Tokyo takes flak for its new economic package. Critics call measures too weak to reverse slowing growth rate
A government program to stimulate Japan's flagging economy came under fire here almost immediately after its unveiling. Critics charge that the 3.6 trillion yen ($24 billion) package of economic measures announced by the government Friday is insufficient and too late to reverse the slowing growth rate.
The steps are also unlikely to mollify mounting foreign criticism, particularly from the United States, of Japan's failure to step up domestic demand. Greater domestic demand, it is hoped, will spur more Japanese imports and reduce Japan's huge trade surplus.
Finance Minister Kiichi Miyazawa will take the new package to this week's meeting of the Group of Five (the leading industrial nations) finance ministers in Washington as evidence of Japan's response to US and European pressure. But Tokyo still refuses to further lower its discount rate (now at 3.5 percent), arguing that this will have little effect but to spur inflation.
Both Japanese government and industry blame the yen's rise for their economic woes. Manufacturers are beginning to feel the effect of higher prices caused by the strong yen, as export orders begin to drop. Unemployment, though still only about 3 percent, is growing. Business leaders have been demanding that the government act to increase demand at home to take up the slack of slowing exports.
The government's response is a combination of more spending on public works and housing and incentives to increase private investment, particularly by electrical utilities and telecommunications firms. Prime Minister Yasuhiro Nakasone said he hoped to reach a government target of 4 percent growth in gross national product by the end of the fiscal year in March 1987. Economic officials say the estimated total impact of the package, in a year's time, will equal $32.7 billion -- an increase of 1.5 percent in the GNP to 4 percent.
But some private and government economists dismiss those figures as overly optimistic. The chief economist of the Bank of Tokyo, one of Japan's largest commercial banks, said the new package would push his bank's earlier growth projection of 2.6 percent up by a marginal 0.2 to 0.3 percent. Officials of the Ministry of International Trade and Industry (MITI), which has been pushing for such measures, were only slightly more hopeful. They see this fiscal year's growth rate going up by 0.6 to 0.7 percent to 3.2 percent.
``Additional stimulation will be necessary in the near future,'' a MITI official said.
Foreign and domestic critics point to several problems with the government program. First there is no assurance on how much money will actually be spent. More than half of the projected amount depends on the actions of private companies and local governments.
The program also does not specify how the central government spending will be financed. Much of it could actually be in the form of moving forward public-works projects planned for next year.
``If the package does not include additional issuing of government bonds,'' said Shigetada Miyazaki of Mitsubishi Bank, ``it would mean almost nothing.'' Sources at MITI say almost $27 billion in new spending financed by bonds is necessary to have a real impact. But the Finance Ministry is strongly opposed to any increase in Japan's already huge government debt.
Besides increasing deficit financing, those favoring more drastic reflation call for tax cuts on personal income. Tax cuts, combined with the tax reform under discussion, would encourage more consumer spending.
Opponents of these fiscal conservatives led by the Finance Ministry say that US pressure is their secret ally. Continued US demands and pressure from the rising value of the yen may be needed, they say, to force further steps down the road.