The Cabinet on Sunday approved an 82.65 trillion yen general-account budget for fiscal 2001 that is aimed at ensuring the nation's recovery from the prolonged economic slump.

The budget package will also ensure that the national debt rises to 666 trillion yen.

The budget, virtually unchanged from the draft the Finance Ministry proposed Wednesday, is 2.7 percent smaller than the initial fiscal 2000 figure of 84.99 trillion yen and the first in six years that is lower than the previous year's.

General expenditures, which cover outlays for discretionary policy measures such as public works and social security programs, come to 48.66 trillion yen, up 1.2 percent from the initial budget for fiscal 2000.

The fiscal 2001 budget, which covers the year beginning April 1, is designed to provide continued support to the economy through spending in necessary areas, though full-scale fiscal stimulus has been restrained and new government bond issues have been scaled back.

Nevertheless, the latest budget will push the combined long-term liabilities of the central and local governments to 666 trillion yen -- 128.5 percent of the nation's gross domestic product -- by the end of March 2002.

Chief Cabinet Secretary Yasuo Fukuda confirmed during a press conference after the Cabinet meeting that the government will continue to place priority on economic recovery over fiscal reconsolidation for the time being.

At a separate press conference, Finance Minister Kiichi Miyazawa reiterated that he is confident the latest budget will help achieve a self-sustaining economic recovery.

While acknowledging that a slowdown in the U.S. recovery may adversely affect the course of the Japanese economy, Miyazawa said, "The conditions surrounding Japan may worsen a little bit, but I believe the Japanese economy's move to get out of recession will solidify."

The budget is to be submitted to an ordinary Diet session that begins next month. Based on the budget, the government will try to achieve real-term 1.7 percent GDP growth in fiscal 2001.

The latest budget incorporates a record-high 98.5 trillion yen in bonds in fiscal 2001, including 28.32 trillion yen in new government bond issues, 10 trillion yen for the "zaito" fiscal investment and loan program and 60 trillion yen for refunding bonds.

The new 28 trillion yen bond issuance falls below 30 trillion yen for the first time in three years on an initial budget basis. The reduction can be attributed to a fiscal 2001 allocation of 4.5 trillion yen to stabilize the financial system that is not being repeated.

The dependency rate on government bonds will be 34.3 percent of total revenues, falling from 38.4 percent in the initial fiscal 2000 budget.

The Finance Ministry estimates revenues of 50.73 trillion yen from taxes and 3.6 trillion yen from nontax earnings. It is the first time in three years that tax revenue is expected to top 50 trillion yen on an initial-budget basis.

Other expenditures include 16.82 trillion yen in local tax grants and 17.17 trillion yen in debt-servicing costs.

The budget allocates 600 billion yen for spending related to information technology -- the main focus of Prime Minister Yoshiro Mori's national revitalization plan, which features measures to deal with IT, urban development, environment and the graying society.

Total spending for public works projects stands at a record-high 9.44 trillion yen, exceeding figures in previous initial budgets for the third consecutive year.

Although the government touted its decision to scrap 272 mostly dormant projects as a move to save 2.6 trillion yen, the surplus funds have merely been stirred back into the public works mix.

A controversial reserve fund for unspecified public works projects has been replenished for the third consecutive year with 300 billion yen as part of efforts to secure economic recovery, marking a decline from the 500 billion yen received in the fiscal 1999 and 2000 budgets.

Regarding the nation's official development assistance, the fiscal 2001 budget reduces the ODA account by 3 percent on year to 1.02 trillion yen.

Defense spending is up 0.4 percent to 4.96 trillion yen, which includes support for the labor and private utilities costs incurred by U.S. forces here, which is down 18.2 billion yen to 257.3 billion yen.

32.5 trillion yen for 'zaito'

The government on Sunday endorsed a 32.547 trillion yen budget for the fiscal investment and loan program for fiscal 2001, down a hefty 15 percent from the year before and marking the second straight year-on-year fall.

Known as "zaito" in Japanese and often called a second national budget because of its massive scale, the FILP had required the postal savings and public pension systems to deposit funds with the Finance Ministry's Trust Fund Bureau for investment in projects such as housing and small business support through quasi-government institutions.

But following criticism that the program is inefficient and inflexible, the government decided to scrap the mandatory entrustment of funds and make the FILP leaner and more market-oriented.

As part of the overhaul, 33 public entities will be allowed to issue their own bonds.

For the next fiscal year, 20 of the quasi-government bodies, such as the Housing Loan Corp., plan to issue 1.106 trillion yen in the bonds to raise necessary operating funds.

Yet that amount is only 3.4 percent of the entire scale of the program, suggesting the bodies may face difficulties in fundraising by themselves.

The fiscal 2001 FILP marks the largest decline in budgets for the program since it was started in fiscal 1953.

"The government's affiliated institutions drastically cut investments in unprofitable projects on cost-benefit analyses, bringing about the 15 percent fall," a ministry official said.

Meanwhile, the ministry plans to issue 10.5 trillion yen in bonds through price-competitive auctions to finance the FILP in the next fiscal year.

Among the institutions, investments and loans slid 19.5 percent at the Housing Loan Corp. from the year before to 8.363 trillion yen, 33.9 percent at the Development Bank of Japan to 1.445 trillion yen and 27.2 percent at the Japan Finance Corporation for Small Business to 1.660 trillion yen.

Opposition protests

The opposition camp lashed out Sunday at the fiscal 2001 budget approved by the Cabinet earlier in the day, with Democratic Party of Japan Secretary General Naoto Kan calling it "the ultimate in irresponsible budgets."

He added that the government was trying to pump-prime the economy with fiscal measures out of fears that stock prices will continue to fall. "We're in this vicious circle because there is no expansion in internal demand," he said.

Hiroshisa Fujii, secretary general of the Liberal Party, noted that the budget lacks any vision of where the country should be headed in the next century.