Tokyo Plans Package To Lift Growth

Leaders of Japan's coalition government on Tuesday agreed to produce within the next few weeks an emergency spending plan, expected to be worth at least Y3,000 billion (£17.6 billion), in an effort to prevent the economy from slipping back into stagnation.

The three-party alliance is to wait until after publication of the gross domestic product figure for the second quarter to June, due in the middle of this month, before confirming details of the widely expected package, the first in 12 months.

Pressure on Ryutaro Hashimoto, the Prime Minister, is growing from his own Liberal Democratic party to deliver a robust fiscal stimulus before the government faces a general election, due by next July.

 

Such LDP demands have built up over the past week, since a survey of business confidence by the Bank of Japan late last month threw doubt on the recovery. The consensus among Tokyo economists is that GDP shrank at the rate of 3.5 per cent a year in the second quarter, a sharp correction from the officially reported - and sceptically viewed growth of 12.7 per cent of the first quarter.

Echoing this anxiety, Eiichi Nakao, construction minister, said a Y4,000 billion package was needed to prevent the economy from losing momentum in the second half of 1996.

A second budget would be needed even without this latest reminder of the economy's fragility, argue many economists. This is because underlying state spending is set to shrink next year, despite the finance ministry's outline plan for a 3.5 per cent rise in the fiscal year from March 1997.

The growing pile of state debt, a legacy of previous fiscal packages, means more than a fifth of that will go on interest payments. Spending on physical projects would decline by between 1 per cent and 1.5 per cent, estimates Jesper Koll, head of economic research at J.P. Morgan in Tokyo.

''With public investment switching from engine to drag, the aim is to smooth the transition,'' he said.

Worse, according to a recent survey by the ministry of international trade & industry, there has been a shift in spending away from technology projects, with wide spin-off benefits, and towards simple construction projects which generate limited wealth. Miti estimates that the multiplier effect of such packages has fallen from 1.8 to 1.1 over the past three years.