Finance Blog number 1

Greek Prime Minister George Papandreou said today the government has no plans for new measures to curb the European Union’s largest deficit.

Plans to tame the government finances are “credible,” he told reporters in New Delhi. The EU backed on Feb. 3 the government’s proposals to trim the deficit after Papandreou pledged to raise fuel taxes and the retirement age and extended a wage freeze to all public workers.

Papandreou said today the proposals need to be implemented to achieve their goals, and the nation has substantial funds available from the EU. Yesterday the International Monetary fund said the Greek plan is “appropriate” and European Central Bank President Jean-Claude Trichet said he’s confident Greece can get the deficit under control.

The risk premium investors demand to buy Greek debt over comparable German 10-year bonds widened 10 basis points to 364 basis points the highest in a week. The benchmark ASE stock index fell for a third day, declining 2 percent, bringing its slide for this week to more than 9 percent.

The deficit reached 12.7 percent of gross domestic product last year, and officials are battling to convince investors it can shrink the shortfall to within the EU’S 3 percent limit in 2012 and avoid a bailout. Yesterday Greece’s biggest union approved the second mass strike this month and tax collectors began a 48-hour walkout, suggesting that workers are ignoring Papandreou’s call for sacrifice.

“He can’t come out and say more needs to be done, he has to talk the plans up,” said Peter Dixon, an economist at Commerzbank AG in London. “The question becomes whether Greece can follow through with the plans they put in place and whether they are enough. The jury is still out on that.”

Source

Get quick cash with no faxing required!

Anheuser-Busch InBev said Thursday that it plans to fire 10 percent of its work force in Belgium, home to its international headquarters.

The world’s biggest beermaker blamed the cuts on Belgians drinking less beer. A total of 263 jobs out of about 2,700 will be lost. Cuts include 73 executives.

The company also planned to close a brewery in Luxembourg, moving production of beers like Diekirch and Mousel to other facilities. Job losses also come from changing distribution patterns.

One industry analyst said the layoffs reflect A-B InBev’s relentless focus on cutting costs, a pressure that would exist even without the $17 billion debt remaining from the $54.8 billion acquisition of Anheuser-Busch by InBev in 2008.

"These guys are just obsessive about constantly cutting costs. It’s just an obsession," Trevor Stirling, senior research analyst at Sanford Bernstein in London, told the Post-Dispatch on Thursday no teletrack payday loans.

The job cuts in Belgium show that A-B InBev does not expect to find all of its cost-savings by slashing jobs in St. Louis, home to the company’s North American headquarters.

But the company has wielded a heavy ax in St. Louis, slashing 1,000 employees from a work force that once numbered 6,000.

In Belgium, the job cuts were met with displeasure by a union official.

"InBev promised us that they will try to avoid forced layoffs through early retirement," Carlo Rombauts with the ABVV union told Bloomberg News, "but we’re contemplating actions right now."

Last March, A-B InBev said it hoped to ferret out $2.25 billion in cost-savings over the next three years.

Source

The euro rose against the dollar Thursday after the European Central Bank hinted it would slowly start withdrawing emergency liquidity while the yen fell amid fears Japan may move to weaken its currency.

Though the ECB at a meeting left interest rates at record lows, its president, Jean-Claude Trichet, said the next 12-month refinancing operation for banks would be the last. The bank also lifted its economic growth forecast for 2010.

The euro neared a 16-month high around $1.5140 and rose against the yen but it gave up some gains when Trichet said plans to wind down some emergency programs were not a signal that interest rates may be about to change.

"He hinted that they’ll do something about an exit policy, so the first knee-jerk reaction was euro positive, but he’s not ready to endorse a full exit quite yet, so it’s really neither overly supportive of, nor detrimental to, the euro," said Boris Schlossberg, head of research at GFT Forex in New York.

Ultra-loose monetary policy tends to undermine a currency’s value because it increases money supply and risks inflation.

The euro rose 0.3% to $1.5085 and 1.1% to ¥132.94.

