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Koizumi's powerful economic
lineup
By Hussain Khan
TOKYO
- There are signs that Prime Minister Junichiro
Koizumi's second cabinet lineup, powered by his strong
showing in the polls and within his party, means Japan
could be about to get the kind of painful reforms that
politicians have been avoiding since the country's
economy went into the tank more than 13 years ago.
Certainly, Koizumi's appointments represent a
major departure from the decades-old practice of picking
cabinet members via nominations from assorted Liberal
Democratic Party (LDP) factions. If anything, the
appointments mean the end of the supremacy of the LDP's
biggest faction, variously headed by LDP stalwarts Kakui
Tanaka, Noburu Takeshita, Keizo Obuchi and now Ryutaro
Hashimoto, that has dominated and stultified Japanese
politics for 30 years.
This appearance of action
also seems to sit well with the public. Opinion polls
show that Koizumi's support grew to 60-65 percent after
the cabinet lineup was announced on September 22.
Support for the LDP, which for years has ruled
Japan in a kind of entropy, has grown to 49 percent
against 15 percent for the leading opposition Democratic
Party and positions Koizumi for national elections
expected to be held early next month.
The
appointments still leave open the big question of
economic reform. In his original electoral campaign for
the prime minister's office, Koizumi promised sweeping
reforms to get Japan out of the economic trough it has
been in for more than a decade. However, his inaction in
delivering on his promises made him look more and more
like his largely ineffectual predecessors. It now
remains to be seen whether his decisive victory, by 399
of the 657 party votes - 260 more than his closest
rival, Shizuka Kamei - and his strong cabinet lineup
will enable him to deliver, or if he will suffer yet
another failure of nerve.
Koizumi has retained
the ministers from his previous cabinet who appear
willing and able to implement his proposed reforms.
Chief among them is Heizo Takenaka, the financial
services minister, who survived a series of
mini-putsches even before the intra-party elections that
delivered Koizumi back to the leadership of the LDP.
A native of Wakayama prefecture, Takenaka is
respected by policymakers in other countries, especially
the United States, whether or not he has dared the wrath
of his own party stalwarts. He is regarded as having
played a pivotal role in the infusion this year of some
1.96 trillion yen (US$17.6 billion) in public funds into
Resona Holdings, Japan's failing fifth-largest banking
group, placing it under de facto government control. He
remains integral to Koizumi's resolve to carry out
financial and fiscal reforms. Such a show of resolve is
a must for Koizumi to win the parliamentary elections,
which will be a referendum on him, his platform and the
LDP.
The decision to retain Takenaka is a sign
of the deep trust Koizumi has for the economist. His
reappointment is also a symbol of the reform drive
itself, despite strident calls for his replacement by
LDP heavyweights who reluctantly supported Koizumi in
the party presidential election. These diverging bigwigs
include former prime minister Yoshiro Mori, Hiromu
Nonaka, Mitsuo Horiuchi, who is chairman of the ruling
party's general council, and Mikio Aoki, secretary
general of LDP members in the Upper House.
Nonaka has been opposed to Koizumi's
take-no-prisoners reform initiatives, saying they will
take their toll on the weakest corporate and financial
segments of Japanese society. Because Takenaka led the
initiatives, Hiromu Nonaka, 77, who had pledged to
unseat Koizumi, was bitterly opposed to Takenaka as
well. Indeed, his strong opposition to the premier has
grown because of Takenaka's radical economic policies.
Nonaka is a senior member of the Hashimoto
faction, which comprises 100 LDP parliamentarians. Given
the backing of the LDP's largest faction, Nonaka
previously had several opportunities to be elected LDP
president and thus prime minister. However, he declined
all such opportunities in favor of younger members. When
the acting chairman, Mikio Aoki, and vice chairman
Kanezo Muraoka of his faction decided to throw aside the
traditional factional loyalty that has guided Japanese
politics for the last several decades and declared their
support for Koizumi, he angrily remarked about them, "I
cannot tolerate them as politicians." Here again the
bone of contention was the demand for the ouster of
Heizo Takenaka.
Nonaka said Aoki had earlier
told him he would make Koizumi pledge on paper to sack
Takenaka and LDP secretary general Taku Yamasaki.
Despite that, and without the written pledge, they broke
ranks and voted with 41 other colleagues of the Upper
House to retain the prime minister. On being re-elected
party president, Koizumi promptly reappointed Takenaka
to his same portfolios, leaving the faction without
Takenaka's head on the platter they desired.
This betrayal of factional loyalty so outraged
Nonaka that he put his 50-year political career at stake
to hold a news conference announcing his plan to retire
from politics in a last-ditch effort to block Koizumi's
re-election. Nonaka started off his news conference by
referring to the lightning that struck the Diet
(parliament) building on the night of September 3. "I
thought that the late prime minister Noboru Takeshita
was scolding us for leading the nation astray," he said.
