Ja­pan moves to avert fis­cal cliff

The Pak Banker - - Front Page -


Ja­pan’s rul­ing and op­po­si­tion par­ties agreed on Wed­nes­day to quickly pass a deficit fund­ing bill in par­lia­ment, in a move that will keep the coun­try from fall­ing off its ver­sion of a ‘fis­cal cliff’ as the prime min­is­ter eyes elec­tions as early as next month. The bill is needed to bor­row some $480 bil­lion and fund roughly 40 per cent of this fis­cal year’s bud­get. With­out it, the gov­ern­ment could run out of money by the end of this month and would have to stop debt auc­tions next month, just as the econ­omy teeters on the brink of a re­ces­sion. Un­til re­cently the op­po­si­tion has used its con­trol of the up­per house to stall the bill in a bid to press Prime Min­is­ter Yoshi­hiko Noda to call an elec­tion. Noda had promised in Au­gust to go to the polls “soon” in or­der to win sup­port for an un­pop­u­lar plan to hike the sales tax.

Hop­ing to force Noda’s hand, how­ever, the main op­po­si­tion Lib­eral Demo­cratic Party (LDP) and its for­mer coali­tion ally New Komeito have changed tack and looked poised to pass the deficit bond bill Noda has set as a con­di­tion for call­ing elec­tions.

“I’m glad that we have demon­strated the wis­dom of par­lia­ment by over­com­ing dif­fer­ences be­tween rul­ing and op­po­si­tion par­ties,” Goshi Hosono, pol­icy af­fairs chief of the rul­ing Demo­cratic Party of Ja­pan (DPJ), told re­porters.

“We man­aged to show the peo­ple even at the last minute that par­lia­ment is func­tion­ing,” he said, af­ter strik­ing a deal with his coun­ter­parts from the two op­po­si­tion par­ties.

The bill is expected to pass in the lower house as early as Thurs­day and looks set to be en­acted in the up­per house with the back­ing of the two op­po­si­tion par­ties dur­ing the cur­rent par­lia­ment ses­sion that ends on Novem­ber 30.

In reach­ing the deal, the Democrats made con­ces­sions to the op­po­si­tion par­ties by promis­ing to re­view spend­ing ear­marked for the cur­rent fis­cal year and curb deficit bond is­suance.

The three par­ties agreed to al­low is­suance of deficit bonds through the fis­cal year that starts in April 2015, mean­ing that pas­sage of deficit bond bills would be se­cured with­out the bills be­ing taken as a po­lit­i­cal hostage in the com­ing few years.

Coun­ter­ing a con­cern that guar­an­tee­ing is­suance of deficit bonds may jeop­ar­dise fis­cal dis­ci­pline, the three par­ties said in a state­ment that the deal was aimed at sta­bil­is­ing fis­cal man­age­ment on con­di­tion that the gov­ern­ment keeps such bond is­suance un­der con­trol and main­tains sus­tain­able fi­nances.

The three par­ties also said they would seek a swift end to de­fer­rals on gov­ern­ment spend­ing such as on tax grants to ru­ral gov­ern­ments, which have been put in place since Septem­ber to avoid a cash crunch due to the dead­lock over the fund­ing bill. Fi­nance Min­is­ter Koriki Jo­jima told re­porters on Wed­nes­day that swift pas­sage of the bill is badly needed as the gov­ern­ment is con­sid­er­ing craft­ing an ex­tra bud­get at some point to stim­u­late the econ­omy af­ter a con­trac­tion in the third quar­ter.

Noda, un­der op­po­si­tion pres­sure to call an early poll, looks to be lean­ing to­wards hold­ing one as early as next month, af­ter pledg­ing sup­port for a con­tro­ver­sial US-led free trade pact.

But some in his party would pre­fer to de­lay the day of reck­on­ing with sup­port for his gov­ern­ment at its low­est since Noda took of­fice last year.

The risk that Ja­pan could lurch over its “fis­cal cliff” — a term coined to de­scribe mas­sive tax hikes and spend­ing cuts that could hit the United States early next year — has prompted fresh warn­ings from rat­ing agen­cies that a pro­longed po­lit­i­cal grid­lock could prompt credit downgrades.

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