The announcement Wednesday of a fiscal 2000 supplementary budget, which is expected to surpass 10 trillion yen in total size and include 4 trillion yen in new government spending, has prompted some economists to wonder why a budget of that scale is needed now.
Although the economists share a view that some fiscal measures are necessary to ensure economic recovery, they questioned the size of the budget and the efficacy of various measures to be taken under it.
Masaru Takagi, a professor of economics at Meiji University, cast doubt on the government’s pledge to minimize the issuance of government bonds, saying that pumping nearly 4 trillion yen into the economy while repressing bond issuance is a “bold attempt.”
“Whether they call the bonds ‘construction bonds’ or ‘deficit-serving bonds’ does not make much difference,” Takagi said. “Additional issuance of government bonds may lead to a rise in long-term interest rates, which may undermine the momentum for a self-sustained economic recovery.”
The government plans to finance the supplementary budget through construction bond issues, the amount of which has yet to be specified, plus some 1 trillion yen in surplus funds from the fiscal 1999 budget and an increase in tax revenue from businesses that is expected as the economy recovers.
As to the surplus funds, more than 50 percent of the total must be used to redeem government bonds, but the government plans to submit a bill to revise that rule and tap the funds during an extra Diet session that begins today.
“Through these measures, Japan’s government bonds may further loose market confidence,” Takagi said. “The amount of direct spending should have been confined to around 1.5 trillion yen to avoid additional bond issuance.”
Earlier this month, the U.S. credit-rating agency Moody’s Investors Service lowered its rating on yen-denominated domestic securities issued or guaranteed by the Japanese government to Aa2 from Aa1, given Japan’s massive public-sector debt.
Other analysts questioned the efficacy of various economic policies expected to be taken under the extra budget, such as Prime Minister Yoshiro Mori’s national rehabilitation plans, which center on the promotion of information technology.
Akio Makabe, chief economist at Dai-Ichi Kangyo Research Institute, said although the government’s attempt to promote the IT revolution is a good step forward, the role that the government can play in this field is limited.
“Promotion of IT should be led by the private sector, as seen in the United States,” Makabe said. “In Japan, the government has spent as much as 120 trillion yen in public works projects to stimulate the economy, but that has not achieved dramatic results. That is why the government has come up with this idea.”
In addition, Makabe questioned the efficacy of distributing so-called IT coupons so the public can be subsidized to take computer lessons.
The idea has been proposed by some members of the government, including the chief of the Economic Planning Agency, Taichi Sakaiya, and Chief Cabinet Secretary Hidenao Nakagawa.
Similar concern is echoed by Peter Morgan, senior economist at HSBC Securities.
“I question how much of an impact this is going to have. My impression was that most IT spending occurs in the private sector,” Morgan said. “But it’s certainly better than paving more roads and building bridges.”
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