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Gov't to cut investment spending by 5.6% in FY 2007 to 30-yr low.

TOKYO, Dec. 24 Kyodo

The Cabinet on Sunday endorsed a 5.6 percent cut in the government's fiscal investment and loan program in fiscal 2007, for the eighth straight yearly shrinkage to the lowest level in 30 years, reflecting continued state efforts to make it more efficient and market-oriented.

The outlays under the FILP, or ''zaito'' in Japanese, for the next fiscal year starting April 1, total 14,162.2 billion yen, down from 15,004.6 billion yen under the initial fiscal 2006 plan.

Next year's budget for the FILP is the smallest since fiscal 1977, when the scale reached 12,538.2 billion yen under the initial plan.

The fiscal 2007 figure is about one-third of the peak level in fiscal 1996, when the amount under the initial plan stood at 40,533.7 billion yen.

The FILP, mostly financed by postal savings and public pension funds, involves long-term projects such as road construction, and supports small and midsize firms as well as home buyers. The number of entities to be financed by the FILP in fiscal 2007 is 38.

The program was once dubbed the ''second budget'' due to its gigantic size. It came under fire for its inefficiency and waste, and rules on mandatory deposit of postal savings and public pension funds with the Finance Ministry's Trust Fund Bureau were scrapped in April 2001.

To alleviate the impact of the change, the government introduced a seven-year transition period through fiscal 2007 under which FILP bonds are partly bought by postal savings and public pension funds. After that, sales of the bonds will completely depend on market principles.

To finance the fiscal 2007 program, the Finance Ministry plans to issue 18,600.0 billion yen worth of FILP bonds, which are guaranteed by the government, compared with 27,200.0 billion yen under the initial fiscal 2006 plan.

The planned bond issuance exceeds FILP outlays for fiscal 2007 because the government needs money to repay public pension funds and postal savings deposited with it before the transition period ends, a ministry official said.

In addition, 24 public institutions under the program also plan to issue FILP agency bonds to raise 6,226.1 billion yen for fiscal 2007, up from the initially planned 5,998.1 billion yen for fiscal 2006.

The amount will hit a record high. FILP agency bonds are not guaranteed by the government.

In fiscal 2007, Japan Expressway Holding and Debt Repayment Agency, a body established in 2005 to repay about 40 trillion yen in past debts held by public highway operators, will be the largest recipient of zaito funds at 2,475.0 billion yen, with the outlay up 13.3 percent from the initial fiscal 2006 plan.

The government is earmarking 2,033.9 billion yen for National Life Finance Corp., which extends loans to small businesses, down 10.6 percent.

Funds allocated to Japan Finance Corporation for Small Business under the program are being slashed by 9.5 percent to 1,073.3 billion yen.

National Life Finance Corp. and Japan Finance Corporation for Small Business are among five state-affiliated lenders to be integrated into a single institution in fiscal 2008 under a government realignment scheme for public lenders.

The Japan Bank for International Cooperation faces a 5.4 percent cut to 1,030.2 billion yen in its overall fund. A part of the bank's functions is scheduled to be transferred to the new single institution following the streamlining drive.

The Urban Renaissance Agency, an independent administrative body which provides rental housing, will receive 808.1 billion yen in fiscal 2007, up 9.2 percent.

The allocation for the Japan Student Services Organization, which extends scholarships, is rising 10.3 percent to 383.2 billion yen in fiscal 2007. As a result, the number of scholarship recipients will increase to 676,000 from 631,000 in fiscal 2006.
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Publication:Japan Weekly Monitor
Date:Jan 1, 2007
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