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No. 17 — April 30, 1999

 

Feature Article

JAPANESE FISCAL POLICY: TESTING ECONOMIC THEORY AND POLITICAL WILL by Jon Choy

Summary

During the 1990s, policymakers in Japan have watched the country's real economic performance gradually sink from mediocre but acceptable into unprecedented negative territory. Politicians and bureaucrats cannot be accused of sloth in their efforts to counter the downward spiral. Interest rates have been pushed down to record-low levels, and at least a dozen stimulus packages have been announced. To date, however, these initiatives have failed to produce a clear economic turnaround.

Under growing pressure to deliver results, the Liberal Democratic Party-led government has strengthened the stimulative thrust of public policy. The general account budgets and the tax bills for both FY 1998 and FY 1999 were aggressive attempts to reflate the economy by increasing government spending and cutting taxes. As such, these policy responses could provide key evidence for settling the ongoing debate about the appropriate course for Japanese fiscal policy.

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Weekly Review

GUIDELINES BILLS PASS LOWER HOUSE by Barbara Wanner

Prime Minister Keizo Obuchi secured lower house passage April 27 of a package of bills to implement the September 1997 U.S.-Japan defense operational guidelines. With the legislation expected to gain final approval in the upper house by late May, Mr. Obuchi may win a place in history as the leader who delivered on Tokyo's promise to Washington to broaden Japan's role in the bilateral security alliance. The triumph in the House of Representatives ensures that Mr. Obuchi will not go empty-handed to Washington for May 3 summit talks with President Clinton. Lower house action on the guidelines bills will be the Japanese leader's omiyage (gift) to his American host and, some insiders hope, will improve the tenor of a visit that could be dominated by trade disputes and economic policy disagreements.

 

GOVERNMENT REORGANIZATION PLAN ADVANCES by Jon Choy

The Liberal Democratic Party has hammered out a compromise arrangement to reorganize and streamline the central government. The plan appears to satisfy the LDP's many factions and interest groups as well as the New Komeito, the second-largest opposition party. This should clear the way for final Diet action on the implementing legislation. Although the Ministry of Finance will be stripped of some of its duties when the changes take place as early as January 2001, observers inside and outside the government are debating the extent to which MOF's influence actually will be curbed.

 

G-7 CONFAB FINDS SPOT ON CROWDED CALENDAR by Douglas Ostrom

This spring is an exceptionally busy season for international meetings in the nation's capital. Only a day separated the 50th anniversary and summit of the North Atlantic Treaty Organization and the joint World Bank-International Monetary Fund meetings. Prime Minister Keizo Obuchi arrives May 2 for a visit, the preparations for which overlapped the NATO and the World Bank-IMF confabs. Amid this hubbub, the regularly scheduled spring session of the finance ministers and the central bankers of the Group of Seven industrial nations received far less attention than it might have otherwise.

 

JAPAN TO EXPAND DEBT-RELIEF PROGRAM FOR POOREST NATIONS by Marc Castellano

In advance of the spring meetings of the World Bank and the International Monetary Fund, Japanese government officials disclosed that Tokyo is prepared to cancel the official development assistance loans extended to most of the world's 41 poorest countries as long as these nations continue to pursue economic reform and other major creditor countries shoulder part of the cost of a broad debt-forgiveness plan. Japan now provides grant aid to 19 impoverished sub-Saharan economies to help them repay their ODA loans, but it is willing to broaden the program to other countries classified as "heavily indebted poor countries," or HIPCs, by the IMF. Generally, these countries have a per capita gross national product of $695 or less and a debt burden that was equal to 80 percent or more of GNP in 1993.

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