Koizumi Government
Adopts "Solid Policy Framework" to Promote Economic Rebirth
of Japan
Outline of the Basic
Policy on Economic/Fiscal Management and Social and Economic Structural
Reforms
Contents 
This morning the government of Japanese Prime Minister Junichiro Koizumi
adopted a new economic reform program to initiate the technological innovation
and "creative destruction" needed to propel economic growth
in Japan. Containing a comprehensive framework designed to promote a rebirth
of the Japanese economy, this new policy package will help to transfer
human and material resources from inefficient to high-growth sectors.
The coming two to three years
will stand out as a period of concentrated adjustment in the Japanese
economy. Japan must therefore satisfy itself with low economic growth
rates during this time. The resolution of non-performing loans and
the implementation of structural reforms will be pursued as an integrated
package during this period.
Thereafter, Japan will move
to realize economic growth led by private sector demand. Against this
backdrop, fiscal reform measures will be introduced assuring steady
progress to achieve primary balance surpluses. In this way the government
will not have to rely on new borrowing to finance expenditures other
than the servicing of past debt. In pursuing this line of action,
careful attention will be paid to macroeconomic trends and developments.
In addition, a seven-point
structural reform program will be initiated. This includes comprehensive
measures to promote: a) privatization and regulatory reform; b) start-up
and new venture development; c) strengthening of insurance functions;
c) development of Intellectual property; d) lifestyle renewal, including
employment of women and the elderly; and e) autonomy of local governments;
and f) fiscal reform.
The Japan External Trade
Organization (JETRO) provides the following information in order to
examine this program in greater detail.
I)
Structural
Reform and Economic Revitalization
These reforms are designed
to promote the disposal of non-performing loans. Simultaneous attention
will be devoted to developing an environment conducive to innovation
and a framework to encourage the transfer of economic resources to
growth areas.
Drastic Disposal of Non-Performing
Loans (NPLs)
• Through the process
of information disclosure, public pressure will be brought to bear
on major banks to exercise independent judgment in the rapid disposal
of NPLs. This will be accomplished in accordance with the schedule
indicated in the "Emergency Economic Package."
• The condition of NPLs
will be rigorously inspected on a regular basis. A series of new indicators
will be developed to maintain an accurate accounting of all NPLs,
including those that are newly generated.
• Efforts will be made
toward the integrated resolution of NPLs and the problem of excess
corporate liabilities. To develop the necessary legal framework, bankruptcy
laws will be reviewed. It is hoped that the responsible parties will
promptly formulate guidelines for private-sector efforts.
• The Resolution and
Collection Corporation (RCC) will be asked to accept NPLs that major
banks find difficult to dispose of within the two to three year target
period. The functions and organization of RCC will be enhanced to
enable it to accept a wide range of NPLs and to promote the rehabilitation
of businesses deemed eligible for reconstruction.
• Active measures will
be taken to transform NPLs and collateral real estate into securities,
and to promote the development of a liquid market for claims.
• Safety nets will be
enhanced to counter the impact of unemployment generated in the process
of NPL disposal.
• Appropriate financial
measures will be taken to prevent chain-reaction bankruptcies among
small- and medium-sized enterprises, including the provision of guarantees
by Credit Guarantee Associations and lending by public financial institutions.
At the same time, reforms will be undertaken to help small- and medium-sized
enterprises to strengthen their management capabilities.
In addition to the above,
many new measures that seek to promote structural reform and the creation
of new markets and jobs and employment policies are in development.
Rebirth of the Japanese
Economy
1] Foundation-Building for
a Science and Technology-Based Nation and Global Leadership in IT
- IT-related measures will
be actively implemented, as will the Basic Plan for Science and
Technology. This includes the promotion of R&D in four priority
areas, including life sciences.
- Corporate R&D will be
encouraged and the transfer of technologies from the public sector
and universities to private corporations will be enhanced. Measures
will be considered for developing a supportive environment for start-ups
that create new businesses based on new technologies.
2] Creation of a Nation Rich
in Human Resources
- The incorporation of
national universities will be promoted. Job training systems will
be upgraded through greater utilization of IT and support of self-improvement
programs.
3] Developing an Environment
Conducive to Private-Sector Initiatives
- Further competition will
be promoted in such fields as telecommunications and energy.
- The investigative capabilities
of the Fair Trade Commission will be enhanced. This includes new
measures to introduce competition in the IT and telecommunications
sectors ahead of schedule.
4] From Regulatory Reform
to Systemic Reform
- Systemic reforms will
be promoted, including reform of the judicial system and a review
of special public corporations.
5] Structural Reform of the
Capital Market
- The securities market
will be reformed, including tax reform, to promote investment.
