Fri, Feb 26, 2010 - Page 9 News List

DPJ government struggles to flesh out plan for Japan

With the credibility of growth and fiscal plans in doubt, support for the Democratic Party of Japan is fading ahead of a key poll

By Linda Sieg  /  REUTERS , TOKYO

Five months after the Democratic Party of Japan (DPJ) swept to power promising that politicians would wrench control of policy from bureaucrats, critics are wondering: Where are the politicians headed now that they’re in charge?

Analysts say Japanese Prime Minister Yukio Hatoyama’s government is on the right track in trying to shift spending from wasteful public works to “soft infrastructure” such as childcare and education.

But they also complain of a failure to set priorities or spell out the path from lofty goals to coherent plans.

“It was OK [to have piecemeal policies] when they were in opposition and trying to convince the public to give them a chance, but now that they are in power, they need a concrete, coordinated vision and policies,” said Hidenori Suezawa, chief strategist at Nikko Cordial Securities.

Many experts agree that while a policy process dominated by bureaucrats worked well when Japan’s goal was to catch up with the West, it has faltered when faced with more modern challenges.

The Democrats inherited a raft of deep problems including an aging population, an economy that only managed to grow about 1 percent annually over the past two decades and a public debt nearing 200 percent of GDP after repeated stimulus packages.

Now the government is trying to flesh out a strategy by June to achieve average annual growth of more than 2 percent over the next decade, along with a mid-term plan for reining in the debt.

Concerns about future bond issuance have kept investors from aggressively buying long-term Japanese government bonds, while doubts about the growth strategy dampen appetite for Japanese shares.

But skeptics wonder how much credibility the mid-term plans will have, given the ruling bloc’s desire to avoid difficult issues ahead of an upper house election expected in July, as well as political leaders’ lack of expertise on economic matters.

Japanese Finance Minister Naoto Kan has taken a pragmatic step by calling for debate on Japan’s 5 percent sales tax, but Hatoyama is sticking to a pledge not to raise the politically sensitive tax until the next general election, mandated by late 2013.

“They shouldn’t leave it all to bureaucrats, but within the DPJ government they need to decide their stance toward economic and fiscal policy. I think they are very weak on that aspect,” said Yoshihiro Katayama, a former reformist governor who is now a member of a government panel discussing fiscal reform. “The current administration at this time is entirely focused on the election. Their big goal is to win in the upper house election, and what they do after they win is secondary.”

Hatoyama’s Democrats trounced the long-dominant Liberal Democratic Party (LDP) in a lower house election last year, but now need to win an outright majority in an upper house poll expected in July, or risk policy paralysis.

But a funding scandal embroiling a ruling party kingpin, and doubts about Hatoyama’s leadership have pushed the government’s ratings below 40 percent, clouding the chances of a decisive win.

Central to the Democrats’ platform is a package of steps including child allowances and free high-school education intended to put more money in consumers’ hands to boost domestic economic growth as well as encourage people to have children.

Because of falling tax revenues the government has already abandoned a pledge to end a gasoline surcharge and has yet to persuade critics it can find permanent sources of funding for other measures, which will cost ¥14.3 trillion (US$159 billion) by 2013-2014.

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