Tue, May 28, 2002 page19

• Is Junichiro Koizumi in trouble? Maybe, but reforms aren't

  • By Patrick Smith / BLOOMBERG
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  Every time I hear Jun-san rush to the defense of his reform program, I know the Japanese prime minister must be in some kind of trouble.

  The question raised becomes more evident on each occasion: Does it matter whether Junichiro Koizumi remains in charge -- if he is in charge -- of the most economically and politically fraught of the industrial nations?

  Koizumi has been vociferous in his own cause of late, and he now seems to be getting it from both sides. A year and a bit after taking office, his ratings in public opinion polls have swung dramatically into the red.

  Those in the governing Liberal Democratic Party opposed to reform appear to have intensified their anti-Jun resistance.

  No credit goes to Koizumi, it seems, for the current upswing in the economy. The consensus is that Japan's first-quarter growth rate could reach 8 percent, an extraordinary figure against the background of the past decade of doldrums.

  Yes, it's a cyclical recovery in a long recession, and it is riding largely on a weak yen that the Bank of Japan, as of last week, appears eager to preserve. Jonathan Allum, the Japan-watcher at KBC Financial Products, makes an interesting point about the upturn in the economy in the May 22 edition of his newsletter, The Blah.

  The services sector, he notes, has been much more resilient than manufacturing in Japan since the last downturn, in the late-1990s. "Although it may now be the industrial sector which shows the biggest bounce," he wrote, "it is likely that the recession will mark an important point in Japan's transition to the sort of post-industrial economy we enjoy in the UK and US."

  Could be, but it doesn't look as if Jun-san will see much benefit. Among Koizumi's problems is that none of the reforms he is talking about is quite visible yet -- not to the Japanese voting public and not to the foreign community interested in the financial markets. Only the anti-reformists in the LDP and the bureaucracy have a good idea of what he's up to, and they think it's a bad idea.

  Koizumi has accelerated ambitious public-sector reform policies inherited from previous administrations, probably in a bid to win political credibility.

  In doing so, he has established only the limits of what the markets and his anti-reform adversaries will tolerate.

  Pushing ahead too aggressively with bond issues for public corporations marked for privatization, the Koizumi folk have made investors nervous as to just what they're supposed to be buying.

  It's unlikely now that the target for new bonds from public-sector entities this year, at 2.7 trillion yen (US$21.7 billion), will be met.

  With his poll ratings under water and a spate of local electoral challenges on the way, Koizumi may now be less useful to the conservatives in the LDP for whom he was always a kind of front. Last month a longstanding LDP man, a former Construction Ministry bureaucrat, got shoved out of City Hall in Yokohama by a 37-year-old independent who likes to talk about things such as transparency.

  In Koizumi's Japan, you still can't see much, can you? You would have thought Koizumi, long associated with the Health and Welfare Ministry, would at least be able to manage health care reform in a manner that satisfied voters. He hasn't yet, despite a protracted fight with the health care "tribe" in the Diet and their lobbyists.

  The banks limp along, meantime, just this side of a crisis.

  We're now invited to watch as the Resolution and Collection Corp, the government's loan-salvaging agency, increases its role. We'll have to see where this leads, but on the banking question an important distinction must be made. It has to do with ownership.

  The parallel debt problems in the public sector, detailed in recent columns, are Finance Ministry property. There's no way the bureaucrats in those square blocks of glass and concrete that rise in Kasumigaseki, Tokyo's administrative quarter, can avoid responsibility for this mess.

  Non-performing loans in the banking sector, by contrast, are viewed as the banks' problem. Hence the signals we've long received from the government: This one isn't our fault. We'll step in, but only after all else has failed.

  A century and some ago, when Japan began modernizing, all manner of slogans arose to capture the mood of the times.

  "Civilization and enlightenment," signifying the desire to open up to Western influences, was the most prominent. "Rich nation, strong army" was another that came along, and we know where that sentiment eventually led.

  Back in the 1980s, "internationalization" was the theme.

  Now "reform" and its variants -- "restructuring" is popular, as is "structural reform" -- are the slogans of the day. They mean different things to different people, and like the heraldic phrases of earlier eras, from the mouths of some people, they don't mean much of anything.

  I take the "R" word seriously in Japan, but I also take the growing recognition that reform will be a long time coming as the important new story. Richard Katz, a skillful Japan analyst and senior editor of the Oriental Economist, forecast a strong recovery in a speech at the Foreign Correspondents' Club last week -- and named all the reasons Japan will require 10 years to achieve it.

  Koizumi's time may now be short. But I'm not sure it matters much. What matters is the process set in motion even before he came along. Our habit of watching the rise and fall of individual politicians will probably not be applicable in Japan for some years to come, until there are more young people such as the new mayor of Yokohama in place.

  Jun-san will be long gone, certainly, by the time Katz's forecast can be judged. I can't think now what place he will occupy at that point in the long story of reform in Japan. He may not warrant more than a few paragraphs.
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