The euro got a modest boost when Bank of America (BAC, Fortune 500) said it would repay bailout funds to the U.S. government. That increased risk appetite and suggested banking sector improvement.

The yen was under pressure for the second straight day after the Bank of Japan said this week it would provide new three-month funding to banks to combat deflation and after top officials warned that the currency had grown too strong.

The dollar was up 0.8% at ¥88.15, off a 14-year low of of ¥84 no fax pay day loan.82 plumbed last week.

BOJ Governor Masaaki Shirakawa said the central bank does not target foreign exchange for monetary policy but "if the bank’s easy stance becomes widely known in markets, it will have certain effects on the currency market in the long run."

Sterling fell 0.3% to $1.6575 while the dollar fell 0.3% to 0.9989 Swiss francs.

Trichet, Bernanke speak

Analysts said Trichet had to walk a fine line as any hint of a rate rise would prompt traders to bid up the euro, especially as the U.S. Federal Reserve has said it would keep its own rates low for an extended time.

"He’s saying the outlook for economic growth is still uncertain, which means he’s not overly confident, and it seems that is capping the euro gains," said Hidetoshi Yanagihara, senior FX trader at Mizuho Corporate Bank in New York.

In Washington, Fed Chairman Ben Bernanke made his case for a second term in testimony before Congress, telling lawmakers the Fed’s forceful actions have prevented a devastating crisis from turning into something even worse.

Bernanke also pledged to maintain price stability and said fiscal deficits eventually have to come down. Some analysts have worried that rising U.S. debt and deficits will undermine the dollar further and eventually provoke higher inflation.

In separate remarks, U.S. Treasury Secretary Timothy Geithner reiterated the importance of a strong dollar and said the United States must persuade the world it will be more fiscally responsible. 

Source

General Electric Co. and Comcast Corp have agreed on a valuation of around $30 billion for NBC Universal, ironing out what has been a key obstacle in talks to form a joint venture between NBC Universal and Comcast, a source familiar with the matter said on Sunday.

French media conglomerate Vivendi, which owns 20 percent of NBC Universal, has not yet agreed to a deal between GE and Comcast. GE owns 80 percent of NBC Universal.

(Reporting by Jui Chakravorty Das, writing by Megan Davies; Editing Bernard Orr)

Read more

Wolfgang Schaeuble, who headed talks that led to German reunification and was forced out as Christian Democratic Union party chairman in a bribery scandal a decade later, was named finance minister in Chancellor Angela Merkel’s new government.

Merkel kept control of the coffers away from her Free Democratic allies, who advocated more aggressive tax cuts than the chancellor. Schaeuble, 67, will have to rein in a record post-World War II budget deficit, warding off calls for ever- lower taxes and increased spending as the economy recovers from the deepest slump since the Great Depression.

“He has the strength to drive things through,” Stefan Bielmeier, an economist at Deutsche Bank AG, said in an interview from Frankfurt.

The Finance Ministry was the most disputed post in coalition talks between the CDU, its Christian Social Union Bavarian sister party and the Free Democratic Party. FDP leader Guido Westerwelle, 47, who has never held a government post, will become foreign minister. Karl-Theodor zu Guttenberg, 37, will take over the defense ministry and will be replaced as economy minister by the FDP’s Rainer Bruederle.

Merkel and her allies completed a coalition deal in the early hours today to set up a second-term government that points Germany toward tax cuts and a reprieve for nuclear energy.

Wheelchair-bound Schaeuble, who was paralyzed from the chest down by a deranged gunman at a political rally in 1990, served as interior minister for four years under Merkel. Schaeuble aided Merkel’s ascent in politics. She toppled him from the party chairmanship in 2000 because of his links to a party-financing scandal under former Chancellor Helmut Kohl.

West German Veteran

As Kohl’s chief of staff in the mid-1980s, Schaeuble (pronounced SHOY-blah) is the only minister to have held a government post in pre-unification West Germany. He was chief negotiator for the West for the 1990 treaty that merged communist East Germany into the federal republic. He has served in parliament since 1972.

