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Japan: Reality starts to set in
By Hussain Khan

TOKYO - Prime Minister Junichiro Koizumi is already starting to run into trouble from the press and opposition parties. After having been decisively re-elected head of Japan's once nearly moribund Liberal Democratic Party (LDP), appointing what most observers view as a strong new cabinet, misgivings have begun to arise.

Members of the press and the opposition have begun to have misgivings regarding the changes as nothing more than pious wishes in view of two-and-a-half years of lackluster performance.

Naoto Kan, president of the Democratic Party of Japan (DPJ), harshly criticized the lack of visible results of the structural reforms pursued by Koizumi in a question-and-answer session at the extraordinary Diet (parliamentary) session that followed the premier's policy speech.

Kan pressed Koizumi to clarify his party's policies in the LDP manifesto, as Koizumi is assumed to be planning to dissolve the Lower House on October 10 and hold a general election on November 9. The DPJ was enlarged on Friday to 204 lawmakers by officially merging with the Liberal Party. Regarding the ongoing Diet session as the start of a campaign for the upcoming election, the party is set to stage showdowns at every opportunity.

A draft of the DPJ's party manifesto includes a call for a thorough review of government expenditures, focusing on a sharp cut in public works, its own plan to overhaul the pension system and a proposal to abolish tolls for expressways, among other issues. Comparing these goals and Koizumi's reform agenda, Kan slammed the government's economic and fiscal policies. Referring to the privatization of the postal service, which Koizumi has long advocated, Kan pointed out the strong opposition within Koizumi's own LDP, questioning the feasibility of the idea.

Commenting on Koizumi's policies, Nihon Keizai Shimbun wrote, "If Koizumi aims to use that capital [cabinet talent] effectively, he needs to provide more details of his reform plans, which remain vague, especially when the Democratic Party of Japan, the biggest opposition party, is working out more concrete reform programs ahead of Lower House elections expected in November. The premier, for instance, has promised the privatization of four public road operators in fiscal 2005. But few specifics of the privatization process have emerged as the Land, Infrastructure and Transport Ministry continues to fight a rear-guard action.

"Meanwhile, the DPJ has announced a drastic plan to scrap the Japan Highway Public Corp, the largest of the four entities, and use the highway budget to pay down their massive debts. Much the same holds true when it comes to privatizing the postal services, now penciled in for fiscal 2007. The government has yet to start debating the controversial issues needed to be sorted out. Unless the work gets under way quickly, meeting the fiscal 2007 deadline will become a tall order."

Koizumi is also being criticized for failing to give the public a clear idea of what he intends to achieve in the spending, regulatory, financial and tax reforms he and his ministers have been discussing. Under the influence of Finance Minister Sadakazu Takenaka, he has practically cut spending on public-works projects for two years in a row. In this respect, the proposals of the DPJ, including the termination of public-works projects of dubious worth, are seen as more specific and convincing by a section of the Japanese press.

Moreover, in respect of deregulation, pension reform, fiscal rehabilitation and agricultural reform, no proposals for worthwhile progress have appeared before the public. Agricultural reforms are especially closely linked to the continuing talks under the World Trade Organization. In all cases, reform efforts are seen to have been frustrated by vested interests. Even though it is early days, Koizumi is thus being urged to come forward with concrete plans capable of attracting voters to the polls.

A decisive victory in the Lower House elections would give him the political and moral authority to overcome the resistance within his own party and move forward to successfully implementing his proposed structural reform program.

Asia Times Online carried exhaustive coverage of four of Koizumi's top economic planners on October 1 (Koizumi's powerful economic lineup). A deeper look at some of his other cabinet appointments reveals a certain amount of fealty paid to factional Japanese politics despite widespread belief that the new cabinet would break with tradition.

Industrial revitalization
Kazuyoshi Kaneko, for instance, is state minister in charge of industrial revitalization and administrative reform. A member of the LDP faction led by Mitsuo Horiuchi, the party's general council chairman, Kaneko, 60, is serving his fifth term in the Lower House. The eldest son of former finance minister Ippei Kaneko, he is a banker who served in London for four years in the Long-Term Credit Bank of Japan, which notoriously sank and became the first major Japanese financial institution to be taken over by multinational interests. He is known primarily as a financial expert. He has established working ties with opposition lawmakers through his work as deputy chairman of the LDP Diet Affairs Committee.

In interviews, Kaneko does say he will push forward to divide Japan's massive highway bureaucracy into four highway-related public corporations, although he backs away from replacing Haruho Fujii, the president of Japan Highway Public Corp.

Asked whether it is desirable to divide the four highway-related public corporations, he said the details are still to be discussed. He continues to back the concept of privatization. He said he would promote deregulation from the standpoint of consumer convenience. Regional regulatory reforms are advancing rapidly, while government ministries and agencies stand around quarreling over who has jurisdiction.

