TMCnet News
LEAD: IMF urges Japan to implement ambitious reforms, raise sales tax+(Japan Economic Newswire Via Acquire Media NewsEdge) TOKYO, May 22_(Kyodo) _ (EDS: RECASTING WITH LATEST INFO) The International Monetary Fund on Thursday urged Japan to implement "ambitious" fiscal reforms, including raising the consumption tax, to reduce its huge public debts and put state finances in order. Daniel Citrin, deputy director of the IMF's Asia and Pacific Department, told a group of reporters in Tokyo that the Japanese government's medium-term fiscal policy is not sufficient to address growing demand from the nation's aging population. Citrin, who was in Tokyo as the head of an annual IMF mission to consult with the Japanese government on economic policy, noted that the government is maintaining a target of achieving a budget surplus on a primary balance basis at the central and local government levels in fiscal 2011. "We believe a much more ambitious fiscal plan over the next several years will be appropriate," he said, adding that comprehensive tax reforms, including raising the consumption tax and broadening the income tax base, will be necessary to implement further fiscal adjustments. Citrin said expenditure cuts are reaching the limit and Japan will not be able to count much on a natural increase in tax revenues amid its moderate economic growth. The government is expected to hold a debate later this year on whether to raise the sales tax from the current 5 percent to meet growing social security costs. But any sales tax hike is likely to dampen already weak private consumption and could drag on economic growth, at a time when the economic outlook remains uncertain, observers say. Turning to Japan's monetary policy, the IMF official welcomed the present position of the Bank of Japan, saying its wait-and-see stance is "an appropriate stance." He added that the BOJ should hold interest rates steady until concerns over domestic and overseas economies ease. The BOJ has kept its key short-term interest rate at 0.5 percent since it raised it from 0.25 percent in February 2007. Citrin also hailed the central bank's efforts to expand dialogue with financial markets, saying this step should help anchor inflation expectations during the period of transition to a more volatile price situation in the future. Although Japan's consumer price index has been on an upward trend recently on the back of surging commodities and energy prices, few signs of any evidence underlining core inflation expectations can be seen, the IMF official said. "We also believe that the BOJ should continue its flexible approach to meeting liquidity needs, which we believe has been quite successful in maintaining stability in money markets here during the period of financial instability in the global markets," he said. Regarding the May 12 earthquake in China's Sichuan Province that has claimed over 51,000 lives, Citrin dismissed speculation that the disaster would slow the fast-growing Chinese economy. "We don't think it is going to have a major impact, in particular contribution to manufacturing," he said, adding "reconstruction activities could even boost its actual gross domestic product" as seen in the aftermath of the 1995 Great Hanshin Earthquake. Copyright ? 2008 Kyodo News International, Inc. |