A native of the southwestern city of Freiburg, Schaeuble was assailed as interior minister by civil-liberties and privacy advocates who blasted plans to search personal computers, monitor online activity and deploy the military for domestic security.

He may make more enemies as he tries to rein in spending for a government that’s accumulated record debt.

Schaeuble has previously involved himself in finance issues. He championed a CDU plan to simplify the tax system in the late 1990s as leader of the party’s parliamentary group. Last year he pilloried executives earning inflated salaries soon after the financial system nearly collapsed.

Correcting ‘Excesses’

“It wouldn’t be bad if this crisis led to a correction of excesses,” Schaeuble said in an interview with Stern magazine last November. He cited “self-serving attitudes — a clique of managers endorses three-digit-million checks in a closed system that nobody can leave once he’s inside it.”

Schaeuble’s most testing time came when he became embroiled in the CDU funding scandal. He admitted to accepting 100,000 marks ($77,000) in cash from arms dealer Karlheinz Schreiber without ensuring it was registered in the party accounts. Pressure on Schaeuble to resign as CDU chairman mounted after he admitted he had lied by denying a second meeting with Schreiber. That cleared the way for Merkel’s ascent.

The CDU’s seizure of the finance ministry was a blow to the FDP’s Hermann Otto Solms, who had been touted by some analysts as a candidate. Solms advocates replacing the progressive income tax and its multitude of exemptions with three fixed brackets.

International Posts

The highest FDP post went to Westerwelle, whose lack of experience in foreign affairs has led to doubts about his credentials for the post, which traditionally goes to the leader of the junior party in a governing coalition.

The FDP will also take over the Economy Ministry with the appointment of Rainer Bruederle. He’ll succeed Guttenberg, who will now oversee the presence of more than 4,300 German troops in Afghanistan. The post would give an international profile to a CSU politician who previously focused on domestic affairs.

The youngest minister will be Philipp Roesler, 36, at the health ministry. He’d been deputy premier of the state of Lower Saxony.

Source

The number of Americans filing first- time claims for unemployment benefits fell last week to the lowest since January, a sign the labor market is deteriorating more slowly as the economy emerges from the recession.

Applications fell by 33,000 to 521,000, lower than forecast, in the week ended Oct. 3, from a revised 554,000 the week before, Labor Department data showed today in Washington. The total number of people collecting unemployment insurance dropped in the prior week to the least since March.

While the figures indicate improvement, government data last week showed more job cuts than forecast for September and a rising jobless rate. President Barack Obama pledged to “explore any and all additional measures” to spur growth, as last week’s report underscored that gains in consumer spending may be hard to sustain once stimulus programs expire.

“Companies are now in a situation where they’ve cut enough jobs, but they’re still not hiring enough,” said Harm Bandholz, a U.S. economist at UniCredit Global Research in New York. “Consumer spending will be very slow until the middle of next year. We’re in a moderate recovery.”

U.S. stocks extended gains as the report bolstered optimism that the economy is pulling out of the worst slump since the Great Depression. The Standard & Poor’s 500 Index was up 0.6 percent to 1,063.84 at 10:17 a.m. in New York.

Forecasts

Economists forecast weekly claims would drop to 540,000 from a previously reported 551,000, according to the median of 45 projections in a Bloomberg News survey. Estimates ranged from 530,000 to 560,000.

Continuing claims dropped by 72,000 to 6.04 million in the week ended Sept. 26 from 6.11 million in the prior week.

A Commerce Department report today showed inventories at U.S. wholesalers dropped in August for a 12th consecutive month, clearing the way for a pickup in orders as sales improve. The 1.3 percent decrease in stockpiles was larger than anticipated and followed a revised 1.6 percent drop in July. Sales climbed 1 percent, the biggest gain since June 2008.

The jobless claims report showed the four-week moving average of initial applications, a less volatile measure, fell to 539,750 last week from 548,750.

The unemployment rate among people eligible for benefits, which tends to track the jobless rate, decreased to 4.5 percent in the week ended Sept. 26, from 4 quick pay day loan.6 percent the prior week.

