Prime Minister Junichiro Koizumi yesterday proposed privatizing Japan's postal service by 2017, creating the world's biggest bank with the mammoth pile of cash deposited at post offices by conscientious Japanese savers.
Koizumi aims to win over opponents in his own Liberal Democratic Party to the plan so he can submit legislation to Parliament this month, but he may face a tough battle.
There is also a risk that his plan, designed in part to subject the post office to market discipline, will enable the revamped company to overwhelm existing domestic private banks because of its sheer size and government associations.
"The fundamental issue is to make the postal service privately owned and privately run and have it stand firmly on its own feet," top government spokesman Hiroyuki Hosoda said.
The outline calls for splitting Japan Post into separate businesses for mail delivery, banking services and insurance starting in 2007. A fourth company would handle employee salaries and manage post office properties.
All four companies would be grouped under a holding company at first, but the umbrella organization would have to sell its shares in them by 2017.
In a concession to LDP lawmakers fighting privatization, the prime minister's plan says the new company would have a duty to provide service nationwide -- even in isolated areas where maintaining a presence might be unprofitable. The government would set up a ?1 trillion (US$9.3 billion) fund to help.
But the prime minister has stood firm on the key point of turning the company into a private enterprise that would have to pay taxes and be answerable to shareholders.
On the other end, critics worried that Koizumi's plan would fail to place enough restrictions on the new company, giving the huge bank an unfair advantage over its already private rivals.
"It will be a godzilla bank," said Jesper Koll, an economist at Merril Lynch. "It will be the beginning of an era of fierce competition with private financial institutions."
Japan Post boasts savings deposits of ?227 trillion -- some three times those of Mitsubishi Tokyo Financial Group Inc., which at ?67 trillion is Japan's biggest private holder of deposits.
The postal system has some 25,000 branches around the country, while Japan's seven nationwide banks combined have only 2,606 branches.
Japanese insurers are also worried that a giant privatized company would overwhelm the rest of the industry as it gains new powers to offer products and markets them more aggressively.
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