INTERVIEW WITH TADASHI IWASHITA
Sr Dy Director General - Int'l Bureau- Japan Ministry of Finance
JAPAN'S FISCAL NIGHTMARE
Serge Berthier.- In the early nineties, it was commonly said that Asia was entering an era in which the dominance of the US was being increasingly challenged by Japan by virtue of its economic might. Then the Japanese economy went into a stall, so much so that at the onset of the Asian crisis, part of the blame was attributed to Japan's inaction in its own backyard, and the strong yen policy that ensues. Does the top bureaucracy of the Ministry of Finance agree with such an analysis?
Tadashi Iwashita.- To answer that question, we have to identify the cause of the so-called Asian crisis. There were several factors, the most important being, in my view, the enormous capital outflow which contributed to the vulnerability of the financial system and the over-variation of the local currencies, as a consequence of which, the current account deficit of the countries affected increased dramatically. The enormous influx of capital which preceded the outflow was not, as you know, necessarily used for productive activities - a substantial portion was used to create real estate surplus or unproductive assets. The effect was to create an asset bubble in some countries. Probably, we also have to mention the structure of the countries, but this last factor was overplayed in the initial recognition of the crisis. As time goes by, it is clear now that we did not have an Asian crisis, that is a crisis confined to a systemic problem in Asia. We had an Asian crisis, then a Latin America crisis, and finally a more global crisis as epitomized by the collapse of LTCM (1) which was the apex of a hedge funds crisis.
S.B.- So, in final analysis, you support the Mahathir argument, that hedge funds are the main culprit, and Japan's economic slow-down or the yen had little to do with the crisis?
T.I.- Most countries including the United States have now recognized that the core of the issue was that an enormous amount of short-term capital was going around without control. No one had given any thought at the time as to how we should handle such flux, primarily because no one had clearly realized its magnitude.
However, I have to qualify that. Another factor that cannot be ignored was the over-valuation of the currencies, but here we have to make a distinction between the yen and the other currencies as the currency problem is not necessarily the other side of the coin of a slide of the yen during that period, as some are saying. The fact was that the local currencies were very tightly linked to the dollar, not to the yen, and so it had little to do with Japan. That was actually the problem because, if one takes a closer look at the economic relationship and the trade patterns between Japan and the South-East Asian countries, in most cases, they are complimentary. Furthermore, people are talking about the yen's slide, but it was more of case of the other currencies, such as the European ones, sliding against a rising dollar. So I don’t think that the argument of the slide of the yen as the cause of the crisis is that convincing,
S.B.- Nevertheless, when you point out that the problem was a divergence between the economic and trade patterns of the South-East Asian countries and their link to the US currency, the real meaning is that trade patterns were calling for a different blend of currencies, in other words, more yen in the system. So if the exchange rate fluctuation surrounding the yen was not a factor in itself, the lack of yen might have been one.
T.I.- You hit a very good point. It would certainly be more desirable as a system to have a different blend of currencies, more appropriate currency baskets if you want, with a closer comparison to the capital relationship and the trade patterns of each country, rather than a sort of universal acceptance of a basket which has little relevance with the patterns. In South East Asia, one needs a more appropriate mix of US dollar, Euro and yen.
S.B.- Was the Asian Monetary Fund a way to push for a more appropriate mix, with a more important localized content, considering after all that the IMF packages are always in US dollars, and therefore do little to reduce the over-reliance on the same currency which contribute to entertain what can be considered a latent defect of the financial arrangements in this part of the world?
T.I.- It is maybe going too far. I agree that any package by the IMF is basically in terms of US dollars but it is a different issue as to whether or not an Asian Monetary Fund is needed or not. Our original idea was much simpler. It was only to have something complimentary to the IMF, not a substitution.
S.B.- Complimentary in what way? To bring additional funds, maybe in yen, whenever the IMF did not provide sufficient assistance, or at another level?