States and Territories

Twenty-seven states and territories reported a decrease in claims, while 26 reported an increase. These data are reported with a one-week lag.

Initial jobless claims reflect weekly firings and tend to rise as job growth — measured by the monthly non-farm payrolls report — slows.

The Labor Department said last week that employers cut 263,000 jobs in September after a 201,000 drop in August, while unemployment climbed to 9.8 percent, the highest level since 1983. The U.S. has lost 7.2 million jobs since the recession began in December 2007.

The government also projected that payrolls may have fallen by 824,000 more than previously thought in the year ended March.

Nonetheless, economists surveyed by Bloomberg in September estimated the U.S. returned to growth last quarter after contracting in the first six months.

Tepid Growth

Growth next year probably won’t be strong enough to “substantially” bring down unemployment, which may remain above 9 percent at the end of 2010, Federal Reserve Chairman Ben S. Bernanke told lawmakers on Oct. 1.

Companies looking to add staff include Richfield, Minnesota- based Best Buy Co. The world’s largest electronics retailer last month said it plans to hire more seasonal holiday workers this year to help meet demand for Internet-connected flat-panel televisions and mobile phones.

Those cutting jobs include Windstream Corp., a Little Rock, Arkansas-based fixed-line phone company, which said last week it plans to trim about 350 positions, or 4.9 percent of its workforce, by the end of the year. The cuts are needed as the company changes its business model, Chief Executive Officer Jeff Gardner said in a Sept. 30 statement.

Legislation to extend unemployment benefits is being delayed in the U.S. Senate by a dispute among lawmakers over which states ought to receive the relief.

The House approved legislation last week that would extend benefits by 13 weeks for people in 27 states with jobless rates of at least 8.5 percent in August. Democrats had said they wanted to forward the bill to Obama by the end of September, when benefits ran out for about 400,000 Americans.

Seventeen senators objected to the House plan because their states would be excluded.

Source

Manufacturing in the U.S. expanded less than anticipated by economists and more Americans filed claims for unemployment benefits, pointing to a recovery that will be slow to generate jobs.

The Institute for Supply Management’s factory gauge decreased to 52.6 in September from 52.9 in August, the Tempe, Arizona-based group said today. Fifty is the dividing line between expansion and contraction. The number of jobless claims climbed to 551,000 last week, more than economists forecast, figures from the Labor Department showed.

Coming a day before the September jobs report, the figures caused stocks to slump on growing concern the seven-month rally has outpaced prospects for economic growth. Consumer spending, boosted last quarter by government programs such as “cash for clunkers,” may not be able to keep rising as quickly once the stimulus expires and unemployment keeps climbing.

“The balance of data is still pointing to the economy getting better,” said Conrad DeQuadros, a senior economist at RDQ Economics in New York. “The consumer is still facing significant headwinds in the labor market. I wouldn’t look for the consumer to significantly boost growth over the next couple of months.”

The Standard & Poor’s 500 Index closed down 2.6 percent at 1,029.85 today in New York, a day after completing its biggest back-to-back quarterly rally since 1975. Treasury securities jumped, sending the yield on the 10-year note down to 3.18 percent from 3.31 percent late yesterday.

Unexpected Drop

The ISM index, which dropped for the first time this year, was forecast to rise to 54, according to the median of 80 estimates in a Bloomberg survey of economists. Projections ranged from 51.5 to 56. Manufacturing accounts for about 12 percent of the world’s largest economy.

“We’re still in positive territory but we’re just not advancing at quite the same rate,” said Brian Bethune, chief financial economist at IHS Global Insight in Lexington, Massachusetts. “Retailers are anticipating a weak sales season and they’re playing it conservative on orders and hiring.”

The ISM report showed orders and production advanced at a slower pace last month, while the magnitude of reductions in inventories also cooled.

“The inventory correction, with the exception of a few industries,” has played out, Norbert Ore, chairman of the ISM’s factory survey, said in a press conference. “Overall, September was a good month. For the balance of the year, we should expect to see manufacturing holding this level, possibly improving from this level.”

