(provisional translation)
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Framework of the Fundamental Reform of the Fiscal Investment and Loan Program (FILP) |
1. Basic Concepts
- The FILP system shall be fundamentally changed from a scheme with compulsory deposit of Postal Savings and Pension Reserves into a fund-raising scheme to raise only the necessary amount of funds for FILP agencies’ projects in the market. Consequently, the harmonization of the FILP with the market principles, as well as the reform and efficient operation of FILP agencies will be promoted.
- FILP target areas and projects should be reviewed continuously in terms of their complementary role to private business and the financial soundness thereof in the future by making good use of policy (subsidy) cost analysis.
2. Outline of FILP Reform
| (1) | Fund Raising |
| (a) | Abolition of the compulsory deposit of Postal Savings and Pension Reserves (portfolio investment) |
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Compulsory deposit of Postal Savings and Pension Reserves shall be abolished, and these funds shall be invested in the financial market from April 1, 2001. Postal Life Insurance Reserves shall cease loans to FILP agencies and be invested in the financial market, as shall Postal Savings. |
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However, Postal Savings and Postal Life Insurance Reserves will lend money to local governments with financial difficulties within the Local Government Bond Plan and the FILP Plan. These loans will be disbursed based not on negotiations with each local government, but on uniform government conditions in line with market principles in a commitment approved by the Diet as a part of the national budget. |
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Postal Savings and Pension Reserves, which are a huge amount of public funds collected by the government, shall be operated in a secure and efficient manner and subject to strict rules in their portfolio investment. |
| (b) | FILP Agency Bonds |
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The introduction of FILP agency bonds will be an incentive to improve operation of these agencies through the market mechanism. Hence each agency should examine their own fund-raising opportunities and make utmost effort to issue FILP agency bonds. |
| (c) | Government-Guaranteed Bonds |
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Government-guaranteed bonds can be issued under strict examination in terms of maintaining proper fiscal discipline in limited cases, such as a guarantee extension for an agency that cannot issue FILP agency bonds immediately. |
| (d) | FILP Bonds |
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Funds raised collectively by the government through the issuance of FILP bonds in accordance with market conditions can be appropriated to such agencies implementing required policies or projects requiring very long-term financing, which face difficulty or higher costs in funding through (b) or (c) above mentioned. |
| (e) | Securing Fiscal Discipline, etc. on FILP Bonds |
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To secure fiscal discipline, FILP bonds shall be issued in the new special account separated from the General Account, and shall be issued with the Diet approval. The fixed-rate transfer scheme, which is applied to the current JGBs redeemed by taxes, shall not be applied to FILP bonds since FILP bonds are redeemed by funds collected from loans or other financial assets. |
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FILP bonds shall be treated equally to existing JGBs in the primary and secondary market in consideration of the current procedure concerning JGBs and local government bond issuance, similar examples in other countries, and the efficiency of bond markets. |
| (2) | Review of FILP Target Areas and Projects |
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Hypertrophied FILP shall be avoided by examining FILP target areas and projects in terms of their complementary role to private business and the financial soundness thereof in the future. |
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Policy (subsidy) cost analysis will be applied in the review. |
| (3) | Harmonization with Market Principles |
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Fund raising will be conducted in line with market principles, and the additional rate on Trust Fund Bureau deposits arising from “concerns” on depositors’ management will be abolished. |
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Basically, the loan rate will change according to the maturity of the loan based on the prevailing yield curve of JGBs in the market. Loan rate floating every ten years shall also be offered. |
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Asset-Liability Management (ALM) will be refined. |
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Financing bills, issued with the Diet approval, shall be introduced in order to smoothly adjust time lags between the constant issuance of FILP bonds and loan disbursement. |
| (4) | Diet Approval, etc. |
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The reformed FILP shall also be approved by the Diet as part of the national budget since FILP is the long-term financing with resource-allocation functions for the purpose of appropriate fiscal-policy implementation. |
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The FILP Plan will be divided into capital subscriptions, loans, and guarantees in a consolidated and clear manner and submitted to the Diet to facilitate discussions. The planned amount of FILP agency bonds will also be shown as a breakdown of jiko-shikin (agencies’ independent fund raising) in the FILP Plan as a reference. |
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The total amount of loans to local governments by Postal Savings and Postal Life Insurance Reserves will be shown in the FILP Plan in a consolidated and clear manner due to their function to distribute fiscal resources. |
| (5) | Transitional Measures |
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The abolition of the compulsory deposit of Postal Savings and Pension Reserves shall be accompanied by appropriate transitional measures to sustain foregone loans and avoid detrimental effects on the market for the smooth enforcement of FILP reform based on theFundamental Law on the Reform of Government Ministries and Agencies, etc. |
| (6) | Sophistication of Policy (Subsidy) Cost Analysis |
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Policy (subsidy) costs will be measured quantitatively and disclosed with a view to not only promoting disclosure of information concerning future taxpayers’ burdens and securing fiscal soundness but also utilizing in review of FILP target areas and projects. |
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The policy (subsidy) cost analysis will contribute to improvements in FILP agencies’ business, finances, and fiscal discipline. |
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The policy (subsidy) cost analysis will be continuously reviewed further in terms of expansion of its targets and improvement in its analysis methods. |
| (7) | Further disclosure of FILP agencies and the entire FILP system |
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Disclosure of each FILP agency as well as the entire FILP system will be improved. |
| (8) | Abolition of the Trust Fund Bureau |
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The Trust Fund Bureau shall be abolished, and a framework appropriate for the new FILP system shall be established. Simultaneously, improvement in the accounting system, e.g. the change to an accrual basis, shall be carried out with a view to improving financial transparency and clarity. |
| (9) | Implementation Date |
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Based on the Fundamental Law on the Reform of Government Ministries and Agencies and others, the reformed FILP system shall be launched on April 1, 2001. |