Japan's new government will set up schemes worth nearly $5 billion to boost businesses, including helping them buy foreign companies, according to a draft economic stimulus package seen by Reuters on Monday that could be approved later this week.
Prime Minister Shinzo Abe has made reviving the economy his top priority after his Liberal Democratic Party (LDP) won elections last month, combining aggressive monetary easing with fiscal spending to encourage investment and spur growth.
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His spending promises have raised concerns Japan's public debt burden, already the worst among major economies, could deteriorate further, and some economists say structural reforms might have a bigger impact after years of stop-start growth.
The Development Bank of Japan (DBJ), a state-backed lender, will administer a 150 billion yen ($1.7 billion) lending scheme to encourage firms to develop new technologies and collaborate on new business lines, the draft showed.
The stimulus package would also establish a 200 billion yen fund with the Japan Bank for International Cooperation (JBIC), another state-sponsored lender, to encourage foreign mergers and takeovers.
It also includes 83 billion yen in loan guarantees and low-interest-rate loans for small firms, the draft showed.
A LDP sub-committee approved the draft on Monday, and it could be approved by the Cabinet as soon as this week.
The government will set aside 100 billion yen for the lending scheme with the DBJ in an extra budget, and the state-backed lender will use its own capital for the remaining 50 billion yen, according to the draft policy .
Government expenditure for the scheme with JBIC will total 70 billion yen. Lending from JBIC and private-sector banks will account for the remaining 130 billion yen, the draft showed.
Abe had earlier instructed the finance minister to disregard limits set by the previous government that capped new debt issuance at 44 trillion yen, which has raised concerns about fiscal discipline.
The government will sell more than 5 trillion yen in new bonds for the stimulus, Kyodo news reported on Monday.
The increase would mean that new bond sales for fiscal 2012/13, which ends in March, would exceed 50 trillion yen, Kyodo news reported without citing the source of its information.
The draft document obtained by Reuters did not say how the how the package would be funded.
The total size of the government's stimulus package could be around 10 trillion yen, with half devoted to public works, a source close to Abe told Reuters last month. Monday's draft did not contain any details of plans for public works spending.
Senior members of the LDP have said they want to spend some of the stimulus on repairing roads, tunnels and public schools, raising concerns the LDP is falling back on the excessive public works spending that was the hallmark of its more than half a century of nearly non-stop rule of the country. ($1 = 88.0400 Japanese yen)
(Writing by Stanley White; Editing by Simon Cameron-Moore and John Mair)