Friday March 27, 4:14 am Eastern Time
Japan policy formation suggests power vaccuum
By Linda Sieg
TOKYO, March 27 (Reuters) - Japanese policy formation has never won kudos for clarity but the latest twists and turns suggest that even behind close doors, confusion is king.
''You don't have the same kind of king-maker in the background that you used to have to control the chaos,'' said John Neuffer, political analyst at Mitsui Marine Research Institute. ''Decision-making is all over the place.''
Japan's ruling Liberal Democratic Party (LDP) on Thursday unveiled an outline of a record 16 trillion yen ($124 billion) package of steps to rescue the economy.
But the proposals not only lacked substance, they also left hanging the key question of whether income tax cuts many see as vital would ultimately be included -- even as some party officials hinted a drastic policy shift in that direction lay ahead.
Financial markets, after an initial blip on Thursday, shrugged off the LDP's efforts and the Tokyo stock market's key barometer finished down 1.42 percent at 16,739.26 on Friday.
"Credibility is shot to hell," Neuffer said.
Faced last year with evidence that the economy had stalled and recession was a risk, the LDP has almost every month since October unveiled steps aimed at restoring public confidence.
But as each package was dubbed ''too little, too late,'' party leaders hinted with the same breath more was in store.
On Thursday, the LDP took a halfway plunge, admitting what was already a foregone conclusion -- the fiscal steps which authorities had long ruled out would be forthcoming.
But while the party suggested the bulk of fresh spending would go for public works, it opened the door to widely sought cuts in income tax and corporate tax.
Pundits see several reasons for the current confusion, some but not all of which is more apparent than real.
Among them is the government's need to enact what it knows is a flawed budget for the year from April 1 before approving fresh steps, its commitment to fiscal consolidation, an internal LDP power struggle, and the battering taken by the Finance Ministry over scandals and alleged policy missteps.
Japan's parliament late last year enacted a bill embodying one of Prime Minister Ryutaro Hashimoto's top policy priorities -- getting the nation's huge budget deficit under control.
The fiscal reform law mandates a cut in the annual budget deficit to three percent or less of gross domestic product (GDP) by the end of 2003/04 and obliges the government to stop issuing bonds to cover revenue shortfalls by March 31, 2005.
Acknowledging the need for tax cuts, which require funding by deficit-financing bonds, means admitting the fiscal reform law itself was flawed. ''They needed the headline figure but they can't say what's in it because they don't want to get into the debate about tax reform,'' Neuffer said.
Many believe Hashimoto wants to use an advisory panel which he chairs and which drafted the reform bill as political cover to reverse course on tax cuts. On Friday, however, official word on whether the panel would be reconvened was still lacking, along with any clear statement by Hashimoto himself.
Compounding the problem is an LDP power struggle between a more conservative group which wants to join hands with like-minded opposition members, and the current party leadership which crafted the LDP's alliance with two partners.
The former group favours hefty fiscal stimulus and an admission that fiscal reform must be delayed, while the latter has been trying to hew to the budget-cutting target.
Many trace the LDP's disarray to a process of unravelling which reached critical mass in 1993, when a struggle over who would control the party's biggest and most powerful faction ended with a rebellion in which 50 LDP members left the party.
For nearly a year the LDP suffered in the opposition wilderness, returning in June 1994 as part of a right-left coalition and then setting up its own cabinet supported by two smaller parties after an October 1996 election.
The days when a single back-room power broker called the shots, however, were already over, though some speculate former prime minister Noboru Takeshita still tries to fill that role.
Nor is the once almighty Finance Ministry able at present to set policy direction on its own -- and anyway it has never been at its best when what was called for was bold fiscal steps.
The ministry's low profile may only be temporary, but clearly scandals and public criticism have taken their toll.
What about Hashimoto himself, whose forceful image once convinced many abroad that Japan finally had a bold and decisive leader? ''A lot of people thought that, but anyone who knew him knew better,'' said one political analyst. ''Hashimoto has no power base and he is beholden to others for support.'' |
