Japanese Recovery Too Weak to Pare Spending, Vice Minister Says

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Tue, 26 Sep 2000, 9:57pm EDT

Japanese Recovery Too Weak to Pare Spending, Vice Minister Says

By Mayumi Otsuma

Prague, Sept. 27 (Bloomberg) -- Japan's economic recovery is too weak to survive a cut in government spending -- even if gross domestic product expands at double the government's forecast this year, Japan's vice finance minister said.

The world's No. 2 economy will probably grow 2 percent in the year ending March 31, according to the median estimate of 31 economists surveyed by Bloomberg News. The government forecasts growth of 1 percent.

``Even if we see 2 percent growth this year, it won't mean we can immediately embark on budget deficit reduction,'' Vice Finance Minister Yoshitaka Murata said in an interview at the annual meeting of the International Monetary Fund in Prague. ``We have to really ensure that the economy can stay on an expansionary path before starting deficit reduction.''

``We haven't reached that stage yet,'' he said. Taichi Sakaiya, Japan's chief economic planner, said last week that the 4 trillion yen supplementary budget unveiled Sept. 20 could be the last spending spree aimed at supporting the economy.

Japan has spent about 130 trillion yen the past eight years -- on top of its regular budgets -- to shore up the economy, ailing companies and shaky consumer confidence by handing out contracts for bridges, roads, museums, town halls and other pet projects.

`We Were Desperate'

This year's extra allotment to public works is about a quarter the size of last year, signaling the government thinks the economy doesn't need so much help to sustain its recovery. Japan can ill-afford to set aside much more cash because the nation's debt is nearing 130 percent of total economic output.

``The situation is changing compared to last year, when we were desperate and had to depend on an economic stimulus package,'' Murata said. Consumer spending is on the mend and companies plan to invest more for the first time in two years.

The spending has helped. The economy grew 1 percent in the three months ended June 30 from the first quarter, when it grew 2.5 percent. Japan pulled out of a two-year recession at the beginning of last year, before the economy went into reverse again in the second half of last year.

The government wants to ensure the fitful recovery takes hold before draining money from the economy, Murata said. Even so, that comes with a price. Government debt has swelled to the biggest in the world, and is expected to reach 645 trillion yen ($6 trillion) in March next year.

The ballooning debt has prompted Moody's Investors Service to twice cut the credit rating on Japan's yen-denominated bonds, most recently to ``Aa2'' earlier this month.

http://quote.bloomberg.com/fgcgi.cgi?ptitle=Top%20Financial%20News&s1=blk&tp=ad_topright_topfin&T=markets_bfgcgi_content99.ht&s2=blk&bt=blk&s=AOdFMqRaRSmFwYW5l

-- Carl Jenkins (Somewherepress@aol.com), September 26, 2000

Answers

When they say the nation's debt is nearing 130% of its economic output, that is frightening.

-- Uncle Fred (dogboy45@bigfoot.com), September 26, 2000.

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