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DUSK OVER JAPAN
Three more years for
Koizumi: Does it matter?
By Katsuo Hiizumi
TOKYO - Japanese Prime Minister Junichiro
Koizumi was re-elected Liberal Democratic Party (LDP)
president on Saturday in a landslide victory, garnering
399 of 657 votes (61 percent). Of the ruling LDP's 357
lawmakers in both houses of parliament, 194 (54 percent)
voted in his favor. More significant, he received 205 of
the 300 votes (68 percent) allotted to the 1.4 million
LDP rank-and-file, repeating his strong showing among
ordinary party members, which - in the spring of 2001 -
had given him a surprise victory over former prime
minister Ryutaro Hashimoto. If Koizumi serves out his
three-year term and the LDP, as expected, wins Lower
House elections (likely to be held in November), he will
become the longest-serving Japanese prime minister in
three decades, topping the five years in office of his
role model Yasuhiro Nakasone.
How important is
all this in a country still largely run by a thin elite
of bureaucrats and big-business leaders hobnobbing with
one another and a handful of LDP elders? Probably more
so than immediately meets the eye.
It all
started with an improbable, high-risk, but quite
brilliantly conceived mischievous political tactic.
Japan needs radical reform, Koizumi told voters - and by
itself that would have been a great big yawn. The twist
that got a jaded public's attention was Koizumi's
incongruous threat (or promise) to destroy the LDP if it
blocked his proposed reform policies. LDPers cheered,
betting that reform would win out over destruction and
keep the party in power. Ordinary voters embraced the
guy who looked the part to pull off what he promised and
would allow them one more time to vote for the party
they love to hate, but to which there's no alternative.
It was a deal, and it has just been reaffirmed. The
three stooges who ran against Koizumi on Saturday proved
a useful foil and couldn't have been picked any better
if the whole affair had been carefully scripted.
That Koizumi, 61, a life-long LDP worker, is
good at politics had long been known. What surprised
observers is that last October, after a year and a half
of much reform talk and little action, he made some
tough economic policy and personnel decisions that -
hard to believe though it may be - have put Japan on a
solid reform track to sustainable economic expansion for
the first time in more than a decade. Koizumi didn't
think up those policies, but has been indispensable to
pushing them through against the opposition of the LDP
old guard and reticent bureaucrats, and for a year now
he has made few mistakes. If he can maintain that track
record through September 2006, he will have changed
Japan.
At least since 1998, when two major
policy banks (Long Term Credit and Nippon Credit) went
bust and the entire banking sector required some US$80
billion in public-fund injections to stay afloat, it has
been known that only a radical overhaul of the financial
system could fix the economy and defeat debilitating
deflation. But all that happened was that a dozen large
banks merged into four unwieldy megabanks while
non-performing loans (NPLs) continued to pile up, bank
lending declined rapidly, and the next crisis was just
waiting to happen. The Financial Services Agency (FSA),
the bank regulator split off from the Finance Ministry
in 1998, made reform plans but did nothing. The
(central) Bank of Japan (BOJ) under conservative
governor Masaru Hayami adopted ultra-easy monetary
policies to keep the banks flooded with cash, but
otherwise did nothing.
But by last autumn,
warning signals could no longer been overlooked. Toyota
chairman Hiroshi Okuda, also the head of big-business
federation Keidanren, warned that one of the big four
banks could go under before year-end. Then Koizumi acted
- to screams of bloody murder by the LDP dinosaurs. FSA
minister Hakuo Yanagisawa was fired and replaced by
Economic Policy Minister Heizo Takenaka, now doing
double duty. A "Takenaka team" of private-sector
advisers and finance officials drew up drew up an
ambitious reform plan to dispose of half of all NPLs in
the banking system by the end of fiscal year 2004 (March
2005) and enact strict bank supervision. Failing to meet
stringent new performance criteria, they would be taken
under government control.
The plan was resisted as
expected. Little new happened until Koizumi had a
further chance to make a critical personnel decision in
March. At that point, BOJ governor Hayami was replaced
by new man Toshihiko Fukui, who fully backed the
Takenaka proposals and immediately set to work to design
and implement monetary-policy measures supportive of
restoring banks to health and - in particular - to
strengthen and diversify capital markets and develop new
credit channels to cash-starved small and medium
enterprises crucial in new job creation. The big bang
came in mid-May with the de facto nationalization of
Resona Bank, Japan's fifth-largest. The ax had fallen
and now markets began to believe that the Koizumi
banking sector and reform and overall business
deregulation and privatization policies were for real.
The large gains of the Tokyo stock market (40 percent
since May) speak for themselves, as do the
second-quarter real gross domestic product (GDP) growth
numbers (3.9 percent), which show Japan growing faster
than the United States (3.1 percent) and euroland (-0.1
percent).
Koizumi quickly made the most of his
election triumph on Monday. Against the opposition of
the dinosaurs who had explicitly asked for Takenaka's
head in return for their support to Koizumi, he
reappointed the minister to his twin jobs. He replaced
ailing finance minister Masajuro Shiokawa with a strong
Takenaka ally, Sadakazu Tanigaki, and he appointed
Nobuteru Ishihara, son of the controversial Tokyo
governor, to the position of transport minister, from
which he will administer the public highways
corporations slated for early privatization. Koizumi
also appointed Shinzo Abe, 49, son of the late foreign
minister Shintaro Abe, to the position of LDP secretary
general. With that, he now for the first time has his
own team in place at all principal levels of government
and party.
Reform until recently, to cynics,
had still mainly meant a wild hairdo and belting out
Elvis songs in karaoke bars (Koizumi, like Elvis
Presley, was born on January 8). It won't any longer.
Katsuo Hiizumi teaches
modern East Asian history with special reference to
China and overseas Chinese at Aichi Prefectural
University, Nagoya. From 1983-85 and from 1988-92, he
served in Bangkok as a special assistant to the Japanese
Ministry of Foreign Affairs. His publications
include</I> Kakyo Konekushon (The Overseas
Chinese Connection), Kyogeki to Chugokujin (Peking Opera
and Chinese), and
The Past and Present of Chinese Economic Area.
(Copyright 2003 Asia Times Online Co, Ltd. All
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