- The Washington Times - Thursday, April 26, 2001

Fueled by an unprecedented grass-roots revolt by party members, maverick Japanese politician Junichiro Koizumi surged ahead in the Liberal Democratic Party local primaries last week. The momentum of that stunning performance propelled Mr. Koizumi to an overwhelming upset election as party president on Tuesday, as scores of younger parliamentary members ignored the orders from above and cast their votes for a reform agenda. Today, Mr. Koizumi will be elected prime minister of Japan, capping off his rise to power that he has described as a "peaceful revolution."

"I pledged that I am going to change LDP and change Japan," Mr. Koizumi passionately proclaimed on Tuesday, adding, "Now I feel a very heavy responsibility to do that." After a decade of economic stagnation, which has followed the bursting of Japan´s stock market and property bubbles, the economic and political challenges facing Mr. Koizumi are nothing short of staggering.

On the economic front, Japan is mired in a deflationary spiral, and it may now be in recession. Deflation has damagingly increased the real value of debt. Meanwhile, the stock market has recently hit a 16-year low. Moreover, an estimated $1.25 trillion in bad loans are on the books of credit unions and banks. As a result of a decade-long Keynesian pork barrel spending binge that failed to ignite the stagnant economy, Japan´s annual budget deficit is about 10 percent of its gross domestic product, and its national debt has doubled during the last 10 years, reaching nearly 120 percent of GDP.

To address the economic disaster he has inherited, Mr. Koizumi has promised to implement long-needed regulatory and structural reforms, including closing down bankrupt entities that are kept on life support by banks. He pledged to quickly and finally clean-up Japan´s bad loan problem, which would inevitably increase bankruptcies and unemployment, whose sting Mr. Koizumi would lessen by expanding the social safety net for those who would lose their jobs during the "creative destruction" process. "Without structural reform and an endurance of pain," Mr. Koizumi bravely asserted during his campaign, essentially repeating the views of Japan´s central bank, "we cannot have a real economic recovery."

The political challenges facing Mr. Koizumi may prevent him from taking the bold action he has promised. The LDP old guard including the bosses of the various party factions, which, by the way, the new prime minister would like to eliminate strongly opposes the structural and regulatory reforms proposed by Mr. Koizumi. So, too, do many of the LDP´s most faithful party members, including local postmasters, who aren´t enthralled by his proposal to privatize Japan´s massive postal savings system; farmers, who would be hurt by cheaper foreign food; construction-industry employees, who have built the pork projects; and mom-and-pop retail establishments, who would be squeezed by the big discount chains reform would attract.

As if this weren´t tough enough for Mr. Koizumi, half of parliament´s upper house will be up for re-election in July, and a failure to show any progress by then could doom his "peaceful revolution" in its cradle.

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