Japan plans additional $165 billion for reconstruction (Reuters)

TOKYO (Reuters) ? Japan's government plans additional spending of 13 trillion yen ($165 billion) for reconstruction projects after the March 11 earthquake and tsunami, on top of a combined 6 trillion yen already set aside in two extra budgets, a government source said on Thursday.

Investors are counting on reconstruction spending to help the world's third-largest economy pull out from a slump caused by the disasters and say that without substantial spending, it may not be able to resume moderate growth.

To raise the money, the government is considering issuing special bonds, scaling back other spending plans and selling national assets, said the source who declines to be identified.

The government has yet to finalize the maturity periods for the planned reconstruction bonds but the Ministry of Finance is planning 5 year bonds, the source said.

Tokyo will consider seeking tax hikes to repay the bonds, the source said.

Government officials have said that further reconstruction-related spending could be more than 10 trillion yen.

The 13 trillion yen spending would translate into projects worth around 23-25 trillion yen, the source said, adding that the projects would be implemented over 10 years with 80 percent of them in the first five years, the source said.

A government advisory panel on reconstruction last month proposed a temporary increase in corporate, personal income and sales taxes, to help pay for Japan's biggest rebuilding project since the period following World War Two.

The Mainichi newspaper said the projects will range from financial assistance for the quake-hit area's farmers, to the promotion of renewable energy and the creation of special districts to support the fishing industry.

The reconstruction plans, however, do not include how to deal with the crisis at the crippled Fukushima nuclear plant that has leaked radiation since the disaster in the world's worst nuclear accident since Chernobyl, the source said.

With public debt already twice the size of the $5 trillion economy, the government has so far funded the previous two extra budgets without new borrowing while tapping fiscal reserves and reallocating spending.

($1 = 78.865 Japanese Yen) ($1 = 78.865 Japanese Yen)

(Reporting by Tokyo Economic Policy Desk, Writing by Rie Ishiguro; Editing by Edwina Gibbs)

Source: http://us.rd.yahoo.com/dailynews/rss/weather/*http%3A//news.yahoo.com/s/nm/20110721/wl_nm/us_japan_economy_reconstruction

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