Koizumi Tones Down Plans To Privatize Postal Service
By James Simms
Wall St. Journal
July 8, 2002

TOKYO -- Japanese Prime Minister Junichiro Koizumi, bowing to the powerful interest groups that have plagued him since he came to power a year ago, has agreed to water down a plan to privatize Japan's mammoth postal system, one of his most ambitious economic-reform pledges.

On Friday, a key parliamentary committee approved amendments to Mr. Koizumi's postal-reform bills that will make it hard to open mail-delivery services to private-sector competition.

The outcome marks a setback for Mr. Koizumi, who came to power a year ago vowing to revitalize Japan's economy and made a shakeup of the mighty post office a centerpiece of his program. He had wrangled for weeks with lawmakers intent on guarding the state-run postal network, whose local postmasters form a core source of votes and donations for the ruling Liberal Democratic Party. LDP opponents of privatization deflected public attention from Mr. Koizumi's privatization agenda by starting heated, and at times, ludicrous debates over such issues as the definition of "mail."

The compromise will blunt an even-bigger aim of the prime minister: the eventual privatization of the postal system's gargantuan savings and insurance operations, which have about ¥360 trillion ($3 trillion) in assets, making them the world's largest single pool of capital.

The postal savings and insurance systems have been a prime source of funding for Japan's spending spree on inefficient roads, dams, port facilities and other public-works projects in recent decades, projects that are aimed at the LDP's bedrock supporters in rural areas. The prime minister's allies had hoped in time to shift those resources to private-sector banks and companies.

"The real issue is how to free up the postal savings and insurance capital" for more productive uses, said Ichizo Ohara, a veteran LDP lawmaker and critic of the sluggish pace of reforms.

Under the watered-down reform bills, these funds will be transferred to a new public agency. But the LDP is likely to continue channeling the money to the same kinds of projects it has in the past.

"For the foreseeable future, there will be a need to continue the current way of doing things," said Hiroyuki Arai, who until last week, was chairman of the LDP posts and telecommunication s committee. Mr. Arai said the new Postal Public Corp. would continue to buy bonds from the central government and government agencies at current levels, thus providing the financing for more spending packages.

The LDP-led ruling coalition is expected to push the bills through the lower house of parliament Tuesday, all but guaranteeing passage into law later in the month. But the battle isn't quite over. Mr. Koizumi and his opponents will square off again after July 31, when an advisory panel to the prime minister releases its final report on privatizing the postal system.

Mr. Koizumi's supporters say the bill is nonetheless a breakthrough, because it does nudge the post office into competition with new rivals. But his compromises may disappoint a disenchanted public looking for progress on reforms; the prime minister's popular-support ratings have fallen to about 40% in polls, down from 70% a year ago. Indeed, the post office compromise could set the stage for Mr. Koizumi's departure, by signaling the end of what was always a fairly brittle reform movement in Japan.

The prime minister "suffered a major political defeat" by compromising with the LDP old guard, said UBS Warburg political analyst Shigenori Okazaki.

Under the amended bill, any new entrant into the mail-carrying business would have to have the same number of mailboxes as the current postal service, almost 180,000; new entrants still might be barred from lucrative niches such as direct mail.

The bill also would bar the government from downsizing the state-owned network of 25,000 post-office branches. The changes will allow the existing postal system to "continually dominate the mail delivery services," Mr. Okazaki said.

The post office is part of the LDP's power base. In return for keeping the public monopoly intact, LDP politicians can count on up to a million votes organized by postmasters. After Upper House elections last month, police arrested a dozen postal officials for illegal campaigning on behalf of candidates.

Post offices also serve as quasibanks and insurers, with more than ¥242 trillion in deposits and ¥123 trillion in insurance. Most of the postal money is invested in government and state enterprise bonds, including public corporations that have racked up huge debts building unprofitable highways and bridges.