Fiscal policy chief Heizo Takenaka on Friday defended the government's second fiscal 2001 extra budget and its 4.1 trillion yen for public works as necessary to ward off rapid economic contraction.

"We have to take countermeasures to prevent the economy from plunging in the short term," Takenaka told the House of Representatives Budget Committee.

He was responding to criticism from an opposition lawmaker who said implementing the relatively large auxiliary budget is tantamount to backpedaling on the government's vow to restore the nation's finances to health.

Takenaka told the panel, "We will constantly demonstrate the method for securing the soundness of national finances in the long term."

Even though the official size of the auxiliary budget is 2.5 trillion yen in terms of national government outlays, the effective size of resultant public works spending is 4.1 trillion yen as it calls for local governments to kick in a combined 1.6 trillion yen.

Takenaka said the administration will not abandon its goal of rebuilding government finances. "We cannot adopt a policy of shelving the goal of making finances sound," he said. "If we declare such a thing, global market confidence in Japanese government bonds will be greatly shaken."

The government submitted the 2.5 trillion yen budget Monday in hopes of securing Diet approval before the end of the month.

The Diet passed the first supplementary budget, worth 3 trillion yen, in mid-November.

Success elsewhere

A senior Cabinet Office official in charge of economic affairs said Friday economic activity overseas is improving while the domestic economy is still under deflationary pressure.

"The environment outside (Japan) is substantially improving, though there is a downward risk from the possible continuation of global recession," said Yuzo Kobayashi, vice minister for economic and fiscal policy at the office.

Kobayashi made the comment in reference to U.S. Federal Reserve Board Chairman Alan Greenspan's congressional testimony Thursday in which he noted sings of an economic pickup in the United States. Kobayashi also commented on the bottoming-out of the South Korean economy.

With regard to the domestic economy, however, Kobayashi said Japan "remains in deflation."

Despite favorable economic developments overseas, "the domestic economy remains in a tough situation in the wake of the (Sept. 11) terrorist attacks in the U.S.," he said.