Japan's Draft Budget Seeks Tougher Spending Limits

United Press International

The Japanese government, placing economic and deficit worries ahead of overseas pledges, Thursday announced an austere 1987 national budget proposal that holds down spending increases for defense and foreign aid.

The Finance Ministry's draft budget also cut or held the line in all domestic sectors including public works--possibly hampering Japan's effort to respond to international demands that it increase domestic growth to reduce its huge trade surplus.

The budget for the 1987 fiscal year beginning April 1 proposed spending of $338 billion, up only $75 million from 1986, the lowest overall increase since 1955.

Lower Net Spending

"We have to live up to expectations, both at home and abroad, for expanding domestic demand," cautioned Finance Minister Kiichi Miyazawa.

Net spending, excluding debt service and subsidies to local governments, was set at $203 billion, down $5 million from fiscal 1986--the fifth straight year-to-year decline.

The draft, after months of negotiation between the Finance Ministry and various government agencies, reflected concern about an economic slowdown brought on by the strong yen and Japan's growing national debt.

The negotiations will resume for finishing touches before the Cabinet approves the budget next week and sends it to Japan's Parliament early next month.

Defense Cuts

In foreign aid, the draft set official development assistance at $4 billion, up only 4.5% from 1986 and the lowest growth rate since 1978.

The Foreign Ministry had requested a 7.8% increase, mindful of calls on Japan to channel more of its huge trade surplus into foreign aid.

In defense, the Finance Ministry cut $562 million from the Japan Defense Agency's request, setting spending at $21.7 billion, up 4.1%.

Defense officials said that without an increase of more than 5%, Japan might not live up to a five-year military buildup plan it began last year under pressure from the Reagan Administration to share more of the regional defense burden.

GNP Forecast Doubted

But Finance Ministry officials were concerned that the economic slowdown could force Japan to break a defense spending ceiling of 1% of gross national product, set in 1976 to reassure neighboring countries that the Japanese would not gain a combat capability.

The draft level would hold defense spending to 0.993% of the estimated GNP for 1987. Critics say, however, the government's forecast of 3.5% growth in GNP next year is too high and the ceiling might still be exceeded.

The Finance Ministry said the government would have to borrow $65 billion in 1987, down $2.8 billion from 1986 but still higher than the cuts needed to meet a government goal of a virtual balanced budget by 1990.

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