"And I thought it was a warning." This kind of belief
emerges from the typical Japanese Shinto religious
background that the souls of the dead elders take care
of their live kith and kin and also of their beloved
country, Japan.
Nonaka's resignation drew voices
of regret from all factions. Nonaka is serving his
seventh term in the lower chamber. He was chief cabinet
secretary from July 1998 to April 2000 in the cabinet of
the late prime minister Keizo Obuchi and became LDP
secretary general in 2000. But Koizumi was jubilant over
the fact that he had triumphed over opposition to the
Takenaka retention and thus over opposition to his
economic policies. He had also destroyed, temporarily if
not permanently, factionalism within the LDP.
Mitsuo Horiuchi, a harsh Takenaka critic, went
so far as to publish a paper calling for his removal
from office. A company executive versed in economic and
business affairs, the 73-year-old House of
Representatives member was said to be a possible
challenger to Koizumi as the main candidate for the
anti-Koizumi camp. But he eventually threw his support
behind the premier, saying Koizumi agreed to endorse
many of his economic policies. Horiuchi has generally
supported Koizumi's reforms of government-affiliated
corporations.
Experienced lawmakers have called
for Horiuchi, who headed the former Ministry of
International Trade and Industry in 1997, to head
structural reforms. A native of Yamanashi prefecture,
Horiuchi is also chairman of the railway and resort
company Fuji Kyuko Corp. He was first elected to the
Lower House in 1976, and is serving his eighth term. He
is a third-generation legislator and leads his own
faction of 51 members in the LDP, but left it to support
Koizumi.
Horiuchi was handsomely rewarded by
Koizumi for leaving his own faction, being renamed head
of the LDP's general council. Horiuchi has been general
council chief for more than two years, making him the
second-longest-serving politician to hold the job. The
council is the highest decision-making body in the LDP
after its conventions and general assemblies of
lawmakers.
As with Nonaka, Horiuchi is another
example of Koizumi's success in destroying factional
politics and fulfilling his goal of eliminating or at
least weakening opposition from the anti-Takenaka
elements. The opposition parties' main criticism in the
Diet is that vested interests within his own party had
prevented Koizumi from leading the reforms that got him
elected. Thus Koizumi has created a better environment
for smoothly carrying out his reforms.
Takenaka's economic policies
So what
are the Takenaka policies that have engendered so much
strong internal resistance within the LDP, let alone
from outside critics?
On Asahi television
recently, Takenaka said that if necessary, the
government is prepared to provide Japan's bust regional
banks and other institutions with public fund infusions
similar to the aid provided to Resona Holdings. "If they
are undercapitalized, and there are concerns about a
potential financial crisis, then we will inject public
funds," Takenaka said, referring to financially strapped
regional financial institutions.
He also
reiterated the need for regional financial institutions
to work to strengthen local economies. And "in order to
bolster operational bases, it's a good idea to have
mergers", Takenaka said, indicating that additional
realignments and integration would be necessary.
As regards the discussions about the possibility
of preemptive public-fund infusions into private-sector
banks, he clarified in an interview that, if
implemented, the issue of how to bolster governance will
be the most difficult problem, technically. But many
experts acknowledge the possibility that financial
institutions could face funding needs.
Banks,
Takenaka said, need to lower their percentage of
non-performing loans to overall lending, and then the
government should create an environment where the money
supply can increase. The central Bank of Japan (BOJ)
will also consider a structure to enable such effects to
spread. His ministry is also making such efforts.
As to treatment of banks' deferred tax assets,
he said a working panel within the Financial System
Council, an advisory board to the prime minister, must
resume discussions as soon as possible to arrive at
concrete conclusions, which might take about six months.
The working panel is urging banks to disclose publicly
their methods to calculate their deferred-tax assets as
part of the Financial Revitalization Program.
As
for the Council on Economic and Fiscal Policy's focus on
revitalizing local economies and employment, "the
outsourcing of local government work is one way to go",
he said. If laws hinder outsourcing, he suggested
revising the laws. He warned the Financial Services
Agency team tasked with verifying corporate
rehabilitation plans that delays allegedly to improve
operational soundness are only a way to buy more time.
It is thus important to deploy a full-scale inspection
and monitoring structure, he said.
Takenaka also
emphasized the need for widespread discussions about
privatizing public corporations, particularly Japan's
three postal operations, saying the basic principle
should be privatization of public enterprises to free up
the postal operations' superb resources and revitalize
the economy and improve convenience.