T.I.- Complimentary in the sense that there is a need for some kind of regional surveillance mechanism similar to what IMF is having at the global level. Such regional mutual financial monetary assistance would not have been exclusive of any IMF program. There was no question of substitution. I still think it is unfortunate that two years ago that idea did not get a full support it deserved (2).
S.B.- In the political sphere, it seems that the idea of the East Asian Caucus launched many years ago is coming back. In the financial sphere, do you see the concept of the Asian Monetary Fund (AMF) being resurrected?
T.I.- Actually, the basic spirit of AMF has been in a sense materialized by stimulating Japan and United States and other countries to provide regional assistance and regional surveillance in cooperation with IMF. The main idea was materialized in the so-called Manila framework (3) which was established last November. We now have a by-annual regional surveillance meeting, the last one was held in August with the participation of the United States, Canada and Australia as well as the ASEAN countries.
S.B.- If we look at the bottom line, the United States did not agree with the AMF and by far did not directly contribute to any financial package, whether directly or even at the level of the Asian Development Bank where they did not add to their contribution during the years of the crisis (4). How do you judge such attitude?
T.I.- The US administration has been active at another level, trying to enhance the facilities of IMF by getting the support of the Congress to have new arrangements. At the IMF level, they were flexible enough to let IMF provide funds to Korea exceeding the existing limits of the organization. So, in that sense, both the IMF and the United States have been flexible and creative.
S.B.- The Asian Development Bank went also overboard in rescuing Korea, an OECD country, which, if we stick to the ADB charter, could not be a recipient of ADB funds any more. And ultimately, if Korea was the main beneficiary of a huge package, while Indonesia had to beg and got little (5), the flexibility was rather politically-oriented, don't you think so?
T.I.- Well, the bottom line is that you have to have something purely regional yet complimentary.
S.B.- Something like the Miyazawa initiative?
T.I.- Yes. The motivation for such initiative is simple. It is to provide assistance to regional countries. The purpose is to address the short-term problems and also the medium long -term problems. Of course, the second consideration is more important than the first one.
S.B.- The IMF assistance program is also supposed to address such problems. Why was the Miyazawa package a necessity? What is a lack of resources on the part of the IMF, or is it because the IMF was so far merely looking at the current accounts of a country, and no further?
T.I.- Well, we all agree that what is most needed is to address the structural problems. But for the regional countries, to restructure their financial sector and their corporate sector, they have to overcome the social problems. One will not work without the other. You also have to solve the property bubble, and yet protect the environment. All those issues are very closely related to the recovery of these economies. In this respect, the yen loaned by Japan can make a substantial contribution, not to mention that Japan is also providing short-term payment facilities, to ease trade problems.
S.B.- Then, what is in short the difference between the Miyazawa Initiative and the Asian Monetary Fund (AMF) discussed last year?
T.I.- The AMF proposed in 1997 was a multilateral scheme focused on the stabilization of currency. The Miyazawa Initiative announced in October 1998 mainly consists of bilateral support focused on assisting Asian countries affected by the currency crisis in overcoming their economic difficulties.
S.B.- The Japanese government is always saying that it doesn't intend to make the Miyazawa initiative more complicated than just a drawing facility for the regional countries. However, it has a secondary effect, and one wonders if it is as innocent as it looks. The Miyazawa initiative is injecting billions of yen into the financial system of each country, and no fixed amount has been attached to the initiative, since the amounts keep changing. Ultimately, the balance between the yen and the other currencies is slowly tipped towards more yen and less US dollar, even if today that phenomenon is not really visible. So what do we make of that secondary effect. Is it merely a consequence, after all Japan can hardly provide and guarantee loans in another currency than its own, or a way to sow seeds of an international yen?
T.I.- It is true that we do not have any intention to make the Miyazawa initiative more complicated than what it is. We believe that its purpose is just a way to stimulate the economy of the regional countries. Now, we cannot deny that it has all sorts of effects, and if we can have a very good by-product, why not. If it gives rise to better assistance programs, or leads to more intensive discussions with IMF, all the better. On the question of the yen, it is true that countries increase their exposure to yen, but the internationalization of the yen is not a direct objective of the Miyazawa initiative.
