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With the Lower House’s passage of the postal privatization bills Tuesday, Prime Minister Junichiro Koizumi overcame an important hurdle in pushing the “centerpiece” of his reform agenda. The victory was bittersweet for Mr. Koizumi, however, as many members of his Liberal Democratic Party — including former Cabinet ministers and LDP executives — refused to support the bills.

Thirty-seven LDP members joined the opposition camp in voting against the bills and 14 either were absent or abstained. The bill passed by only five votes, 233 to 228.

The vote reflects strong resistance among some LDP members to postal privatization. Many opponents within the LDP are backed in elections by heads and workers of “tokutei” (special) post offices, which were originally set up in the Meiji Period with the help of influential people in local communities.

The slender margin of victory — despite heavy-handed tactics used by Mr. Koizumi and the LDP leadership to pressure would-be dissenters — indicates that Mr. Koizumi’s grip over the party is weakening and trust in his leadership is declining. Mr. Koizumi had earlier threatened to dissolve the Lower House if the bills were voted down. The LDP leadership had also threatened to severely punish dissenters, including refusing to put them on the party ticket in future elections. Another bitter pill for Mr. Koizumi is the fact that the bills themselves are a watered-down version of the original proposals — a product of compromise with privatization opponents within the LDP.

The bills call for privatizing and dividing Japan Post in April 2007 into four companies — mail, savings, insurance and network operation — and placing them under a holding company. In the beginning the government will possess all the shares in the holding company, but its stake will eventually drop to one-third of the total.

Because the revisions were made under pressure from opponents within the LDP, the measures incorporated in the bills do not add up to complete privatization and clear separation of the four companies. The holding company must dispose of its shares in the savings and insurance companies by the end of March 2017. But it will be allowed to buy back those shares. In addition, the two companies’ articles of association will include a clause stating that the holding company can continuously have the right to vote as a shareholder.

The networking-operation company will be allowed to own shares in the savings and insurance companies under certain conditions, although this is not specifically incorporated into the bills. These points reflect the desire of privatization opponents that the companies maintain close relationships even after privatization.

The bills also will permit the networking-operation company to serve as an agent for both the savings and insurance companies. A fund to maintain postal-service offices in depopulated areas will be valued at 2 trillion yen rather than 1 trillion yen as originally planned. The holding company will continue to possess all the shares in the mail and network-operation companies.

In a nutshell, even under the privatization program, the savings and insurance companies will be likely remain under the influence of the government. Under such a scheme, it seems difficult to fully accomplish the original purpose of the privatization of Japan Post, which was to choke off the flow of money from Japan Post’s savings and insurance services to the government’s loans and investments program, and to government-affiliated financial corporations, which have often been used to facilitate pork-barrel politics. Japan Post’s savings and insurance services hold 340 trillion yen — a quarter of the nation’s individual citizens’ financial assets.

Another purpose of privatization was to streamline the operations of Japan Post. Given the compromise embodied in the bills, if the bills become law it is likely that Japan Post will be “privatized” in name more than deed.

As the bills go to the Upper House, where the ruling camp’s margin over the opposition camp is not as wide as in the Lower House, the government will have an uphill battle. If 18 Upper House LDP members vote no they can kill the bills.

Although Mr. Koizumi is eager to carry out postal privatization, the public does not seem to share his enthusiasm. The likely reaction from the public is: Why must Japan Post be privatized anyhow at this moment? In the Upper House’s deliberations, both the government and opponents of the bills should present their stance in a manner that will thoroughly answer the public’s questions concerning the bill.

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