Japan PM Loses Postal Reform Vote; Calls Snap Election

August 8, 2005

Japan’s Prime Minister, Junichiro Koizumi, suffered a serious setback in his plans to reform the country’s huge postal system, when the Senate rejected the proposals by a 125 to 108 margin. He immediately announced plans to hold a general election, tentatively scheduled for Sept. 11.

According to some analysts, Koizumi’s ambitious plan to privatize Japan Post, which has around $3 trillion in assets and, in addition to delivering the mail, sells all sorts of financial products including insurance, threatened a number of entrenched interests.

Japan Post has about 25,000 offices across the country. It is particularly strong in the more conservative rural areas, providing not only postal services, but also savings and insurance products. Over the years the system has been seen as stalwart supporter of Koizumi’s own Liberal Democratic Party (LDP), which has governed Japan for most of the post Wold War II era.

22 LDP members broke with the Prime Minister to vote against the package of 6 bills, which would have put the system in private hands by 2017. One of the bills would have established a private carrier to take over Japan Post’s insurance services.

Koizumi’s decision to call an election, rather than resign his post as Prime Minister, drew angry responses from LDP politicians who had opposed the reforms. They fear, with some justification, that the party could well lose its hold on power in Japan’s lower house, opening the way for opposition parties to assume power, perhaps in a coalition with LDP members loyal to Koizumi.

Whatever the future holds, the failure of the reform plan is seen as a major setback for reform efforts aimed at revitalizing Japan’s stagnant economy. Putting the vast wealth of Japan Post into private hands for investment would have created a powerful economic stimulus, while also depriving the government of a principle source of debt financing. The CIA Factbook notes that Government efforts to revive economic growth “have met with little success and were further hampered in 2000-2003 by the slowing of the US, European, and Asian economies.” In addition Japan’s huge government debt (approaching 150 percent of GDP), and the aging of the population are two major long-run problems.

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