The Council on Economic and Fiscal Policy on Friday approved an outline of a planned 2.7 trillion yen supplementary budget for this business year, with 1 trillion yen earmarked for structural reform measures.

Under the extra budget plan submitted to the council by Finance Minister Masajuro Shiokawa, the government would allocate some 50 billion yen for antiterrorist measures in the wake of last month's terrorist attacks in the United States and to deal with the ongoing controversy over mad cow disease.

The supplementary budget is expected to be formally adopted by the Cabinet on Nov. 9 and submitted to the ongoing Diet session in the same month.

To finance the extra budget, the government will issue 1.68 trillion yen in government bonds, bringing total fiscal 2001 debt issues to 30 trillion yen, the limit promised by Prime Minister Junichiro Koizumi.

Given the severe economic situation, however, it will be difficult for the government to maintain this cap on bond issues.

The governing coalition, which is headed by the Liberal Democratic Party, approved the extra budget at a meeting with the government earlier in the day, but it still believes it is too small in light of the nation's economic woes.

The latest fiscal stimulus might therefore be only the first of two parts, as the coalition has been pressuring the government to draft a second supplementary budget later this year or early next year.

Koizumi said during the meeting that he is determined to deal with policy challenges "with boldness and flexibility," Deputy Chief Cabinet Secretary Shinzo Abe said.

Compiling a second extra budget would inevitably force bond issuances to exceed the 30 trillion yen threshold, casting a shadow over fiscal reform prospects.

The supplementary budget now under review earmarks 1 trillion yen to finance policy steps outlined in the government's priority reform package adopted Sept. 21, which focuses on job measures, quick disposal of nonperforming loans and further deregulation in health care, education and other areas.

About half of the 1 trillion yen is allocated to job creation measures and assistance for the unemployed to soften the blow of massive layoffs expected as companies undergo restructuring and banks clean up their bad loans.

It also finances programs to provide assistance to the unemployed in job training programs who have used up or lost employment insurance benefits.

Subsidies will be provided to encourage companies in promising sectors, such as information technology, to accommodate the unemployed.

The extra budget will also provide local governments with subsidies to temporarily hire displaced workers as assistant teachers at public schools and in other public services.

Besides job support measures, the extra budget includes spending on child-care centers and measures to control dioxin emissions.

In addition to the 1.68 trillion yen in bond issues, the government will finance the stimulus with last year's 238.2 billion yen surplus and dip into 300 billion yen in unused reserves for public works projects.

Contraction forecast?

Vice Minister for Economic and Fiscal Policy Eiji Kawaide indicated Friday the government may forecast an economic contraction for fiscal 2002.

"We won't set an unrealistic growth forecast at a time when the economic state is severe and few things can shore it up," Kawaide told a news conference.

He said, however, the forecast depends on the government's economic policies and strategies, and therefore no conclusions have yet been made.

The government annually announces its forecast for the nation's economic growth in terms of gross domestic product for the next fiscal year when releasing the budget draft for that year at the end of December.

The government has never before projected an economic contraction as the figure also serves as a target.

The government has set its forecast for the current fiscal 2001 at an inflation-adjusted 1.7 percent growth. But the Cabinet Office is presently reviewing it with concerned ministries and agencies to lower it to around a 1 percent contraction.