S.B.- Maybe, but all of a sudden, it is there.
T.I.- Yes, as you mentioned, we are having it. Suddenly the progress of the initiative is to speed up the processÉ
S.B.- Regional countries have, like Japan, very high saving rates, and yet very weak bond market and financial instruments. To me, it looks like another thing in the scope of the Miyazawa initiative, whether consciously or unconsciously, is the creation of a regional bond market. The money extended under the Miyazawa initiative is not necessarily an outright line of credit. Malaysia was the first country to raise the equivalent of US1 billion on the market with a guarantee being provided by the Exim Bank of Japan. Is that a way to speed up the process, as you sayÉ
T.I.- You raise there a very important point. It is essential for these countries, if they ever have to cope again with that kind of crisis, to have a well-developed financial market, including a strong bond market. But it is not easy at all to develop decent financial markets. What can be done is to provide technical assistance, and that we do, as well as medium to long-term financial assistance. That is exactly what the Miyazawa initiative is aiming for and it is a very important objective.
S.B.- The Miyazawa is not after all so simple, even if you wish to keep it as simple as possible, because, after all, as you just outlined, it has many facets, one or the other ultimately speeding a number of processes.
T.I.- Well, of course, the Miyazawa initiative has many facets.
S.B.- The Miyazawa initiative is one of the most important initiatives of the Obuchi government, and, in my view, its most important foreign policy initiative. Domestically, its most important decision has been to adopt a very aggressive Keynesian attitude, turning its back to fiscal prudence. The Ministry of Finance is ultimately responsible for the finance of the country, and right now, the fiscal situation is one of the worst among the major industrialized nations. What is the mood of the bureaucracy facing such a challenging situation?
T.I.- We have the deepest fiscal deficit of the major countries. Japan's gross government debt has doubled to 118% of national income since 1992. With the continuation of the stimulation demand policy it will increase. It is perfectly clear that we have to address that problem. Furthermore, we have a very rapidly ageing society and a lot of unfounded public pension liabilities. In ten to fifteen years, it will be a very serious problem. So, something has to be done, there is no question about that. However, if we take a look at the current position, what we have to do is to get the Japanese economy back on the right track. Without doing that, you cannot devise a plan for fiscal consolidation, or rather, you can devise any plan you wish, it will be a waste of time. It will not be real. So right now, by far, the policy priority is to get the performance of the macro-economy of Japan on the right track, putting aside the fiscal consolidation.
S.B.- I understand that the economy should be back on track, but should it be done at any cost? Is compiling a stimulus package worth trillion of yen each time the only method?
T.I.- Clearly, we have to recognize that the short-term objective and the long-term ones are clearly contradictory. We have to consolidate our fiscal deficit, and the sooner the better. How and when is the biggest question in front of Japan. In my opinion, once the short-term current programs have fixed the economy, I can see that happening in one or two years, we will be able to tackle the long-term problem of our fiscal situation. In any case, it has to be done, otherwise the stimulating actions will backfire in the form of longer higher interest rates and loss of confidence by the Japanese public and the rest of the world, on the credibility or sustainability of the fiscal management of the government.
S.B.- Moody, the US credit-rating agency, has already issued a note of caution on JapanÉ
T.I.- Yes. The situation is real. So, without addressing our longer-term problem, there may be a case that we won't even solve the short-term macroeconomic policy management, so the faster the better to tackle the problem, but when and in what environment we can do so, as I said, we have to work out.
S.B.- There is a sort of desperation in the way the government keeps compiling stimulus packages and a risk that it will do so until it's nearly burst. For years, the government was accused of being too cautious and the bureaucracy unwilling to change its method. Today, the mood is completely different. Has the bureaucracy really changed so much in its attitude?
