ID :
80350
Thu, 09/17/2009 - 01:18
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FOCUS: Hatoyama embarks on long road toward economic recovery

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TOKYO, Sept. 16 Kyodo -
Now that the fanfare is over, Japan's new government led by the Democratic
Party of Japan has to get down to the business of achieving economic and fiscal
recovery.
The first challenge for the DPJ will be securing sufficient funds to implement
its manifesto commitments in fiscal 2010.
Prime Minister Yukio Hatoyama cannot afford to fail in this. Otherwise his
administration, launched Wednesday, could well miss the chance of convincing
the electorate that times have truly changed for the better following half a
century of nearly unbroken rule by the Liberal Democratic Party.
The DPJ's pledges, ranging from child allowances to toll-free expressways and
cuts in gasoline taxes, require 7.1 trillion yen to fund in the year starting
next April.
While there is a lengthy to-do list, Hatoyama believes the realization of these
promises, aimed at boosting domestic demand, is absolutely essential for the
nation's sustainable economic growth.
Knowing well that there is not enough money left in the state coffers, the DPJ
is giving the highest priority to reviewing the 14 trillion-yen fiscal 2009
extra budget, drawn up earlier this year by the LDP-led government.
The choice of Hirohisa Fujii as finance minister is a sign of Hatoyama's
realistic approach in budgetary maneuvering.
Although the DPJ, which has never governed until now, is eager to do battle
with state bureaucrats to loosen their iron grip on policymaking, Hatoyama has
apparently come to think that there will be no progress if he treats the
Finance Ministry as an enemy.
''Instead of taking a risk, Mr. Hatoyama decided to choose the most practical
option,'' Kyohei Morita, chief economist at Barclays Capital Japan Ltd., said.
''In terms of ability and experience, there seems to be no better candidate
than Mr. Fujii.''
But Morita said he is concerned about Fujii's lack of experience in
communicating with market players.
''He sometimes makes careless remarks'' on the currency market, for example,
Morita said. ''As he was an opposition party lawmaker, his remarks did not have
much impact. But that's no longer the case. He is now a minister.''
Fujii, a 77-year-old DPJ heavyweight, was a budget examiner at the Finance
Ministry before entering politics in 1977, with many of his DPJ colleagues
saying no one in the party could match him in dealing with senior officials at
the ministry.
The DPJ is hoping to scrape together at least 3 trillion yen from the nation's
largest-ever extra budget by freezing public works and a range of projects it
thinks unnecessary.
Hatoyama is gambling on Fujii's political power and expertise in financial issues.
Still, to trace and recover the unused portion of the stimulus spending is
easier said than done, as much of it has already been transferred from the
ministry to local governments and its intended recipients.
There is no precedent in Japan for reworking a budget once it has been approved
by the Diet.
Not only will it be difficult to obtain the required amount of money, but also
there is not enough time left for the new administration to draft a budget for
the upcoming fiscal year.
For Diet approval before the start of the next fiscal year, the drafting
process should usually be completed by the end of December.
The DPJ and the Finance Ministry have both said they acknowledge the importance
of meeting the deadline to avert any negative impact on the nascent economic
recovery.
But it remains uncertain whether things will work out as scheduled, because the
DPJ is planning to revamp the LDP's blueprint for the fiscal 2010 budget, set
in July.
By creating the National Strategy Bureau, the DPJ is aiming to reduce wasteful
spending laid out in the basic framework as much as possible, which has an
all-time-high 52.67 trillion yen ceiling on general expenditures.
''We still have no clear picture of how the bureau will function and give us
orders,'' a high-ranking official at the ministry said on condition of
anonymity. ''We are hoping that the DPJ will provide details soon.''
Many experts fear the fragile economic recovery could stall if there is any
delay in dealing with pressing budgetary issues.
Given that the current improvement is largely due to heavy stimulus spending
put in place by the previous administration, some even say there is a risk that
the Japanese economy will slide into recession again around the turn of the
year.
Eisuke Sakakibara, a former vice finance minister for international affairs who
is now a professor at Waseda University, has called on the new administration
to prepare the second stimulus package for this fiscal year ''not in the
distant future.''
''If the current economic situation continues, it is highly likely that there
will be a double-dip recession from the end of this year,'' Sakakibara, who has
close ties with the DPJ, said recently at the Japan National Press Club.
In the three months to June, the Japanese economy marked its first expansion in
five quarters. But its annualized growth was revised down to 2.3 percent
earlier this month from an initial reading of 3.7 percent due partly to a
greater fall in capital investment.
Despite Japan's huge debt, Sakakibara said the government should not hesitate
to issue bonds worth about 10 trillion yen to finance measures to prop up the
economy, given the sharp fall in tax revenues.
The former top currency diplomat, once known globally as ''Mr. Yen'' for his
ability to sway currency markets, said the government can take about four years
to cut expenditures and now is not a suitable time for fiscal tightening.
But no matter what Hatoyama may do, Japan needs to grapple with the largest
debt of any industrialized country, left by the LDP, which is expected to
surpass 900 trillion yen -- nearly double the size of its GDP -- for the first
time at the end of fiscal 2009.
Hatoyama's administration will be forced to walk a tightrope between easing the
troubled fiscal situation and not throwing cold water on the fledgling
recovery.
With public expectations high at the outset, the DPJ will come under heavy
pressure to produce some tangible results toward the end of this year.
But making real progress on its two major challenges, which are deeply
intertwined, will not be so easy in the short run and will require the public's
patience.
''Japan's fiscal situation is disastrous and cannot be fixed in one year or two
years,'' Kaoru Yosano, the previous finance minister, said Wednesday at a news
conference before leaving the post for Fujii.
==Kyodo

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