Nakasone tackles economic promises. Japan announces concrete steps to spur domestic spending
Last month in Washington, Japanese Prime Minister Yasuhiro Nakasone promised new economic policies in the face of mounting criticism. On Friday, Mr. Nakasone and his Cabinet made the first delivery on those pledges.
The government announced a 6 trillion yen ($43 billion) package of ``Emergency Economic Measures'' designed to respond to a ``grim economic situation'' of slowing growth at home and threatening trade war over Japan's $101 billion trade surplus. The package will be carried to next week's Venice summit of leaders of advanced industrial nations.
Japan and West Germany have been under pressure to pick up their economic growth. The United States has made it clear that its economy alone can no longer be the locomotive for the rest of the world.
Previous Japanese programs have been greeted with some skepticism - and with good reason. Last year the government announced a similar 3.4 trillion yen package of measures aimed at pushing growth up by 1.5 percent of the gross national product (GNP). Actual spending, informed government sources admit, was no more than one-sixth of that amount. Growth has actually slowed.
But, an official of the Economic Planning Agency insists, ``this is different from past packages.''
The three main features of the package are the $43 billion combination of public works, other government spending, and an income tax cut, renewed efforts to increase imports from abroad, and a program to recycle $20 billion of Japan's surplus to debt strapped third-world nations.
Japanese and Western analysts agree that this year's plan is not only larger on paper, but contains steps that should have a measurable impact. Nonetheless, the actual effect is likely to be less than advertised. The eventual impact on domestic demand, a government source says, will be about 3 trillion yen, or half the nominal amount.
The program is unlikely to have a big effect on Japan's trade surplus. In theory, the surplus should shrink as Japan shifts from using exports for growth to depending on domestic demand. Officials estimate that imports will rise $5 billion to $6 billion as a result of this program. Most of this is projected as an indirect consequence of an estimated 2 percent growth in Japan's GNP resulting from the new spending.
More directly, the government said it will spend an additional $1 billion for purchases of foreign goods. The money is expected to be used for equipment such as aircraft and supercomputers. The purchases are largely symbolic, spurred by ``a need for more-visible progress in import promotion if we are to combat the dangers of protectionism,'' Foreign Minister Tadashi Kuranari said.
The government also spelled out a commitment to recycle some of its surplus to developing countries. Japan is now the world's largest creditor nation, but most of its surplus is invested in advanced industrial nations, particularly in the US. The Japanese currently finance a third of the US budget deficit through purchases of treasury bonds.
The newly announced program is aimed particularly at providing new loan funds for heavily indebted countries in Latin America and Asia. The capital, $20 billion over three years from public and private banking sources, will be funneled mostly through multilateral institutions such as the World Bank, the Asian Development Bank, and the Inter-American Development Bank. An additional $500 million in grant aid will be specially provided for the poverty-stricken nations of Sub-Saharan Africa.
The various measures were adopted after a prolonged debate within the government. The Nakasone administration has held strongly to a policy of fiscal austerity, aiming to end deficit financing by 1990. The Finance Ministry is the bureaucratic architect of this policy and has resisted calls for increased spending to spur economic expansion. In the past, the fiscal conservatives have effectively emasculated the content of such spending plans by keeping actual new government spending - and hence new debt - to a minimum. They have proposed raising taxes to balance spending.
The Finance Ministry and its political allies attempted to do the same this time. Hajime Tamura, the head of the Ministry of International Trade and Industry (MITI), reportedly argued against this. He called for real new spending of 5 trillion yen, plus a 1 trillion yen cut in income taxes. The debate, Miyamoto said, ``continued into the wee hours of the morning'' before the Friday Cabinet meeting. As a result, a senior MITI official said, ``the package became much better.''
The key area of ``meaningful'' spending, the official believes, is about 2 trillion yen of public works spending. This will be contained in a supplementary budget to be voted on in a special session of the Diet (parliament) due to start in July. The tax changes will also be voted on.
The largest area of untapped demand in the Japanese economy, many experts believe, is for new housing. Japanese affluence could fuel a housing boom, particularly if the astronomical price of urban land in Tokyo and other large cities comes down. The new package contains several measures to promote housing investment, including lowering interest rates from the government's Housing Loan Corporation. But critics say these steps are still insufficient.
Prime Minister Nakasone is likely to get a fairly good reception in Venice for his effort, whatever its shortcomings. The initial response from US officials has been positive.
How the Japanese economy will respond remains the true test.
The budgetary billions
The budgetary plan approved by Japan's Cabinet on Friday, is scheduled to be introduced in parliament this summer. It consists of:
A $43 billion emergency spending package - including some $36 billion of public spending and tax cuts of $7 billion.
A provision of $1 billion dollars for purchases of foreign goods.
A plan for some $20 billion in aid to developing countries in the next three years.