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Monday, Oct. 29, 2012
Too little, too late
Prime Minister Yoshihiko Noda on Oct. 17 told the Cabinet members to draw up an economic package because the Japanese economy is losing steam. On the surface, his move seems reasonable. Japan's real economic growth plummeted to an annualized 0.7 percent in the April-June period from the annualized 5.3 percent growth in the January-March period. But his plan contains inherent problems.
First, Mr. Noda announced his plan abruptly at a time when there is no prospect of the government obtaining sufficient funds to implement the economic package. The Diet has not yet enacted a bill to float bonds to cover some 40 percent of the fiscal 2012 budget due to political bickering between the Democratic Party of Japan and the bloc of the Liberal Democratic Party and Komeito. The confrontation also is preventing the government from submitting a fiscal 2012 supplementary budget.
Although the government is cutting back on spending from the fiscal 2012 budget because it cannot float bonds, it is expected to run out of funds by the end of November. The only available funds for the economic package are those reserved in the fiscal 2012 budget to cope with an economic contingency and the revitalization of regions, amounting to ¥910 billion, and ¥400 billion reserve funds in the special account budget for the 3/11 disaster reconstruction. Since there may arise needs to use the reserve funds in the fiscal 2012 and reconstruction budgets for various purposes in the absence of bond flotation, it is unlikely that all the reserve funds can be used for the economic package. Thus the size of the package will not be big and its impact will be limited.
The government decided Friday to use ¥422 billion for economic measures in October, but the measures' impact may not be big. The priority at this moment should be for the government and the DPJ to make every possible effort to gain the cooperation of the opposition force to have the bond flotation bill enacted and to be able to submit a fiscal 2012 supplementary budget to the Diet.
Mr. Noda ordered the Cabinet members to work out economic stimulus plans by the end of November at the latest and to give priority to the most important areas in need of revitalization — promotion of environment-friendly industries, medical services and agriculture and fisheries — and to disaster-related reconstruction and disaster-prevention projects across Japan.
Even if the package is drawn up, it will be implemented after the turn of the year and thus it will be too late. The possibility also cannot be ruled out that bureaucrats will take advantage of Mr. Noda's instructions and include numerous unrelated spending items in the economic package to maintain their turfs, thus weakening the stimulus' focus. This is what happened in the reconstruction budget. And finally, because the economic package will be too late and too small, it will have little impact on the attitudes of consumers and businesses.