Tue, Sep 19, 2006 page9

• Koizumi's reforms: five years of rhetoric but little substance?

  The outgoing PM left his mark on Japan, most notably through the privatization of the post office, but some say he had little to do with corporate sector reform

  • AFP
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  Five years after he swept to power talking tough on reform, Japanese Prime Minister Junichiro Koizumi steps down this month, leaving a dramatically different economic landscape than the one he inherited.

  Experts, however, are divided on how much credit the colorful 64-year-old maverick can take for piloting the world's second-largest economy out of the "lost decade of deflation" and back on track to sustained growth.

  "Koizumi reform was more rhetoric than fact," said professor Eisuke Sakakibara of Waseda University, a former top finance official nicknamed "Mr Yen" because of his ability to influence the markets.

  "Reforms in Japan have been implemented by the corporate sector, by the corporate managers. Mr Koizumi had nothing to do with those corporate structural reforms," he said in an interview.

  Koizumi, who bows out voluntarily as Japan's longest-serving premier in three decades, set out to slash public works spending and clean up bad debts that were suffocating the banking sector.

  Asia's largest economy, which for more than a decade was blighted by stagnant growth and on-off recessions, is now on course to its longest sustained recovery in postwar times.

  Deflation finally appears to be beaten, and the shopping malls are thronging as domestic demand picks up.

  Koizumi has won much praise, particularly overseas, for his economic stewardship, in particular his decision to privatize the national post office with its huge pool of savings that makes it in effect the world's largest bank.

  However, some observers say the recovery owes more to the booming Chinese economy and corporate sector restructuring than to Koizumi's policies.

  The government's finances remain in poor shape, with debt equivalent to over 160 percent of GDP after the government tried to resuscitate the economy with a series of emergency spending packages.

  "Public structural reform is still undone," Sakakibara said.

  "What [Koizumi] had to do was structural reform of the public sector. That has not been done. We are still running huge deficits and we have not raised any taxes. We have not cut expenditures by a dramatic amount," he added.

  Even so, there is little doubt that Koizumi has left his mark, most notably by pushing through privatization of the post office.

  For years the US$3 trillion that the mail operator sits atop in savings and life insurance policies provided a vast pool of funds to bankroll often wasteful but politically popular public works projects.

  Koizumi even gambled his leadership at snap elections a year ago to crush political opposition to his career-long goal of breaking the mail monopoly.

  The stubborn third-generation politician is widely expected to be succeeded by the young conservative Shinzo Abe, now chief Cabinet secretary, who has yet to spell out a clear economic agenda.

  Unlike rival candidate Sadakazu Tanigaki -- the finance minister who has proposed raising the sales tax to 10 percent from the current 5 percent -- Abe has shown little desire to tinker with the politically sensitive levy.

  Whoever follows Koizumi faces challenges from an aging population, declining birthrate and widening social inequalities, not to mention sour relations with Asian neighbors including China, a major trading partner.

  "Abe is widely expected to follow the fiscal and economic reforms pursued by Koizumi, but the bigger question may be whether the current environment is conducive to such policies," said Barclays Capital economist James Barber.

  "The reforms passed by Koizumi are being widely blamed for creating economic and social disparities in Japan," he added.

  Robert Feldman, Morgan Stanley's chief economist for Japan, believes that Abe's philosophy is quite similar to that of Koizumi.

  "Investors can be cautiously optimistic that Koizumi's reform policies will continue, and that bureaucratic guerrilla resistance will fail," he said.

  Less clear, he added, is whether relations with China would improve if Abe succeeds Koizumi, who has irked Asian neighbors with his regular trips to a controversial war shrine and his more assertive foreign policy.

  "Abe appeals for a separation of economic and political issues with China. It remains unclear whether China will accept Abe's appeal," Feldman said.
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