-Caveat Lector- Japan Reform on hold Sep 6th 2001 | TOKYO >From The Economist print edition Junichiro Koizumi flounders as the economy worsens AN AUTUMN of reform is what Junichiro Koizumi promised Japan's desperate voters. Yet two weeks after the new prime minister returned from his holidays in the cool of the mountains, there is no sign that one is on the way. Like so many of his predecessors, Mr Koizumi seems to be gently subsiding into Japan's familiar political quicksand. Central reforms are being abandoned, say his critics, or neutered. In anticipation of a mountain of legislation, the Diet (parliament) was supposed to have reconvened in August. Now, it will not start work until the end of September. There is still no word from Mr Koizumi about his policy priorities, despite a promise that he would draw up a list by August. The stockmarket is plunging, the banks are weakening by the day and the economic recession deepens. But half of the government's most crucial ministers are travelling abroad. As for Mr Koizumi himself, he is holed up in his official residence, say political gossips, listening to opera. Something Wagnerian would go well with the terrible news outside. Big exporters, like Hitachi and Toshiba, are announcing huge layoffs. Small-firm confidence continues to plunge. Output is falling rapidly and deflation is deepening. Statistics due out on September 7th may, it is feared, show that between April and June the economy shrank by 4% or more at an annualised rate. With confidence in the government's policies ebbing rapidly, the markets are abuzz with talk of a fresh financial crisis. Since Mr Koizumi's return to Tokyo, the stockmarket has fallen by nearly 10%, a drop so far interrupted only by hopeful rumours that Hakuo Yanagisawa, Mr Koizumi's minister in charge of the bank clean-up, will soon resign. Mr Yanagisawa is now Mr Koizumi's number-one problem. Mr Koizumi went to the voters before the election in July for Japan's upper house with a promise to clean up the banks within two to three years. But the plan for doing so that Mr Yanagisawa has been touting round Europe and America this week looks almost identical to the one he drew up in April, under the discredited administration of Yoshiro Mori. The markets condemned it at the time. Not surprisingly, they are passing the same judgment now. At the heart of the matter lies the fact that no one believes the government's figures for the amount of bank loans that could turn sour. Goldman Sachs, an American investment bank, thinks the true number may be an eye-popping ¥170 trillion ($1.4 trillion), seven times the official figure. By pushing bank shares ever lower, the markets are saying that the banks are short of capital and need public money. But Mr Yanagisawa will not countenance that. His staff are back in siege mentality, railing at Goldman Sachs and suchlike and furious with the IMF, whose request last week to inspect Japan's financial system got a dusty response. Even by Japanese standards, Mr Koizumi has shown himself to be remarkably insensitive to these market signals. It took him a whole week to "correct" Mr Yanagisawa's all-too-honest gaffe that it would take not three years but seven to clean up the banks, by which time the damage had been done. Among cabinet members, only Heizo Takenaka, Mr Koizumi's economics minister, retains the confidence of the markets. But Mr Takenaka is an academic economist, and is not faring well among the insiders of Nagatacho, Tokyo's political district. Mr Takenaka wants Mr Yanagisawa sacked. But Mr Yanagisawa has far more political clout Damaging cabinet divisions are appearing elsewhere. Despite the awful economic news, Mr Koizumi is still trying to push ahead with his dubious plan to tighten government spending. In fact, as cabinet heavyweights like Takeo Hiranuma, the economy, trade and industry minister, have defied the prime minister and called for a big emergency budget, Mr Koizumi has been upping the stakes. Now Mr Koizumi says he wants to bring forward his plan to cap government bond issues at ¥30 trillion from next year to this year, which would tighten public finances almost immediately. In recession, however, Mr Koizumi will have to issue more bonds simply to cover the government's tax shortfall. Already the Ministry of Finance is indicating that this year's tax revenues may fall below target. Other battles that Mr Koizumi persists in fighting look less wrong-headed than simply irrelevant. While the banks burn, Mr Koizumi has been prodding his minister in charge of public-sector reform, Nobuteru Ishihara (also travelling abroad), to crack the whip over the government's hugely ambitious privatisation programme. The true scale of this task became a little clearer this week. Of the 74 public-sector corporations that Mr Koizumi wants abolished or privatised, the bureaucrats agreed to part with just four, all of which the government had previously earmarked to get rid of anyway. How much of Mr Koizumi's dithering reflects a change of heart is not yet clear. The talk in Nagatacho is that Mr Koizumi has begun to cosy up to the dinosaurs of the Hashimoto faction in his Liberal Democratic Party (LDP). On the election trail, Mr Koizumi strongly suggested that he would take on these anti-reformists in a straight fight. His ardour cooling, say some LDP insiders, Mr Koizumi has become more interested in cutting the sorts of political deals that would secure him a longer period in office. Most damning of all, the Hashimoto faction's big cheeses no longer seem threatened by Mr Koizumi's reforms. Let Mr Koizumi labour away, is their judgment, because he is unlikely to be around long enough to upset things too badly. Whatever the reason, "Jun-chan" already seems a shadow of the man who led his party to victory in July. Copyright © 2001 The Economist Newspaper and The Economist Group. All rights reserved. <A HREF="http://www.ctrl.org/";>www.ctrl.org</A> DECLARATION & DISCLAIMER ========== CTRL is a discussion & informational exchange list. Proselytizing propagandic screeds are unwelcomed. Substance—not soap-boxing—please! These are sordid matters and 'conspiracy theory'—with its many half-truths, mis- directions and outright frauds—is used politically by different groups with major and minor effects spread throughout the spectrum of time and thought. That being said, CTRLgives no endorsement to the validity of posts, and always suggests to readers; be wary of what you read. CTRL gives no credence to Holocaust denial and nazi's need not apply. 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