Regarding negotiations with government-affiliated institutions concerning loan forgiveness for companies that receive restructuring assistance from the Industrial Revitalization Corp of Japan (IRCJ), he said the Development Bank of Japan has already agreed to cooperate in forgiving loan claims. In regard to the rehabilitation of Kyushu Industrial Transportation Co, his ministry is negotiating with the Ministry of Land, Infrastructure and Transport and the Ministry of Finance concerning the role the Organization for Promoting Urban Development should play.

Postal privatization
Taro Aso, 63, has been appointed minister of public management, home affairs, posts and telecommunications. He belongs to a conservative LDP faction led by Yohei Kono and is a grandson of the late prime minister Shigeru Yoshida. Despite his elite political background, he sometimes speaks crudely and has committed several verbal gaffes in the past. A seven-time member of the Lower House from Fukuoka, he was Koizumi's previous LDP policy-affairs chief.

Like Kamei, he is a staunch believer in the need to prop up the sagging economy first and to achieve fiscal reform later. In this respect, he has repeatedly clashed with the Finance Ministry and remains solidly in the anti-Takenaka group within the LDP. Despite his differences with Koizumi on the economic-policy front, there was never any decisive split between the two lawmakers, however.

Koizumi himself told the press he will seek legislative approval to privatize Japan Post, the nation's behemoth savings institution, in 2005. While he said the institution will be privatized, he added cautiously that he would first have to see what changes would be wrought through the privatization. It is difficult to push for privatization without predicting specific changes, such as lower postal rates and better services, he said.

On whether the LDP will fight the general election with privatization as a campaign pledge, he said the details are yet to be worked out. It is better not to talk about it, he said, because it may ignite concerns in rural areas and create rumors that the post offices there will go under.

But Koizumi underscored his commitment to postal privatization, which is touted as his pet project although it faces stiff opposition from LDP lawmakers with strong ties to the postal operations. In response to a question by DPJ leader Naoto Kan at a Lower House plenary session, Koizumi said he will do his best to ensure that the privatization of the three postal services will be incorporated into the LDP policy platform to be released prior to the upcoming general elections.

"Whether we will be able to realize the privatization will serve as the acid test for the LDP's attempt to transform itself into a party of reform," Koizumi said. He warned, "Party members who have been opposed to the privatization should act responsibly in the upcoming election," indicating that he will not allow LDP lawmakers to speak out against the postal-privatization plan.

As for a specific method for privatization, Koizumi said the Council on Economic and Fiscal Policy will discuss the matter, and pertinent legislation will be submitted to the Diet in 2005.

Health, labor and welfare
Chikara Sakaguchi, 69, minister of health, labor and welfare policies, remains from the previous cabinet. He is from the New Komeito Party, which shares power in the LDP coalition. Sakaguchi has become the longest-serving health minister in postwar Japan. He was appointed in the second cabinet of prime minister Yoshiro Mori in December 2000. He is a qualified medical doctor and, having previously served as policy chief of New Komeito, is well versed in overall policy affairs.

Amid Japan's rapidly aging society and its shrinking working population, Sakaguchi faces numerous challenges in pushing ahead with a public-pension reform plan. In an interview with the Nihon Keizai Shimbun, he said it is difficult to cut medical treatment fees paid under the public health-insurance program. Regarding the timing and funding for raising the government's share of contributions to the basic public-pension programs, he said it is to be raised from one-third at present to one-half next year under the law, but implementation could be affected by the political schedule including the anticipated dissolution of the Lower House.

Sakaguchi wants to raise the government's share in stages, saying it would be best to carry out the increase at one time by securing the necessary funds, but if that cannot be done, the second choice would be to raise it in stages after preparing a plan.

As for a deflation link on pension benefits in compiling next fiscal year's budget, he said the benefits for the current fiscal year have already been made to reflect price declines in the past year. His ministry wants to settle the matter for the next fiscal year by deciding how to have the benefits reflect price trends during one year, rather than taking into account price declines over multiple years. He said the question of how to have the benefits reflect price declines in the past year will have to be considered when revising the pension premium rates.

Regarding the revision of treatment fees paid to medical institutions under the public health insurance program, he said: "The number of pediatricians and obstetricians has decreased with the declining birthrate. We must take measures to persuade more doctors to work in these medical fields. The medical-treatment fees are determined based on how price declines affect medical services.

"We have the fees reflect not only the general price trend but also the price movements for drugs and medical equipment, I don't think the prices have fallen so much." He said a negative revision, which the Ministry of Finance is demanding, will be difficult.

(Copyright 2003 Asia Times Online Co, Ltd. All rights reserved. Please contact for information on our sales and syndication policies.)
Oct 3, 2003

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