SUMMARY OF THE BASIC POLICY ON FINANCE AND BANKING
DEPARTMENT OF FINANCE
HAVING regard to the urgent necessity of strengthening the national economic structure in coping with the current international crisis, the Government formulated, and gave out on July 11, the basic policy on finance and banking, laying down the foundations for the execution of the country's wartime economic policies. This is what is commonly known as the new financial and banking structure.
I. GUIDING PRINCIPLES
With a view to solidifying the economic foundations for the carrying out of wartime national policies and hastening the establishment of a highly organized national defence structure, changes will be introduced to the financial and economic fields calculated to facilitate a planned mobilization and distribution of national financial resources. At the same time, the principles, structure and methods of employment of capital resources shall be further improved, and full scope will be given to national economic strength ensuring a smooth functioning of a comprehensive planned economy.
II. ESSENTIAL POINTS OF THE POLICY
A. Plan for Mobilizing National Financial Resources
1. An estimate of national financial resources shall be formed by taking a comprehensive account of the total output and other factors of national economy and, in order to distribute them rationally among national finances, industries and the people's consumption in accordance with national purposes, a national funds mobilization plan shall be laid down. 2. A plan for national savings shall be set up in accordance with national financial resources mobilization plan referred to above.
3. The aforesaid mobilization plan is to be worked out for each year, while a rough estimate of financial resources for several years shall also be taken.
B. Reform of the Policy Governing National Finances
1. Reorganization of the Accounting System
For the purpose of rationalizing the management of national finances, and of rendering closer its relation to the operation of planned economy, the accounting system shall be reorganized in the manner set forth below:
(a) In view of the fact that the General Account has hitherto comprised all payments irrespective of their nature, thus lacking in clearness as to the relation of such payments to the operation of planned economy, it is proposed to properly adjust the accounts, showing plainly whether the individual disbursement is an ordinary expenditure or one that makes up the assets.
(b) Likewise, the same discretion must be used in the handling of the Special Accounts.
(c) The forms of the budget shall be improved so as to make it more intelligible and, at the same time, it shall be so framed as to give it more flexibility to enable the Government to act speedily in response to the course of events.
(d) The existing accounting system shall be re-examined and any necessary improvement made to deal successfully with any requirements in wartime.
2. Reform of the Methods of Compiling the Budget
In compiling the budget the total estimates must be made first, by taking account of relations of funds with materials. The budget shall be drawn up on the priority basis in accordance with the supreme national policies. In this connection, the following points shall be observed:
(a) In compiling the budget for each year, the heads of the different administrative departments shall unite in deliberations for deciding on cardinal national policies to be followed by the Government.
(b) In order that the expenditures required for the execution of cardinal national policies and for other purposes may
not exceed the total amount fixed in conformity with the plan relating to national finances, the administrative departments shall conduct thorough re-examinations and readjustments of the expenditures already decided upon.
As to the revenue, the sources of income shall be properly arranged with reference to the nature of outgoings, so that a resort to the national loan issue will be limited to the expenditures whose nature warrants such a step.
3. Reform of the Taxation System
As the function of taxation is to secure the revenue necessary for meeting any requirements of national finances, a more rational taxation system shall be established with due consideration to its relation to the realization of planned economy. In this respect, the following points are of especial importance:
(a) The creation or revision of taxes, including changes in tax rates, shall be effected in such a way as to allow people of all classes and walks of life to do their part.
(b) The taxation policy shall be carried out with a view to contributing toward the expansion of essential productive activities, the regulation of consumption, the growth of national savings, the absorption of purchasing power and the operation of other policies.
(c) Taxation for each year shall be increased or decreased according to the requirements of national finances.
(d) The method of assessment and collection of taxes shall be rationalized.
4. Placing of the Issuance and Absorption of Government Bonds on a Planned Basis
The estimated amount of Government loan issues shall be fixed within the limit of the resources available for the purpose. The issuance and absorption of Government bonds shall be planned, having regard to monetary control, and rational measures shall be taken concerning the retirement of the bonds.
(a) No loans shall be issued purely for the purpose of covering deficits in the revenue.
(b) Concrete plans for the absorption of the bonds and measures for its realization are to be formed.
5. Reform in Local Government Finances
In line with reform in the national finances, local government finances shall be controlled from the standpoint of the operation of national economy as a whole. At the same time, efforts must be made to develop local peculiarities and to adjust or supplement what is superfluous or lacking in economic resources in individual localities, so as to avoid any unnecessary expenditures. Furthermore, adjustments shall be made in respect to the sources of funds required for the execution of matters commissioned by the Central Government or the work to be accomplished in cooperation with the Cenrtal [sic] Government.
C. Revision of Banking Policy
1. Planned Management of Industrial Funds
The total amount of funds to be employed in private industries and in foreign investments shall be regulated and their allotments worked out, taking into account the actual conditions of production, materials and labour, in a manner calculated to allow national economic strength to manifest their highest efficiency. By this means can the supply and use of industrial funds be placed on a planned basis.
2. Reorganization of the Banking System
Financial operations shall be conducted in conformity with the plan relating to the national capital resources and the flow of currency and credit shall be regulated systematically and for public good, and with a view to facilitating the absorption of Government bonds and the acquisition of materials, power and labour for the purpose of ensuring the prosecution of planned economy.
