Taiga Uranaka and Antoni Slodkowski
By Taiga Uranaka and Antoni Slodkowski
Thirty billion dollars in funding for roads, bridges and thousands of new homes in areas devastated by the tsunami in Japan three and a half years ago is still languishing unspent in the bank.
A funding quagmire has left tens of thousands of evacuees stranded in temporary units that were supposed to house them for no more than two years.
Japanese government funds budgeted for reconstruction and transferred to local governments are stuck in banks across the tsunami-ravaged northeast. The central government has paid out more than $50bn directly to local governments in Miyagi, Iwate and Fukushima prefectures, the areas hardest hit by the disaster. About 60 percent of that money remains on deposit in the region’s banks.
Ishinomaki, where more than 3,700 people died in the tsunami — the most casualties of any city in the disaster — has been deeply affected by the funding paralysis. The port city, where 56,000 buildings were damaged, has been showered with money for reconstruction — about $4.1bn in the three years after it was hit.
But almost 60 percent of the money, or $2.3bn, remains in bank deposits. And fewer than five percent of the planned new homes for the city’s nearly 25,000 evacuees have been completed.
RED TAPE
The mayor of Ishinomaki directs part of the blame for the hold-ups at bureaucrats in Tokyo. “It’s a massive disaster but central government officials are acting as if these were normal times,” says Hiroshi Kameyama, referring to the red tape he confronts in getting building plans approved. “It’s one of the reasons why public works are delayed.”
Makoto Kitamura, the deputy director general of the Reconstruction Agency, says local government spending of reconstruction money has been accelerating. “The pace of the construction projects has also been picking up,” he said, sitting in his office in Tokyo. “So it is not something you should worry about.”
For Prime Minister Shinzo Abe, the reconstruction delays are a potential time bomb. Before he became prime minister in December 2012, Abe campaigned in parliamentary elections on a pledge to speed up reconstruction — a promise he has repeated on both anniversaries of the disaster since he took office.
So far, about 2,700 housing units of a planned 29,000 have been completed in the tsunami-hit areas. In its housing plan issued more than a year ago, the government said it aimed to complete 15,000 homes by March next year. It has since scaled back that target to 10,000 units.
A labour shortage exacerbated by the siphoning of workers away from the disaster zone to build commercial facilities for the 2020 Tokyo Olympic Games has slowed reconstruction. So have a spike in the cost of building materials and problems in procuring land in the disaster zone.
Initial government estimates for the cost of building a new home have been far off the mark. In 2011, the Reconstruction Agency budgeted $158,000 for a new home. In April, it revised that estimate upward, for a second time, to $217,000 — almost 40 percent higher than the original figure.
CLOSED FUNDING LOOP
Much of the reconstruction cash has ended up on the ledger of 77 Bank in Sendai, some 50 kilometres west of Ishinomaki. Government deposits at 77 Bank, the region’s largest lender, have jumped four-fold to almost $17bn in the past three years as reconstruction money flooded in.
Yoshikazu Onodera, a 77 Bank executive, said the rapid inflow of deposits has been a challenge for the bank to manage since the money could be withdrawn on short notice. The solution, said Onodera, has been to invest in short-term government bonds. As a result, 77 Bank’s government bond holdings have risen two and a half times to $20bn since 2011.
Like 77 Bank, other regional lenders have also ploughed funds into Japanese government bonds, creating a closed loop of financing. By buying government bonds, the banks’ investments are essentially helping to fund the borrowing that the government undertook to make the disaster-related allocations in the first place. The central government issued $130bn worth of reconstruction bonds in the three years after the disaster.
The unspent funds sitting in bank deposits also come at a cost to Tokyo. The government is under pressure to cut a public debt load that is more than twice as large as annual economic output.
Bank officials said they did not expect the money to be withdrawn soon because building projects face further delays.
Forging consensus among residents over reconstruction plans “is a time-consuming process,” said Kitamura of the Reconstruction Agency, which is responsible for the disbursement of $20bn out of the $50bn allocated directly to local governments. “This is the result of going through the necessary process.”
Separate from the money allocated directly to the prefectures, the central government has poured $140bn into disaster-relief and reconstruction projects, including emergency loans to businesses hit by the tsunami.
