Evolving the FILP
		(1) Fundamental Reforms of the FILP (i) Thorough harmonization with market principles

A look at the history of post-war FILP shows that the core of the FILP was the Trust Fund Bureau Fund (now Fiscal Loan Fund). The Trust Fund Bureau managed public funds, such as Postal Savings, Pension Reserves, and surpluses in other special accounts in an integrated manner and invested them in JGBs, and loaned them as underlying funding for businesses carried out by the State, local governments and FILP agencies. The FILP, that is, the Trust Fund Bureau Funds plus Postal Life Insurance Reserves, provided funds necessary for the development of social infrastructure and for financing the projects to which private financial institutions were unable to provide funds.   Since the FILP manages public funds in an integrated manner, it can cope with changes in social and economic conditions more flexibly than the General Account budget. Therefore, the FILP has provided funds flexibly when additional spending for the development of social infrastructure had to be made or when the lending allocations for small and medium-sized enterprises had to be expanded as anti-cyclical measures. During the economic slowdown following the collapse of the bubble economy, the FILP provided additional funds to cope with private financial institutions' reluctance to lend money corporations. 　 Later, however, it came under criticism. As a result of implementation of anti-cyclical measures by utilizing the FILP, governmental financial institutions have become bloated and come to squeeze private institution. This prompted a drastic reform of the FILP to make it harmonize with market principles and to contribute to the reform and enhancement of efficiency of FILP agencies. Namely, the requirement that all Postal Savings and Pension Reserves be deposited with the Trust Fund Bureau was eliminated and instead a mechanism was introduced to raise from the financial markets the funds that are truly required by FILP agencies as they carry out projects.   The FILP has been managed under the new system since FY2001.

		(1) Fundamental Reforms of the FILP (ii) Policy (subsidy) cost analysis

Fishing vessel funds (Agriculture, Forestry and Fisheries Finance Corporation) Ocean-going tuna fishing boat (Tosa-city, Kochi) 　   The reformed FILP eliminates the requirement that all Postal Savings and Pension Reserves be deposited with the Trust Fund Bureau, replacing it with a mechanism to raise from the financial markets those funds that are truly required by FILP agencies as they carry out projects. As a result, the FILP will be managed in line with market principles.   Specifically, the necessary funds to FILP agencies are supplies to the financial market by the issuing FILP bonds, a type of JGB, under the Fiscal Loan Fund. For interest raised on deposits of surplus funds of the special account, market-linked conditions apply. Funds raised for the FILP carry market-linked interest-rate conditions. For interest on loans also, the rate is set according to the maturity of the loan, based on the prevailing yield curve of JGBs in the market.   FILP agencies also procure funds from financial markets by issuing FILP agency bonds (publicly issued bonds with no government guarantee issued individually by FILP agencies in private financial markets) and government-guaranteed bonds, in addition to procuring funds from the Fiscal Loan Fund. When issuing FILP agency bonds, besides promoting the external disclosure of information such as the acquisition of ratings by FILP agencies and holding briefings for investors, the diversification of the conditions of issuance is also promoted taking market trends, into account.

		(1) Fundamental Reforms of the FILP

Project Finance Loan (Development Bank of Japan) Shinko Kobe IPP Project (Independent Power Producers Project) (Kobe-city, Hyogo) 　 　 There are some government projects utilizing FILP funds, which are interest-bearing funds, that combine funds with subsidies or non-interest-bearing funds for the purpose of easing the burden on the user. In policy cost analysis, each institute sets certain preconditions for such projects and calculates the amount of usage cost (opportunity cost) of subsidies and disbursements to be provided by the government (general account, etc.) into the future, etc. ("subsidies, etc.").   In the analysis, the institutions estimate cash flow into the future under given preconditions and determine the gross amount evaluated as the current value (discounted present value) of subsidies, etc., invested by the government (general account, etc.) into the future calculated based on that.   Policy cost analysis clarifies policy cost, which, in short, is the future burden on the citizens, and enhances the transparency of FILP funds while also used for the purpose of verifying future certainty of the repayment of loans from Fiscal Loan Fund. In addition, while providing materials for evaluating the relevant projects, the analysis is also expected to have the effect of reviewing the nature of the projects by the entity implementing them.