- Structural reform of
the real estate market will be promoted through such means as the
21st Century Urban Rejuvenation Project.
6] Structural Reform of the
Labor Market
- Structural reform of
the labor market will be promoted, including support for skills
development, the development of diverse employment formats, and
the smooth implementation of job training.
7] Tax Reform
- The tax system will be
reformed to create a system neutral to corporate economic activities.
• The immediate goal
in the FY2002 GOJ budget will be to keep the volume of new government
bond issues to below Ç30 trillion yen. Rigorous efforts will
be made to initiate administrative and fiscal reforms, including a
thorough review of expenditures and related systems.
• Subsequently, it will
be necessary to engage in full-fledged fiscal reconstruction, including
the adoption of fiscal balance surpluses as a primary goal.
• Structural reform
will not stop at the mere reduction of current expenditures, but will
also include reform of the contents of expenditures and related systems.
• It will also be necessary
to pay careful attention to macroeconomic trends to determine the
speed by which fiscal deficits can be addressed. In other words, the
pace at which programs for achieving primary balance surpluses are
implemented and the rate at which the GDP ratio of outstanding government
debt is controlled, must be determined in the context of evolving
macroeconomic conditions.
2) Improvement
of Social Infrastructure for the New Century -- Pursuing Greater Effectiveness
and Efficiency
Uniformity and rigidity in
public works and the scale of investment will be reviewed. A framework
will be developed to create social infrastructure with a strong impact.
Such investments will be based on a clearly stated vision and will
be undertaken using the most efficient means available.
• Efforts will be made
to overcome rigidity in public works through the review of earmarked
revenues and long-term sectoral plans, and a shift toward policy instruments
other than public works investment.
National and Local Governments
as Principal Parties in Public Works
• The relationship between
the national and local governments will be reviewed. Cost-benefit
relations in public works will be analyzed.
• To provide local governments
with greater incentives to reduce expenditures, the use of local allocation
taxes in deferring the redemption burden of local government bonds
will be reviewed.
Prioritization in Social
Infrastructure Development
• The following areas
will be prioritized for social infrastructure development: a)
Development of recycling-based social and economic systems, b) Responding
to the aging of society, including development of barrier-free facilities
and systems, c) Community development and the revitalization of unique
local governments, d) Urban rejuvenation: development of attractive
and internationally competitive cities, e) Promotion of science and
technology, f) Human resources development and education.
Pursuing Greater Efficiency
and Transparency in Public Works
• Projects will be selected
in accordance with strict standards that reflect pre- and post-project
evaluations. Extensive utilization of project finance mechanisms such
as privately funded initiatives will be pursued. Concerted efforts
will be made to promote competition and reduce costs in the implementation
stage, and to expand the scope of electronic bidding.
Compatibility with Economic/Fiscal
Conditions
• The level of Japan's
public works investments exceeds those of other major countries. It
is necessary to reduce the ratio of public works investments to GDP
over the medium term, taking into consideration current levels in
other major countries.
3) Reforming
the Social Security System -- Promoting Security and Stability in
Peoples' Lives
An easy-to-understand social
security system will be developed that takes into account the values
of "fairness," "efficiency," and "sustainability."
Special importance will be attached to achieving a balance in trans-generational
benefits and burdens, responding to increased diversity in employment
formats and the division of responsibilities between the public and
private sectors. Additional attention will be directed to the promotion
of systemic and regulatory reforms.
Common Challenges in the
Social Security System
• The introduction of
social security serial numbers and the development of an individual
social security accounting system will be examined. A review will
be undertaken of the division of functions among pensions, medical
and nursing care. Regulatory reform will be promoted in these three
core areas.
Reforming the Medical
System
• The management format
of medical institutions will be reviewed, including their transition
to joint-stock companies. Greater efficiency in health and medical
services will be promoted through the (provisionally named) "Program
to Raise the Efficiency of Medical Services". This will include
a review of current remuneration systems.
• Medical costs will
be reduced while maintaining an appropriate standard of quality to
control total medical expenditures.
Reforming the Pension
System
• The pension system
will be reviewed in response to growing diversity in employment formats
and lifecycles.
• Taxes on pension benefits
will be reviewed in order to maintain inter-generational and intra-generational
fairness.
Support for Nursing Care
and Childcare
• The supply of efficient
and high quality nursing care services will be maintained through
the introduction of market principles.
• Regulatory reform
will be promoted in the area of preschool childcare services. This
includes private management of public nursery schools and the expansion
of the scope of childcare services. Strategies will also be pursued
to achieve zero waiting lists for nursery school admission.