PERMANENT HOMES
The government’s five-year reconstruction plan was built on unrealistic assumptions, said Yoshikiyo Shimamine, the chief economist at Dai-ichi Life Research Institute in Tokyo. “Given bottlenecks such as labour shortages and material cost rises and difficulties in getting consensus among residents who are relocated, reconstruction budgets are not something that can be spent within five years,” he said.
Officials in Ishinomaki, home to 150,000 people, say spending the more than $4bn in reconstruction aid has proven tough. With all of the city-owned land having been designated for temporary housing after the tsunami, the local government had to negotiate the purchase of an additional 9,000 plots to build permanent homes, the reconstruction office’s Oka said. That inflated the price of a plot of land in Ishinomaki by 15 percent last year, the biggest jump anywhere in Japan.
Before the city could buy land, it had to track down the legal owners. That proved tedious, said Oka. Officials discovered that in many instances, properties had been passed down without proper inheritance procedures.
Other areas have been beset by similar delays. Miyagi, the prefecture that includes Ishinomaki and Sendai, planned to build some 15,000 public housing units by March 2016. It has extended that deadline by two years.
After the tsunami, about a third of public works projects in Miyagi failed to attract bidders in the first round as construction companies say they held back for fear the projects would be unprofitable.
To be sure, rebuilding a city like Ishinomaki is a vast logistical undertaking. Parts of the city need to be built from scratch.
A strip of Ishinomaki’s shoreline where 6,500 homes once stood has been declared too dangerous to build on. And many local government officials who would otherwise have played a role in reconstruction either died in the tsunami or had their homes destroyed and are living in temporary dwellings.
Prior to the earthquake and tsunami there were five buildings with reinforced concrete that were taller than five storeys in Ishinomaki, says Hirotaka Kamata, a sales representative at Endo Kogyo, a construction company working in the city. “Right now the city is building about 20. It’s like building something in three years that took 50 post-war years to build.”
Kamata says his company is also worried about making long-term investments when it knows the tsunami-fuelled building boom will only last a few more years. “The reconstruction budget is huge,” he said. “The more money you pump the faster the construction companies will run away. There’s no way we can take on any more work.”
REUTERS
By Taiga Uranaka and Antoni Slodkowski
Thirty billion dollars in funding for roads, bridges and thousands of new homes in areas devastated by the tsunami in Japan three and a half years ago is still languishing unspent in the bank.
A funding quagmire has left tens of thousands of evacuees stranded in temporary units that were supposed to house them for no more than two years.
Japanese government funds budgeted for reconstruction and transferred to local governments are stuck in banks across the tsunami-ravaged northeast. The central government has paid out more than $50bn directly to local governments in Miyagi, Iwate and Fukushima prefectures, the areas hardest hit by the disaster. About 60 percent of that money remains on deposit in the region’s banks.
Ishinomaki, where more than 3,700 people died in the tsunami — the most casualties of any city in the disaster — has been deeply affected by the funding paralysis. The port city, where 56,000 buildings were damaged, has been showered with money for reconstruction — about $4.1bn in the three years after it was hit.
But almost 60 percent of the money, or $2.3bn, remains in bank deposits. And fewer than five percent of the planned new homes for the city’s nearly 25,000 evacuees have been completed.
RED TAPE
The mayor of Ishinomaki directs part of the blame for the hold-ups at bureaucrats in Tokyo. “It’s a massive disaster but central government officials are acting as if these were normal times,” says Hiroshi Kameyama, referring to the red tape he confronts in getting building plans approved. “It’s one of the reasons why public works are delayed.”
Makoto Kitamura, the deputy director general of the Reconstruction Agency, says local government spending of reconstruction money has been accelerating. “The pace of the construction projects has also been picking up,” he said, sitting in his office in Tokyo. “So it is not something you should worry about.”
For Prime Minister Shinzo Abe, the reconstruction delays are a potential time bomb. Before he became prime minister in December 2012, Abe campaigned in parliamentary elections on a pledge to speed up reconstruction — a promise he has repeated on both anniversaries of the disaster since he took office.
So far, about 2,700 housing units of a planned 29,000 have been completed in the tsunami-hit areas. In its housing plan issued more than a year ago, the government said it aimed to complete 15,000 homes by March next year. It has since scaled back that target to 10,000 units.
