Tokyo's Winning Olympic Bid Will Add to Japan's Debt Headache

AP By Gwynn Guilford Get ready for Tokyo 2020. The International Olympic Committee (IOC) evidently thought it better to go with safe instead of exotic but risky (Istanbul) or bargain-basement (Madrid, which pitched a "low financial investment" Olympics). It announced Tokyo's selection Saturday. Tokyo may be a safe option -- putting aside the risk of natural disaster and further issues with the Fukushima nuclear power plant, whose operators fear may be leaking contaminated water into the Pacific Ocean. But there's a real safety concern for Japan's fiscal stability. And though the economic stimulus that comes with hosting an Olympic Games could be positive, game preparations are also highly likely to exacerbate Japan's already massive debt problems. The cost of Tokyo's bid fell between $5 billion and $6 billion. That includes the construction of 11 new sporting venues and 10 temporary ones, at a cost of $3 billion. The Olympic village will cost another $1 billion, according to the IOC. The Tokyo government projects that the Games will generate $30 billion in economic benefits for Japan -- and that, it said, is a conservative estimate since it calculates only direct spending on the Olympics. One of the notions is that it will boost domestic consumption, helping wrest the country from a couple decades of debilitating deflation. So Tokyo's victory basically is license for the Japanese government to spend like crazy on infrastructure. You can see why Shinzo Abe, Japan's prime minister, put himself on the line to win the bid. An Olympics building bonanza is basically the second pillar of Abenomics -- fiscal stimulus (the first is monetary policy; the third is structural reform) -- on steroids. Japan doesn't need to dope its infrastructure investment when it already has $10.5 trillion in public debt. Equal to about 230% of its GDP these days, its debt-to-GDP ratio is the highest of all the developed countries in the world. And much of that debt was amassed from spending on wasteful infrastructure projects in the 1980s and 1990s.