Japan economic reforms delayed

Japan needs to kick its extra-budget habit, officials say, but a special spending plan is still expected later this month

By staff and wire reports

TOKYO, Japan -- Japan shouldn't expect too much from an extra budget, its officials warn.

One of the key platforms of Prime Minister Junichiro Koizumi's reforms is to rein in government spending.

But the worsening picture in Japan is making it hard for Koizumi to push change. A supplementary budget is still widely expected out of an extra parliamentary session later this month.

The administration also postponed on Monday the unveiling of a reform schedule.

Officials said they would release a list of priority reforms on September 14. They originally promised it by the end of August.

Analysts say the delay is due to political and bureaucratic bickering. Koizumi faces opposition from within his own Liberal Democratic Party on reforms, as well as other parts of the government.

Shiokawa warns against more bonds

As far as the extra budget goes, Finance Minister Masajuro Shiokawa said on public television Sunday that the current administration is looking to keep it as small as possible.

The government must not be swayed by advocates of big spending, who don't realize that hasn't worked in the past, he said.

"If we increased government bond issuance further, what will happen? It's going to be dire -- interest rates will surely rise. And once that happens, it would be too late if we wanted to implement structural reforms," Shiokawa said. "I am very concerned about that."

At 130 percent of GDP, Japan's government debt is already the worst in the industrial world. Over the last decade, Japan has racked up some 10 emergency spending packages worth 128 trillion yen (more than $1 trillion), to little effect.

Economics Minister Heizo Takenaka, who has come under pressure recently from critics who say his policies are unclear, also said that Japan must kick its extra-budget habit.

"Spending plans should be set from a long-term perspective and we should move away from a fiscal policy where a supplementary budget is an annual ritual," Takenaka said on television on Sunday.

IMF loan visit welcome

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Koizumi has promised to cap government spending at 30 trillion yen. He also vows to break with past efforts to lift the world's second-largest economy out of its slump.

They were characterized by public spending, often on rural construction projects and roads, that critics say were unnecessary.

But Koizumi's planned reforms are hitting plenty of hitches. Some fault the government for not doing enough. Critics say now is not the time to dose out a bitter pill to Japan, already ailing with record unemployment.

Its second-quarter gross domestic product figures are expected to be dire when they are released Friday.

Ministries are expected to oppose plans to revamp Japan's 77 state-backed corporations. A Koizumi-appointed panel recommended wholesale changes at the start of August, including that many be privatized. The ministries were filing their official replies on Monday evening.

In another key area of reform, officials say it will take longer than expected to tackle Japan's bad bank loans. The banks are adding new bad loans as fast as they write them off.

The International Monetary Fund has lodged an official request to send inspectors to survey the extent of the loan problem. The IMF relies on private analysts' estimates of bad loans rather than official figures.

Overseas investment banks typically feel Japan's watchdog Financial Services Agency is underestimating the extent of bad loans. The FSA has vociferously defended itself, saying the banks misunderstand the issue.

Financial Services Minister Hakuo Yanagisawa, who heads the FSA, says he is "very open" to the idea of an IMF visit. But it will be hard for the FSA to host a visit any time soon because of a lack of manpower, Yanagisawa said.

Reuters contributed to this report.