He said he
wanted have frank discussions about the kind of
structures that are appropriate to transform the postal
savings and postal insurance systems without abolishing
them. When public enterprises are privatized, he said,
three positive things occur: improved financial
efficiency, better services for the public, and more
employment. And at the very apex of privatizing public
operations is the postal operations issue.
Financial policies
Koizumi also
appointed Sadakazu Tanigaki, 58, as finance minister.
When the prime minister reshuffled his cabinet last
October, he made Tanigaki chairman of the National
Public Safety Commission and later minister in charge of
industrial reform. A former lawyer, Tanigaki entered the
world of politics after the sudden death of his father
in 1983. He is now serving his seventh term.
Tanigaki will be watching the yen's upturn with
"considerable attention", he told news organizations,
hinting that continued interventions to contain
excessive upward pressure on the currency are possible.
He said the rise in the yen since the meeting of Group
of Seven finance ministers and central bankers is a
situation that requires extreme care.
Regarding
the G-7 statement, he clarified that there is a view in
some quarters that the statement in mid-September
suggesting that currencies should be floated to find
their own level means that there has been a change in
the foreign-exchange policy in place until now. But that
is not the case, he said, adding that it is necessary
that foreign-exchange rates reflect fundamentals in a
stable fashion.
Moreover, timely and appropriate
measures are internationally accepted. He said he will
study US foreign-exchange policy, but the stance he
outlined was a shared one.
"The recent
yen-strengthening moves have been sharp," he told a
regular news conference. "I may be repeating myself, but
it's important that currencies reflect [economic]
fundamentals and are stable. We will continue to watch
the market and take proper measures at the appropriate
time," he added, using the ministry's code for referring
to yen-selling intervention.
Tanigaki thus has
entered a dramatically unstable currency situation. The
statement by the G-7 central bankers and finance
ministers, widely assumed to have been engineered by the
administration of US President George W Bush to talk
down the value of the dollar, has resulted in sharply
fluctuating currencies all over the world. The Japanese
acknowledge spending a record 4.45 trillion yen ($38.7
billion) between August 28 and September 26, taking the
BOJ's total intervention this year to as much as $120
billion.
The yen hit a 33-month high of 110.91
against the dollar after the G-7 statement. This week,
the BOJ intervened again with the well-publicized help
of the US Federal Reserve, fearful that the stronger yen
would hurt exporters and snuff Japan's nascent economic
recovery.
Tanigaki also said he met BOJ governor
Toshihiko Fukui this week for the first time and asked
him to take effective policy measures. Reiterating that
the government and the central bank will continue
cooperation to end deflation, Tanigaki said that Fukui
has already "strongly committed" to take steps to end
deflation.
As to whether he will call for the
Bank of Japan to increase its outright purchases of
government bonds, he replied that it is the BOJ's
prerogative. The only thing he wants to see is effective
policies, he said. In his view, the BOJ and the Ministry
of Finance are on the same wavelength. The BOJ has
stated that it will monitor prices and wants to continue
its quantitative easing. He would like the BOJ to
continue in that direction.
As for containing
upward movements in long-term interest rates, he
clarified that his first major prerequisite is fiscal
discipline, a sharp change from a government that has
spent itself into a huge hole in an attempt to
pump-prime its way out of three recessions over the last
decade.
The government said Japan's August core
consumer price index fell 0.1 percent from a year
earlier, extending the string of declines to a 47th
month, although the pace of decline has eased recently.
As regards Japan's consumption tax, Tanigaki said that
it forms a core framework for the future progression of
Japan's declining birthrate and aging population.
Koizumi himself says that he will not fiddle
with the consumption tax during his term as prime
minister, but his stance does not preclude a debate on
the issues involved.
Regarding the supplementary
budget, he informed that it was not necessary for this
fiscal year.
Economy, trade and industry
policies
Shoichi Nakagawa, 50, a six-term Lower
House veteran from Hokkaido, has been appointed to head
the Ministry for Economy, Trade and Industry (MITI). The
eldest son of the late Ichiro Nakagawa, also a member of
the Lower House, Nakagawa runs against the grain of
non-factional appointments. After his father's sudden
death in 1983, Nakagawa, who had graduated from the
University of Tokyo and had joined the Industrial Bank
of Japan, at 30 took over his father's seat.
Today, Nakagawa is known as an expert in
agricultural affairs. The late prime minister Keizo
Obuchi chose him as his farm minister when he formed his
cabinet in 1998.
He belongs to the LDP faction
led by Takami Eto and Shizuka Kamei, who was a candidate
against Koizumi for the recent LDP presidential
elections and was a strong opponent of the prime
minister's reforms. Kamei was a strong advocate of
spending to the tune of 10 trillion yen to create
domestic demand and give a strong boost to the ailing
Japanese economy.
