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Web-only Exclusives
November 30, 2000

From Our Correspondent: Hirohito and the War
A conversation with biographer Herbert Bix

From Our Correspondent: A Rough Road Ahead
Bad news for the Philippines - and some others

From Our Correspondent: Making Enemies
Indonesia needs friends. So why is it picking fights?

Asiaweek Time Asia Now Asiaweek story

STRUGGLING FOR REFORM

Reinvigorated, the opposition shows its clout

By Todd Crowell and Murakami Mutsuko / Tokyo


PRIME MINISTER OBUCHI KEIZO has a reputation for being a mediator, but his talents have never been tested as much as in recent weeks. For most of his career as a legislator, Obuchi had only to mediate among the factions of Japan's ruling Liberal Democratic Party (LDP). The nominal opposition in the Diet, although it sometimes made much noise, seldom put forward realistic alternatives to official policies. The government rarely had to make compromises.

These days, the opposition no longer plays by the old rules. The largest grouping, the Democratic Party of Japan (DPJ), has been invigorated by its strong showing in July's upper-house election. Led by reformer Kan Naoto, 51, it has tabled alternative proposals to resolve the nation's banking crisis. The LDP must listen because it lost its working majority in the House of Councilors. Though less powerful than the lower chamber, it can kill the government's six banking-reform bills unless the PM can win opposition votes.

Obuchi is under the gun. He desperately wants to get a package approved. Then he can demonstrate the "sense of urgency" urged on Tokyo by the United States and other nations before his meeting with President Bill Clinton on Sept. 22. The premier also needs to prevent another big bank collapse, since that could topple his government. Ultimately, he must show Japanese voters that the LDP is capable of pulling the country out of recession.

The depth of Japan's plight became more apparent last week as new figures showed the economy contracting again in April-June. It marked the first time since World War II that the nation has experienced a decline over three successive quarters. The latest drop amounted to a 3.3% shrinkage of the economy on an annualized basis. In response, the benchmark Nikkei stocks index lost 5.1% of its value, its steepest single-day fall this year.

Just before the gloomy announcement, the Bank of Japan surprised markets by cutting short-term interest rates from 0.5% to 0.25% (while keeping the official discount rate at 0.5%). The aim, said the bank, was "to ensure that the economy does not worsen further" and to "stabilize the financial system." Analysts said the cut might help some troubled banks, but would not do much for the overall economy. "Such a small cut does not help," noted Fukuzawa Takeshi, president of the Mitsubishi Estate Co.

The challenge for the DPJ is to stick with its convictions without appearing to play politics with Japan's battered financial system. "We have no intention of holding these bills hostage just to force a general election," says Kan. The Obuchi government, he believes, will probably collapse within a few months from sheer incompetence anyway. Indeed, the opposition appears to hold the whip hand; it is the LDP that has been repeatedly adjusting its positions.

In one key concession, the ruling party agreed with opposition demands to repeal the Financial Stabilization Law, which appropriates some $100 billion of public money to prop up weak banks and protect depositors. The DPJ opposes the law, saying it perpetuates the "convoy" system whereby institutions, regardless of whether they are well or badly managed, are treated equally as rescue candidates. The opposition has, however, rejected the LDP's proposal as being too vague.

Behind the haggling lurk profoundly different approaches to government that go beyond politics and the usual "liberal-vs.-conservative" dichotomy. Ever since the post-war years, the LDP has opposed letting any major bank go bankrupt. Kan's party advocates allowing weak banks to die graceful deaths. He acknowledges that half of Japan's 19 national banks might disappear if the DPJ were in power. The smaller Liberal Party, led by Ozawa Ichiro, is even more strongly opposed to the bailout of banks with public money.

The burning issue of the moment is the fate of the Long-Term Credit Bank, Japan's 10th largest. It may or may not be insolvent (neither the government nor the bank has released relevant details). The LDP wants to merge it with Sumitomo Trust & Banking, greasing the deal with several hundred billion yen from the stabilization fund. Technically, the government does not need opposition approval for the bailout, but is forced to make concessions to win backing for its legislative program. It has proposed purchasing the bank's stock.

The opposition parties share a profound distrust of the bureaucracy - the "tax-eaters," in Kan's words. They are unlikely to strike a deal on the LDP's banking-reform bills unless a new public trust agency created to supervise bad banks is made entirely independent of the Ministry of Finance. The ruling party is ready to compromise on the matter to gain support for its bridge-bank proposals. But whether that will satisfy the opposition remains to be seen. The nation, and the world, can only wait - and hope for progress.


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