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Saturday, Dec. 7, 2002

KANSAI BEAT

Pointless projects leave Osaka's finances reeling


Staff writer

OSAKA -- A decade of failed public works projects and economic stagnation have drained Osaka city finances, created a 90 billion yen budget deficit for 2003 and forced the mayor to admit the city is in dire straits.

"Osaka is facing an emergency situation, and cuts will have to be made," Mayor Takafumi Isomura said in late November.

The mayor's declaration came after the city announced next year's budget spending would be about 1.8 trillion yen, but that would still be an estimated 90 billion yen above all total projected revenues.

Although the fiscal 2003 budget proposal calls for expenditure cuts of 58 billion yen compared with 2002, the amount of municipal bonds that have to be repaid during 2003 increased by 20 billion yen.

In both the general and special accounts, Osaka has over 5 trillion yen in outstanding municipal bonds.

Many of these are short-term, high-interest bonds issued in the early 1990s to finance public works projects that are now in the red.

To cope with the emergency, Isomura announced salary cuts for himself and senior bureaucrats starting in January.

The mayor and senior officials are to take a 5 percent pay cut, while the city is currently in negotiations with the municipal labor union to reduce wages by 2 percent, and to cut next year's bonuses slightly.

The mayor's announcement is hardly news to many who follow Osaka's finances closely.

Osaka City University economics professor Shinichi Naganuma, who has written extensively on the local economy, said the warning signals had been clear for some time.

"Ten years ago, many economists were cautioning the city that it could not continue to spend money on huge government projects because the population was decreasing and the movement of businesses to Tokyo and overseas was reducing the tax base," he said.

The loss of corporate tax revenues has hit Osaka particularly hard. For fiscal 2002, the amount collected was down by 4 billion yen compared with fiscal 2001.

City officials maintain that the fundamental reasons for the current crisis are long-term demographic and macroeconomic.

The collapse of the bubble economy meant businesses and individuals went bankrupt or moved to Tokyo or overseas.

Infrastructure projects like the city's Asian Trade Center and World Trade Center, which were intended to attract investment, are failing not because they were flawed ideas but because the poor national economy makes it hard to attract investment.

Such is the official view. But critics, including Naganuma and many citizens' groups, say there's more to the story.

"The key to Osaka's crisis is local politics, not national economics. Osaka's economy is run by a small clique in the Kansai Economic Federation. For the past 10 years, the leaders of Kansai Electric Power, of which the city has a 10 percent investment, and Osaka Gas, whose senior leaders have high positions in the Osaka Chamber of Commerce and Industry, have decided the city's fate by demanding infrastructure projects and services Osaka could not afford," Naganuma said.

Kazuhito Konishi, a local magazine publisher who spearheaded the opposition to Osaka's failed bid to host the 2008 Olympics, basically agreed with Naganuma's assessment.

"City Hall is too close to a few major corporations that just want to spend and build. An Olympics would have enriched them but would have added a further 1 trillion yen to Osaka's debt," he said.

Finally, although city officials claim the fiscal crisis is only temporary, many have their doubts.

"There is no sign of recovery, and all those short-term bonds that were issued for huge infrastructure projects in the early 1990s are going to be coming due within the next few years. The crisis will probably not be over anytime soon," Konishi said.



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