By James BrookeJapan's Premier Muses on a Recovery-Proof Economy
TOKYO, March 28 - Nearly a year after taking office as a popular reformer, Prime Minister Junichiro Koizumi said in an interview today that he does not know why the nation's economy shows no sign of revival and that real growth may be so far away that he may not be in office to see it.
"I really wonder why the Japanese economy is not becoming more revitalized, why we are not seeing more economic recovery," said Mr. Koizumi, his mood defiant despite his diminished approval ratings. "We have been doing everything to the limit in fiscal and monetary policy."
As afternoon sunlight filtered into a curtained room of his somber, 1920's-era official residence, the prime minister turned what had been billed as a brief interview into a frank, hour-long tutorial on the limits and frustrations of trying to reform and revive the world's second-largest economy.
The distinctive hair style and choppy manner of speaking that captivated millions of Japanese last spring were the same, but today Mr. Koizumi seemed chastened by his first year in office. In a nation where modern prime ministers have rarely lasted two years in office, a sense of political mortality seems to have settled on Mr. Koizumi, who has taken a beating in the polls since he fired his popular, outspoken foreign minister, Makiko Tanaka, two months ago.
Mr. Koizumi conceded that he might not stay in power to see the benefits of his reforms. "I don't intend to remain in power for five to six years," he said. "I believe my work is to get the reforms in Japan on track so that no matter who comes to power after me, our path of reform cannot be retracted."
Economic decline marked the early years of both Margaret Thatcher and Ronald Reagan, he said, and the effects of their reform only became apparent after five or six years.
But Mr. Koizumi made clear that he was dedicated to the fight. He vowed to "speed up" attempts to reduce Japan's mountain of bad bank loans, to cut its swelling public debt, and to privatize the state-run postal savings system.
With interest rates at zero and public debt the highest in the developed world, Japan's economy remains in a stall. Growth is expected to be negative again this year, for the second year running, and additional borrowing is necessary to pay for more than a third of the spending in a budget that cleared Parliament on Wednesday.
It is a fiscally unsustainable practice, the prime minister said. "We have been borrowing money by issuing government bonds of a far larger amount than our tax revenues."
After he fired Mrs. Tanaka, disillusionment with the prime minister raced through Japan, translating into a 30 percentage point drop in his popularity ratings. In two newspaper polls conducted last weekend, Mr. Koizumi's approval rating hovered around 50 percent, high by Japanese standards, but well below the 80 percent level he enjoyed after his inauguration last April.
Ms. Tanaka has turned on her former ally in reform, accusing him of "spinning around in circles and getting nowhere."
Today, as an aide unsuccessfully tried to signal the prime minister to cut the interview short, he dwelled on his poll standing, using the adjective "falling" four times in five minutes to describe his ratings, but trying to defend his work nonetheless.
"Some hold the view that my cabinet has become unstable because of the falling support rate," he said. "But if my cabinet had become instable, then the budget for next fiscal year would not have passed so soon. But the budget passed."
"Now that my support rate has started to decline, I have been met with resistance to reform policies," he said, chopping the air with his right hand. "People who take that point of view are totally mistaken," he said.
Despite balmy spring weather, early cherry blossoms, and a rise in the stock market and exports, a downbeat mood grips Japan as it finishes its fiscal year on Friday. In a survey released Tuesday by Dentsu Inc., 93 percent of Japanese surveyed said their economy was in "bad shape." [In a news conference on Friday, the economy minister, Heizo Takenaka, described the state of Japan's economy as "very severe."]
Pessimism has become institutionalized here, the nation's leader complained, with the press predicting month after month a "financial crisis" that hasn't materialized.
Japan is handicapped by extreme mood swings, said Mr. Koizumi, who was the beneficiary of one of its largest mood swings last year when he was swept to power and became the subject of mass adulation.
Recalling the boom years of the late 1980's, he said "Japan was overconfident. During those days, Japan was buying lots of famous buildings and golf courses and was overconfident about herself and even arrogant.
"In the 10 years since, Japan has swayed to the other extreme and has become very pessimistic, and Japan is not doing well," he continued. "It's not good to be overconfident, but also not good to lose too much confidence. I have not lost confidence in the potential for Japan."
Reviewing the accomplishments of his first year, he said he
had cut public works spending by 10 percent, had placed four highway construction corporations on track for privatization, and had started to abolish a state home mortgage bank, a state oil company and a state urban development corporation.
But American officials have said the measures are too small to deal with the financial pressures that are building. "The costs of inaction are really very, very high," R. Glenn Hubbard, chairman of the United States Council of Economic Advisors, warned here earlier this month. With Japan's corporate loan default problem and public indebtedness, Mr. Hubbard warned bluntly against "baby steps that don't involve real action."
On Tuesday, Treasury Secretary Paul O'Neill, who took his post a year ago promising a quiet approach to Japan, warned in a Washington speech "Japan is still lagging. We need the Japanese economy to grow at a faster rate again, not only for their own people but for the world economy."
This evening, as dusk settled over the prime minister's downtown residence, Yasuhisa Shiozaki, a ruling party legislator and a Koizumi ally, looked down from his sixth floor office window in the Japanese Diet, the parliamentary body that shapes, and some would say hobbles, executive action here.
Mr. Koizumi, he said, had been unable to bring real power to an office historically seen as weak.
"People cannot see who is deciding issues," Mr. Shiozaki said. "In Britain, it is Downing Street. In the U.S., it is the White House. Here there is a lack of a control tower."
He warned that Japan's unaddressed economic problems are being papered over by hopeful forecasts that an American recovery will drag Japan towards positive growth at the end of this year.
"Cyclically, this could be a year of recovery," said Mr. Shiozaki, who studied public administration at Harvard. "But since structural problems are not solved at all, or maybe just a little, I don't think that it will be that
long before we will face another crisis."
Mr. Koizumi's biggest contribution so far, the legislator said, may be that he shifted Japan's political debate to serious consideration of privatization, deregulation and fiscal austerity.
"Nobody ever imagined privatized road companies," Mr. Shiozaki said. Referring to legislators who virtually act as lobbyists for construction companies here, he added that "Nobody ever imagined or expected that 'road tribe' Diet members would accept privatizing four road-related agencies."
On Mr. Koizumi's future, Mr. Shiozaki said that the prime minister had won a national following by campaigning against his own party, the Liberal Democrats, which have controlled Japanese politics for almost half a century.
Looking around his party, he asked "Who could succeed him?"
"Diet members are very scared of losing their seats in elections," he said, referring to lower House members who must face a vote by June 2004. "Naturally, people figure out that it is better to have Koizumi for their elections."