T.I.- The mood has certainly changed. When? It is difficult to say exactly. Of course, we have a new leadership in the ministry with Finance Minister Miyazawa coming, but in fact, the current policies has been discussed before. Maybe, a turning point was the collapse of two major financial institutions in November 1997 (6). It became quite clear for the politicians, the public and the bureaucrats that the macroeconomic problems and the financial sector problems were enormous. Mr. Hashimoto’s cabinet presented five or six reform plans. One of them was fiscal reform.
S.B.- Was the reform plan coming from the bureaucracy of the Ministry of Finance or the politicians?
T.I.- As the Finance Ministry is the agency that is fully responsible for fiscal consolidation, we are in a sense always expected to stick to the fiscal consolidation principle, whatever the public or the politicians say. That is a kind of expected role of our institution. However, this time, we asked ourselves very seriously: is this the ordinary time, that we stick to our expected role, or rather the time we join the others, putting aside our usual principle and try to address the most most serious problem we are currently facing?
S.B.- Which was the collapse of the financial sector?
T.I.- Which was with the possibility of the deflationary spiral of the macroeconomic performance. In such a case, it is clear that you have to put aside your fiscal difficulties. The fact that we were heading for a deflation suddenly contributed to the change of the mind-set.
S.B.- Don't we have the danger now that, everyone being focused on one objective, putting the economy on track at all costs, the government will end up nearly bust? After all the watchdog has been removed, or rather it has joined the other camp.
T.I.- I don't think so because there is broad consensus that while we are now concentrating on short-term macroeconomic management, we have to address that longer-term problem of fiscal consolidation at a later stage. The open question is when and how to shift the focus. And the issue is kept alive by the politicians themselves. If you take a look at the election of the chairman of the LDP, you had three candidates, Mr. Obuchi, Mr. Kato and Mr.Yamasaki. One of the issues at stake was that very question. Mr. Kato was promoting a fiscal consolidation at an early stage and a small government as the basic philosophy of his leadership. On that point, I don't think he had a big difference with Mr. Yamasaki. So, within the LDP, you have Mr. Kato and his faction more focused on this longer-term objective than the other (7).
S.B.- Would you be in support of Mr. Kato's approach?
T.I.- My hope is that such talks, or arguments, will develop in a positive way.
S.B.- What is the positive way, to come back to a more prudent fiscal policy? To reduce the deficit rather than enlarge it?
T.I.- A way that stimulates the discussions on how we are going to bridge the short-term objectives with the longer-term ones.
S.B.- Japan has registered its second consecutive quarter of growth, and the government has upgraded its forecast for the fiscal year (March 31) to 0.6% growth. It is also engineering a new state spending package worth 18 trillion yen, in the hope of bolstering the gross domestic product by about 2.5% in real terms over the next year. So, isn't it time to stop aggravating the public deficit (8)?
T.I.- To answer that question, we have to learn from the past. In early 1994, we had signs of recovery but it was short-lived because of a rapid appreciation of the yen. Again in late 1996 and early 1997, we did see a strong sign of recovery but again it was short-lived. We have to be careful not to shift too early from the short-term policies to the longer-term objectives because we can’t afford a third time the same to happen again. So at least this year, and early next year we have to concentrate on the short-term. It is correct that, against most people's expectation, the consensus of the market was that it would be slightly negative, we registered a positive number after the fast growth of the first quarter. It is encouraging but we cannot relax. We have continue our policies on both the demand and supply sides, the difficulties being that we have to stimulate the demand and at the same time to address the structural problems.
Autumn 1999
Notes;
1.-In September 1998, the New York Federal Reserve Bank leaned on 12 financial institutions to come up with a US$3.6bn bailout package when hedge fund Long-Term Capital Management (LTCM) went illiquid. Ever since, regulators have been trying to figure out just what went wrong and how to stop it happening again.