	Column-- Relationship between a deficit balance and policy cost in operations eligible for FILP 　 　   Let us consider for a moment the policy of promoting the activities of specific operations utilizing FILP. 　 When setting up a program for providing financing to a certain Agency A at low interest and with collateral requirements relaxed, it is anticipated that reducing the interest rate will reduce Agency A's margin and that uncollectible debts will increase by easing collateral requirements. It would not be possible to implement this operation due to the risk of a deficit balance if things are left as they are. Consequently, in order to achieve such policy objectives, it is necessary for the government to provide Agency A with subsidies, etc., in order to assure a balanced account.   In other words, though such operations are suitable for the provision of FILP financing, at the same time they would not be achievable from the start unless they received subsidies, etc., from the government and it is generally thought that policy costs are generated in such cases.

		(2) Future FILP

Urban area redevelopment project (Urban Development Corporation) Harumi Island Triton Square (Chuo-ku, Toyo) 　   A look at the historical change in areas and projects targeted for FILP financing shows that, from the period shortly after the war to the high growth era, when private-sector industrial funds were in short supply, the government focused on establishing a core industrial base, such as heavy and chemical industry, electric power, trade financing, and oceangoing vessels, and on development of social infrastructure, such as railroads and communications. Later, when the economy shifted to stable growth, the government focused on improvement of the living environment, such as providing long-term, fixed-rate housing loans that could not be supplied by private financial institutions and improving the water and sewerage system.   Recently, priority has been placed on measures for small and medium-sized enterprises in light of economic trends. For example, the government has further enhanced the safety net by securing sufficient lending allocation for SMEs.   In this way, the government utilized the FILP to meet the needs of the people and changing economic and social conditions and complement private-sector businesses (complementation of the private sector).   Meanwhile, since FILP Funds are public and interest-bearing funds, the law mandates for consistent, that public funds are managed in dependable and advantageous ways (certainty of repayment). 　 Rental Housing (Urban Development Corporation) Urbanebio Kasuba (Kasuga-city, Fukuoka) 　   In the future FILP, we intend to assure the "complementation of the private sector" and "certainly of repayment" and prioritize target areas from the standpoint of cooperation with the private sector. We also intend to support formation of projects and PFI-method improvement of social infrastructure in cooperation with private financial institutions and to engage in risk taking in such new methods as DIP finance, Corporate Rehabilitation funds, urban rehabilitation funds and venture funds. In addition, we intend to make decision-making process transparent by enhancing the disclosure of policy cost analyses. We are resolved to continue to implement measures necessary for the people by utilizing the FILP.

Note: Figures for FY1995 are based on the general FILP except fund management operations.

	Column-- History of the Fiscal Loan Fund 　 　   The mechanism of the Fiscal Loan Fund dates back to the early days of the Meiji Era (1868-1912). Since private financial institutions were not well developed in those days, the government amassed various funds. Initially, the government only took custody of funds, but later postal offices began accepting deposits (postal savings) and started investing the funds in government bonds. When postal savings increased, the government began using the funds for investment in domestic industry and government-backed entities. Some of them, however, became irrecoverable.   In order to ensure that public funds under the Trust Fund Bureau Special Account are managed in dependable and advantageous ways, the law mandated that the recipients of financing would be limited to the government (the General Account and Special Accounts), local governments, and their wholly owned corporations.   Under the current Fiscal Loan Fund Special Account, a similar idea is followed. As the FILP manage funds raised based on the state's credit, the law mandates that public funds are managed in dependable and advantageous ways. The recipients of FILP financing are limited to the government, local governments and government related institutions that are legally supervised by the government. Note: Nishihara Loan refers to a series of loans extended to China in 1917-1918. Some of the funds were extended from the Deposits Section but vecame irrecoverable. The state assumed the principal and interest.