(provisional translation by the secretariat)

Appeal to the Coming Emergency Economic Package

The Economic Strategy Council of Japan
November 6,1998

 The eighth meeting of this council has unanimously adopted this appeal. It is a follow-up of the recommendations for short-term economic policies published on October 14. The government announced its intention to compile a new economic package scheduled for November 16.

Appeal to the Coming
Emergency Economic Package

The Economic Strategy Council requests the following points to be fully accounted for in the compilation of the government's Emergency Economic Package scheduled for November 16, aiming at overcoming the current severe situation of the Japanese economy.

1. Quickly eliminating instability in the financial system, and broadening measures to remove liquidity shortage stemming from the financial fragility are necessary.

(1) There is a need to significantly expand loans and credit guarantees by the government financial organizations to companies suffering from liquidity shortages. Moreover, financial institutions for small and medium-sized companies such as Shinkin banks should be utilized.
 While small and medium-sized companies have been provided with loans from government financial organizations (Japan Finance Corporation for Small Business, and Peoples Finance Corporation) and with government credit guarantees of 40 trillion yen, some mid-size and larger enterprises are beginning to be hit by heavy liquidity shortages. Without sufficient measures, it is nearly impossible to foresee economic recovery.
 Examples are support for intake of foreign exchanges by Japanese banks (e.g. strengthening government's foreign currency deposits in commercial banks, and foreign currency provisions through swaps, both as emergency measures), flexible utilization of funds of the Trust Fund Bureau, promotion of sucuritizing loans for small and medium-sized companies, and widening of objects for buying operations by the Bank of Japan. All these measures need to be mobilized to cope with the undergoing credit contraction.
 Furthermore, a rehabilitation plan for the Asian economies centering on financial issues should be drafted, in which help aimed at economic activities by local enterprises affiliated with Japanese capital is stressed.

(2) The following measures need to be taken as quickly as possible to stabilize the financial system immediately.

1) A sufficient amount of public money ought to be injected to major financial institutions judged to be viable after the audits by the Financial Supervisory Agency to strengthen their capital base under the strong initiative of the government; a sufficient amount, in case of financial institutions dealing with international businesses, means to augment capital adequacy ratios to a level equal to those of the global big banks.
 By this capital injection, credit crunches and reclaiming old loans by banks would have to be eliminated without delay. A clearly revealed attitude by the government to address this problem with prompt actions would constitute an important part of the coming Emergency Economic Package.

2) If some major financial institutions should prove to be insolvent based on the inspection of the Financial Supervisory Agency, they would have to be transferred to temporary nationalization after well organized counter-measures are installed to avoid financial disorder.

3) The Financial Supervisory Agency seeks the self-disclosure of relevant information by the individual financial institutions while the above mentioned measures are pursued. Since stubborn distrust due to the unsatisfactory disclosure so far exists, account reporting needs to be more disclosed than a corresponding standard applied by the U.S. Securities and Exchange Commission (SEC).

4) Some measures, including selling off bilaterally the cross-holding of shares, are to be implemented to facilitate the unwinding of interlocking shareholding.

 With all these measures in place, market confidence in Japan's financial system would improve, and the Japanese economy would emerge from its vicious circle of deflation.

(3) It should be noted that economic recovery in Japan would be hopeless without promoting true disposal of non-performing assets, which is separate from accounting write-offs. Against this background, it is indispensable that the government implement seriously the following measures to facilitate real estate transactions.

1) Deregulation by the central and local governments (relaxation of restrictions on floor-area ratio, sun-shadow-hour ratio, zoning, etc.)
2) Early introduction of fixed-term tenant rights
3) Expansion of the limit to purchasing collateral real estate by the Housing and Urban Development Corporation
4) Revision of Special Purpose Company Law (Postponement of capital gain tax), etc.

2. Focusing on five areas of public works with critical importance in the 21st century, significant priority is to be given to budgeting; in particular, based on a comprehensive and strategic way of thinking, implementing efficient budget allocation through cooperation among ministries is essential with a view to avoiding inefficiencies of bureaucratic sectionalism.

(Examples of five areas of public works)
(1) Urban development
Renewal of urban areas (appointing special areas and developing city models with diverse functions)
Expansion and maintenance of the roads designated by city planning
Maintenance of wide area transport networks in urban areas
Activation of designated industrial areas through wider usage

(2) Information infrastructure
Realization of electronic government plan
Development of networked education system
Development of medical and nursing information system
Research and development of next-generation Internet technologies
Intelligent Transport System (including Electronic Toll Collection)

(3) Education and development of human resources
Strategic expansion of higher education and research institutes such as universities and research centers
Expansion of professional retraining centers (to help re-employment through retraining unemployed people)

(4) Welfare infrastructure
Promotion of "public building and private operation" of facilities for nursing, child care, and care for the elderly
Supporting private-sector construction of housing for the elderly
Promotion of barrier-free facilities in public spaces

(5) Environment
Promotion of underground cables in city areas by construction of common cable boxes
Development of waste disposal and recycle systems (including dioxin control measures)
Maintenance and promotion of sewer systems

3. Recommendations for short-term economic policies on October 14 should be implemented as quickly as possible.

(1) To mobilize additional fiscal measures, which amount to well over 10 trillion yen by budgeting the true fiscal expenditures, the so-called the real water, as much as possible.

(2) To implement simultaneously sustained income tax cuts for households and corporations as soon as possible. As for the individual income tax levied by the central and local authorities, the maximum tax rate should be lowered to 50 percent. Moreover, the rate at each tax bracket should be reduced on a sustained basis.

(3) To introduce interest payment deductions from the income tax base of those who have housing loans, as a temporary measure, up to five years. It is important to apply these benefits to people who have previously taken out loans. Furthermore, no conditions are to be required for an upper limit on income of an applicant. This deduction is to be allowed for land acquisition, to people who own a second home, and to those who expand and remodel their homes.
 Contrary to some opinions on setting an upper limit to an applicable loan amount below 100 million yen, construction of larger housing by higher-income people needs to be stimulated, entailing bigger demand creation. This may help to energize the Japanese economy.
 The economy could be compared to a slowing vehicle. When we step on the gas, we should not simultaneously brake. Therefore, the amount of eligible loans should not be capped.

(4) To freeze property purchase tax, registration license tax, and stamp duties for two years.

(5) To initiate a tax benefit of complete depreciation (to 100 percent) within a single year to investments on information-related infrastructures only for the next two years.

(6) To freeze a hike in social security contributions.

(7) To implement firmly the following measures; extension of duration of unemployment benefits, temporary relief of housing loan payers, who have become unemployed or who are suffering from a sharp drop in annual income, to postpone payment, supporting vocational training and technical skill acquisition for unemployed people, and promotion of new business creation.