US regulators investigated about six Wall Street firms to see whether they were taking excessive risks during the period from June to September 1998, at the apex of the Asian crisis. And Merrill Lynch, Credit Suisse and several other firms have since said they're reducing their risk exposure to hedge funds activities since the LTCM blowout. As analysts suspected at the time, monitoring problems were significant. Many of the banks that extended credit to the highly leveraged fund (at one point it managed to run up a total exposure of almost $200bn on capital of less than $5bn) judged their exposure to LTCM to be reasonable. They claim they were unaware of how much the fund already owed to other institutions.
LTCM wasn't your average hedge fund. According to the Wall Street Journal, LTCM appears to have moved beyond the bond arbitrage investments it was set up for originally for and bought up takeover stocks. Ultimately, LTCM was bailed out from imminent collapse by a consortium of 14 banks and brokerages that pulled together a $3.6 billion rescue package. Only three months before its near collapse, LTCM owned $539.2 million worth of stock in 76 companies such as Teleport Communications Group and Waste Management Inc (WMI), which agreed in March to merge with USA Waste. LTCM's larger equity derivative positions were not disclosed as no disclosure was legally required. Funds involved in mergers and acquisition arbitrage simultaneously purchase stock in the company being acquired and sell stock in its acquirer. The hedge fund's non-takeover-related stock holdings included stakes in Dell Computer Corp. (DEL), Bear Stearns Cos. (BSC), and Revlon Inc (REV), the Journal reported. Moreover, the Financial Times said, at the time, that LTCM also invested in the financial services sector, which was witnessing the strongest level of merger and acquisition activity ever seen. It reportedly had a $1.3 million stake in Crestar Financial (CF), the Virginia bank group that was in July 1998 acquired for $9.5 billion by SunTrust (STI), the largest bank in Georgia. The disclosure of LTCM's stock holdings in June 1998 was indicating that the hedge fund was involved in bets on the relative values of company stock, convertible stock, warrants, options and the relative values of the voting and nonvoting shares. However, the disclosure did not indicate LTCM's much larger and highly leverage derivative exposure on overseas markets which caused its near collapse.
2.- Finance Minister Mr. Kubo proposed during the IMF and World Bank's annual meetings in Hong Kong in September 1997 the creation of a regional standing facility, quickly dubbed an “Asian Monetary Fund”. The idea was never specified sufficiently to permit objective evaluation. It was nevertheless immediately rejected, mainly by the United States and the rest of the G-7 (China also voiced reservation) due to fears that it could undermine the leadership role of the International Monetary Fund and foster a split between Asia and the US.
3.- The so-called Manila Framework was drafted in November 1997 by APEC members. It aims to promote financial stability in the region. It called for the establishment of an early warning system, financial cooperation, and emphasized the enhancement of the IMF’s role in defusing the economic crisis in the region. Eighteen leaders of APEC forum endorsed the principles, while ASEAN finance ministers endorsed that any assistance for their troubled economies would be supplemental to the IMF. I was the end of the Asian Monetary Fund. The ASEAN statement on the financial crisis was the first to implement a regional surveillance mechanism to coordinate macroeconomic policies, monitor and identify possible risks or crisis in a particular country so that preventive measures could be taken in time.
The Second Manila Framework Meeting took place in Tokyo on 26-27 March 1998. Finance and Central Bank Deputies representing Australia, Brunei Darussalam, Canada, People’s Republic of China, Hong Kong SAR of China, Indonesia, Japan, Korea, Malaysia, New Zealand, Philippines, Singapore, Thailand and the United States met to review progress in addressing the crisis, and preparing the ground for sustainable growth in the future. High-level representatives from the International Monetary Fund, the World Bank and the Asian Development Bank also assist. The meetings are now a twice yearly occurrence
4.- In 1997, the International Monetary Fund approved Korea’s request for a three-year stand-by credit equivalent to SDR 15.5 billion (about US$21 billion) in support of the government’s economic and financial program. Of the total, SDR 4.1 billion (about US$5.56 billion) was available immediately. SDR 2.6 billion (about US$3.58 billion) were to be available December 18, 1997 following the first review under the program, and a further SDR 1.5 billion (about US$2 billion) on January 8, 1998 following the second review. Subsequent disbursements were made available subject to the attainment of performance targets and, in some cases, program reviews. The stand-by credit is equivalent to 1,939 percent of Korea’s quota of SDR 799.6 million (about US$1.09 billion) in the IMF (a member’s quota in the IMF determines, in particular, the amount of its subscription, its voting weight, its access to IMF financing, and its share in allocations of SDRs).
