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Wednesday, June 17, 1998 Published at 14:14 GMT 15:14 UK

Business: The Economy

Japan pumps $32bn into its economy

Japan's economy isn't sparkling anymore

The Japanese parliament has approved the country's largest ever economic programme, two months after it was first announced.

Sadaaki Numata, spokesman for the Japanese Foreign Ministry, explains the stimulus package
The supplementary budget is worth 4.65 trillion yen ($32bn) and paves the way for an even larger spending package designed to stimulate the country's flagging economy.

In total the Japanese government hopes to invest more than 16.65 trillion yen ($117bn).

The whole package comprises of tax cuts, increased government spending and low-cost loans. Japanese government officials say it could boost the country's Gross Domestic Product by at least 2% and ensure an economic recovery by autumn.

Noriko Hama, Chief Economist with the Mitsubishi Research Institute, analysis the crisis
Susumu Taketomi, member of the Bank of Japan's Policy Board, said in a speech on Wednesday that Japan would be able to avoid a deflationary spiral due to the stimulus package.

However, any tax cuts will have to be financed through new government borrowing, which would increase the country's public deficit.

[ image: Prime Minister Ryutaro Hashimoto]
Prime Minister Ryutaro Hashimoto
Critics of the stimulus programme say it will not have enough kick to jump-start the Japanese economy.

The tax cuts and other initiatives are limited to two years, and many economists say the country needs an overall review of its tax system.

Japan's Prime Minister, Ryutaro Hashimoto, has promised that his government will think about tax reform.

International pressure

The stimulus package is a response to international criticism of Japan's inability to halt the yen's slide and prop up its economy. On Tuesday, the US Treasury Secretary Robert Rubin admonished Japan for failing to address "fundamental problems" with its economy.

The Clinton administration and many other governments both in Europe and in Asia have called on Tokyo to boost the yen and create domestic demand, so that Japan can once again act as growth engine for the whole region.

On Thursday, Deputy Treasury Secretary Lawrence Summers will visit Tokyo. He is expected to urge the Japanese government to implement the stimulus programme as soon as possible.

However, the timing of his visit is unfortunate.

He will arrive on the first - unofficial - day of campaigning for parliamentary elections, and when the Ministry of Finance has to decide on the future of its controversial vice minister for international affairs, who was a key player in the defence of the yen.

Japanese officials say privately that they are "annoyed" about the US approach. They resent being "lectured" by Mr Summers and insist they are dealing seriously with both the yen's weakness and the country's banking crisis.

On Wednesday, the World Bank's vice president for the region had warned of a deep and "very long-lasting" depression in Asia unless Japan managed to knock its economy into shape again.

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