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Wednesday September 27, 5:57 PMJapan may slow fiscal reforms under new PM -S&PTOKYO, Sept 27 (Reuters) - Japan may slow the pace of fiscal reforms under its new Prime Minister Shinzo Abe, ratings agency Standard & Poor's said on Wednesday, a day after he formed his new cabinet with a "no growth, no fiscal consolidation" policy.The ratings agency questioned Abe's preference for growth policies over fiscal consolidation, saying his stance may lead to a deceleration of the pace of fiscal consolidation. Citing other factors such as parliament Upper House elections next year and reform fatigue left by his predecessor, the agency said Abe's new government may be unlikely to push fiscal consolidation measures that are hard for the public to swallow. "The departure of former Prime Minister Junichiro Koizumi leaves the (ruling) Liberal Democratic Party, the majority party in Japan's coalition government, without a strong reformer," Standard & Poor's director Takahira Ogawa said in a report. With rural areas particularly experiencing reform fatigue, Ogawa said: "The temptation to implement economic stimuli in the form of increased spending on public projects may be too difficult for the new government to avoid." Replacing Koizumi, Abe was elected on Tuesday by parliament with a majority of lawmakers in both chambers voting for him. He formed his cabinet later in the day. Abe vowed to accelerate structural reforms in the economy started by Koizumi and keep issuance of Japanese government bonds in the 2007/08 fiscal year below the amount issued in the current fiscal year ending March 31. However, the task won't be easy, the agency said, pointing to a lack of strong reformers and the appointment of some of the old guard within the LDP as key economic ministers in the new cabinet. The ratings agency called the 73-year-old new Finance Minister Koji Omi one of the LDP "traditionalists", expecting him to implement policies in favour of traditional LDP tenets rather than drastic reforms. S&P also said Hiroko Ota, picked from academia as new minister for economic and fiscal policy, held a key role in reform progress. S&P currently has a positive outlook on Japan's rating. But the direction of the sovereign rating depends largely on Abe's government's ability to pursue public sector reform pushed by his predecessor, the agency said. "The two biggest constraints on the rating are Japan's fiscal position, which though improving remains weak, and its outstanding debt," said the report. "Critical factors are therefore the pace of fiscal consolidation, the stability of the Japanese government bond market, and interest rates," it said. Citing Japan's aim to achieve primary account balance in fiscal 2011 through spending cuts and revenue increases, the agency said how the new government meets the target is a major issue for the future direction of the sovereign rating. |
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