In approving Korea’s request for the stand-by credit, the IMF made use of the accelerated procedures established under the emergency financing mechanism (EFM), which was adopted in September 1995. The EFM strengthens the IMF’s ability to respond swiftly in support of a member country facing an external financial crisis and seeking financial assistance from the IMF in support of a strong economic adjustment program.
In addition to the IMF funding of US$21 billion, the President of the World Bank indicated the Bank’s readiness to provide up to US$10 billion in support of specific structural reform programs, in accordance with bank policy. Similarly, the President of the Asian Development Bank indicated his readiness to recommend to his Board to provide up to US$4 billion in support of policy and institutional reforms, within the framework of the bank’s policy. At the same time, a number of countries (Australia, Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, Switzerland, the United Kingdom, and the United States) informed the IMF that they were prepared, in the event that unanticipated adverse external circumstances create the need for additional resources to supplement Korea’s reserves and resources made available by the IMF and other international institutions, to consider- while Korea remains in compliance with the IMF credit arrangement -making available supplemental financing in support of Korea’s program with the IMF. This second line of defense is expected to be in excess of US$20 billion.
Compare such readiness to the IMF's attitude towards Indonesia between September and December 1997.
5.- The Asian Development Bank started operations in December 1966. Its annual report describes its object as "promoting the economic and social progress of its developing members". In 1997 South Korea can hardly be described as a developing member, as it is a OECD member. South Korea had last received a loan from ADB in 1987. Then, in 1997, it received 43% of the total ADB lending to developing member. The loan was classified as a Financial Program sector loan.
6.- Tadashi Iwashita refers to the failure of Yamaichi, the fourth largest securities firm, Takugin, one of the twenty leading banks and Nippon Credit. What is curious, and telling is the fact that, as early as September 1998, the then 18 major banks had acknowledged a massive ¥22 trillion in bad loans. Such figure did not change the mood until the demise of Yamaichi Securities, the fourth-largest and one of the oldest brokerages in Japan. Yet, the collapse of the security house was attributed to the vagaries of the stockmarket and its practices rather than to a systemic problem, and although minor banks had disappeared since 1994 (the Hyogo Bank of Kobe in 1994, Hanwa Bank of Wakayama in 1995), it is only when, on November 17, 1997, the unthinkable happened. That day, after a desperate attempt to merge the Sapporo-based Hokkaido Takushoku Bank (Takugin) with a first regional bank, the Hokkaido Bank, (with a former MOF official as its president) Takugin, a leading city bank crippled by massive non performing loans, declared virtual bankruptcy and announced the transfer of its operating rights in Hokkaido, Japan's northernmost island, to the regional North Pacific Bank. Takugin's fund position had become deadlocked as it was unable to procure adequate funds from the market and other sources. It was the first time that one of Japan's twenty leading banks (including city long-term credit, and trust banks) had suffered a business failure. After Takugin's announcement, Minister of Finance Hiroshi Mitsuzuka and Bank of Japan Governor Yasuo Matsushita, held a press conferences, in which they declared that Takugin's deposits and inter bank debts would be protected in full. It was also announced that until the transfer of Takugin's operations, the Bank of Japan would implement an unsecured special loan and make efforts to ensure liquid funds. The Deposit Insurance Corporation will buy up Takugin's bad loans at market price.
It is worth remembering that, until Takugin's downfall, the Ministry of Finance had emphasized its policy, both domestically and internationally, of not letting any of the twenty leading banks in Japan collapse. Following on the heels of the crash of a credit union, a regional bank, a leading life insurance company, and a second-tier securities house, however, the bankruptcy of Takugin, a city bank with a nationwide network, showed definitely the world that the bad debt problem was getting out of control.
