/ 15 August 2005

Make or break for Koizumi

Japan was plunged into political turmoil this week when the Prime Minister, Junichiro Koizumi, was pushed into calling a snap election that risks destroying his party.

The crisis was prompted by radical plans to privatise the post office, which Koizumi has put at the heart of a structural reform programme. But rebels from within his ruling Liberal Democratic party (LDP) voted against the proposal, leaving Koizumi with little choice but to carry out his threat to dissolve the lower house of Parliament, paving the way for a general election on September 11.

Despite final efforts over the weekend, Koizumi was unable to persuade 22 of his MPs to vote for the privatisation. The legislation would have created the world’s largest bank, with savings and insurance deposits totalling 330-trillion yen (£1,65-trillion).

Opponents say privatisation would lead to the closure of rural post offices and job losses among the 400 000 employees at 25 000 post offices across the country.

The defeat, by 125 votes to 108, exposed deep divisions within the LDP, one of the most successful political parties in history.

Japan Post plays a central role in millions of households in Japan, which use it for savings and life insurance.

Through schemes such as government bonds, funds held by the post office have long been used to finance construction projects, which were the cornerstone of what critics have called the postwar ”iron triangle” of cosy ties between LDP politicians, bureaucrats and businesses. Post office workers have also been a loyal source of support and funding for LDP MPs.

Shizuka Kamei, a leading opponent of the reforms, urged Koizumi to reconsider calling an election that the LDP is far from certain of winning. ”The prime minister should come to his senses,” he said. ”It will be bad for Japan if we keep doing this.”

Koizumi, meanwhile, repeated threats to destroy his own party if it continued to stand in the way of his reforms. ”I will smash the old LDP and forge ahead with a new LDP,” the broadcaster NHK quoted him as saying.

He and his allies believe Japan Post is an irrelevant throwback to the postwar years, when the state was the dominant force in the economy. They want to cut state bureaucracy and put funds into the hands of private investors to stimulate growth.

Heizo Takenaka, the economy minister, drafted into the government to spearhead postal reform, said: ”Postal privatisation represented an important crossroads in terms of whether Japan opts for big or small government.

”The rejection is a major blow to Japan’s future and its economy.”

Anti-reformers threatened to form a new conservative party, and Koizumi, who is the LDP president, has said his opponents would be prevented from running on an LDP ticket, depriving them of campaign funds and staff.

Analysts believe the Democratic party, the main opposition, could inflict a historic defeat on the LDP, which has governed almost uninterrupted for the past 50 years.

The Democrats hold 175 seats in the lower house, compared with the LDP’s 250, and made a strong showing at the last general election, in 2003.

”We’ve been steadily making efforts for this day,” the Democrats’ leader, Katsuya Okada, said. ”Now we finally have this opportunity to change the government.”

The opposition’s chance could lie in persuading smaller parties to form a coalition government. New Komeito, the LDP’s current coalition partner, which opposed the dissolution of parliament, has indicated it might be persuaded to switch loyalties. The election campaign will begin on August 30. — Â