Come Back Koizumi -- All Is Forgiven After Abe

By William Pesek

July 12 (Bloomberg) -- Here's something many of us Japan observers never thought we would be saying: Bring back Koizumi.

Japan's prime minister from April 2001 to September 2006, Junichiro Koizumi was always a unique character. With his lively mane of hair, blunt comments and Richard Gere looks, he captivated a nation hungry for the strong, forward-looking leadership Asia's biggest economy hadn't seen in years.

By the time Koizumi left office, he was far less popular. One reason is the way he damaged relations with China and South Korea by visiting Yasukuni shrine, which critics say glorifies Japan's World War II militarism. Many also felt he was more talk than action on boosting living standards.

What voters really should be miffed about was Koizumi's anointing of Shinzo Abe as his successor. His scandal-ridden and erratic leadership is thwarting much of what the Koizumi era promised to fix. Things such as cross shareholdings between companies and poison pills against mergers are more common now than at the end of Koizumi's tenure. Japan Inc. is making a comeback.

As the old saying goes, you never know what you have until you have lost it. It has taken 10 months of Abe to show just how much Koizumi succeeded in shaking up an ossified government.

Missing Koizumi

This columnist was rarely kind to Koizumi, and yet Japan's economy really could do with a few more years of his stewardship. In the July 29 elections, the ruling Liberal Democratic Party will have a chance to replace Abe with a leader more attuned to boosting Japan's competitiveness amid the rise of China and India. Let's hope the LDP does just that.

``Economic policy making under Abe has been notable by its absence,'' says Richard Jerram, chief Japan economist at Macquarie Securities in Tokyo.

There's little risk in dumping Abe. Japan's opposition parties are in such disarray that one is tapping a man under house arrest in Chile to run for parliament. Never mind that former Peruvian President Alberto Fujimori is wanted in Lima on charges of bribery, misuse of government funds and involvement in death-squad killings -- Japan's People's New Party wants him. That's beyond desperation.

Then again, Abe's tenure has hardly been the stuff of inspiration. His support rate has tumbled amid a controversy forcing his defense minister to resign and a scandal that led to his agriculture minister's suicide. Now, Abe is defending his new agriculture guy against corruption charges. Public trust was also shaken by the government's admission it can't identify millions of pension records.

Abe's Focus

At a time when Japan needs to boost productivity, improve corporate governance, raise its global stature as a financial hub and increase wages, its prime minister is focused on the past. Abe should be planning Japan's future -- not trying to revise history regarding World War II-era sex slaves.

In his efforts to rewrite the past, Abe forgot his job really was to implement Koizumi's Thatcher-like economic blueprint.

Like former U.K. Prime Minister Margaret Thatcher, Koizumi had the driving principle of reversing the economy's decline and reducing the state's role in financial matters. He and adviser Heizo Takenaka encouraged banks to dispose of the bad loans undermining growth and pushed for greater efficiency in one of the world's most-rigid economies.

Unfinished Reforms

Hence Koizumi's zeal to sell state-owned Japan Post, which runs the country's biggest savings bank and has long been used to fund politicians' pet projects. He also made progress scaling back the concrete-and-asphalt economics of the past. Wasteful public-works spending is a key reason Japan faces public debt equal to the combined gross domestic product of the Asia-Pacific region's next 13-largest economies.

Abe pledged to accelerate things. In December, he unveiled plans to reduce new bond sales and further trim public-works spending. He also talked about ending the practice of ``amakudari,'' which means ``descent from heaven.'' It's the main gravy train for public servants; when they retire, bureaucrats get cushy jobs in industries they oversaw while in government. The incentive is to look out for your future employer, not the Japanese people.

Realizing how tough economic change can be, Abe turned his gaze to his pet issues: rewriting Japan's war-time constitution and instilling more patriotism in young people. While that's all well and good, it's not what Japan needs in 2007.

Proving Pundits Wrong

In the age of globalization, economic influence matters more than the wording of documents or the size and nature of your military. China gets so much global attention because of its economic power, not the size of its missiles.

Abe failed to grasp global market forces, too. At a time when the Thai baht has gained more than 20 percent versus the dollar over the past 12 months and the South Korean won has risen about 3 percent, the yen has lost 6.4 percent of its value.

It's odd to see a Group of Seven economy so wedded to the developing-nation mindset of relying on a weak currency. Japan also is behind the curve in creating a so-called sovereign wealth fund to better manage its $893 billion of currency reserves.

Is Koizumi an aberration in Japanese politics? It's possible, yet after 10 months of Abe, the need for another maverick has never seemed so acute. Pundits said Koizumi created an irreversible force for change. Abe is proving them wrong.

(William Pesek is a Bloomberg News columnist. The opinions expressed are his own.)