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ECONOMY > Economic Policy

Editorial: No hope for bloated economic stimulus that only looks good on the surface

  • August 3, 2016
  • , Tokyo Shimbun , p. 5
  • Translation

The government has approved a 28.1 trillion yen economic package. This seemingly bloated amount is a typical example of Abenomics, which prioritizes market reactions. What the government truly needs to do is to work out measures that can produce results with small amounts of money.

 

Prime Minister Shinzo Abe pledged to “run the engine of Abenomics at a full throttle” during the recent House of Councillors election. He probably wants to stress that this campaign pledge has won the public mandate. The fiscal investment and loan program (FILP) has been curtailed as it was criticized as a source of wasteful public works projects, but the government will tap into it for 6 trillion yen. This gives the impression that the government went to great lengths to pad out the package.

 

But the government is in dire fiscal straits and can no longer continue its unchecked borrowing spree. To reflect this, fiscal spending is kept at a total of 6.2 trillion yen, which combines both the supplementary budget for fiscal 2016 and an initial budget for fiscal 2017. Instead, the government resorted to the FLIP as a “second budget.”

 

The government uses the FLIP as a convenient “purse,” as it is not a part of the general account. But the program once swelled by sourcing money from postal savings and postal insurance reserves and was funneled into wasteful public works projects. It has been placed under reform since 2001.

 

During the Upper House election campaign, the Liberal Democratic Party vowed to secure about 30 trillion yen over the next five years by tapping into the FLIP. It collected votes by leveraging industry organizations. There is no denying that the stimulus functioned as a “carrot” and a sign of appreciation for them. The return of the old LDP is on the horizon.

 

The FLIP is designed to fund projects that are difficult to achieve using the private sector alone. It is strange for 3 trillion yen to be lent to JR Tokai to move up the schedule to extend the central maglev bullet train line to Osaka. The railway operator has been saying that it can handle the project without the help of the government.

 

The government had mapped out a series of economic measures during the era of “lost two decades.” But these were only focused on stimulating the economy and not compiled in a way that would help the economy grow in the mid- to long term. Lawmakers and bureaucrats who prioritize the interests of their organizations attached importance to size. The contents were left in the hands of the bureaucrats. In addition, Abenomics has artificially kept interest rates low and paralyzed market functions and fiscal integrity.

 

The government doesn’t have the luxury to spend money on pork-barreling and old-fashioned public works projects. There are measures that can produce results using small amounts of money. For example, regulations can be eased to accelerate the use of renewable energy sources, and reforms can be implemented to change the mindsets of businesses that rely on the government and encourage them to invest. There is no hope for measures that only look good on the surface. (Abridged)

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