At the start of his tenure as prime minister in late April, Junichiro Koizumi enjoyed an astonishingly high approval rate of 80%, higher than any of his recent predecessors. Forty days have passed since then. Although it is too early to judge his accomplishments, let us conduct a quick and tentative evaluation, to date, of how he has distinguished himself.
His approval rate is still rising. Considering the fact that the popularity of most prime ministers has dropped as time went by, the rising approval rate is very impressive. His approval rate now stands at around 85%. How did he achieve this? For starters, he speaks with his own words, not from prepared texts. He is candid and humorous - traits not shared by many politicians in Japan.
But most importantly, he has leadership, something that has been absent in Japan for some time. The most effective move thus far was his decision to give up an appeal to the higher court in a dispute with former leprosy patients. The lower court had ruled that the government was responsible for leaving the leprosy patients in isolation long after medical cure for the disease had been developed. As the lower court ruling had possible legal problems, the Ministry of Justice, representing the government, was arguing for an appeal. Sensing the overwhelming public sympathy for the former patients, and having deep sympathy for them personally, PM Koizumi decided to override the decision to appeal. Since it came at the last moment, his decision was viewed as being very dramatic and humane. The people now consider PM Koizumi someone who speaks and feels like they do. In their minds, he is an everyman.
He is making significant headway in reform as well. Capitalizing on the newly created Council of Economic and Fiscal Policy, he is pushing for reforms in budget allocation, quasi-governmental organizations, and local governments. The most ambitious is his attack on the use of gasoline taxes, which have been earmarked exclusively for road constructions. His attack has angered many LDP politicians who depend on constituents in the construction business, but has strengthened his public popularity. Many Japanese believe that their money has been wasted on the many road construction projects.
In fact, according to Mr. Risaburo Nezu of the OECD, Japan is spending 18 trillion yen annually for road construction, while government investment in the telecommunication and broadcasting industry is as little as 4 trillion yen. Comparable numbers in the U.S. show $50 billion invested in road construction versus $85 billion for telecommunications and broadcasting. It is clear that our resource allocation has heavily favored road construction. (See charts 1 and 2 [PDF:98KB])
Koizumi is also calling for a cut in local government expenditures and in subsidies to quasi-governmental organizations. These proposals are resented by local governments and many ministries, but are very popular with the public. He is now even talking about the need to study the possibility of privatizing the postal services, including the postal savings system. It would be easy to imagine that there are a lot of unhappy people among the vested interests that have traditionally supported the LDP.
Koizumi is a man of courage: he makes bold proposals. If he can prevail in his party, the chances that the party will win the upper house election are great. So, on one hand, he is already a great political success, at least in terms of his popularity.
On the other hand, his economic policy, especially short-term policy, remains vague. It is true that some of the reforms he has suggested would have a positive impact on the economy. These measures are important because they will contribute to economic restructuring. But the effects of what he is suggesting are long-term and do not necessarily respond to the immediate problems of the Japanese economy.
There has been no addition to the April economic policy package with regard to the resolution of non-performing loans and excessive corporate-sector debt. The proposed measures are limited to category 3 and 4 loans, totaling 12 trillion yen for the major banks. The borrowers for these loans are pretty much all bankrupt or very close. Little has been proposed for dealing with the sub-standard loans, or category 2 loans, which do not fall within such a narrow target. This is one of the major reasons why uncertainties about the Japanese financial system cannot be totally wiped out.
Neither has the government proposed anything new about the development of an efficient safety net for the unemployed, a number which is expected to grow significantly if we proceed with restructuring. Only a few small steps have been taken to revitalize the stock market.
He might be deferring such problems intentionally until after the upper house election in late July, focusing on building support first so he can tackle the painful issues after having won the election. According to this analysis, he is a very shrewd politician and strategist.
Pessimists would counter that he is just attacking issues that are popular among the public while ignoring more pressing economic policy needs. In this view, little can be expected in terms of short-term economic policy; Koizumi will spend all his political capital on a fight over postal privatization and road construction (popular with voters, but with long-term effects), at the expense of addressing issues that must be solved now, such as the non-performing loans. These pessimists might describe Koizumi as a good politician but a bad economist.
At this point, it is unclear which view is correct. We will probably have to wait to find out, possibly until after the election. But I would like to express my optimism about one thing: Koizumi has exceptional courage and public support. No recent prime minister has enjoyed such assets. It is only a matter of prioritizing correctly, and dealing with the issues in the right order; i.e., to tackle the pressing problems first, including the resolution of non-performing loans. This task should be less difficult for him than his predecessors, who had to struggle first to build public support. I believe that we Japanese are lucky to have a prime minister with such strong public backing and courage to solve the problems of our economy. If the market, the media, and policy makers can send the right messages, he will, in my view, ultimately make good choices in dealing with Japan's economic problems.
Author, Tatsuya Terazawa
Special Research Fellow, RIETI, M.E.T.I.
e-mail:terazawa-tatsuya@meti.go.jp
tel:03-3501-1480 fax:03-3501-1704
Editor in Chief, Nobuo Tanaka
Vice President and Senior Fellow
Research Institute of Economy, Trade and Industry, M.E.T.I.
e-mail: tanaka-nobuo@rieti.go.jp
tel: 03-3501-1362 fax: 03-3501-8391
The opinions expressed or implied in this paper are solely those of the author, and do not necessarily represent the views of the Ministry of Economy, Trade and Industry (METI), or of the Research Institute of Economy, Trade and Industry (RIETI).