4) Competition
Among Unique Local Governments -- Enhanced Autonomy in National and
Local Government Relations
The role of the national
government in local affairs will be reviewed to minimize the possibility
of excessive intervention. Steps will be taken to rectify the system
to allow local governments to develop administrative services and
pursue community development programs based on their own judgment
and financial resources.
Establishing Self-Reliant
Local Governments
• The merging of municipalities
will be promoted. The functions and responsibilities of municipalities
in relation to their scale will be examined with the goal of moving
toward a more diverse framework.
Establishing Self-Reliant
Decision-Making by Local Governments
• The national government
will be responsible for providing a minimum standard of necessary
support, while local governments will be responsible for providing
other locally required services. In this way, the division of responsibility
between the national and local governments will be more clearly defined
and the relation between costs and benefits will be clarified.
Fundamental Reform of
Local Finances
• To provide local governments
with greater incentives to reduce expenditures, the use of local allocation
taxes in deferring the redemption burden of local government bonds
will be reviewed.
• The local allocation
tax system should be simplified so that allocation amounts can be
determined in accordance with objective and straightforward standards.
• Subsidies and local
allocation taxes will be reviewed. The allocation of taxable sources
between the national and local governments will be fundamentally reviewed
and their current status examined, including the transfer of taxable
resources.
• Introduction of a
taxation system based on corporate revenues and employees will be
further considered while soliciting opinions from various quarters,
taking into account the previous examination of such issues as the
treatment of small- and medium-sized corporations and their impact
on employment. The introduction of such a system will be timed in
light of prevailing economic conditions.
Establishing Sound Local
Finances
• Levels and contents
of local government expenditures will be reviewed in tandem with efforts
to restore fiscal soundness in the national government.
5)
Medium-Term Outlook for Economic/Fiscal Policies and Reforming the
Policy Process
Economic growth will be suppressed
during the coming two to three years while efforts are made toward
the final disposal of NPLs. However, over the medium to long terms,
the Japanese economy is expected to realize private-demand-led economic
growth.
Formulation of Medium-
to Long-Term Economic/Fiscal Plan and Revamping of the Budget Process
• The first medium-term
goal to be pursued in fiscal reconstruction will be the achievement
of primary balance surpluses..
• A medium- to long-term
economic/fiscal plan shall be formulated and will be revised on an
annual basis.
• Government ministries
and agencies will formulate budget requests conforming to the basic
directions established by the Council on Economic and Fiscal Policy.
• The Ministry of Finance
will be responsible for formulating a concrete budget while taking
into account cabinet adjustments for new areas of expenditure that
straddle the jurisdictions of two or more ministries and agencies.
Reforming the Policy Process
• Government ministries
and agencies will undertake the development of systemic designs in
accordance with the recommendations of the Council on Economic and
Fiscal Policy. The Council will monitor the progress made by the ministries
and agencies in this area.
• New administrative
methods will be introduced, including new public management methods.
6)
Basic Principles of the FY2002 GOJ Budget
Current Economic Conditions
and Outlook
• Economic conditions
are deteriorating. The economic growth rate in FY2001 and FY2002 is
expected to remain at low levels.
• GDP growth in FY2001
is expected to fall significantly below initial government projections.
Government of Japan FY2002
Budget
• The volume of government
bond issues will be kept below ¥30 trillion.
• Priority will be assigned
to initiatives that can exhibit marked positive response to policy
action. These include: a) Responding to environmental problems, including
the development of recycling-based systems; b) Addressing the implications
of declining birth rates and the aging of the Japanese population;
c) Community development and the revitalization of autonomous local
governments; d) Urban rejuvenation, including the development of attractive
and internationally competitive cities; e) Promotion of science and
technology, including the identification of four priority areas, including
life sciences; f) Human resources development and education; and g)
Transforming Japan into a global leader in IT.
• The development of
social infrastructure, as well as review of the social security system
and local finances, will be pursued in accordance with this "Solid
Policy Framework."
• To minimize increases
in unemployment due to the expected impact of NPL disposal, measures
will be taken to expand employment opportunities through systemic
reform. This includes the creation of new jobs in service industries
and other areas and the promotion of increased labor mobility. Simultaneously,
safety nets will be enhanced through such measures as upgraded support
for workers leaving their jobs or transferring to new ones. Furthermore,
employment measures will be integrated with structural reforms that
generate a strong impact on the creation of new markets and jobs.
• The Council on Economic
and Fiscal Policy will continue its examination of a broad range of
issues and problems. This includes core areas pertaining to fiscal
structural reform, such as social infrastructure development, the
social security system, and national and local government relations.
Furthermore, the Council will continue to examine the implementation
of measures to help achieve primary balance surpluses, including the
clear formulation of a timetable. The Council will aim to present
its concrete proposals concerning these matters before the end of
2001.
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