ECONOMY-JAPAN: Koizumi’s Reforms Losing Steam, Say Critics

By Suvendrini Kakuchi Reprint | | Print |

Suvendrini Kakuchi

TOKYO, Sep 4 2001 (IPS) - Reeling from the shock of still-rising unemployment and the recent ferocious dip in the stock market, Japan’s much touted package of economic reforms under popular Prime Minister Junichiro Koizumi is fast losing steam.

“It’s not easy for Koizumi anymore,” says political writer Harumi Arima. “The economic situation is so bad that he will have to water down most of what he has pledged to do so far.”

The reform package that Koizumi outlined when he first came into power six months ago was heralded by both the Japanese public and the much of the world as the answer to Japan’s decade-long economic woes.

“I will conduct sweeping reforms in order to create an effective but smaller government through increased corporate productivity to revitalise the Japanese economy,” he said.

The pillars of his reform task are to tackle the huge bad loans in banking, streamline the construction industry and advocate structural reforms by privatising dinosaurs in public sectors such as the debt-ridden postal services.

The prime minister, basking in the glow of public approval that swept the Liberal Democratic Party (LDP) into power in the July elections for the Upper House, even spelled out a timetable to meet his reform target and set the next three years as the period necessary for cleaning up Japan.

That however is already past history, contend analysts.

A major blow to the much awaited reform package is Japan’s growing unemployment figure, which climbed to a record 5 percent in July — 5.1 percent for men and 4.6 percent for women, according to official statistics released last week.

At 5 percent, Japan’s number of unemployed is estimated at 3.3 million people. a far cry from 1 million 10 years ago.

The jobless rate is predicted to even reach 10 percent people in this country of more than 120 million people, according to Asahi Mutual Life Insurance Co.

The picture is also expected to become worse as more companies announce layoffs.

Fujitsu Co announced plans last week to cut 16,400 jobs and NEC says it is targeting the reduction of 4,000 jobs. Toshiba also announced more than 17,000 layoffs, mostly in its domestic labour force.

These reports are an affirmation of the dire economic straits Japan continues to face, despite changes in political leadership through the years.

Experts see little or no growth, bordering on contraction, for the Japanese economy in the near future. Indeed, the Bank of Japan lowered its growth estimates for the country for third straight month in August — citing reaons such as the slowdown in the U.S. and European economies, the deterioration in exports and personal consumption.

The Japan Research Institute, a private research company, predicts a 0.9 percent drop in Gross Domestic Product (GDP) between April and June, a 1 percent decline from the previous quarter.

In short, all indicators show that Japan’s decade-long recession shows no signs of easing.

The drop in the stock market last week — the Nikkei index plunged to 17,000 points or close to the worst level recorded in the mid- nineties — also reflects serious problems for Japanese corporations.

“Everybody is jittery,” says Arima. “There is a mounting fear for the future among the people that will lead to further deflation and stall the economy further.”

Already, Koizumi is facing increased criticism even within his own party, as the nation braces for yet another downturn in already tough times.

Shizuka Kamei, a senior policy maker in the Koizumi-led Liberal Democratic Party, accused Koizumi’s state minister Heizo Tekenaka, who is in charge of economic affairs, of an being amateur economist who is dragging Japan into a quagmire.

Kamei points to a recent study by the Japanese Association of Corporate Executives that show 1.5 million workers will lose their jobs each year due to structural reforms in the construction industry alone.

The seriousness of the situation seems to be finally hitting the Koizumi government.

Last week, the prime minister spelled out a new supplementary budget in the form of new government bonds to boost the dismal economy, a statement that analysts say indicate a retraction of his earlier pledge to not use public money to help the economy.

Supplementary budgets are typical of Japan’s old pork-barrel politics — former conservative leaders poured money into public works to boost the economy, the very system that Koizumi claims he is determined to change.

But according to senior economist Richard Koo at Nomura Research Institute, the new budget is a positive sign given the current disastrous backdrop.

“It shows Koizumi is finally taking the right step. I, too as a taxpayer, is against the building more roads and bridges, but it must be understood that boosting construction industries helps create jobs, which is important at this point,” explains Koo.

But analysts point out that reforms must go hand in hand with new jobs, and that this is not happening in Japan.

Experts are urging Koizumi to increase spending in setting up new industries such as in nursing care, information technology, and placement services and other service industries.

There is also a call for new employment policies and a larger safety net of 2 to 3 trillion yen (20 to 30 U.S. billion dollars) to maintain peace and order and boost security in people’s lives, according to local press reports.

The Japanese media has been taking a closer look at some countries in Europe as an appropriate example for Japan. Indeed, the hot topic these days is the European way of tackling unemployment and giving safety nets for those affected adversely.

Until Koizumi is absolutely sure of being able to protect the people from the repercussions of his reform, says Koo, the government has to go slow.

Take Yamasaki, secretary general of the LDP, said in mid-August that Koizumi’s economic reforms will cause economic growth to stay below 1 percent for two to three years.

Stresses Koo: “He must be careful not to make things too painful, otherwise Japan will not reform, but only shudder and die.”