Prime Minister Keizo Obuchi's cabinet this morning approved a government spending package it hopes will provide the decisive boost for the nation's still-wobbly economy.
The package of fiscal stimulus measures contains more than $67 billion in direct new spending, and an assortment of other programs designed to aid entrepreneurs and restore some of the economy's former vigor. The government puts the total value of all the initiatives at about $171 billion.
Obuchi has billed the initiatives as an "economic rebirth package" that will ensure the resurgence of Japanese prosperity in the next century. In an Oct. 29 policy address to parliament, he promised to put forth a "breathtaking" economic program that would "be highly attractive, brimming with originality, hope and appeal."
Private analysts were somewhat less effusive. Many, however, expressed guarded optimism that the Obuchi plan includes enough fiscal support to keep the Japanese economy, the world's second largest, chugging forward in the coming year.
"I think it's a good effort," said Peter Morgan, an economist at HSBC Securities in Tokyo. "I'd call it a perfectly reasonable expansionary fiscal program, given Japan's economic situation."
With the additional public stimulus, Morgan predicts, Japan's economy will achieve a growth rate of 1 percent in the current fiscal year, which ends in March 2000, and 2 percent in the year ending in March 2001. The consensus among private economists is somewhere between Morgan's estimate and the government's more cautious growth target, which calls for the economy to expand by .6 percent this fiscal year.
Buoyed partly by official comments about the stimulus measures, the Nikkei-225 stock index closed Wednesday at a 26-month high of 18,567.87, up 275.71 from the previous day but just over half its December 1989 peak.
Obuchi and his political allies have gone to great lengths to emphasize the significance of a number of initiatives they say will promote the growth of high-tech start-ups and broaden access to personal computers and the Internet.
Economists and investors generally have hailed those proposals as likely to have a positive impact over the long term. The core of Obuchi's plan--and the part of it that most experts say will provide the most significant immediate boost for the economy--is increased spending on public works projects, many of them related to improving Japan's transportation infrastructure.
The spending plan is the ninth major fiscal stimulus package adopted by the Japanese government in the past decade. To finance all that spending, Japan has run up a staggering debt-to-GDP ratio of 118 percent, according to the Organization for Economic Cooperation and Development.
Many experts fear that if the latest plan fails to put the economy in the clear, the government will have few arrows left in its quiver. "It will be almost impossible to do any more to pump up the economy through increased public spending efforts," warned Kazutaka Kirishima, an economist at Sumitomo Life Research Institute.
Jardine Fleming economist Mikihiro Matsuoka said Japan's long reliance on public spending to keep the economy moving forward has become like a "drug addiction" that would "bring huge future costs."
The package also includes substantial loan guarantees aimed at bolstering struggling construction and property companies that are among the most loyal supporters of Obuchi's Liberal Democratic Party. Many private analysts have decried the guarantees as anti-market proposals that pander to key constituents in an election year.
[The core fiscal spending, which has worried bond markets because it must be financed by fresh government debt issuance, includes $32 billion for "social infrastructure projects," such as high-tech infrastructure, and $24 billion for traditional public works, Reuters reported.
[The core spending also contains $8.6 billion for the financial sector, $6.7 billion for smaller firms, $2.9 billion for jobs measures and $1.9 billion for housing loan measures.]
CAPTION: Japanese Prime Minister Keizo Obuchi's new economic stimulus package includes $67 billion in direct new spending.