The secret subsidy for Japan's railroads
NARP's Feb. 17 hotline makes an excellent point about debt service. Amtrak carries about $4 billion of debt, and servicing it will cost the railroad about $295 million this year.
When Japanese National Railways was broken up and privatized, in 1987, JNR carried 37.1 trillion yen of debt on its books. The government handed about one-third of this debt to the private companies and retained the remaining 22.7 trillion.
The plan was for the government to knock down the debt through asset sales. Not only did that not happen, the old JNR debt actually rose to about 25 trillion yen. How much is that? At 118 yen to the dollar (check here for current exchange rate), that's $210 billion.
Remember, debt you don't have to carry is debt you don't have to service.
So what's the cost of servicing that debt?
Interest rates in Japan are extremely low by U.S. standards. In 2004, yields on 10-year government bonds ranged from 1.3% to 1.9%. If we take the midpoint of this range, we can calculate that the Japanese government still shoulders a burden of more than $3 billion a year.
Remember, interest is an operating expense. Interest forgone is therefore an operating subsidy.
Some privatization fans continue to insist that privatization would end operating subsidy for passenger trains. But that didn't happen in Britain, and it clearly didn't happen in Japan either.
When Japanese National Railways was broken up and privatized, in 1987, JNR carried 37.1 trillion yen of debt on its books. The government handed about one-third of this debt to the private companies and retained the remaining 22.7 trillion.
The plan was for the government to knock down the debt through asset sales. Not only did that not happen, the old JNR debt actually rose to about 25 trillion yen. How much is that? At 118 yen to the dollar (check here for current exchange rate), that's $210 billion.
Remember, debt you don't have to carry is debt you don't have to service.
So what's the cost of servicing that debt?
Interest rates in Japan are extremely low by U.S. standards. In 2004, yields on 10-year government bonds ranged from 1.3% to 1.9%. If we take the midpoint of this range, we can calculate that the Japanese government still shoulders a burden of more than $3 billion a year.
Remember, interest is an operating expense. Interest forgone is therefore an operating subsidy.
Some privatization fans continue to insist that privatization would end operating subsidy for passenger trains. But that didn't happen in Britain, and it clearly didn't happen in Japan either.
posted by conductor at 3:08 PM
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