point is, however, that he should waste no time in treating the ailing economy. I expect him to select the best person for the post of finance minister.”
Takagi expressed hope that with Obuchi’s plan for 6 trillion yen in permanent tax cuts and an additional 10 trillion yen supplementary budget, currently stagnating business conditions may rebound in September.
“So far, a total of 16 trillion yen has been pumped into the economy, and this will probably take effect this fall,” he said. “If Obuchi’s additional stimulus package fails to bear fruit, that would be the end of the Japanese economy.”
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