More Claims

Last week’s jobless claims figures overshot the median estimate of economists surveyed by Bloomberg News which projected an increase to 535,000, raising concern tomorrow’s jobs report will also disappoint expectations that payroll decreases are slowing.

The Labor Department may say tomorrow that job losses in September totaled 175,000, according to the survey median, while the unemployment rate rose to 9.8 percent, the highest since 1983.

The economy has lost 6.9 million jobs since the recession started in December 2007, the most of any downturn since the Great Depression. The 216,000 drop in payrolls reported for August, meanwhile, was the smallest in a year.

Autos, Houses

So far, the Obama administration’s $787 billion stimulus plan, which included the auto incentives and an $8,000 tax credit for first-time home buyers, is giving consumers reason to buy cars and houses.

Household purchases jumped 1.3 percent in August, the largest gain since October 2001, data from the Commerce Department also showed today. Incomes climbed 0.2 percent for a second month and inflation decelerated, the report also showed.

Inflation-adjusted spending on durable goods, including autos, furniture, and other long-lasting items, jumped 5.8 percent in August, also the most since the month after the 2001 terrorist attacks. Then, the introduction of zero-percent financing to revive sales boosted spending on durable goods by 14 percent.

Auto sales fell 35 percent in September from the previous month to a 9.2 million annual rate, after the clunkers plan expired, according to Bloomberg data.

Pending Sales

Lower home prices and mortgage rates combined with the first-time buyer credit have helped end the housing-market meltdown that sparked the financial crisis. The index of signed purchase agreements, or pending home sales, jumped 6.4 percent in August, a seventh consecutive increase, the National Association of Realtors said today in Washington.

The tax credit is due to expire at the end of November, raising concern sales will again slow.

Bed Bath & Beyond Inc., the largest U.S. home-furnishings retailer, last month said second-quarter profit rose 14 percent, fueled by rebounding home sales. The Union, New Jersey-based chain also increased its annual profit forecast.

Even so, “looking ahead to the remainder of our fiscal year 2009, we have assumed that the overall business climate will remain challenging,” Chief Financial Officer Eugene Castagna said on a conference call on Sept. 23.

Economists surveyed by Bloomberg earlier this month projected the economy will expand at an average 2.6 percent annual rate and grow 2.4 percent in 2010.

Source

White House economic adviser Lawrence Summers urged lawmakers to pass legislation that would toughen supervision of the financial system, saying a failure to act swiftly would leave the economy vulnerable to another crisis.

“We believe it is critical to move rapidly while the events of the last years are clearly in mind,” Summers said in a speech today at Georgetown University in Washington. He warned that “a failure to change the rules of the road will result in future crises that will adversely affect the lives of millions and cost taxpayers untold sums.”

The Obama administration is pushing Congress to enact the most sweeping overhaul of financial regulation in 75 years, seeking to tighten oversight of Wall Street after a series of shocks that toppled major securities firms, froze credit markets and led to the worst recession since the 1930s.

The Treasury Department has proposed giving the Federal Reserve greater authority over the capital, liquidity and risk- management standards of the largest financial firms. Congressional leaders haven’t supported the proposal and are considering giving broader authority to a council of regulators.

Summers, director of the White House’s National Economic Council, said “a paramount objective must be to address the issue of moral hazard” that leads to excessive risk taking.

Consumer Protection

Summers also defended the Administration’s call for a consumer protection agency for financial products against an ad campaign financed by the U.S. Chamber of Commerce that charges the idea would constrain small businesses from extending credit to customers.

He compared the ads to charges that Obama’s health-care plan would create “death panels” that would deny the elderly medical care. Obama denounced those assertions as “a lie, plain and simple” in a speech to a joint session of Congress on Sept. 9.

“I would suggest those ads are the financial-regulatory equivalent of the death-panel ads that are being run with respect to health care,” Summers said. “Those with an argument make it and those without a good argument try to scare people. And that is what is happening here.”