A labour shortage exacerbated by the siphoning of workers away from the disaster zone to build commercial facilities for the 2020 Tokyo Olympic Games has slowed reconstruction. So have a spike in the cost of building materials and problems in procuring land in the disaster zone.
Initial government estimates for the cost of building a new home have been far off the mark. In 2011, the Reconstruction Agency budgeted $158,000 for a new home. In April, it revised that estimate upward, for a second time, to $217,000 — almost 40 percent higher than the original figure.
CLOSED FUNDING LOOP
Much of the reconstruction cash has ended up on the ledger of 77 Bank in Sendai, some 50 kilometres west of Ishinomaki. Government deposits at 77 Bank, the region’s largest lender, have jumped four-fold to almost $17bn in the past three years as reconstruction money flooded in.
Yoshikazu Onodera, a 77 Bank executive, said the rapid inflow of deposits has been a challenge for the bank to manage since the money could be withdrawn on short notice. The solution, said Onodera, has been to invest in short-term government bonds. As a result, 77 Bank’s government bond holdings have risen two and a half times to $20bn since 2011.
Like 77 Bank, other regional lenders have also ploughed funds into Japanese government bonds, creating a closed loop of financing. By buying government bonds, the banks’ investments are essentially helping to fund the borrowing that the government undertook to make the disaster-related allocations in the first place. The central government issued $130bn worth of reconstruction bonds in the three years after the disaster.
The unspent funds sitting in bank deposits also come at a cost to Tokyo. The government is under pressure to cut a public debt load that is more than twice as large as annual economic output.
Bank officials said they did not expect the money to be withdrawn soon because building projects face further delays.
Forging consensus among residents over reconstruction plans “is a time-consuming process,” said Kitamura of the Reconstruction Agency, which is responsible for the disbursement of $20bn out of the $50bn allocated directly to local governments. “This is the result of going through the necessary process.”
Separate from the money allocated directly to the prefectures, the central government has poured $140bn into disaster-relief and reconstruction projects, including emergency loans to businesses hit by the tsunami.
PERMANENT HOMES
The government’s five-year reconstruction plan was built on unrealistic assumptions, said Yoshikiyo Shimamine, the chief economist at Dai-ichi Life Research Institute in Tokyo. “Given bottlenecks such as labour shortages and material cost rises and difficulties in getting consensus among residents who are relocated, reconstruction budgets are not something that can be spent within five years,” he said.
Officials in Ishinomaki, home to 150,000 people, say spending the more than $4bn in reconstruction aid has proven tough. With all of the city-owned land having been designated for temporary housing after the tsunami, the local government had to negotiate the purchase of an additional 9,000 plots to build permanent homes, the reconstruction office’s Oka said. That inflated the price of a plot of land in Ishinomaki by 15 percent last year, the biggest jump anywhere in Japan.
Before the city could buy land, it had to track down the legal owners. That proved tedious, said Oka. Officials discovered that in many instances, properties had been passed down without proper inheritance procedures.
Other areas have been beset by similar delays. Miyagi, the prefecture that includes Ishinomaki and Sendai, planned to build some 15,000 public housing units by March 2016. It has extended that deadline by two years.
After the tsunami, about a third of public works projects in Miyagi failed to attract bidders in the first round as construction companies say they held back for fear the projects would be unprofitable.
To be sure, rebuilding a city like Ishinomaki is a vast logistical undertaking. Parts of the city need to be built from scratch.
A strip of Ishinomaki’s shoreline where 6,500 homes once stood has been declared too dangerous to build on. And many local government officials who would otherwise have played a role in reconstruction either died in the tsunami or had their homes destroyed and are living in temporary dwellings.
Prior to the earthquake and tsunami there were five buildings with reinforced concrete that were taller than five storeys in Ishinomaki, says Hirotaka Kamata, a sales representative at Endo Kogyo, a construction company working in the city. “Right now the city is building about 20. It’s like building something in three years that took 50 post-war years to build.”
Kamata says his company is also worried about making long-term investments when it knows the tsunami-fuelled building boom will only last a few more years. “The reconstruction budget is huge,” he said. “The more money you pump the faster the construction companies will run away. There’s no way we can take on any more work.”
REUTERS
