Bill to Stimulate Japan’s Economy OKd

After weeks of wrangling over political scandals, the Japanese Parliament on Thursday passed a crucial spending bill, part of an $86-billion package to jolt the economy out of its doldrums.

Lawmakers, scrambling until nearly midnight on the last day of this year’s special parliamentary session, also approved a partial package of political reform bills aimed at rectifying the unequal weight of rural and urban votes.

Nervous about declining tax revenues in the face of Japan’s worst economic slump since the 1973-74 oil shortages, lawmakers actually cut overall spending by the central government.

But under pressure to stimulate domestic spending and reduce Japan’s politically sensitive trade surplus, they also approved $15.3 billion for improving roads, housing and other public works, a 4.8% increase over the previous year.

“This is what was promised, and the government finally got its act together,” said Graeme McDonald, an analyst with James Capel Pacific Ltd. in Tokyo.

He referred to the tumult that has gripped Parliament as it and the nation have reacted to widening reports of links between top politicians and gangsters.

But other analysts warned that the new government spending is not nearly enough to restore confidence in the faltering economy, which has been weakened by plunging land and stock values, struggling banks saddled with billions of dollars in bad debt and sluggish consumer spending.

“In order to create that critical threshold, to stimulate further economic growth, we will need a second supplementary budget next year,” said Bernard Siman, an analyst with Jardine Fleming Securities Ltd.

Japan recently recorded its second consecutive quarter of negative growth for the first time since the 1973-74 oil shock. Newspapers are filled with grim news about the struggles of businesses from department stores to discos.

Officials have all but abandoned hope of achieving the official target of a 3.5% growth rate.

“I don’t think we can reasonably expect to see growth of more than 2%,” said Yasumori Takahashi, a senior economist at the Industrial Bank of Japan. Other analysts expect even lower rates.

Many economists and business leaders have called for more decisive action, such as cuts in interest rates or income tax. But Jan VanDenBerg, senior economist with Merrill Lynch Securities Inc., argued that the ruling party’s internal disarray--and the plunge in public support to just 12% for Prime Minister Kiichi Miyazawa’s administration--has strengthened the hand of the Finance Ministry’s fiscally conservative bureaucrats.

Those bureaucrats are less responsive than are politicians of the ruling Liberal Democratic Party to calls for stimulating the economy to bring down Japan’s politically sensitive trade surpluses with the United States and other nations, VanDenBerg said. As a result, she predicted that the trade surplus will balloon even more as Japan hunkers down for as many as five years of sluggish growth.

“Everyone has been amazed and disappointed at the slowness of interest rate cuts and the minuscule level of fiscal stimulus,” she said.

“The implication for the whole global economy is not good when you have one major economy politically situated to withstand a fairly long and harsh slowdown.”

But the Bank of Japan appears poised for a cut in the official discount rate--the rate it charges member banks for loans, setting a floor for commercial interest rates. “We cannot allow the economy to continue crawling through a trough for too long,” a senior bank official said.