Q+A-Power split between Japan's new strategy bureau and fin min

Tue Sep 29, 2009 5:28am EDT

By Stanley White

TOKYO, Sept 29 (Reuters) - Japan's new prime minister wants to set up a powerful agency called the National Strategy Bureau to oversee the budget process and set priorities for policy.

That has raised questions about how power will be split between the bureau and the finance minister, the traditional manager of the country's budget.

The following are questions and answers about whether Finance Minister Hirohisa Fujii or the head of the National Strategy Bureau, Naoto Kan, exerts more influence:

WHY WAS THE BUREAU SET UP?

The ruling Democratic Party of Japan says the legislative budget process under the ousted Liberal Democratic Party (LDP), which governed Japan for most of the last half century, was inefficient.

It says bureaucrats drafted policies for the benefit of their own ministries and lawmakers influenced budget spending to cater to special interest groups.

The government hopes a centralised authority under the prime minister and his cabinet will end haggling between the cabinet and other ruling party lawmakers that was typical under the LDP.

SO, DOES THAT PUT KAN IN THE DRIVING SEAT?

Not yet. For one, the Democrats have not clarified exactly what the National Strategy Bureau will be responsible for and whether it will have priority over the Ministry of Finance.

Secondly, the bureau needs parliamentary approval to grant it full authority. Prime Minister Yukio Hatoyama had said a special parliamentary session this autumn would grant the new agency legal status to draft policy, but Kan last week cast doubt on that deadline. He said he was not sure when the bills will make it to parliament because that was for the prime minister to decide and the government was dealing with "other issues".

Thirdly, the government has been slow to staff the new agency, so Kan lacks the resources to do the number crunching needed to draw up detailed policies.

In addition, Hatoyama has created a myriad of committees for cabinet members to debate and decide upon policy, which have been able to get to work right away and so obscure the need for the bureau.

DOES THAT MEAN FUJII HAS THE UPPER HAND?

For now, yes. Fujii, finance minister in an anti-LDP coalition from 1993 to 1994, has the ministry's budget bureau at his disposal. It's already working on rejigging the extra budget introduced by the previous government.

Hatoyama ordered the cabinet on Sept. 18 to root out wasteful spending in the extra 14 trillion yen ($157 billion) budget, a decision that was agreed beforehand in one of the cabinet's many committees. [ID:nT114337]

Fujii told reporters each minister in the committee had an equal say and Hatoyama made the final decisions. But he stressed that responsibility for the budget lay with the Finance Ministry and the government would use the same process to decide on the 2010/11 budget, suggesting the National Strategy Bureau won't be in driving seat. [ID:nT95841]

However, Fujii has rattled the foreign exchange markets this week, suggesting on the one hand that he was comfortable with the yen's recent strength but then on the other hand appearing to backtrack by pointing to the possibility of action to counter irregular movements in the currency. [ID:nT324421]

SO WHERE DOES THAT LEAVE THE NATIONAL STRATEGY BUREAU?

Even though Kan has limited resources for now, he is hardly bereft of ideas. He has suggested clear benchmarks for spending on high-priority programmes and also wants to be involved in reforming Japan's tax system. It's simply taking longer for these ideas to take shape than many had anticipated.

Still, a division of labour between the bureau and the finance ministry does seem to be emerging. Fujii told reporters that the ministry will be in charge of compiling each year's budget and that he will take the lead on tax reform.

Kan's bureau will focus mostly on crafting a long-term strategy for the state budget, including government debt issuance, Fujii said.

SHOULD MARKETS BELIEVE FUJII WHEN HE SAYS CUTTING JGB ISSUANCE IS AN OPTION?

This is a question that has revealed differences between the finance ministry and the new bureau.

On Sept. 18, Fujii said cutting JGB issuance was an option as the government reviews the extra budget compiled by the previous government. [ID:nTKX006460]

That seemed to contradict Kan, who had said the government may need to compile a second supplementary budget to support an economy dealing with a fragile recovery. [ID:nTKB006449]

Japan has the highest public debt among advanced countries, creating increasing unease among investors over its inability to get spending back into line with tax revenues.

For a graphic tracking Japanese government spending, revenues and debt, click: r.reuters.com/bad88d

Investors are braced for at least 5 trillion yen in new bond issuance to make up for sliding tax revenues since the 2009/10 budget was issued.

Fujii has said the government may be able to save a few trillion yen by cutting wasteful spending, but that may not be sufficient to avoid issuing more government bonds. [ID:nT328137] ($1=89.14 Yen) (Editing by Rodney Joyce and Neil Fullick)