Staff writer An election looms this year and criticism is mounting that the 85 trillion yen fiscal 2000 budget is nothing more than a gigantic pork barrel. As the government debt mounts and more public works outlays are earmarked, the ruling bloc, which defends this policy, is squaring off in the political arena against the opposition, which condemns it. At stake could be the prime ministership. Opposition parties riding a wave of public criticism of government spending believe that ever-expanding, good-for-nothing construction projects could soon devastate the central and local governments, which are saddled with mounting debts and on the brink of bankruptcy. The Liberal Democratic Party is calling the expanded budget an indispensable "final push" to put the economy on a path to steady recovery. Fiscal reforms should follow economic stabilization, the LDP argues. The Lower House election must be held before October, so the two sides are stepping up their criticism of each other. Recent Diet sessions have witnessed stinging exchanges, including heated debates in the Budget Committee and the "Question Time" one-on-one session between the prime minister and heads of the opposition parties. The Democratic Party of Japan, the largest opposition force, is ready to wage an election campaign that will focus on accusing the ruling camp of pork barrel politics in a bid to oust the LDP-Liberal Party-New Komeito ruling coalition. Some LDP members, most notably former LDP Secretary General Koichi Kato, have rebelled against top party executives by advocating fiscal austerity, in an apparent effort to succeed Prime Minister Keizo Obuchi if his huge pump-priming policy fails. "They think it will benefit them if they begin advocating structural reforms now," said a sour-faced LDP executive in favor of pump-priming public works. Whether fiscal reform advocates or pump-priming champions win out is a question yet to be answered. Experts remain divided over when to start fiscal structural reforms, but they all agree radical ones will be necessary sooner or later to save the bond-dependent national coffers from financial crisis. Tatsushi Shikano, a senior economist at Sanwa Research Institute and Consulting Corp., argued that a stimulus package of 85 trillion yen -- or a little larger -- is necessary to give the current anemic economic recovery a boost. He predicted the yen's value and oil prices to rise this year, which will weaken the effects of government pump-priming measures. "Demand in the private sector will remain weak for the time being," Shikano said. "During this period, (government spending) including public works spending, should support the economy." Shikano said the government is right to introduce measures to secure economic recovery before reforming the fiscal structure to reduce spending and the national debt. "Over two or three years, economic recovery should be the priority," he said. Kazuo Yoshida, a professor of economics at Kyoto University, disagrees. He claims the government's massive public works spending on pork-barrel projects has merely kept alive ailing construction companies that would otherwise not survive. The stimulus package for fiscal 1998, for example, which was worth 43 trillion yen, accounted for 9 percent of the gross national product for that year. Despite massive government spending, the result was miserable. The economy suffered minus growth of 2 percent in 1998, which Yoshida argued clearly showed that the traditional public works remedy for economic recovery no longer works. "(Since 1992,) the government has spent 120 trillion yen on pump-priming measures, but it didn't help the economy recover," Yoshida says. "It is already clear that the problem is not a shortage of demand, but other structural factors." Of the 120 trillion yen, about 70 trillion yen was spent on public works projects, including building airports, bridges, roads and other infrastructure mainly in agricultural areas. Yoshida argued that the government keeps expanding public works to satisfy vested interest at the expense of taxpayers. Many politicians, particularly those from rural areas, are elected with the backing of organizations supported by construction companies. Takayoshi Igarashi, a professor of politics at Tokyo's Hosei University, argues that those politicians and interest groups have made public works ever-growing, extremely inflexible and inefficient. The nature of such projects has changed little over the past 20 years despite accumulated social infrastructure and drastic economic changes in Japan, he notes. In 1980, road construction accounted for 30.1 percent of public works outlays, dams and other construction works in mountains and rivers 17.4 percent and 15.2 percent was for building ports and airports. In fiscal 2000, the ratios remain almost identical despite pressing needs to increase the welfare infrastructure and to adopt information technology, Igarashi says. Public works spending on information technology will amount to 140 billion yen in fiscal 2000, accounting for only 1.5 percent of the 9.43 trillion yen total. Yoshida of Kyoto University warned that the government will soon have to stop issuing huge amounts of national bonds to finance public works, because of the nation's mounting long-term debts -- worth 645 trillion yen -- and falling international confidence in the bonds. This fiscal year's national bond issues are expected to reach 38.62 trillion yen, exceeding the net tax revenues of the central government -- which excludes income transfers to local governments -- for the first time ever. The Bank of Japan has retained an extraordinary policy of keeping the short-term rate effectively at zero to stabilize the financial system. Once the central bank drops this policy, the interest rate of the national bonds will immediately rise, making it impossible for the central government to keep financing public works, Yoshida argues. On. Feb. 17, Moody's Investors Service Inc., an influential credit-rating agency based in the United States, announced it will consider downgrading Japan's national bonds. Moody's said the review was "prompted by structural problems in Japan's economy that have resulted in a level of public sector debt that will soon be the highest, relative to the GDP, among the advanced industrial economies." Yoshida calls the review another warning signal, adding, "Japan is already entering a danger zone. "If you reduce public works right now, it would surely increase unemployment in the construction industry," he says. "But now you have to compare which risk is greater, cuts in public works or crashed confidence in national bonds?"
