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Feb 4, 2000 - 02:20 PM

Japan's Growing Debt Could Wreck the World Economy, Scholars Say

By Scott Stoddard, Associated Press Writer

TOKYO (AP) - Japan's ballooning public debt, made worse by wasteful public works spending, is a time bomb that could wreck the world economy, two Japanese academics said Friday.

"We are looking at a danger signal blinking near and bright," said Akio Ogawa, a lecturer in the Graduate School of Public Policy at Tokyo's Chuo University.

Ogawa and Takayoshi Igarashi, a professor of law at Tokyo's Hosei University, spoke at the Foreign Correspondents' Club of Japan about the need to sharply reduce both public works spending and the debt if Japan is to regain its economic might.

In an attempt to jump-start the economy, the government has lavished funds on bridges to sparsely populated islands, concrete linings for rivers and roads to nowhere, they said. Rather than helping the economy or the people, the spending mostly benefits politicians, bureaucrats, and businesses, Ogawa and Igarashi said.

The second-richest country in the world is also the world's most indebted nation. Its public debt exceeds $5.5 trillion, or 130 percent of gross national product, Ogawa said.

Japan racked up debt mostly over the past decade as the government, urged on by the United States, tried to spend its way out of its longest economic slump since World War II.

In 1997, Japan spent more than $402 billion on roads, bridges, ports and other public works projects - more than the United States, Canada, Germany, France, Italy and Britain combined, Ogawa said.

"Now we face a dire choice between huge tax increases or hyperinflation to help reduce, if not wipe out, the debt that has already got out of control," he said.

The last time the government raised taxes, in April 1997, the economy sank into recession and dragged down the rest of Asia. The alternative, printing more money, would reduce the value of savings and force up prices, hurting consumer demand and ultimately the economy.

Either way, Japanese purchases of everything from Italian suits to American-made computers and Asian commodities would suffer.

"It's an accident waiting to happen," said Matthew Poggi, an economist at Lehman Brothers (Japan) Ltd.
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-- Ashton & Leska (allaha@earthlink.net), February 04, 2000

Answers

What this article does not mention is the amount of leftover non-performing bank loans from the 1990 crash in Japan. These may total over $1 Trillion. Other wise, it is (sadly) accurate enough.

-- Brian McLaughlin (brianm@ims.com), February 04, 2000.

A&L -

I checked a couple of AP headline services and couldn't find this article at all. Was it in The Oregonian?

-- DeeEmBee (macbeth1@pacbell.net), February 04, 2000.

Ah ha! Found a version at wire.ap.org. Note the additional (and grim) details: Academics Warn of Japanese Debt

FEBRUARY 04, 13:18 EST

Academics Warn of Japanese Debt

By SCOTT STODDARD (Associated Press Writer)

TOKYO (AP)  Japan's ballooning public debt, made worse by wasteful public works spending, is a time bomb that could wreck the world economy, two Japanese academics said Friday.

``We are looking at a danger signal blinking near and bright,'' said Akio Ogawa, a lecturer in the Graduate School of Public Policy at Tokyo's Chuo University.

Ogawa and Takayoshi Igarashi, a professor of law at Tokyo's Hosei University, spoke at the Foreign Correspondents' Club of Japan about the need to slash both public works spending and the debt if Japan is to regain its economic might.

Attempting to jump-start the economy, the government has lavished funds on bridges to sparsely populated islands, concrete linings for rivers and roads to nowhere, they said.

Rather than helping the economy or the people, the spending mostly benefits an ``iron triangle'' of powerful politicians, bureaucrats, and businesses, Ogawa and Igarashi said.

The second-richest country in the world is also the world's most indebted nation. Its public debt exceeds 600 trillion yen ($5.5 trillion), or 130 percent of gross national product, Ogawa said. GNP is the value of all goods and services produced by the country.

Worse, the government may be hiding another 100 trillion yen ($926 billion) in debt from a special coffer that the Ministry of Finance uses to make loans to public corporations for infrastructure projects, Ogawa said.

A Finance Ministry official declined to comment on the figure. He did say that none of the loan recipients is in danger of defaulting. The official spoke on customary condition of anonymity.

Japan racked up debt mostly over the past decade as the government, urged on by the United States, tried to spend its way out of its longest economic slump since World War II.

In 1997, Japan spent more than $402 billion on roads, bridges, ports and other public works projects  more than the United States, Canada, Germany, France, Italy and Britain combined, Ogawa said.

Anger over excessive spending on public works boiled over last month when 90 percent of voters in Tokushima, western Japan, rejected a government plan to spend $954 million to dam a river.

Opponents say it will destroy the ecosystem. Construction Ministry officials say it's necessary to stop possible flooding. The government says it will go ahead with the project despite the vote.

Taxpayers will continue footing such bills unless Japan breaks up the league of bureaucrats, executives and politicians who benefit from such largess, Ogawa said.

``Now we face a dire choice between huge tax increases or hyperinflation to help reduce, if not wipe out, the debt that has already got out of control,'' he said.

But the last time the government raised taxes, in April 1997, the economy sank into recession and dragged down the rest of Asia.

The alternative, printing more money, would reduce the value of savings and force up prices, hurting consumer demand and ultimately the economy.

Either way, Japanese purchases of everything from Italian suits to American-made computers and Asian commodities would suffer.

``It's an accident waiting to happen,'' said Matthew Poggi, an economist at Lehman Brothers (Japan) Ltd.

I noted with interest the statement that Japan has undertaken this rather Keynesian approach to battling a recession "urged on by the United States." Have we really been telling them to try to spend their way out of their problems? Seems odd, given the success we've experienced with a more supply-side approach.

-- DeeEmBee (macbeth1@pacbell.net), February 04, 2000.