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The government unveiled an 18 trillion yen economic stimulus package Thursday that it hopes will put the economy on a full recovery track in the second half of fiscal 2000.

The package is also designed to rework the country’s economic structure to attune it to the graying population and the age of digital communications.

The Economic Planning Agency says the pump-priming package should push up real gross domestic product by 1.6 percent in the coming year. But EPA Director General Taichi Sakaiya said he has a “hunch” the prop-up effect will be worth at least 2.5 percent, considering factors that cannot be technically calculated.

On the basis of recent economic trends and the package’s expected impact, the EPA the same day revised upward its economic growth forecast for fiscal 1999 to 0.6 percent from 0.5 percent.

The announcement comes at a time when the effects of the previous stimulus package are expected to taper off early next year and threaten the still-fragile economy. The economy grew for two consecutive quarters this year, but growth was largely supported by public spending, not private demand.

Excluding some 6 trillion yen in tax cuts, the 18 trillion yen package — the ninth since the burst of the economic bubble in 1991 — roughly matches the size of the preceding one announced last November.

Of that total, 6.5 trillion yen will come directly from central government coffers. This expenditure will be incorporated in an upcoming supplementary budget to be submitted to the Diet later this month.

Real fiscal spending by the central and local governments combined is expected to total around 9 trillion yen.

The overall size of the package was inflated from the initial plan of “more than 10 trillion yen,” that Prime Minister Keizo Obuchi ordered early last month.

The package also ended up including costs for what is widely seen as a political faux pas by the ruling bloc — 900 billion yen to cover the postponement of premium collections for the public nursing-care system, which debuts in April.

The package — including credit-guarantee plans that do not immediately require actual spending — consists of 6.8 trillion yen for social infrastructure, 7.4 trillion yen for financial support for small and midsize firms, 2 trillion yen for government housing loans, and 1 trillion yen for job-creation measures and safety nets for unemployment.

While many of the projects appear to be recycled from existing plans, more items have clearer numerical targets than in the past.

The package has two main objectives: stimulating the economy and reforming the economic structure. The pump-priming part features measures to revitalize small and midsize firms as well as public works.

For instance, the government credit-guarantee system for small and midsize firms will be expanded by 10 trillion yen and extended for a year until March 2001. Venture businesses will be encouraged by expanded government loans and support for fundraising.

The government expects these measures to help boost the number of newly launched businesses by 100,000 a year in five years.

The structural-reform part of the package is designed “to make the ongoing structural shift a fully fledged one from the age of standardized mass-production to the knowledge-based age,” the EPA’s Sakaiya said.

The government will help develop technologies to make the Internet 10,000 times faster and allow 30,000 times more computers to be connected by fiscal 2005.

All public schools will be connected to the Internet by the end of fiscal 2001, and so will all their classrooms by the end of fiscal 2005. The government will also build a basis for paperless administrative procedures for the private sector by the end of fiscal 2003.

The package meanwhile includes an unusual item: the government will ask the Bank of Japan to continue its flexible supply of funds, with close monitoring of financial and foreign exchange markets. This is in line with recent political pressure on the BOJ to conduct what some call a further monetary easing to help the economic recovery.
Liberal Party unhappy>
Chief Cabinet Secretary Mikio Aoki of the Liberal Democratic Party on Thursday issued a veiled threat over the government-proposed stimulus package by saying it would create serious problems if the Liberal Party, one of the three coalition partners, opposes the package.

Earlier in the day during a Cabinet meeting, the Liberal Party voiced opposition to incorporating some of the cost of a new public nursing-care scheme into the government’s 18 trillion yen pump-priming package, unveiled in the morning. The insurance system is to be launched in April.

Asked his opinion about the chances that the Liberal Party may oppose the second supplementary budget plan, Aoki said, “I acknowledge (the possibility) could be a serious problem.”

During the meeting on the economic package between the government and executives of the ruling parties, Liberal Party Secretary General Hirohisa Fujii said his party cannot agree to include 900 billion yen in the package for measures to lessen the public burden for the public care insurance system.

“We at the Liberal Party are against the package in terms of measures surrounding the public nursing-care insurance system for the elderly,” Fujii said. “We cannot very well agree with it.”

Fujii said he approves of the rest of the package, noting the government plan incorporates a great deal of the Liberal Party’s opinions. The party has maintained that the new public care system should be funded entirely by consumption tax revenues. But the government has recently decided it will delay the collection of insurance premiums, or reduce them, and cover the difference through bond issues.

Aoki said at a regular news conference that Fujii was trying to show the Liberal Party’s stance, but noted the government’s policy will remain unchanged.

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