Aso to Tackle Credit Crisis by Integrating Fiscal, Financial System Policies

Tokyo, Sept. 24 (Jiji Press)--The cabinet of new Japanese Prime
Minister Taro Aso formed Wednesday plans to cope with the global financial
turmoil with fiscal management and financial system oversight under a single
minister.

Aso, also president of the ruling Liberal Democratic Party, named
Shoichi Nakagawa to the posts of finance minister and financial services
minister, indicating the prime minister's intention to implement active
fiscal spending to revive the Japanese economy.
It is the first time since the launch in June 1998 of the Financial
Supervisory Agency, the Financial Services Agency's predecessor, for one
person to serve concurrently as finance minister and financial services
minister.
The choice of Nakagawa, who does not rule out public spending to
revive the economy and improve social security services, highlights a
possible return to an active fiscal policy.
With one minister in both posts, Aso aims to speed up the
decision-making process at a time when Japan needs to cooperate closely with
U.S. and European financial authorities to tackle the global credit crisis,
which will certainly be the main agenda item at a coming meeting of Group of
Seven finance ministers and central bank chiefs in October.
Nakagawa told a press conference it is important to respond
flexibly to the global financial turmoil and watch ongoing conditions
closely.
But it is uncertain whether the combination of the two functions
will be effective in a globalized and increasingly complex financial sector.
Nakagawa is also required to make administrative steps carefully
toward the year-end as the passage of the fiscal 2008 supplementary budget
to finance an economic package is still uncertain.
Regarding fiscal policy, there is growing chance that the
government's goal of achieving a primary budget surplus by fiscal 2011 will
be postponed.
At the press conference, Nakagawa said that he has not given up the
government's goal. Asked how this would be achieved, however, he only said
it would be done only by turning the economy around.
In a magazine in July, Nakagawa rejected a hike in the consumption
tax rate ahead of economic recovery, claiming that sticking to policies to
increase taxes and hold down public spending would miss the point.
With comprehensive tax reform involving many difficulties, the
Japanese government and ruling camp may face disagreements over whether to
place priority on an aggressive fiscal policy or on fiscal reconstruction.