Summers added that the White House considered the consumer protection agency a key element of its regulatory plan.

Obama ‘Determined’

“This is a critical issue,” he said. “It is one on which the president is determined.”

Summers defended the administration’s economic-stimulus package as a “necessary” step to revive the economy, even though it swelled the budget deficit. A key financier of the shortfall has been China, he said.

With about $801 billion in U.S. government debt, China is the largest foreign holder of Treasuries.

“We have a substantial appetite to borrow and they have a substantial appetite to hold reserves and lend to us,” Summers said. “That is a relationship that has been very substantially in our mutual interests and it has very much been a source of support for both economies.”

Source

An overhaul of U.S. financial regulations remains a priority for President Barack Obama and can be achieved this year along with a plan to fix the health- care system, White House economic adviser Lawrence Summers said.

Summers, director of the National Economic Council, said new rules are needed to prevent future financial crises that “have been too large a feature on our economic landscape.”

“This is the year, after what has happened, to overhaul the system of financial regulation,” Summers told reporters today in Washington.

One year after the collapse of Lehman Brothers Holdings Inc. paralyzed credit markets and contributed to the worst recession in more than 70 years, the Obama administration is stepping up efforts to sell a plan sent to Congress in June that rewrite the rules governing the financial system.

Obama will travel Sept. 14 to Wall Street in New York, where he will again make the case for tougher financial supervision, Summers said.

“He did not come here only to respond to crises or to repair that which had recently broken,” Summers said. “He came to address much longer standing economic issues.”

Obama has proposed new regulations overseeing the systemic risk posed by large financial institutions to the financial system, the creation of new government powers to dismantle failed companies and a new agency to oversee consumer financial products.

The financial regulatory proposal has been overshadowed on Capitol Hill by efforts to overhaul the U.S. health-care industry, which have dominated the attention of congressional leaders for much of the past few months.

Health-Care Debate

Summers said it’s possible for Congress to continue work on financial regulations during the health-care debate.

“The president famously said during the campaign that to be president you have to be able to do more than one thing at once,” Summers said. “I think that same idea applies to the 535 members of the Congress.”

The House Financial Services Committee is planning hearings over the next two months on financial regulations followed by committee consideration of legislation later this year free instant credit reports. The Senate Banking Committee has held a series of hearings on the issue and its staff is in the process of drafting legislation.

“It is very important to pass financial regulatory reform this year,” Summers said.

Obama has proposed giving more power to the Federal Reserve to oversee large financial institutions, something that faces opposition from lawmakers who blame the central bank for failing to anticipate last year’s financial crisis.

Fed’s Authority

Summers said there are discussions about how much more power to give the Fed without saying how it may interact with other regulators.

“There’s a huge amount of detail in the working-out of legislation of this kind,” Summers said. “We’ve seen the Fed as the natural place for systemic regulation.”

“Proposals are never enacted as they are first submitted,” he added.

Summers said the unemployment rate of 9.7 percent, the highest in 26 years, is “unacceptably high” and “will on all forecasts remain unacceptably high for a number of years.”

Stimulus Effects

A White House report released Sept. 10 said the $787 billion economic stimulus program has created or saved 1.1 million jobs since its implementation in February. Since the slump began in December 2008, the U.S. has lost 6.9 million jobs.

Summers said the improving economy is helping the government recoup some of the investments it has made through the Troubled Assets Relief Program, with some individual transactions yielding a profit for taxpayers.

Even so, Summers said, “on the overall uses of the TARP I don’t think it would be reasonable to expect profits, in part because some of them are directed at objectives where repayment really isn’t the objective, such as the subsidies to homeowners to avoid foreclosure.”

Source

Japan’s incoming government may redeploy as much as 5 trillion yen ($54 billion) in stimulus spending currently planned for “wasteful” programs, Democratic Party of Japan lawmaker Hirohisa Fujii said.

“We should cut these projects considerably,” Fujii, regarded as a contender for finance minister, said in an interview in Tokyo yesterday. The money could be diverted to spend on child care, education and support for workers, he said.

