Dear friends of MITI,
Since I came back from Washington DC, we have invited some of you to our Brown bag lunch seminar series at MITI / Research Institute. Very successful discussions we had and just like to have "Washington" here at Kasumigaseki. We got very favorable reactions from participants. Those who have not Yet come to our brownbags, please let me know when you are available.
Also it is our mission to send our ideas globally as a personal Newsletter concerning what is happening over here, especially Japan's economy and industry. I have started a "Tokyo Miyako-dayori (letter from capital)" with help from Takatori san, Takahara san and Terazawa san. I wish you enjoy receiving and also let us know your reaction. Thanks.
Nobuo Tanaka
Executive Director
Research Institute of International Trade and Industry
MITI
tel 81-3-3501-1362
fax 81-3-3501-8391
mail:tanaka-nobuo@miti.go.jp
Here are my thoughts on the supplementary budget here in Japan.
Richard Katz, senior editor of The Oriental Economist Report, says in The Asian Wall Street Journal on October 11, 2000 that "The Liberal Democratic Party leadership insists yet another supplementary budget is needed to avoid the risk of renewed recession. Reformers denounce this as yet another example of the LDP spending Japan into bankruptcy. They call for tax hikes and budget cuts. Unfortunately, both sides are wrong". Katz claims that reforms to revive private sector growth is needed to make deficit spending unnecessary. You might think "oh, just good old chanting?" Well, there seems some signs of changes.
Prime Minister Mori emphasized the necessity of rebuilding the economy in his recent general policy speech. He said "we have to prepare now to make our economic system sustainable in the future." The New Growth Policy to Promote Economic Rebirth Plan," the announced emergency economic measures, contains a total allocation of around $93 billion in total and $28 billion in current real spending. In comparison, the third supplemental budget approved in November 1998 totaled approximately $167 and $82 Billion, marking a decrease of about 45% and 66% respectively.
It is worth noting that the purpose of the above supplementary budget is somewhat different than the previous ones we have had in the past. In that past, it was conducted to spur demand by increasing government investment (Ig). This time, the ratio of investment in non-public sector increased in order to conduct future-looking measures and policies that can facilitate economic structural reform to prepare for Japan's development in the 21st century, namely to advance "New Growth Policy to Promote Economic Rebirth Plan." The goals that are emphasized in the plan is to: 1) promote an IT revolution; 2) address environmental problems and improve recycling mechanisms; 3) include measures to cope with the coming aging society; 4) improve urban infrastructure and quality of life in Japan. What is important is that the scale diminished compared with the past ones, and also kept at the certain level so that radical reform won't give bad influences on the economy (Chart).
Also, take a look at the social capital. The ratio of investment in civil works and non-civil works was 2:1 in the second supplementary budget of fiscal year 2000. This year, it dropped to 1.5:1. Public investment includes building highway and other facilities, and non-public investment goes to such places as research institutes. What is striking is that although decreasing public investment can be dangerous politically, LDP decided to launch the fiscal reform seriously (Graph).
It is no doubt the MOF is planning a fiscal reform, although not much is talked about. David Asher of AEI recently said that the "fiscal Mount Fuji" would likely to explode if it continues to be as it is now. He said in order to avoid this, the consumption tax will have to be raised to 27.5%. The number aside, we highly recognize the necessity of improving our balance sheet. Even Kamei, the chairman of LDP's Policy Research Council, who was regarded as a big spender now supports the fiscal reform. I think the trend toward fiscal reform this time is the real one. Similarly important as the fiscal reform is the structural reform in Japan. It includes more flexible system of stock option,maximizing efficiencies through electronic filings of government documents and other paperless applications and the revision of the Corporate Reorganization Laws.
We should also improve the Servicer Law to dispose the bad loans Through expanding the roles played by the private loan collection companies. I welcome your comment and ideas.
