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Thursday, Nov. 11, 1999

Economists give stimulus plan mixed reception


Staff writer

Economists gave mixed reviews to the government's 18 trillion yen economic stimulus package announced Thursday, with some hailing it as a step in the right direction and others decrying it for not going far enough.

Prime Minister Keizo Obuchi unveiled the package, which features 6.8 trillion yen for facilitating social infrastructure, 7.4 trillion yen for easing the credit crunch and 2 trillion yen for spurring housing investment.

The measures also include 900 billion yen for recent changes in an approaching nursing-care insurance scheme that will lessen the burden on some taxpayers.

In all, the package is worth some 18 trillion yen.

Members of the ruling tripartite coalition insisted the nursing-care measures be included -- a move widely seen as a vote-buying attempt.

Through these measures, the government has two goals in mind: sustaining the nascent economic recovery with continued public works spending and creating a "new Japan" by carrying out structural reforms.

Shu Tamaru, chief economist at Industrial Bank of Japan, hailed the inclusion of short-term policies to sustain the economic recovery and long-term goals such as building information networks throughout Japan.

But he criticized the exemption and reduction of the nursing-care insurance premiums, saying it demonstrated a lack of leadership.

"The nearly 1 trillion yen will be financed by issuance of new government bonds," Tamaru said. "I can't agree with that, since the swelling government debt could lead to a rise in long-term interest rates and harm the economy."

He also called the government decision to secure another 10 trillion yen in credit guarantees to ease the credit crunch for small and midsize firms a "waste of money."

Last year, the government set aside 20 trillion yen in credit guarantees over two years. While the measure has helped firms teetering on insolvency, it has also drawn criticism as only prolonging the life of these companies.

Susumu Takahashi, chief economist at Japan Research Institute, said plans to promote startups as well as small and midsize firms are not bold enough.

The announced steps alone, such as providing more credit guarantees for small and midsize enterprises, will not create new businesses, he said. The government should expand tax benefits for investors of venture businesses and educate the public to foster an entrepreneurial spirit, he added.

A large part of the 6.8 trillion yen earmarked for social infrastructure will probably end up in traditional construction projects, which are not effective in creating a new economy driven by private demand, Takahashi said.

Despite the government's upbeat estimate that the stimulus measure will be able to push up gross domestic product at least 1.6 percent in real terms over the next 12 months, some economists gave a lower estimate.

Yasuyuki Komaki, senior economist at NLI Research Institute, said his think tank forecasts the GDP will grow 1.1 percent, based on an estimate that the "real water" spending -- the total amount of the economic package minus the amount that will not involve the actual spending of state money -- comes to 5.2 trillion yen.

While Komaki welcomed the government initiative to upgrade the communications infrastructure, such as reducing Internet connection costs, he said the proposals lack speed, noting the government timetable of building the "super speedy" information infrastructure by 2005 is too slow.

"Technology is being upgraded at an amazing speed these days," he said. "It is not enough to say these reforms will be carried out in five years."

Komaki added that the government has finally realized that an economic recovery through conventional public works spending is no longer sustainable.

Yasunari Ueno, chief market economist at Fuji Securities, said that while the "principle" of the package is right, the government has not broken away from its tendency to overspend.

"By expanding the package to 18 trillion yen, including the nursing-care measures, it has raised the level of spending to that of last year's economic stimulus package, which was a little less than 18 trillion yen, excluding tax cuts," he said.

Ueno estimated that the government will probably have to issue 6.7 trillion yen or more in new bonds to finance the stimulus package, adding that its impact on the market will be slight because market players expect the issuance of bonds in that range.



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