Motoshige Ito

Professor, Economic Research at

the Tokyo university Graduate School, University of Tokyo

　

A concise answer when asked how to rate economic policies of the Koizumi administration would probably go like this. The critical point to rate is how well methods for managing the new economic policies are implemented. One problem here is that the contents of these policies are not clear. So the big issue this year will be trying to maintain economic policy management techniques that were instituted last year. This means using economic policies that have real meaning.

The nation as a whole is watching with a lot of interest where the Koizumi administration is going with a great deal of attention being focused in particular on his economic policies. In a hardpressed economy operating under the tough initial government bond restriction of 30 trillion yen, there is no lack of crucial issues such as road budgets and corporate problems to stir up a fiery response from ruling party members.

　The fact that since the latter half of last year, the Japanese economy seems headed for its worst state since the end of World War II is the likely reason the Koizumi administration is the subject of so much recent attention. Certainly an administration that has to manage the economy amidst ever louder cries for financial improvement, and a current outlook that still offers no escape from the delinquent stock-credit problem has created a delicate set of circumstances where handling of the economic and bad judgments will invite a flood of harsh criticism from the people.

Up till now the biggest results achieved by Koizumi economic policies has been in their application rather than content. Past administrations have reacted to each situation as it occurs, and the direction administration policies were taking was not clear. You might call it choosing the easiest course. The Japanese economy is headed for a major turning point and reacting to individual problems without an overall goal will simply make the nation's people more dissatisfied and insecure.

　The Japanese people are steadily loosing sight of where their economy is headed. Everyone knows that major reforms are needed but generations of prime ministers have been left powerless in the face of pressure from conservative elements, while the average citizen becomes more and more dissatisfied. The ever worsening economy however led to hopes that Prime Minister Koizumi might succeed where his predecessors failed.

　Last year saw a ray of hope, in future Koizumi administration policy-making strategy. The cabinet issued clear government policy guidelines which were then adjusted by working with the ruling parties. The cabinet confronted a segment of the ruling party members who were opposing them and succeeded in moving ahead with their policies. A great many of the nation's people probably assumed that if Koizumi could continue in this way, then economic policy would be run from a position of power and influence rather than by"choosing the easiest course."

Notwithstanding those results, the same techniques used in those powerful frontal assaults on road and corporate problems could have been used to resolve other problems. The critical issue from hereon is what to do to get worthwhile policies. These policies are a problem since they have not assumed a clear shape but future economic shifts will likely make the following 3 points extremely important.

　Point 1 : How to proceed with corporate/reform and financial institutional restructuring that came out last year. Due to the powerful resistance encountered last year, these reforms are still incomplete. It is vital that these reforms continue to be quietly and steadily implemented according to the scheduled reform process. The problem of roads which has been put off will probably see a lot of fiery debate but this problem has to be faced and dealt with firmly The economy is in a constant state of flux and other major problems are constantly appearing but even still, shelving this problem for future consideration is a big mistake.

　In financial restructuring and reform, the Koizumi cabinet has done well to treat this a major issue. However trying to stay withinthe reckless 30 trillion yen limit the administration imposed on itself at least speaks well for their strong desire for fiscal reform.

　The problem is how to proceed in making fiscal structuring reforms from here onward. The fiscal issues involved in making these reforms a reality will take time. What is needed is fiscal reform planning such as presented by the Hashimoto Administration. This is a very big job, yet is a totally necessary process.

The second point is the problem of how to respond to future economic circumstances. For the next 6 months, the Koizumi administration will have to face its most troublesome opponent, which is the state of the economy. Considering the present fiscal situation, there is a large risk of a major crisis occurring this March or around September. Large scale economic failures are not only disastrous for directly involved parties such as clients but also can widen their effects to include the entire economy in terms of systemic fiscal risk or the nation's consumer awareness, etc.

　The Koizumi administration must not be allowed to hide or postpone dealing with these kind of risks. If widespread failure does occur they must consider what kind of emergency measures to take in response. What kind of options such as investing capital, nationalizing, special central bank funding are available as countermeasures? Crisis management simulations must be made from now on so that speedy responses will be available if needed.

　Needless to say, what everyone wants most is for no fiscal failures to occur. However is the present state of fiscal insecurity, it is important to deal quickly with big problems when they happen. So even if large fiscal failure or bankruptcy does occur, dealing promptly and accurately with the problem will prevent its effects from spreading. This also provides a good opportunity to take action to take other drastic action that may be needed.

　An important point to focus on is what economic measures will be taken when economic chaos occurs. The government must not yield in its basic stance of fiscal structuring reform yet must also be flexible enough to meet changing circumstances. In other words, we need them to take that narrow road between a rock and a hard place.

The third point to focus on is what new issues in economic reform the Koizumi cabinet will take up this fiscal year and how they will deal with them.

　Tax reform is currently getting a lot of attention. Probably another issue will be reviving the economy including ways to create employment and deal with the problem of jobs and manufacturers leaving Japan for overseas locations. Fiscal structure reform and dealing with delinquent stocks and bonds is a negative legacy from the past that has to be eliminated, and coming to grips with these problems brings hope for the future. That's a point to take notice of.

　

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