Japan reforms kick in with privatization plan

By Alex Frew McMillan CNN Hong Kong

TOKYO, Japan (CNN) -- Japan's transportation ministry on Friday gave Prime Minister Junichiro Koizumi the go-ahead to privatize six state-backed corporations under its control.

The six include the vast Japan Highway Public Corp.

The move came as Koizumi works up his list of priority reforms. It is expected to offer support for banks to write off bank loans, as well as a continued push to revamp Japan's industry and state corporations.

Koizumi's Council on Economic and Fiscal Policy was meeting Friday to draft the priority list, which will be presented to the extra session of parliament later this month.

It was originally supposed to deliver the list in August but pushed back that deadline.

A helping hand with Japan's bad loans

It is expected to target the next two to three years for reforms, offering job-creation schemes to offset the pain -- in the form of job losses and bankruptcies -- that they will cause.

Japan's unemployment is already at record levels.

The Japanese leader's clamor for reform has been dealt a blow by the terrorist attacks in the United States. Japan, which sends 30 percent of its exports to the United States, was counting on a rebound in the American economy to spark its own.

But Koizumi vows to push on. Some say that may be dangerous, with Japan teetering on the brink of recession.

To tackle what many regard as Japan's biggest business problem, the reform council will advocate a greater role and government cash for the Resolution and Collection Corp., the Nihon Keizai Shimbun reports.

The RCC buys bad loans from banks. To speed up writing them off, Koizumi is proposing that the RCC buy not just existing bad loans but also loans that are at risk of going bad.

That would dig into the mountain of "gray area" loans that bother Japan watchers so much. It would support banks instead of a cash injection into the banks.

A cash injection wouldn't be popular with the public because a similar bailout in the late 1990s accomplished little, though analysts say another may be necessary.

Japan's bank watchdog, the Financial Services Agency, will also step up its scrutiny. It will inspect banks once a year, instead of its current visits every two years.

One key reform area moves ahead

Koizumi is making progress with one of his key reform pledges. The maverick PM wants to privatize as many as 70 of Japan's 77 state corporations.

But he faces staunch resistance from the ministries that oversee the companies, which are often viewed as a place for lifetime bureaucrats to land cushy retirement jobs.

The ministries are mulling changes proposed in August by a Koizumi panel.

Transportation Minister Chikage Oge has now returned plans advocating the privatization of six companies under his oversight.

They are the Japan Highway Public Corp., as well as the Housing Loan Corp., the Urban Development Corp. and three road-related companies.

The private sector can handle much of the mortgage-related business of the Housing Loan Corp., experts say. The highway corporation is often seen as a source of pork-barrel projects.

Koizumi had already recommended scaling back their subsidies and scope. He welcomed Oge's proposals, which need finalizing by December. They call for a quick restructuring of the companies with a view to privatization.

That may take as much as 10 years, though no timeline is set yet.

Koizumi ordered Nobuteru Ishihara, the "young turk" who is minister in charge of reforms, to set the privatizations in motion.

Koizumi meeting Bush ahead of parliament's resumption

Koizumi is due to meet with U.S. President George W. Bush next Tuesday in Washington. Koizumi will return in time for parliament's reopening. Its extra session starts on Thursday and will debate a supplementary budget.

For once, Japan's economic woes will likely take a back seat. Terrorism is expected to dominate the discussion, with Bush seeking to drum up support for a global coalition to combat it.

During the Gulf War, Japan committed $13 billion in aid but didn't send any troops, which drew criticism from some quarters.

Japan has since changed its laws, which took on a pacifist bent after World War II, to let its military support U.S. troops in "areas surrounding Japan."

Bush has said he understands that some governments will want only to commit money to his plans.