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Saturday, June 24, 2006

Koizumi legacy — Japan's crown or millstone?

Staff writer

Junichiro Koizumi is a very different breed of prime minister — he delivers clear messages, takes the initiative and is accessible to the media.

News photo
Prime Minister Junichiro Koizumi beams as his postal privatization bills are passed by the Lower House on Oct. 11. The bills were enacted three days later, when they cleared the Upper House.

Whatever his ambitions, some political observers say his moving into the top government spot in April 2001 was not an accident, it was a call to make history.

At that time, Japan desperately needed a reformist as the old guard had made no headway in breaking the country of its economic doldrums.

Public discontent had risen and support for the ruling Liberal Democratic Party was dwindling when Koizumi took office.

Koizumi has made cracks in the political structure, in which pork-barrel politicians catered to farmers and certain industries in return for votes, the observers said.

"You can't deny that Koizumi transformed society," said Ikuo Kume, a professor of politics and economics at Waseda University. "It was epoch-making."

Koizumi championed privatization as key to reforming government. He first targeted highway construction, a prime example of lavish public works spending.

LDP lawmakers used to work hard to secure large shares of the national budget for big-ticket projects, causing the deficit to swell.

Based on a 2003 plan, Koizumi privatized Japan Highway Public Corp. and three other public expressway operators, splitting them into six firms last October to break cemented ties between road construction firms, bureaucrats and politicians.

Privatizing the mammoth postal system was Koizumi's major reform goal.

Currently at Japan Post, postmasters nationwide guarantee their employees vote for the LDP old guard, while the government's Fiscal Investment and Loan Program, known as "zaito," channels postal savings funds into public works projects through government bond purchases.

To push his postal privatization bills through the Diet, Koizumi kicked out the kingpins in his party who opposed him and then beat most of them in the September 2005 Lower House election by fielding "assassin" candidates in their electoral districts.

The LDP won a huge majority in the election and the privatization bills were passed in October.

"By eliminating the old regime, Koizumi boosted the leadership of the (office of the) prime minister and stopped them from controlling decisions," Kume said.

Indeed, the LDP under Koizumi has rated high in polls because he continues to say he will "knock down" the old guard.

"The LDP selected him as party president because it could not remain the ruling party without his help," said Kazuaki Tanaka, a professor of politics at Takushoku University. "Thanks to Koizumi, the LDP was revived."

Assessment of reform

As his term as LDP president draws to a close in September, however, critics say the results of Koizumi's reform drive are not yet as clear as his slogans: "No reform, no growth" and "Structural reforms with no sacred cows."

Koizumi has left too many of the country's problems unresolved and that will be a huge burden on his successor, they said.

Jun Iio, a professor at the National Graduate Institute for Policy Studies and an expert in governmental administrative issues, was critical of Koizumi's privatization of the highway and postal entities.

"First of all, it's not clear what his goal was," Iio said. He also said the public is not sure whether Koizumi's privatization route was best.

A government panel on road construction announced in February that most of the proposed 9,342-km expressway network in a 1999 government blueprint will be constructed as scheduled, although sections of highway, totaling 2,000 km, are being reviewed because they may not be profitable.

Koizumi's privatization of the highway entities was far from privatization in the true sense, said Takushoku University's Tanaka. He was on the privatization panel but quit because he disagreed with the final plan.

Tanaka indicated Koizumi's spin on privatization has only meant a change in ownership of the highway entities, without giving them the means to survive market competition.

According to the plan, the six privatized firms are not allowed to make a profit from expressway tolls, which is their main source of revenue. This means the firms have no way of becoming profitable enough to be listed on a stock exchange, Tanaka said.

Koizumi's postal privatization also has problems, according to Masaru Kaneko, a Keio University economics professor. It has not stopped the flow of postal savings to public works projects that are bleeding money.

"The problem with the postal system is its huge purchase of government bonds, which lets the government waste money" on public works, Kaneko said.

A large portion of the 350 trillion yen in postal savings and postal insurance funds is invested in government bonds, considered to be the least risky investment vehicle.

"The first thing Mr. Koizumi has to do is to reduce the amount of assets (in the postal savings system) by setting a cap on individual savings accounts," Kaneko said.

He said another problem is that when the massive postal banking service is spun off into a separate entity, its size will give it a huge advantage over many of its rivals.

Under the postal privatization plan, Japan Post will be split into four business units on Oct. 1, 2007 — banking, insurance, mail delivery and over-the-counter postal services — that will be under a holding company. The four firms will then be fully privatized over the following decade.

Although the banking spinoff may prove profitable, mail-delivery is one that may not, as it will have to maintain universal service.

Yoshifumi Nishikawa, former president of Sumitomo Mitsui Banking Corp. who was named president of the holding company, reportedly asked the LDP in January to consider revising the privatization laws to give the holding firm greater freedom to make acquisitions to improve its competitiveness and profitability.

Even the recently passed bill to promote Koizumi's administrative reforms, which the prime minister has touted as his final reform move, only focuses on what looks easiest for the public to understand, Waseda's Kume said.

It features a reduction in the number of public servants and regulation on "amakudari" — the practice of private companies giving retired bureaucrats comfortable executive positions in industries they once had jurisdiction over. However, it does not specify how to overhaul the entire personnel system, Kume said.

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