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Can Prime Minister Junichiro Koizumi live up to his pledge to save the nation’s ailing economy by reforming monstrous public corporations?

After 2 1/2 years in office, the answer is anything but clear. Many say that the reforms he promised are only half-complete at best. Therefore, whether Koizumi can keep his word will depend on what he does after — or if — he wins the Liberal Democratic Party’s presidential election on Sept. 20 for a second term.

Koizumi’s long-held theory for curing Japan’s economic malaise involves privatizing special government-backed corporations — now totaling 163 — as well as the postal savings and insurance systems, which provide huge amounts of funding to the debt-ridden public firms.

Economists and business leaders support Koizumi’s basic idea, but the prime minister has often disappointed them by reaching compromises with veteran LDP lawmakers who are trying to protect their vested interests.

For the LDP leadership poll, Koizumi is planning to run on a platform of privatizing the postal savings and insurance systems, as well as four semigovernmental expressway firms. The highway firms are all typical examples of inefficient public corporations born of pork-barrel politics. Koizumi wants to privatize the road corporations by 2005 and postal services by 2007.

However, his postal privatization plan has drawn strong protests from within the LDP, and it looks uncertain if the plan will remain on the party’s agenda even if Koizumi is re-elected as its chief. Many LDP lawmakers are also opposed to the scheme mapped out last year by an advisory panel on the privatization of the expressway firms.

“If he fails to include (privatization pledges) in the LDP’s manifesto (for the next general election),” you can expect little change, as in his first term, said Satoru Matsubara, a professor of economics at Toyo University in Tokyo.

The combined size of the postal saving and insurance systems dwarfs that of any of the nation’s private-sector financial institutions.

The 300,000 workers at Japan Post — which operates mail, postal savings and insurance services — act as one of the strongest vote-gathering machines for both ruling and opposition parties.

The postal savings system, which offers interest rates higher than those in the private sector, and the postal insurance system have now accumulated a stunning 360 trillion yen, or roughly 25 percent of the estimated 1.4 quadrillion yen total individual assets in Japan.

According to an estimate of the government’s Council on Economic and Fiscal Policy, households withdrew 65 trillion yen from the stock market between fiscal 1990 and 2001, while they boosted assets in the postal savings and insurance systems by 180 trillion yen over the same period.

Through the “zaito” fiscal loan and investment program, much of the money entrusted to these systems ends up at inefficient, debt-ridden public corporations, most notably Japan Highway Public Corp. and three other road-building firms. The four firms are now saddled with a total of 40 trillion yen in debts.

“Delays in deregulation and privatization (of government-backed firms) have stagnated the flow of Japanese funds and exhausted the economy,” Matsubara said.

After a lengthy battle with his LDP opponents, Koizumi transferred jurisdiction over all postal-related services from the Public Management, Home Affairs and Posts and Telecommunications Ministry to Japan Post, a semigovernmental body created on April 1.

Koizumi praised Japan Post as “the first step” toward his goal of privatizing postal services, although he was merely walking the /trail blazed in 1997 by then Prime Minister Ryutaro Hashimoto.

However, the postal savings and insurance systems under Japan Post are still by far the top suppliers of funds to the zaito program. At the end of fiscal 2001, contributions from the postal savings and insurance schemes accounted for 208 trillion yen of the 370 trillion yen in a special government account managing zaito funds.

The government plans to give Japan Post some autonomy on investing assets in fiscal 2008. But with debate still raging over privatization issues, the government hasn’t decided how much investment policy should remain under government control, including the minimum amount to be injected into the zaito program.

Even Koizumi’s promised reforms of public corporations are floundering.

“(The prime minister) should be more tenacious. He gives things up so easily,” said an official at the Land, Infrastructure and Transport Ministry.

Under a plan announced in December 2001, only 17 of the 163 special government-backed corporations will be abolished, while 38 will be reorganized into “independent administrative bodies” — a move criticized as a mere name change.

Forty-five others will either be fully or partly privatized, but specifics on how their operations will be streamlined have not been given in most cases, including those of the four expressway firms.

There is also the question of whether the privatized road corporations will be shielded from political pressure to build more unprofitable toll roads in rural areas.

A final report submitted in December by an expert panel on the privatization of the road firms strongly recommended that a merged privatized road firm should put its priority on repayment of snowballing debts, not on construction of new highways.

The fate of pending road construction plans should be decided based upon such criteria as their economic and social impact, rather than political interest, members of the panel argued.

But some LDP lawmakers and bureaucrats at the transport ministry are strongly opposed to the recommendations and have said they will not heed the report as they draft legislation for privatizing the firms.

Koizumi has also failed to clarify whether he will follow the recommendations, apparently to avoid a clash with his opponents within the LDP.

The land ministry will draft legislation on the privatization by the end of the year, so it can be submitted to the Diet next year, said Kazuaki Tanaka, a professor at Takushoku University and a key member of the privatization panel.

“In half a year, you’ll see how serious the government is about the privatization. A glance at the bills will make it crystal clear.”

Tanaka lauded Koizumi for raising public awareness of the problem of the debt-ridden expressway firms. “(Privatization of the road firms) has been an untouchable, sacred area, but we have come to a point where it is being discussed,” he said.

But Tanaka also has criticism for Koizumi, for failing to select the right people to do the job.

Nobuteru Ishihara, minister in charge of administrative reforms, has often been criticized for being a mouthpiece for LDP lawmakers with vested interests in the road firms, while land minister Chikage Ogi has refused to sack Japan Highway President Haruho Fujii despite repeated demands from the advisory panel.

Tanaka noted that the fate of Koizumi’s reform initiatives will depend on his picks for a new Cabinet — if he is re-elected as LDP chief.

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