Immediate Action Program for Structural Reform
(Summary)

December 14, 2001

1. Basic Principles

(1) Current Economic Conditions

Following the terrorist attacks on the United States, the risk of global recession has increased. Amidst this environment, economic conditions in Japan have deteriorated further. In addition to weakened personal consumption, exports and output have declined sharply. Business investment is also declining. As a result, unemployment rate has risen to the highest level ever. Furthermore, the economy is beset by so-called "deflation", continuous downward trend in price levels.

While the Japanese economy has not fallen into a so-called "deflationary spiral" wherein business conditions deteriorate at an accelerating pace through the mutual interplay of falling prices and the contraction of production activities, the present situation does calls for full vigilance and the implementation of appropriate policies.

(2) Basic Principles of the Immediate Action Program

Not long ago, the government announced the Advanced-Reform Program and formulated the first supplementary budget for the current fiscal year. The previous program essentially consisted of a series of initiatives to be formulated and implemented in advance of the general body of reforms in order to promote structural reform under current economic conditions. Special importance was assigned to job creation through regulatory reform, and to the strengthening of safety nets relating to employment and small- and medium-sized enterprises.

However, the economic situations have undergone dramatic changes since the events of September 11. In light of this development and based on its firm determination that "there can be no growth without reform," the government has now decided to compile this program and to proceed towards formulating another supplementary budget, thereby further accelerating the process of structural reform and averting a deflationary spiral.

The Emergency Program is aimed at promoting those projects expected to contribute to accelerating the process of structural reform and likely to be efficient in revitalizing the economy. From this perspective, the Program targets the seven priority areas contributing to structural reform as identified in the "Outline of Basic Policies for Macroeconomic Management and Structural Reform of the Japanese Economy" (Cabinet decision in June, 2001). Drawing on the seven priority areas, the Program focuses on initiatives conducive to stimulating private investment and creating jobs, and selects projects whose prompt implementation is possible and needed and which may have an immediate impact on the economy. Such projects are organized in line with the four-part policy framework described in Section 2 below.

The government intends to swiftly put the measures and initiatives of the Program into practice following the early enactment of the second supplementary budget. In addition, the government will implement disposal of non-performing loans and elimination of excessive corporate debts, regulatory reform, the reform of public corporations and the FY 2002 budget identified as the "Budget Committed to Reform," thereby accelerating the process of structural reform and realizing domestic-demand-led autonomous economic growth.

In line with the structural reforms undertaken by the government, it is hoped that the Bank of Japan will adopt appropriate and flexible policies to tackle the problem of deflation so that the government and the Bank of Japan can work in unison towards wiping out deflation.

2. Infrastructure Building for Promoting Structural Reform (Special Measures Related to "Public Investments for Promoting Reform")

[1] Further Upgrading and Internationalization of Urban Functions

• Developing loop-roads in major metropolitan areas.
• Strengthening the international transportation and logistical capabilities of major metropolitan areas.
• Improving urban living environments through alleviating traffic congestion.
• Encouraging private-sector initiatives in urban development.
• Revitalizing shopping arcades and city-center areas.
• Building public facilities conducive to urban redevelopment.
• Developing and reinforcing the capabilities of disaster-prevention facilities.
• Strengthening measures ensuring public safety in urban areas.

[2] Realizing Environment-Friendly and Vigorous Local Communities

• Promoting integrated subsidization projects to facilitate local initiatives.
• Building waste-disposal and recycling facilities.
• Promoting public works featuring symbiosis with nature.
• Developing recycling systems for fostering high-quality water through promoting water-quality improvement measures.
• Promoting the development and diffusion of environment-related technologies.
• Building and renovating into "green" government buildings.

[3] Expanding Growth Frontiers through Promoting Science and Technology, Education, and IT (Information Technologies)

• Developing world-class research facilities.
• Promoting R&D activities through industry-university-government cooperation.
• Building social education and cultural facilities, including art and other museums.
• Promoting digitalization in the medical field through that of clinical and patient records, in particular.
• Promoting the use of IT in local communities.
• Developing public facilities and systems supporting the diffusion of IT use.
• Developing intra- LAN and other systems in public schools.
• Promoting the development of fiber-optic control and monitoring systems.

[4] Dealing with Declining Birth Rates and the Aging of Society

• Building facilities related to long-term care, such as special-care homes and care houses for the elderly.
• Developing childcare facilities, such as nursery schools and after-school children's clubs.
• Developing facilities for the disabled and those for children's health and medical services.
• Expanding barrier-free public spaces, such as sidewalks and stations.

3. Scale and Impact of the Immediate Action Program

The second supplementary budget accompanying the Program shall avoid easy recourse to bond issuance and shall remain in compliance with the "\30 trillion bond issuance cap." On the other hand, the government shall make maximum use of its available funds to implement the Special Measures Related to Public Investments Promoting Reform. To be more specific, the central government shall provide interest-free loans totaling \2.5 trillion, of which \1.5 and \1.0 trillion will be lent to public investment projects and building other facilities, respectively. As a result, together with contributions by local governments. The Program shall enables projects worth \4.0 trillion. Based on the macroeconometric model developed by the Resecuch Institute of the Cabinet Office, the effects of the Program are estimated as follows.

• Effects on GDP for a year to come
  * about 1.2 per cent increase in a nominal term
  * about 0.9 per cent increase in a real term
  

• Effects on labor market for a year to come
  * about 110 thousand increase in employment
  * about 0.1 per cent reduction in unemployment rate
  

Appendix

Special measures for "Public Investment for Promoting Reform"