USA | Japan Proposes Aggressive Recovery Plan

Posted on July 29, 2011

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USA | NEW YORK TIMES | 29 July 2011

TOKYO — Japan on Friday proposed an aggressive plan to spend 13 trillion yen ($167 billion) over five years in hopes of bringing about a swift recovery after its recent natural and nuclear disasters.

The Japanese government is desperate to pull the economy out of a recession stemming from the March 11 earthquake and tsunami as well as the problems related to the Fukushima nuclear plant. The catastrophes damaged factories, disrupted supply chains, caused a crippling power shortage and curtailed consumer spending.

But the government has also been pressed to show that it will be able to finance such a plan. After years of stimulus spending, Japan’s public debt is already twice the size of its $5 trillion economy.

Addressing the nation Friday, Prime Minister Naoto Kan said that the government would find the money to support a robust reconstruction drive.

“This plan takes us beyond immediate recovery to the next stage, full-scale reconstruction,” Mr. Kan said, adding: “We will also fulfill the responsibility to secure funds.”

Japan is still reeling from the sheer extent of the damage unfurled by its recent earthquake, tsunami and subsequent nuclear crisis. At the end of June, damage from the quake and tsunami alone had already reached $210 billion, according to estimates by Munich Re, a German reinsurance company.

That makes the events of March 11 the world’s costliest disaster, surpassing Hurricane Katrina, which caused about $125 billion in economic damage, according to Munich Re.

The government is also contributing to some of the billions of dollars of compensation to be paid out to victims of the accident at the Fukushima Daiichi Nuclear Power Plant, owned by Tokyo Electric Power.

In two emergency budgets, the government has already earmarked 6 trillion yen ($76.8 billion), focusing on financial aid to local governments, compensation payments linked to the nuclear accident, and relief for families and businesses.

According to the government plan released Friday, new spending will include money for new roads and ports, support for farming and fisheries in the region and help for small- and medium-size companies.

In particular, the plan would provide incentives for companies to rebuild their factories in the Tohoku region, a bid to stem a stream of companies that are moving their operations overseas. In helping to rebuild towns and villages along Tohoku’s ravaged coast, in northeast Japan, the government will work to support the region’s aging population, providing public housing to those who are unable to rebuild their homes, the plan said.

The plan would require reconstruction bonds and extra tax revenue of up to 10 trillion yen, the government has suggested, though it did not include that figure in the final plan. It did not specify which taxes might be raised. To secure further financing, the government will consider selling shares in the phone company NTT and Japan Tobacco, Tatsuo Hirano, the minister in charge of reconstruction, told reporters. The Japanese government owns 37 percent of phone company NTT, a stake worth 2.1 trillion yen, and 50 percent of Japan Tobacco, worth 1.7 trillion yen.

Mr. Kan, whose ratings have nosedived over his handling of the disaster response so far, may not be around to see much of the plan in action. The leader survived a vote of no confidence in June only after offering a vague suggestion that he might resign.

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Posted in: USA