He was against Takenaka's
pressure on banks to reduce non-performing loans,
alarmed that it would reduce banks' capacity to finance
small and medium enterprises. The result is already
appearing in the form of mounting bankruptcies,
according to all critics and opponents of Takenaka's
policies within the LDP.
The fact that Nakagawa
is from a rival faction demonstrates the flexibility and
the conundrum of Japanese politics. It is a tradition of
all ruling Japanese political parties to forget all the
differences that cropped up before intra-party elections
and share power even with opponents in their strategy to
maintain party unity against opposition parties in the
Diet.
In an interview with Nihon Keizai Shimbun,
Nakagawa expressed his intention to push forward with
free-trade agreement (FTA) negotiations.
Regarding his views on the recent ministerial
meetings at the World Trade Organization (WTO)
multilateral trade talks held in Mexico, he said, "the
talks are behind schedule due to confrontations between
various countries. While making the positions of Japan
and other industrialized nations, we will accept the
assertions of other parties if possible. Japan is the
largest importer of farm produce. I will insist on
Japan's position in agriculture, an important trade
category."
As for his strategies for future FTA
negotiations, he noted that while the United States has
FTAs with many countries, Japan only recently concluded
its first, with Singapore, and will try to reach
agreement with Mexico when President Vicente Fox visits
Japan this month. He promised to push forward with the
necessary FTA talks by holding thorough discussions in
Japan and through active bilateral talks.
Asked
how he would cope with Mexico's demand for lower tariffs
on pork imports, he said there are some sensitive areas
that impact domestic farmers. Pork is one such field. He
said he would do his utmost to reach a basic agreement
by negotiating until the last moment.
Replying
to another question as to whether he will suspend
negotiations over the development of the Azadegan
oilfield in Iran until suspicions about Iran's
nuclear-weapons development are dealt with, he said that
"we cannot ignore the nuclear issue, as a country which
suffered from atomic bombing. We cannot help being
indifferent to the issue, if there are concerns that
Iran is breaking international rules in developing
nuclear weapons."
As regards the integrated
revitalization of finance and industry, he said real
economic recovery will be impossible without a balance
between borrowers and lenders. He said he would drive
forward the integrated revival comprehensively,
including fostering personnel and utilizing experts.
Land, infrastructure and transport
policies
Nobuteru Ishihara, 46, appointed as
minister of land, infrastructure and transport, is a
relatively young politician whose father is Tokyo
Governor Shintaro Ishihara, famous in Japan and in the
United States for his popular book, written jointly with
the late founder and chairman of Sony Corp, urging Japan
to become independent of US influence and pursue its own
national goals instead of blindly toeing US
foreign-policy lines.
He is not affiliated with
any LDP faction. Elected to the Lower House from Tokyo,
he is now serving his fourth term in the Diet. He has
served as state minister in charge of administrative
reforms since Koizumi took office. He has been given the
opportunity to implement what he had been recommending
as reform proposals in his earlier assignment.
One of the key issues on Koizumi's
administrative reform agenda is the privatization of
four public highway operators. The transport minister
will be tasked with implementing the proposals submitted
by an advisory panel in December, beating down
resistance from politicians and groups with vested
interests.
The Japan Highway Public Corp, which
was hit by an accounting scandal, must have a new
balance sheet, Ishihara said during an interview with
the Nihon Keizai Shimbun. He reiterated that "we cannot
certify the authenticity of the balance sheet because
the data used in it has not been released. Japan Highway
president Haruho Fujii says such data [do] not exist,
but that does not sound right.
"The entity must
devise a new balance sheet based on accounting standards
set by the Ministry of Transport. I will make the
decision on whether to remove Fujii after speaking to
him directly." If Fujii is to be sacked, the replacement
"should be someone from the private sector with
expertise in corporate management".
As regards
the issues involved in the privatization of the highway
corporations, he clarified that a meeting should be held
to make a highway-building plan as early as possible.
The system under which national tax revenues are used
for highway construction has been introduced this fiscal
year, but it remains to be determined as to which
highways should be built under this scheme. If
construction costs are kept down through such means as a
reduction in the number of lanes, the number of highways
that can be built under the plan will be changed.
He further emphasized that his ministry will not
build unnecessary roads, but at the same time will not
hesitate to spend tax revenues on building necessary
ones. The question of whether toll revenues should be
used for construction of new highways will depend on how
healthy the highway corporations are. His ministry, he
said, would slash construction costs by building simple
roads with only one lane on each side, instead of the
expensive ones that have been built so far.
(Copyright 2003 Asia Times Online Co, Ltd. All
rights reserved. Please contact content@atimes.com for
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