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At a press conference following his Cabinet reshuffle last month, Prime Minister Junichiro Koizumi dubbed his new Cabinet as one “to realize privatization of the postal service.” He made it clear that the reshuffle had been his own work, indicating his determination to carry out the privatization. Mr. Koizumi defined privatization as the “biggest reform in Japan since the Meiji Era.”

State Minister for Economic and Fiscal Policy Heizo Takenaka, who has also taken on the job of minister in charge of postal service reform, was equally glib, proclaiming that “privatization is the mainstay of structural reform.”

Will postal privatization really have such a major effect on people’s lives and economic activity? Private companies are already busy entering the postal business in the field of parcel delivery, and deregulation in the field of letters is a possibility, too. It is surely worthwhile, but suggestions that the national economy will suffer a damaging blow unless the nation carries out all-or-nothing privatization are way off the mark.

True, it would certainly be a mistake to carry on with the postal savings and postal insurance systems swollen at their current scale. Quite clearly they are distorting the financial and capital markets and the financial system, especially in terms of fund management. But this does not mean that privatization is the only answer.

There is nothing wrong with having a state-run financial institution, as Britain and France have, as long as it is scaled down to complement the private sector and its share of national financial assets is reduced. That could be easily achieved, for example, by lowering the cap on postal deposits from the present 10 million yen to 3 million yen, as it was before.

The main evil of state-run financial institutions is that funds from postal savings and postal insurance are diverted to special public corporations, which have wasted these so-called fiscal-investment and loan funds in the construction of highways, housing and so forth. However, postal savings and postal insurance have already switched to self-supporting management, and special public corporations have stopped using postal savings and insurance funds as capital. Instead, they procure funds through the issue of fiscal-investment and loan-agency bonds. Reform of the special public corporations should be discussed separately from the issue of the privatization of postal savings.

The use of postal savings funds to underwrite national bonds is going to remain a problem whether privatization is completed or not. Thus it would be more appropriate to discuss the policy of national bond management separately as well.

If there are no other major problems lurking in the aisles, then now is not really the time to anguish over privatization of the postal services. Japan faces a crisis that deserves more serious attention: the state’s huge debt and, on the flip side, zero-interest rates. These make up a frightening time bomb that could destroy the foundations of the Japanese economy and society. People are concerned about their post-retirement lifestyles because they can see that the foundations that support pensions and other forms of social security are very frail.

Three and a half years have passed since Prime Minister Koizumi took office. In that time, the revenue-expenditure gap in the state budget has widened, and the fiscal situation has worsened. Tax revenue now covers only a half of total expenditures; the rest depends on loans. The present government has made token reductions in public works-related spending to reform the expenditure structure, but they are only a drop in the ocean.

In enacting legislation for pension-system reform just before the House of Councilors election in July, the government’s catchphrase was “security for 100 years.” But the new laws served only to spread anxiety further. Fundamental reform of the pension system has yet to come. Wide-ranging and thorough discussions are necessary on such issues as the fiscal resources required to support the system, the intergenerational burden and measures to put a brake on the declining birthrate. Unfortunately, Mr. Koizumi is not showing any determination to take the lead in these discussions.

Mr. Koizumi has kept Mr. Sadakazu Tanigaki as finance minister and instructed him to find a way of achieving a primary balance in fiscal affairs by the start of the next decade, but that is not going to be easy. First of all, the prime minister himself should begin by reflecting on the fact that he has broken his promise to keep a 30 trillion yen cap on the issue of new government bonds.

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