As of the end of March 1997, Takugin's bad loans amounted to a total of ¥934.9 billion, which accounted for 13.4% of its loans, the highest figure for a city bank. A further investigation by the Finance Ministry revealed later on that the amount of Takugin's bad loans was in fact far higher than disclosed and two former presidents of the failed Takugin Bank were arrested over charges of passing on more than ¥10 billion in loans to an ailing property management concern in a desperate attempt to prevent it going bust.
As mentioned here by Tadashi Iwashita, the mood changed dramatically as reported in the Japanese media. After such a failure, speculation grew that the government would inject public funds to deal with the bad debt problem of financial institutions. Finance Minister Mitsuzuka stated then in a press conference on November 17,1998 that "I will make a decision on this issue taking into consideration public discussion and debate in the Diet." It was the effective start of a new policy. In March 1999, a package worth ¥7.46 trillion ($98.1 billion) to assist the beleaguered banking sector, was voted. By then, 14 financial institutions - five credit co-operatives, five local banks, one city bank, two securities houses and a life insurance company - had collapsed while many others which do not fare better had not. This is because in most of the bank failures, the finance ministry called on the healthier banks to either absorb their stricken rivals or help keep them afloat. When calls fell on increasingly deaf ears as the condition of the financial industry worsened by end of the first quarter 1999, the government had no choice but to inject money and nationalize a number of failed banks such as Nippon Credit Bank and the equally insolvent Long Term Credit Bank.
7.- The interesting point in such remark is that the Ministry of Finance is in fact a stronghold of the Kato faction, although Tadashi Iwashita would not comment on that. The Kato faction's previous leader was Kiichi Miyazawa, the current Finance Minister, who was Prime Minister in 1991 (when leading his own faction). Miyazawa, who is 79, relinquished the leadership of his supporters to Koichi Kato few years ago. It is worth noting that Miyazawa is a former elite Finance Ministry bureaucrat and a third generation Diet legislator. Although Prime Minister Obuchi defeated for the leadership, he pointed out that he will work with all factions. The Kato faction has several ministries, the most important being the Ministry of Finance, but equally important is the Health and Welfare Ministry (the Minister is Yuya Niwa).
8.-The government approved in November 1999 an 18.1 trillion yen economic rejuvenation package. At the heart of the package are measures worth 7.4 trillion yen designed to help struggling small and medium-sized companies, including the expansion of the credit guarantee limit for such companies and projects worth 6.8 trillion yen to improve the social infrastructure. The package would accompany the disbursement of 6.5 trillion yen from the national coffers.
The size of the package, the second largest after a 24 trillion yen economic stimulus package approved in November 1998, underlines the government's determination to prevent the economy from dipping again.
A noteworthy feature of the package is that the government has indicated the target years for achieving results for each measure. The emphasis is on measures to help small and medium-sized companies as well as start-up businesses. Describing such companies as "the source of dynamism for the nation's economy," the government aims to increase the number of new companies established each year from the current 140,000 to 240,000 in five years. To do so, the package includes wide-ranging measures in the area of funds, human resources and technology to promote venture businesses.
Its employment measures call for creating jobs at small and medium-sized companies and include a program to further improve human resources in the next century. The government has allocated about 1 trillion yen for the employment-related measures. Specifically, 51 billion yen will be allocated to finance subsidies to small and medium-sized companies that have aggressive hiring policies and 32.1 billion yen to promote employment of workers who have been laid off as a result of corporate restructuring.
In the package, the government also calls for shifting away from conventional public works projects and pledges to promote future-oriented projects, such as those related to information and telecommunications.
For example, the government aims to connect all primary, middle and high schools in the nation to the Internet and enable all students and teachers to use computers in the classroom. Regarding structural reforms, the government plans to advance the implementation of measures stipulated in a three-year deregulation promotion program and aims to introduce a low, fixed-rate fee system for accessing the Internet.
Autumn 1999
