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Economy

Abe's barrel-chested stimulus package lacks leg power

Prime minister touts it as world's largest coronavirus relief budget

Commuters depart a train in Tokyo's Shibuya Station on Wednesday. Japan's cabinet has prepared a second round of stimulus measures to boost a coronavirus-battered economy.   © Reuters

TOKYO -- Prime Minister Shinzo Abe called it the largest stimulus package in the world.

The 117.1 trillion yen ($1.09 trillion) second supplementary budget that was approved by the Japanese cabinet on Wednesday, when put together with an earlier supplementary budget, brings total stimulus measures to 230 trillion yen.

"It's equivalent to 40% of gross domestic product," Abe said. "With this, we will protect the Japanese economy from this once-in-a century crisis."  

Although the headline number matches the scale of the first stimulus package, it counts in contributions from the private sector, which the government will try to unlock. True government spending, therefore, will be smaller than the wrapping suggests.

The latest budget includes 33.2 trillion yen in direct spending, with another 39.3 trillion yen in the form of investments and lending by state-affiliated financial institutions.

The remaining balance is set to come from private-sector contributions. Whether a private lender will participate in the financing plan is unclear at this point. Though its addition is intended to represent the total economic impact of the budget, private-sector contributions are calculated differently by different administrations, and can be used to inflate the overall figure.

The difference between the overall budget impact and direct fiscal spending comes to about 84 trillion yen, about twice as much as in the stimulus package crafted in April 2009 in response to the Lehman Brothers crisis.

The budget's finance-related contributions, such as the 39.3 trillion yen designated under the fiscal investment and loan program, is a major contributor to the large overall figure. The so-called zaito program totals 62.8 trillion yen for fiscal 2020, in sharp contrast with the 15 trillion yen or so of recent years.

However, government assistance has been slow to reach individuals and companies. Parts of the first $1 trillion stimulus package passed last month are still backed up.

A focus of the latest extra budget is supporting companies, whose cash flows have suffered because of the pandemic. Government and private-sector institutions together will extend over 60 trillion yen in unsecured, interest-free financing to businesses, including through subordinated loans and capital injections into banks.

The second supplementary budget will be submitted to parliament on June 8, with an eye toward passage in the current session through June 17.

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