Prime Minister Junichiro Koizumi’s administration, which has just completed a skeleton draft bill to privatize postal services, is trying hard to iron out the remaining differences with the Liberal Democratic Party — a crucial process that will largely determine the nature and direction of postal privatization. The draft, to be sure, incorporates some of the party’s demands, but resistance from the old guard remains strong.

This is a critical time for Mr. Koizumi, who calls postal privatization the “mainstay” of his reform agenda. If he makes further compromises, his vision for public-sector reform will lose more of its luster. He should stand by his declared principles of privatization and, on that basis, reach a final agreement with the LDP. That accomplished, he should proceed to tackle other key issues on the agenda, such as pension reform.

Time is running out for Mr. Koizumi. The skeleton draft, prepared under his strong initiative, must be fleshed out as soon as possible so that privatization legislation can pass the Diet during the current regular session, which is scheduled to end in June. Further delays would call his leadership into question and possibly destabilize the political situation.

The draft makes clear, on the basis of last September’s Cabinet decision, that the postal services — mail, savings and life insurance — will be privatized in April 2007, with four companies running mail, savings, insurance and post-office operations under a holding company. The privatization date, however, may be pushed back by up to six months if a new computer system is not installed on time. Maximum efforts should be made to avoid such a delay.

To his credit, Mr. Koizumi has refused to budge on a critical question: how to manage the new companies. The LDP’s old guard — which opposes outright privatization — demanded that they be managed in an “integrated” manner, not independently. But the prime minister pressed for complete privatization. The draft says the “postal savings bank” and “postal insurance company” will sell all their shares before the end of a transition period in March 2017.

Still, the plan leaves room for virtually integrated management because it allows a share buyback by the holding company as well as mutual shareholding by the operating companies. The four-company setup is designed to create “fire walls” between them so that losses by the mail company would not affect the savings and insurance companies.

Another concern is that a share buyback by the holding company — more than a third of which is to be owned by the government — would ensure continued government involvement with the savings and insurance companies. Such a deal would give them a tacit government guarantee that runs counter to Mr. Koizumi’s declared goal of providing a level playing field with other private companies.

The Koizumi administration has also yielded to the LDP on the question of “universal service.” The draft makes it mandatory to locate post offices nationwide. Offices in depopulated areas will be maintained at current levels, but in urban areas mergers and consolidations may be necessary.

In the runup to full privatization in 2017, the savings and insurance companies will conclude agency contracts with a “network company” that will manage the post offices. Afterward, these financial services will be maintained through an operating fund (estimated at about 1 trillion yen) that uses proceeds from stock sales by the two companies. This, however, could limit their managerial freedom.

The LDP leadership appears willing to accept the draft in principle. Hardline opponents, however, are mounting a counteroffensive to press their demand for “integrated management.” Some are dead set against privatization itself. The government wants to clear a privatization bill at a Cabinet meeting by April 20, but whether it will meet the deadline remains unclear.

The general public, meanwhile, appears to be looking askance at the tug of war between Mr. Koizumi and his party. Polls show that a majority of people support his privatization initiative, but whether they really understand its significance is open to question. Part of the reason is that Mr. Koizumi himself has not fully and clearly explained his policy.

The draft, even if it is accepted by the LDP without change, is no guarantee that the bloated postal system will go private as it should. The much-criticized privatization of a deficit-ridden tollway system comes to mind. To avoid a similar setback, the Diet must conduct thorough deliberations.

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