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The nation’s key policy-setting panel on Thursday released an economic reform package for 2003, featuring local finance changes and deregulation in some sectors.

At the same time, however, many planned reforms in the package were diluted, after meeting fierce opposition from Liberal Democratic Party lawmakers who want to maintain their vested interests.

The government’s 2003 reform blueprint, finalized by the Council on Economic and Fiscal Policy, constitutes the third phase of the structural reform agenda of Prime Minister Junichiro Koizumi.

It is expected to be approved by the Cabinet on Friday.

The blueprint states that the government will cut about 4 trillion yen in state subsidies handed out to local governments over the next three years, a target that was set after much ministry wrangling.

Local authorities will be given the power to levy taxes worth around 80 percent of the revenue they lose as compensation, it says.

On deregulation, the blueprint says the sale of certain over-the-counter medicines will be allowed at convenience stores and other retailers after their safety has been studied in detail by the Health, Labor and Welfare Ministry.

The blueprint also states that efforts to fix the nation’s debt-ridden finances should continue, adding that outlays for the fiscal 2004 budget should be limited to current levels.

The issuance of debt, which reached a record amount in the fiscal 2003 budget, should be limited as much as possible in the fiscal 2004 budget, it says.

But some experts criticized the lack of initiative shown toward reforming the nation’s bureaucracy, which hampers drastic restructuring in many areas.

“It is just a patchwork of policies by bureaucrats,” said Shigenori Okazaki, a political analyst at UBS Securities Japan Ltd. “It turns the spotlight on the fact that there is no one in the political arena, and this is the very reason why Koizumi’s reform drive has come to a deadlock.”

Okazaki also said that this lack of leadership has resulted in a failure to pledge numerical targets in some areas.

For example, LDP politicians rounded on Koizumi’s controversial plans to cut local authority subsidies by about 4 trillion yen by 2006.

Many lawmakers in Japan are keen to maintain their local influence by controlling the yen taps.

Due to opposition within the LDP, 39 pages of the government’s original draft, describing how subsidies should be cut, were whittled down to a mere seven pages in the final version.

Moreover, the package does not specify the maximum financial burden that the public may be forced to shoulder for social security costs and fiscal deficits being run by the central and local governments.

But Thursday’s report cites a 50 percent limit. However, this figure is merely used as an example.

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