(a) Perfecting the Function of the Bank of Japan
The functions of the Bank of Japan, as the central organ in charge of the operation of the Government's control of banking, shall be further strengthened and its financial relation with other banking institutions rendered closer. In accordance with conditions of the money market, the Bank of Japan shall actively contract or release funds, thereby augmenting its function for the regulation of the money market.
(b) Tightening of Control of Financial Institutions
Financial institutions shall be required to form such an organization as to bring investments, loans and credits, and their collection to conform to the Government's policies of banking control. This organization shall keep close financial relations with the Bank of Japan, while promoting among its member institutions the spirit of solidarity and encouraging them to utilize their joint investments and loans.
In effecting the supervision of the financial institutions, efforts shall be concentrated upon ascertaining whether they are faithful in performing their duty to carry out planned economy.
(c) Organization of Financial Institutions
Financial institutions shall be required to form a unitary system with the Bank of Japan as its nucleus, and they shall thus function under the direction of the Government as one body united in a community of purpose, rendering concerted efforts in the operation of financial control and endeavouring to bring finance and industry into closer collaboration.
This financial system shall, in principle, be organized by the Bank of Japan and other institutions, classified according to the nature of their business, as a country-wide organization. Where necessary, district organizations shall be created, including all classes of financial institutions in each district.
(d) Adjustment and Unification of Financial Institutions
In line with the organization of financial institutions, any undesirable competition shall be eliminated, their management rationalized, and the cost of loanable funds lowered. For this purpose, the formation of new organs shall be considered where deemed advisable, and, also, new organs shall be set up if necessary, and the special banks and special companies engaged in financial business shall be created.
(e) Measures concerning the Acquisition and Employment of Banking Funds
While the management of each financial institution is to be undertaken by itself and on its own responsibility, in accordance
with governmental control, measures shall be taken, where deemed necessary, for the purpose of facilitating banking control, to allow participation of the credit of the Government in connection with the acquisition and the responsibility of repaying the funds so raised. And means shall be provided whereby investments and loans shall be guaranteed by the Government's credit, or claims shall be taken over by the Government, thereby rendering their collection easier.
(f) Harmonious Operation of the Various Financial Systems
Measures shall be taken to enable various financial agencies, including the ordinary financial institutions and associations of financial organs, to maintain a harmonious unity and carry on their business in accordance with the same guiding principles. Thus, the entire range of the money market, as one body, shall endeavour to influence banking control.
(g) Unification of the Employment of Government and Other Public Funds
The funds accumulated in the Treasury Deposit Bureau, in Postal Life and other special systems of social insurance, and in the mutual aid societies organized in various Government agencies shall be employed in a unitary manner in accordance with general banking control.
3. Rationalization of Security Transactions
The methods and structure of transactions in securities shall be rationalized with a view to stabilizing security values at proper levels and to facilitating transactions in such securities as are essential in wartime. By this means a smooth flow of industrial funds and national savings shall be conserved. In addition a stricter supervision shall be applied to the business of security dealers.
4. Effective Use of Industrial Capital
Industrial enterprises are required regularly to write off their assets and to conserve their profits as far as possible in order to strengthen their financial position. Moreover, the management of the undertakings shall be rationalized so as to enhance their human and material resources, while a more rigorous capital control shall
be exercised over them in order to concentrate their surplus funds.
On the other hand, arrangements shall be made to facilitate the acquisition of industrial capital necessary for the expansion of the nation's capacity to produce. Again, where any industrial equipment is compelled to remain idle, the Government may, when deemed desirable from the national point of view, grant credit for their operation or cause the same to be turned to some other use. Moreover, where it is deemed necessary, such measures as to place them under state management shall be studied.
5. Government's Financial Aid for Industrial Equipments
In case any industrial equipment is newly installed or extended at the request of the Government, the latter may, where deemed necessary, make contributions to the capital or grant credit to the enterprise. The Government, when deemed fit and advisable, may set up the plant for itself and entrust its operation to a private enterprise.
6. Revision of Foreign Exchange Policy
The object of foreign exchange policy is to use effectively the funds in foreign currencies in unison with foreign trade policy, to ensure the acquisition of goods necessary in the Empire and within the sphere required for Japan's existence.
At the same time, it is important to increase the value of the yen in international settlements and to enhance the country's economic facilities abroad.
The following points are of particular concern in this respect:
(a) A system shall be established whereby the Government may, when deemed necessary, take upon itself any risk arising out of the fluctuations of exchange rates.
(b) Such agreements as will facilitate the settlement of international accounts and other financial transactions shall be concluded with other countries.
(c) A plan for international settlements shall be fixed each year, taking into consideration the trade plan covering the same period, and practical measures shall be taken to see that the plan is properly executed.
7. Regulation of Investments in Manchoukuo and China
While it is highly desirable that funds for national finances and
industrial enterprises in Manchoukuo and China should be raised in the respective countries, it will be necessary for the present to comply with their requirements on the part of Japan. Accordingly steps shall be taken, with reference to the consequential exchange of goods and labour, to put into effect a systematic and unitary financing in conformity with the plan relative to national capital resources.
III. REORGANIZATION OF THE ADMINISTRATIVE STRUCTURE
For the purpose of bringing about a smooth operation of the present programme set forth above, a reorganization of the administrative structure or readjustment of its functions shall be effected. The present programme shall be put into operation as soon as feasible, and, where any legislative actions are necessary, these shall be considered forthwith.