Government deflation package will only help to accelerate deflationary spiral: JCP
The Koizumi Cabinet's Council on Economic and Fiscal Policy (chaired by Prime Minister Koizumi Jun'ichiro) on February 27 approved a package for tackling deflation, including the use of more tax money to write off non-performing loans held by major banks.
In a published statement on the same day, Fudesaka Hideyo (Japanese Communist Party Policy commission chair) criticized the package as follows:
The anti-deflation package shows the government determination to have more speedy and strong-handed write-offs of non-performing loans held by major banks, even by the use of public funds to achieve this aim. This is not a new policy and the worst version of the Koizumi Cabinet's "structural reform" policy. This is the policy that caused the deflation in the Japanese economy. Contrary to the government's stated purpose of ending deflation, the package will certainly accelerate deflation.
In the "basic plan" which the government compiled last year outlining the so-called "structural reform" program, the Koizumi Cabinet predicted that write-offs of non-performing loans would create a deflationary pressure. Now, the government refers to this as the first item in the "anti-deflation" package. This alone shows that the economic policy of the Koizumi Cabinet is confused and getting out of control. Since the Koizumi Cabinet came to office, the amount of non-performing loans (loans whose risk is under control of national-scale banks) increased by about 3 trillion yen (22 billion dollars). A hard push towards write-offs of bad loans at the expense of bankruptcies of borrowers, which is quite irrelevant to the position of the substantive economy, would end up in creating new non-performing loans and further aggravate the problem.
The proposal in the package that the Resolution and Collection Corporation (RCC), a governmental body for credit collection, should aggressively buy up non-performing loans will result in classifying many operating small-and medium-sized businesses as failures to be controlled by the RCC. And this means that enormous sums of tax money will be used to make up for the losses of major banks.
The government had already used thirty trillion yen (224 billion dollars) public funds to support major banks, but the financial system has become more unstable and unsound. The government policy of relentlessly driving small and regional financial institutions into bankruptcy and helping major banks to recover their health by injecting tax money has completely failed.
The deflation has become serious because a sharp decline in the people's income and consumption has caused a vicious spiral of a declining demand and a declining production to take pace, in addition to the continuous fall in prices. It is time for a major political change in which the government supports the people's livelihood. The Japanese Communist Party will make further efforts: to defend jobs and to set workers at ease by regulating corporate restructuring and make large corporations fulfill their social responsibility by abiding by social rules; to stop the planned adverse revision of the health insurance system that will make insured salaried workers pay 30 percent of their medical charges instead of the present 20 percent; to have national and local government budgets primarily used for social services; and to establish an impartial and fair tax system, including a consumption tax reduction. (end)