Is Japan the Next Greece?

Total government debt is about 115 percent of GDP in Greece, which clearly is one of the factors that spooked investors and led to the bailout. But Japan - at least on paper - is in much worse shape with government debt approaching 200 percent of GDP (see page 80). And with a grim demographic outlook (lots of aging people and comparatively few young people to enter the workforce), the nation's fiscal position seems dismal. Yet the Japanese government is widely perceived as more trustworthy, particularly by domestic savers who finance much of the government's debt. At some point, however, one would imagine that the proverbial chickens will come home to roost and Japan will face a fiscal crisis. Here's some interesting background from a New York Times story:

Seeking to bring its spiraling debt under control, Japan has undertaken an unlikely exercise: lawmakers are forcing bureaucrats to defend their budgets at public hearings and are slashing wanton spending. The hearings, streamed live on the Internet, are part of an effort by the eight-month-old government of Prime Minister Yukio Hatoyama to tackle the country's public debt, which has mushroomed to twice the size of Japan's $5 trillion economy after years of profligate spending. Greece's debt crisis, which has panicked investors and forced the rest of Europe to put together a multibillion-dollar bailout, has fed fears in Tokyo that if spending is unchecked, Japan could become the center of the next global financial crisis. ...The target of the most recent hearings, which began Friday, is Japan's web of quasi-government agencies and public corporations - nonprofits that draw some 3.4 trillion yen ($36 billion) in annual public funds, but operate with little public scrutiny. Critics have long argued that these organizations, many of which offer cushy executive jobs to retired public officials, epitomize the wasteful spending that has driven Japan's public debt to dangerous levels. The daily testimony by cowering bureaucrats, covered extensively in local media, has given the Japanese their first-ever detailed look at state spending. So far, viewers have looked on in disbelief over the apparent absurdity of some of the government spending. In one example scrutinized on Tuesday, the National Agriculture and Food Research Organization, which is government financed, spent 130 million yen ($1.4 million) last year on a 3-D movie theater used to show footage of scenery from the countryside. The movie dome, which also plays recordings of chirping insects and babbling streams, is closed to the public and is used to study how the human brain reacts to different types of scenery, said Takami Komae, head of the organization's rural engineering department. The findings will be used to help rural areas think of ways to attract more tourists, he testified. Politicians ridiculed the project. "The dome is located in the countryside anyway, isn't it?" said Manabu Terada, a Democratic Party lawmaker, at a public hearing in Tokyo. "Can't we just step outside and see the real thing?" ...Under particular scrutiny at the hearings have been the retired ministry officials who take comfortable positions at the government-linked organizations in a practice known as "amakudari," or "descent from heaven." The network of these agencies is complex, including 104 large organizations supervised directly by the government and 6,625 smaller public corporations. Critics say that many of the former bureaucrats use their connections in government to win public money for dubious construction and research projects, then delegate the work while their organizations pocket much of the budget as administrative fees. Aki Wakabayashi, an author and former worker at a government-supported labor think tank, has been one of the most fervent critics of government spending on these organizations. In 2001, she blew the whistle on her institute, describing lavish foreign "research" trips for the former bureaucrats leading the institute - complete with first-class air travel and stays in five-star hotels - and clerks who drew researcher salaries while spending their days chatting and reading magazines.