The amount is the first specific estimate provided by the DPJ, which won power for the first time this week on a promise to help households as the country struggles to emerge from its worst postwar recession. Economists have questioned whether the plans to cut public-works spending and shrink the bureaucracy will be sufficient, saying it may have to increase bond sales.

“The challenge for the DPJ is how to find the money to finance its promises,” said Mitsumaru Kumagai, senior economist at Daiwa Institute of Research Ltd. in Tokyo. “The party needs to allocate a limited amount of money efficiently without providing an adverse impact on the bond market.”

Yukio Hatoyama, the DPJ leader, asked Fujii not to retire from politics before the Aug. 30 election, sparking speculation that the 77-year-old will take the finance portfolio. Fujii was one of 308 DPJ lawmakers who won seats in the 480-member lower house. Hatoyama, 62, is scheduled to choose his Cabinet on Sept. 17.

Bond Sales

Fujii reiterated Hatoyama’s intention to keep new bond sales in the next fiscal year within the 44.1 trillion yen allocated for the year ending March 2010. The DPJ needs to find 7.1 trillion yen to fund its election pledges in the year starting April 1, according to its election manifesto.

“We can do it,” Fujii said in the interview in his office near Japan’s parliamentary Diet building. “We need to follow that line, while monitoring various things such as how much tax revenue we’ll actually receive.”

Japanese government bonds have remained little changed since the election, with benchmark 10-year notes yielding 1.31 percent at the close yesterday, from 1.315 percent before the Aug. 30 vote.

Parliament passed a 13.9 trillion yen supplementary budget in May to fund Prime Minister Taro Aso’s stimulus. The election defeat of Aso’s Liberal Democratic Party leaves money unspent from that budget available for reallocation by the incoming administration.

Comic Books

About half of that total was “wasteful,” Fujii said. Some 4.3 trillion yen was funneled to government-related agencies without any specific purpose, and 2.9 trillion yen was set aside for construction projects such as a “manga” comic-book museum, he said. About 4 trillion yen to 5 trillion yen can be redirected from those areas, he added.

The new government could use the money in the current fiscal year, or next year to help fund the pledges to provide child care benefits and free high school tuition, Fujii said. Any cash left over could be used to trim government debt, he added. Japan’s public borrowings, the world’s largest, are approaching 200 percent of the size of the economy.

Fujii, who worked at the Finance Ministry for 21 years, said the DPJ should set targets for restoring fiscal health, such as reducing the ratio of debt to gross domestic product and balancing the budget — goals that were set by the LDP.

Debt Target

A fiscal overhaul “is something we’ll have to do,” and targets could be laid out as early as January, he said. Fujii added that the party is confident it will be able to pass the budget before the next fiscal year begins April 1.

Fujii was an LDP lawmaker from 1977 until he left the party in 1993 to participate in a coalition government of other groups. He served as finance minister in that administration, which lasted only 10 months.

While the DPJ wants to shift power to elected politicians from the bureaucracy, Fujii’s background may help minimize clashes with the Finance Ministry should he take that post, analysts said.

“Fujii is well balanced — he’s likely to avoid being overly confrontational or overly conciliatory toward the bureaucrats,” said Kumagai at Daiwa Research.

The DPJ respects the Bank of Japan’s autonomy and evidence that the recession is over won’t compel policy makers to raise the benchmark interest rate from 0.1 percent, Fujii said.

“I think the BOJ’s independence is important,” he said. “I don’t think they’ll raise rates just because we’re seeing a slight improvement in the economy.”

Fujii separately said the government should only step into the foreign-exchange market “when speculative funds cause abnormal movements.” Currency intervention “shouldn’t be abused,” he said, while declining to comment on the level of the yen.

He said the recovery may lose momentum this year as the job market deteriorates and wages decline. The unemployment rate climbed to an unprecedented 5.7 percent in July.

One challenge for the DPJ is to rebalance the economy away from a dependence on exports that has made urban regions richer than rural areas, Fujii said. That wealth disparity “will never be good for consumer spending,” he said.

Source