By Suvendrini Kakuchi
TOKYO, Dec 13 2001 (IPS)

Warning that the economy needs a “bypass operation” to prevent a fatal heart attack, Japan’s Prime Minister Junichiro Koizumi is bracing the nation for deep economic and institutional reforms to pull the world’s second largest economy out of more than a decade of stop-go growth.

In keeping with his campaign pledge that called for “structural reforms without sacred cows”, the popular Koizumi has launched a move to privatise or abolish 157 out of 163 government agencies – in the process taking on an aspect of Japan’s deeply entrenched political culture.

In a step that analysts say illustrates how deep the changes will be in Japan, Koizumi has worked out a plan to privatise the powerful Japan Highway Public Corp, a special state entity established in 1956 and considered a symbol of the clout of the ruling Liberal Democratic Party (LDP).

The government pumps in 300 billion yen or 2.7 billion U.S. dollars annually to the Highway Public Corp, which builds and operates expressways and tollbooths throughout the country.

According to Koiichi Ishiyama, political commentator for the ‘Daily Yomuiri’ newspaper, decades of pork-barrel politics practised have seen lawmakers push the construction of expressways in their constituencies.

This system was set up with the foundation of the LDP — of which Koizumi is part of — more than four decades ago, and thrives on cozy ties between party politicians and rich companies in local constituencies.

By building roads and bridges – even unprofitable ones — in rural areas, the government has been handing out jobs and money to big companies in return for their votes, explains Ishiyama.

Today, however, this quasi-government cooperation is heavily in debt to the tune of 26 trillion yen (250 billion dollars). In a bid to survive, Highway Public Corp executives, supported by bigwig politicians, have outlined a plan to allow it to have a 50-year debt repayment plan.

That, however, is not what Koizumi has in mind. The charismatic leader announced this month plans to slash the public works budget by 10 percent before supplementation — as much as one trillion yen — and to review the current tax revenue for road construction.

“According to the prime minister, all money guzzling organisations must go,” explains Ishiyama. “That means he is attacking the heart of the Japanese system.”

“His (Koizumi’s) battle against the ‘resistance forces’ — the old guard of his Liberal Democratic Party — is about to enter the second stage,” Keizo Nabeshima, a political affairs writer, says of Koizumi’s latest efforts at reform.

He points out that Koizumi’s reforms are trying the change the old way of doing things – the “politics of coordination” — to his way of doing things in a “top-down” approach that calls for the tightening of his grip on the bureaucracy.

Koizumi does face opposition from the old guards in the LDP, but analysts point to his soaring popularity as his strength. A Kyodo news survey released on Dec. 6 projected almost 80 percent approval rating for the prime minister.

In short, Koizumi’s call for the nation to share the “pain” of restructuring — unemployment is now close to a record 6 percent — seems to be hitting its target. Says Ishiyama: “The LDP dare not force him to step down with such public backing.”

Economists also explain the worsening Japanese national debt, at 136 percent of its GDP, has made more people here understand the need for major reforms in their country’s politics and economy.

Indeed, just on Friday, the government announced that Japan had fallen into its third recession in a decade.

In the quarter ending September, the government said the economy shrank 0.5 percent. Worse, it also reported a change in its economic statistics to show that the drop in growth in the previous quarter had actually been 1.2 percent instead of 0.7 percent.

In addition, Japanese bonds, once the most sought-after, have been downgraded, according to Moody’s Investor service.

Aware of the need to rein in Japan’s ballooning debt, considered a major weakness in preventing economic recovery, Koizumi has capped a new bond issuance at 30 trillion yen or 241.74 billion dollars.

The government now predicts that economic recovery will be weak until October 2002, a situation that means Japan is likely to have a turbulent year ahead.

Professor Motoshige Ito of Tokyo University says, “I only hope the reforms will be enacted quickly before the pain becomes too widespread. Only then can Japan’s recovery be considered a success.”

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