Battle lines drawn for clash on Japan Post sale

PUBLISHED : Saturday, 06 August, 2005, 12:00am
UPDATED : Saturday, 06 August, 2005, 12:00am

Just hours before yesterday's scheduled vote on the privatisation of Japan's postal system in the upper house of the Diet, Prime Minister Junichiro Koizumi got cold feet and delayed the vote until Monday afternoon.

He and his supporters are expected to do some unprecedented arm-twisting over the weekend, apparently concerned that an item of legislation which has been a pet project since he was first elected 4? years ago could be defeated.

Pressure on members of Mr Koizumi's Liberal Democratic Party (LDP) has already been ratcheted up, with one politician apparently so distressed over how he should vote that he committed suicide.

And with 14 LDP politicians already stating that they plan to vote against the motion in the 252-seat house, just four more rebels siding with the opposition will stop it dead in its tracks.

Come Monday, no one knows whether Mr Koizumi will be leaving the chamber stern-faced to announce a snap election or smiling at the passage of the bill.

And while some might say that politicians are more concerned with protecting supporters in their constituencies and staying in power than with the good of the country, some analysts are predicting the collapse of Japan's entire fiscal system.

'Japan Post is not just about mail - it's a savings institution and provides life insurance, and I was shocked when I read the bill when it was presented to the Diet,' said Kobo Inamura, former executive vice-director of Japan Post, who resigned in March in protest over the privatisation plan.

'It is an extreme form of market fundamentalism. By discarding two operations - savings and insurance - the mail portion will be unsupportable because it has no financial basis,' said Mr Inamura.

With nearly 25,000 post offices across the country and 350 trillion yen ($24.4 trillion) in assets, Japan Post is the largest deposit-accepting institution in the world. In comparison, Citigroup, the largest US banker, has assets of US$1.48 trillion.

Mr Koizumi intends to complete the privatisation by 2017 in order to encourage the Japanese public to sink their savings into bonds, stocks and securities that should give the economy a helping hand.

As well as the separate mail delivery business, two new entities will emerge - a postal savings bank and a unit to manage insurance.

Critics say one immediate problem with that arrangement is that the new entities will effectively be under the control of the same Ministry of Finance bureaucrats whom they accuse of mismanaging the economy over the past decade.

Critics fear that loans will continue to be extended to financially strapped entities such as Japan Highway Corp.

'Many people in the ministry welcome the plan because there is no system to check what goes on and they will be able to create subsidiaries and do private deals,' said Yasuyo Yamazaki, former president of Goldman Sachs Japan.

'They are going to create a monopoly, a megabank that suppresses local small players. Mr Koizumi promised to solve the problems of government debt - which stands at seven trillion yen - but instead, he is just making it balloon. We are going to see a very inefficient private system getting worse in the near future.'

Mr Yamazaki, who expects the bill to be defeated, is also pessimistic about business opportunities that may arise from privatisation, suggesting foreign banks will find it hard to underwrite initial public offerings due to a lack of equity, while life insurers will have to put up with a monopoly outside urban areas.

But some analysts disagree.

'Banks and insurance companies have expressed concern that a privatised postal services system will only intensify competition in the industry,' said Jason Rogers, an analyst at Barclays Capital. 'But medium term, we do not believe it presents any more of a threat to profitability than in the past.

'While the postal service boasts an unrivalled distribution network, its ability to offer a range of competitive financial products - housing loans, loans to small and medium-sized industries and so on - is questionable given its lack of expertise in these areas.'

He believes that some institutions might begin to consider the post office as a potential partner.

Robert Feldman, of Morgan Stanley, is even more upbeat.

'Prompt passage of the bill means firm equities and stability in both the Japanese government bond and forex markets. Failure means a period of uncertainty until the election. All Japanese assets are likely to suffer in this period.'

While others give Mr Koizumi a 50 per cent chance of victory, Mr Feldman gives him 70 per cent. If Mr Koizumi can pull this reform off, he says, all his remaining reform initiatives are a sure bet.