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Monday, November 16, 1998 Published at 08:25 GMT

Business: The Economy

Japan unveils economic rescue plan

Mr Obuchi: Sending Japan on a shopping spree

The Japanese government has unveiled a long-awaited stimulus package worth $189bn to jumpstart its recession-racked economy.

The BBC's Juliet Hindell reports on the new rescue package
After promises of prompt action to rescue the troubled economy and three months of discussion, politicians have settled on a massive spending plan including $65bn for public works projects and $33bn for cuts to income tax.

The Prime Minister, Keizo Obuchi, has promised the 24 trillion yen package will turn around the economy within a year and make Japan feel good about itself in the future.

Consumer boom

The government forecasts an increase growth in the economy by 2.3% within two years.

[ image: Citizens to get subsidised shopping]
Citizens to get subsidised shopping
It also includes the distribution of shopping vouchers to 35m citizens in the hope it will create a consumer boom.

Money has also been set aside to promote house building and to create one million jobs, and there is cash to assist other crisis-hit Asian countries.

The package will see a lowering of the maximum income tax rate to 50% from 65%, while the effective rate of corporate tax will fall to around 4% from the next year.

A much called for cut to the national sales tax did not eventuate.

Poorly received

However, analysts and investors have given the package a lukewarm response.

The Tokyo stock market rose marginally on the news while analysts said the measures, greatly relying on public spending, would offer only temporary relief.

"We need growth which is led by the private sector, not by fiscal spending," said Yoshito Sakakibara, Senior Economist at Goldman Sachs.

The spending will be on social infrastructure with an emphasis on information technology, the environment, welfare, and education.

Apec imperative

The timing of the resuce package is no accident; Japan has been under pressure from around the world to do something about the economy.

Now it will have proof to show its neighbours at the Asia Pacific Economic Co-operation forum in Kuala Lumpur that it has the situation under control.

The stimulus package also includes $8bn in aid to help Japan's asian neighbours, many of whom are also mired in recession.

The latest package follows a 60 trillion yen ($490bn) bill last month to help the nation's banks write off massive bad loans and restore the ailing financial system.

Meanwhile, debts amassed by bankrupt companies in Japan during October have leapt to 749bn yen ($6.1bn), a 54% increase on the same month last year.

The 1997 record of 14 trillion yen in bankruptcy debts is expected to be exceeded this year. Corporate profits have slumped 30% compared to last year.

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