Dr. Heizo Takenaka describes the policy changes needed for global economic recovery.
Question: What public policy changes are needed (nationally, internationally or both) to encourage swift economic recovery?
Dr. Heizo Takenaka: What kinds of policy changes are needed?
Others mention little about focusing in Japan. In the case of Japan, we are have been promoting so-called structural reform. In this structural reform, we have been seeking for a smaller government; however, in such kind of a devastated situation of the economy, we need now a stimulus fiscal policy. In that sense, we have to expand government expenditures to some extent.
Very fortunately in the case of Japan, we have some reserves in some special accounts of the budget. So making use of this special budget, first of all, it is required for the government to increase government expenditures. In this regard, the attitude of the Japanese government is not so positive; the size of fiscal stimulus in this case with Japan is about 2% of GDP. This is less than half of that of United States and also less than half of that of China. In this regard, it is required for the Japanese government to have much more active fiscal stimulus policy. At the same time we have to consider so-called activism of the government, we are now in a very serious confidence crisis. In this regard, the government activism is needed.
A symbol of this so-called activism is in a sense, the capital injection to financial sectors. In the case of Japan, very fortunately, relatively speaking, balance sheet of financial sectors are sound, so we do not need this kind of capital injection at this moment.
However, we have to be very careful or wait on the assessment of the asset of banks. In the case of the United States and some European countries, governments are ready to have capital injection to get to the banks, at that time, I really require that these governments to have accurate assessment of the asset.
About 10 years ago, we had a very serious experience of the fiscal crisis, financial crisis, and also in the case of Japan, we many difficulties in this assessment of the asset of the banking sectors. So, I really hope that these countries will some learn experience of Japan at that time.
Anyway, activism is needed. At the same time, I’d like to say finally, it is quite important for us to avoid over activism of the government and the symbol of activism of the government is protectionism, we have to avoid this kind of protectionism. Yes, activism of the government is needed, at the same time, we should avoid over activism of the government.
Recorded on: March 11, 2009