Japan’s difficult recovery

By Caroline Molette

Kesennuma, Miyagi prefecture, in March 2011 and March 2012

Japan’s Board of Audit released last week a report analyzing the projects financed with the money supposed to rebuild the North-Eastern coastline of Japan. Its conclusions are striking: a quarter of the $150 billion allocated to this plan has been spent on unrelated projects and half of the entire budget is still unspent although needs are enormous.

As anyone may remember, on March 11th 2011, a powerful tsunami hardly hit Japan’s East coast as a result of a 9.0 magnitude earthquake, killing nearly 20,000 people. One year and a half later, 325,000 Japanese remain displaced out of the 340,000 first moved, rubbles are still piling up and no new buildings’ constructions have been finished yet in this area.

However, the government has been very proactive in financing unrelated projects with the money raised in order to reconstruct regions affected by the catastrophe. Among those projects we can find the repairing of a stadium in Tokyo, the promotion of export of nuclear technology to Vietnam, the support for Japan’s controversial whaling program or the construction of a road in Okinawa, 1,000 miles away from the hit areas.

One can easily argue, as the Japanese government did afterwards, that all these projects will in a way revitalize the Japanese economy as a whole and eventually bring benefits to the hit areas. Nevertheless, this does not help the tens of thousands of people still living in temporary housing. Moreover, the money directly allocated to affected Prefecture does not fit the needs: in Iwate, the Prefecture received applications for loans worth $320 million while it had only $188 million to distribute. In the whole area, 60% of applications have been rejected.

Even if reactions in Japan have been very limited in comparison to what such an announcement would have triggered in many countries, “the government has lost all public trust” as Masako Mori, an opposition lawmaker with the Liberal Democratic Party, said. When it came to power in 2009, the Democratic Party committed to make public spending more transparent. According to BBC reporter, Japanese have learned not to expect too much from their leaders as the misuse of funds has been a regular pattern in the Japanese economy.

However, even if the government is not reliable enough, some firms and private individuals have taken interesting initiatives in order to help the disaster areas and especially businesses that have little chance to meet the government requirements for being granted financial help. Tomoaki Tsutsumi, for instance, a fund manager in Keystone Partners, first provided immediate help to the area, with the collaboration of his colleagues, but soon, given his close ties with people in this area, he developed a program in order to help the tourism industry, indirectly hit, to recover in this area, with market rates but flexible loans. Other firms have been even more charitable, such as Music Securities that raises money in order to help singers. Half of the money is donated and the other half is lent at very attractive terms and only earns a return if the business recovers.

This situation can be explained by the fact that no recovery plan had been adopted in the first place. The Government defends itself arguing that it wanted to allocate the money to disaster zone in the first place but that due to pressure from opposition, it had to expand the scope of the allocation of money to more diversified projects. In the bill authorizing the spending of these $150 billion, the money is supposed to be used to help “reinvigorate Japan”. Therefore, none of the unrelated spending is truly illegal, but Japan needs a vision for the future. Indeed, many rural areas affected by the tsunami and its aftermath were already aging regions in crisis and rebuilding them based on the past will not help them face the future serenely. Moreover, the Japanese government should put aside its own interests and focus on these areas so that it does not set aside some regions of the country. Prime Minister announced directly in the wake of this released that the Government would stop financing these unrelated projects, but will this be enough to reinvigorate Japan? Tokyo should delegate more power to provinces as they know better what are the needs and as a result money would better allocated.

This video from BBC shows in images what the consequences of this misuse of money are.

Sources:

http://www.economist.com/blogs/banyan/2012/11/reconstruction-japan%E2%80%99s-disaster?zid=306&ah=1b164dbd43b0cb27ba0d4c3b12a5e227

http://www.bbc.co.uk/news/business-13167014

http://www.nytimes.com/2012/10/31/world/asia/outcry-in-japan-over-diversion-of-aid-funds.html?_r=0

http://www.ft.com/cms/s/0/e7cff384-19ff-11e2-a379-00144feabdc0.html#axzz2BHI6oONu

http://www.3news.co.nz/Japan-spends-tsunami-recovery-budget-on-unrelated-projects/tabid/417/articleID/274809/Default.aspx

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