FOCUS: G-20 leaders leave unsolved big question over growth and fiscal rehab+

WASHINGTON, April 25 Kyodo -
As the global financial hurricane has subsided, financial leaders of the Group
of 20 rich and emerging heavyweight nations this week sounded upbeat on the
current state of the world economy and recommitted themselves to pursue
coordinated efforts to realize ''sustainable'' growth.
But the G-20 left a big question unsolved about how to balance efforts to
ensure the recovery and the need to begin trimming debt burdens that many
developed countries, including Japan, piled up, as Greece's sovereign crisis
drove home the dangers of fiscal problems.
Naoto Kan, the finance minister of Japan whose state debt stands at around 200
percent of gross domestic product, the worst among the industrialized world,
said Japan and Greece are similar in some ways with regard to their fiscal
problems and that Japan should ''learn a lesson'' from Greece.
''We have something in common,'' he told reporters in Washington Thursday,
noting both witnessed a change of government recently and that their previous
governments are largely to blame for the countries' fiscal deficits.
An International Monetary Fund staff paper has pointed out that many advanced
economies entered the crisis with relatively weak fiscal positions, which have
since eroded further, not only by anti-crisis massive stimulus measures but
also by underlying spending pressures.
Kan said he told his G-20 colleagues of the Japanese government's plan to
devise a medium-term fiscal rehabilitation plan by the end of June.
But analysts say Tokyo faces the daunting task of ensuring an economic recovery
while turning fiscal conditions around and tackling persistent deflation
simultaneously. Fiscal consolidation, especially ahead of a key mid-year
election, would be difficult, they say.
''There has to be a trade-off between economic expansion and fiscal reform,''
said Hideo Kumano, chief economist at Dai-ichi Life Research Institute Inc.
''Restoring fiscal discipline often seems a lower-priority task for the
government than populist policy approaches.''
The Democratic Party of Japan-led government, which shot to power last
September, has compiled a record 92.3 trillion yen budget for fiscal 2010 that
began April 1 to fulfill its election pledges of introducing child-rearing
allowances and making public high schools tuition-free ahead of the House of
Councillors election expected in July.
To finance the budget, the government has planned new bond issuance of 44.3
trillion yen, also a record, amid a steep fall in tax revenues.
''I cannot help but feel that the government is doing this without financial
resources, forcing the future generations to foot the bills,'' said Masamichi
Adachi, senior economist at JPMorgan Securities Japan Co.
Despite its yawning fiscal deficit, Japan's long-term borrowing costs have long
been stable as the nation's high saving rate provides a source for purchases of
Japanese government bonds to domestic investors and over 90 percent of JGBs are
owned by them.
But such a high saving rate may not last forever as the rapidly aging Japan is
expected to draw down savings, analysts warn.
''I could never think Japan's government bond market is sustainable,'' Adachi
said, calling on the government to formulate a ''concrete'' fiscal
consolidation policy that would entail a hike in the consumption tax, among
other things.
Kan said the DPJ-led government intends to use money to be raised through a
future tax reform on measures to boost employment, especially in medical and
nursing care industries, as well as environment-related ones.
In this way, the tax ''should be a plus, not a minus, for the economy,'' Kan
said. ''I told (my G-20 counterparts) that it should be necessary to seek both
-- growth and fiscal rehabilitation,'' he said after Friday's G-20 meeting.
==Kyodo