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News Release

The Issue of Post-Disaster Reconstruction Financing

Janualy 12, 2005

A Proposal
In the event of large-scale disasters, because a huge financial demand and a large decrease of tax revenue occur together, measures for financing the implementation of reconstruction and rehabilitation projects are an issue of extreme importance. It is necessary to establish in advance a mechanism that will make it possible for self-governing bodies stricken by disasters to provide a flexible response and quickly secure financial resources through their own decisions and responsibility.

1. Enhancing Financial Support during the Emergency and Reconstruction Periods

As for projects taking place during the emergency and reconstruction periods, exceptions have been established regarding matters determined by the law, and self-governing bodies stricken by disasters receive strong financial support from the State. However, the general financial resources that the City of Kobe has the discretionary power to use have been impacted because of the absence of legal provisions regarding financial support to several administrative projects, such as the maintenance and management of temporary housing, and because of the extremely large scale of the disaster. Such projects should have been included in the scope of the subsidies and support received from the State.

2. Establishing Comprehensive Subsidies for the Reconstruction Period

When the first phase of emergency and reconstruction is over, there is also the difficulty of distinguishing reconstruction projects from ordinary projects, and after the Great Hanshin-Awaji Earthquake, there were a few number of reconstruction projects considered for special tax treatment within the scope of budgets. Consequently, grant of subsidies, authorization of municipal bond issuance, and fiscal measures on subsidies applicable to the redemption of such bonds have been used just like in prior projects. Because projects eligible for funding by subsidies and municipal bonds were limited, the degree of freedom in policy making of self-governing bodies stricken by the disaster tended to be reduced. In addition, the long-term financial situation of the City of Kobe has degraded because of the increased issuance of municipal bonds as a source of revenue for reconstruction projects. For these reasons, a comprehensive subsidy system must be prepared to make it possible for self-governing bodies stricken by a disaster to implement reconstruction projects through their own decisions and responsibility. A mechanism must be built for the granting by the State of comprehensive financial resources in one package for autonomous use in reconstruction projects, as subsidies corresponding to the scale of the disaster.

3. The Systematization of Reconstruction Funds

In some aspects, administrative mechanisms are unable to provide a sufficient response to large-scale disasters. For example, decisions on disbursements take time because of budget negotiations, Diet resolutions, and the like, and as sufficient information is lacking, providing adequate responses to the continuously changing needs of an area stricken by a disaster is difficult. Implementing assistance measures for individual damage compensation, etc., is also difficult. Therefore, a mechanism such as the Hanshin-Awaji Great Earthquake Reconstruction Fund, which will provide complements for the proper handling of such points is needed. It is necessary to build in advance a mechanism for quickly establishing reconstruction funds corresponding to the scale of disasters, but not under the special measures provided each time a disaster occurs, as it is currently the case.

4. The Establishment of a Post-Disaster Reconstruction System

Self governing bodies stricken by a disaster have a central role in post-disaster reconstruction and rehabilitation, which they implement while receiving support from the State, but it is necessary to prepare in ordinary times the possible response provided under a system by the State and self governing bodies. It is also necessary to examine the enhancement of the Law on Socioeconomic Rehabilitation together with systems necessary when disasters occur, such as the Housing Reconstruction Assistance Mutual System, and to systematically prepare measures for post-disaster reconstruction.

For more information on the content of this report, please contact
Tomoyuki Yokota
Economics Department

Tel: 06-6243-7380
E-mail:yokota.tomoyuki@jri.co.jp

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