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Jobs First, Then Pork for Japan

TOKYO -- After last Thursday's stunning announcement that the Japanese economy grew an annualized 7.9% in the first quarter, the political prospects for Prime Minister Keizo Obuchi are brighter than ever. Having snapped a five-quarter contraction streak, he's almost sure to win another term as president of his ruling Liberal Democratic Party (LDP) this fall, and he's better positioned to call a snap poll in the powerful lower house of the Japanese parliament before year's end.

Will this happy development make Obuchi smug as bug? Could it compel him to soften his economic attack plan, which includes the unemployment-competitiveness schemes announced on Friday and a supplementary budget to prop up tired construction companies? Probably not and here's why.

Unemployment remains at an historic high of 4.8% and may get worse as Japanese companies keep slimming their payrolls to improve profitability. Obuchi, recognizing an election looms, can't be perceived as sitting on his hands while thousands of Japanese workers get put out on the street.

And Obuchi knows the impressive GDP number was generated by government spending and not by private demand. After releasing the growth figure, Economic Planning Agency head Taichi Sakaiya warned that it's too soon to take this and say the Japanese economy has recovered. Until nervous consumers are more comfortable opening their wallets and companies stop retrenching, Obuchi won't take this economy off its public-works life support.

Obuchi has already pledged to focus his attention on measures to curb unemployment in the first part of the extraordinary session of parliament likely to convene in late August. On Friday, Finance Minister Kiichi Miyazawa said the price tag on these jobs proposals could be around 500 billion yen. Private-sector estimates put it as high as 2 trillion yen.

When the jobs deal is out of the way, watch for the prime minister to start talking about an additional budget. Why can these pork-barrel funds wait? For starters, the first-quarter growth spurt shows there's already a ton of money flowing into the economy from stimulus funds included in previous budgets. More importantly, ministry officials have been suggesting the pump-priming probably won't peter out until early next year.

And with the Japanese economy apparently rebounding, the urgency of another large spending package has eased. This suggests Obuchi will be less inclined to opt for the massive 20 trillion yen spending package that some members of his party are demanding. It also adds weight to the argument that more public-works spending can wait.

Political considerations are another important variable in the calculus of Obuchi's timing for pouring on the pork again.

For months, he's been seducing Japan's second-largest opposition party, the Komeito, with policy handouts in an attempt to get it to join his parliamentary alliance. Because he's short of a majority in upper house, he needs Komeito support to pass legislation in parliament.

But as a condition for doing this, the Komeito is trying to extract a commitment to delay lower house elections. Komeito leaders know their supporters are having trouble stomaching an LDP alliance, so they want to put as much time as possible between an election and sealing a deal with the prime minister. If Obuchi caves to Komeito wishes, he won't call a snap poll until the end of the year at the earliest.

Assuming he wants to play his public-works spending card just before holding an election, that also means he'll probably go for an additional budget in November or maybe even as late as early next year.

Furthermore, opposition lawmakers and rivals in his own party have been giving Obuchi grief for throwing taxpayer money at wasteful infrastructure projects and jacking up Japan's notoriously high budget deficit. Before getting into a public debate over the timing of more public-works outlays, he would like to implement his politically popular jobs proposals and secure his position in the LDP by winning re-election as party president.

And Obuchi won't repeat the mistakes of his predecessor, Ryutaro Hashimoto, who was canned after raising taxes to get the budget under control. He will follow through with his promise to implement some measures to boost industrial competitiveness this fall, including tax and deregulatory incentives intended to encourage companies to streamline. But because he has to call an election by October 2000, he won't dish out the kind of pain a thorough restructuring would inflict. He wants to achieve his 0.5% growth target for fiscal 1999. That's why he will continue to focus on keeping the public-works trough brimming over and expanding the social safety net for the unemployed.

This will push Japan further into the red and limit the pace of economic restructuring. It will also increase the likelihood that Obuchi can fulfill his dream of becoming a two-term prime minister.

John F. Neuffer, a longtime observer of Japanese politics, is an analyst at Mitsui Marine Research Institute (MMR). He writes occasional commentary for TSC. Neuffer publishes an in-depth roundup of Japanese politics at his Web site. The views expressed above are those of Neuffer and not necessarily those of MMR. This column is exclusive to

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