Who Pays for It?

The Prime Minister, Shinzo Abe, on Friday launched a “rocket” loading the Abenomics policies, a package of urgent economic measures. It contains a huge amount of old-style construction projects, which include building roads and bridges, reinforcing old buildings to withstand disasters, or supporting local governments for their maintenance of infrastructures. The government pours ¥10.2 trillion, or $115 billion, into those projects which are not assured to work for economic recovery. Since most spending for them will be compensated by newly issued national bonds, which may cause worsening national finance, there comes a big question in everyone’s mind: Who pays for it? But nobody in the administration answers.

Abe has been emphasizing a rocket start of his new administration, trying to make differences from former DPJ government. The package decided by his cabinet on Friday marked a change of policy direction from welfare to construction industries. Even though policy makers insist on their innovative way of spending, that money-disseminative policy would be returning to old LDP politics, because the party has been heavily dependent on support from construction industries in every part of Japan.

Former DPJ administration set a limit on new delivery of annual national bonds, which was ¥44 trillion. Abe’s urgent economic measures require national bonds worth of ¥5.2 trillion, and total amount for FY 2012 is rising to ¥50 trillion. “The measures will raise our real gross domestic project by 2% and create 600 thousand new jobs,” he appealed in press conference on Friday. But if it fails in making growth and results in accumulating more national debts, Japan will follow the same course as the Greeks experienced.

Abe insists that the problem of national debt will be addressed by the Economic and Financial Consultation Conference before the end of June. He also promised that he would pursue getting the primary balance black. But the actual time schedule of that is unclear. One thing apparent here is he wants to discontinue DPJ policy, which has been to avoid vesting huge burden on the shoulders of our future generation.

Possible reason why he is reluctant to take close look at the negative elements of his measures is not to discourage current surge of stock market. The Nikkei average has jumped up from around ¥9,000 of last November to nearly ¥11,000 now. This active market became an engine for his administration, and he observes a victory in coming election of the House of Councillors on July. So, it is his requirement to make voters unaware of the negative aspect of his policy handling. What’s waiting for us is heavy debt to compensate long after this administration ends.