Japan OKs $116 billion stimulus package on eve of Miyazawa-Clinton meeting

April 14, 1993|By John E. Woodruff | John E. Woodruff,Tokyo Bureau

TOKYO -- Japan's Cabinet approved a record $116.8-billion in economic pump-priming last night -- a move designed as much to shape relations with the United States as it is to generate a surge in the Japanese economy.

At the same time, the government appeared ready to make another uncomfortable gesture to the West -- and especially the United States -- by allocating about $1.8 billion in aid to Russia despite a territorial dispute with Moscow over the Kuril Islands in the North Pacific.

The $116.8 billion anti-recession package of public works and tax relief measures will be a vital talking point for Prime Minister Kiichi Miyazawa on Friday when he arrives in Washington for his first meetings with President Clinton.

It appeared likely to satisfy Washington's demands that Tokyo pull Japan out of recession to generate more imports and help reduce $100 billion-a-year Japanese trade surpluses that have set new records almost every quarter for a year and a half.

Just yesterday, the government announced that the trade surplus in March climbed to a record $13.78 billion, up 26 percent on the year and marking the 27th consecutive month of increases.

U.S. Treasury Secretary Lloyd Bentsen said here last night that Washington hoped the stimulus package would help "better balance the benefits of trade between Japan and the U.S."

But Japan also served notice that pump-priming is all the tangible help Mr. Clinton can expect from Mr. Miyazawa on trade imbalances this weekend.

"I think the stimulus package is enough" for Mr. Miyazawa to take to Washington, Noboru Hatakeyama, Japan's top foreign trade bureaucrat, said yesterday. "There is absolutely no room" to set new targets or goals for Japanese imports in key trade sectors, as urged in some proposals being discussed within the Clinton administration, he added.

This is a difficult time for Mr. Miyazawa to be generous. He will arrive in Washington as the head of a governing party deeply undermined by interminable corruption scandals. He has been groping for a month for means to show his countrymen he is strong in the face of foreign pressure.

But he has had to give ground repeatedly, not only on the trade surplus but also on pressure for aid to Russia.

Mr. Bentsen and Secretary of State Warren M. Christopher arrived here yesterday as foreign and finance ministers from Russia and the world's seven wealthiest industrial nations gathered to piece together an expected $30 billion-to-$40 billion package to bolster Russia's transition to democracy and free markets.

The Russian rescue package has been another prime source of contention between Japan and its U.S. and European G-7 partners.

Tokyo long resisted pledging new aid to Russia, demanding that Moscow first give back the Kurils, four bleak islands grabbed by the Soviets just after Japan surrendered at the end of World War II.

Germany and the United States put on weeks of pressure for an increased Japanese contribution. In careful diplomatic phrases, they warned Mr. Miyazawa that Japan might squander its own chance at a long-sought larger voice in world affairs if its territorial dispute derailed G-7 attempts to support Russian reforms.

Japan agreed only last month to be host to this week's meeting to showcase Western support for President Boris N. Yeltsin, who is fighting for political survival.

Yesterday, Japanese news reports said the Miyazawa government will offer Russia $1.8 billion in aid, topping the $1.6 billion Mr. Clinton pledged at his Vancouver summit with Mr. Yeltsin.

Kabun Muto, the new foreign minister, said yesterday that Tokyo relented because it concluded Russia's plight is so serious that, "Japan must not be seen to be engaging in a transaction" to regain land when it gives aid.

Yesterday's announcement of a $116.8 billion domestic stimulus package concluded more than a week of daily speculation that finally sent the Tokyo Stock Exchange roaring into a 4.3-percent rally yesterday on news reports of its final size.

The market's most-watched index, the Nikkei-225, gained 858.15 points, to 20,740.29, its first close above 20,000 this year and its highest since March 1992. It has now gained about 20 percent in a month and 44.9 percent since Aug. 18, when it closed at 14,309.41.

Japan "is in a very fortunate position," Mr. Bentsen said last night, because it is the only big industrial country with a budget surplus, has a national debt "a fraction of the other G-7 countries" and enjoys "a very substantial trade surplus."

That combination makes Japan the best candidate of all the G-7 countries to engage in pump-priming to help pull the world out of its economic doldrums, he said.

Yesterday's stimulus plan aims to get the economy on track toward the government's 3.3 percent GNP growth target for the fiscal year that began April 1.

In the year that ended March 31, government stimulus repeatedly proved too little and too late and the GNP grew at 1.6 percent, far under the 3.5 percent Mr. Miyazawa promised to President George Bush.

It is Japan's third stimulus plan in just over a year and the second record-setting package in eight months. Last August, the Cabinet adopted an $86.6 billion package.

The heart of the new package will be $94 billion in infrastructure projects, including about $10 billion for education, research, medical and other social projects.

Another $1.3 billion will go into tax cuts for housing, education and capital investment by small and medium-sized industries.

Mr. Hatakeyama, the top trade official, estimated that $116.8 billion in pump-priming, equal to 2.7 percent of Japan's gross national product, might eventually trim the trade surplus by $8 billion or $10 billion a year.

Officials said its impact will begin to be felt in Japan's economy in the second half of this year and in trade figures a few months afterward.

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