Koizumi lays out plans for economic revival

Koizumi has to prove his reformist potential

In this story: Youthful appeal Performance the key RELATED STORIES, SITES

By staff and wire reports

TOKYO, Japan -- Japan's new Prime Minister, Junichiro Koizumi, has promised to repair his government's frayed finances and inject new life into the world's second-largest economy.

In his inaugural speech to parliament, the reformist Koizumi said his priority would be to mend Japan's economy without resorting to the traditional method of propping it up through public sector spending.

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"Since the 1990s the Japanese economy has struggled for a long time, people have lost faith in politics and there is an air of stagnation in the society," Koizumi said.

"It is becoming clear that the system that worked in the past may not necessarily be suited to 21st century society."

Koizumi told lawmakers he will seek fiscal reform in two steps, putting economic recovery first and following it up with a speedy implementation of the emergency package outlined by the government of his unpopular predecessor, Yoshiro Mori.

The initial phase of fiscal reform would focus on capping new borrowing in the form of bond issues, and reviewing how the government allocated its budget.

Koizumi won a landslide victory last month to become Japan's 11th prime minister in 13 years, campaigning on a reformist platform that included using structural reform to revive the feeble economy.

He has gone as far as suggest his administration would tolerate a short-term economic contraction.

Youthful appeal

A combination of bravado and youthful appeal has made Koizumi popular with voters and financial markets, encouraging wary foreign investors back into the ailing Tokyo stock market.

With support ratings topping 80 percent, Koizumi has helped the benchmark Nikkei 225 share average roar to its highest level this year.

But with such high expectations for concrete reforms, his failure to deliver could have devastating results, observers say.

Indeed, financial markets in Tokyo have been eagerly awaiting Koizumi's inaugural speech to see whether it would include specific proposals to carry out reforms.

On national television Sunday, opposition leaders were quick to point out that the proposals -- including solving the problem of banks' bad loans, privatizing the postal system, and reducing public spending -- lacked teeth.

"There have been no specific proposals," Yukio Hatoyama, head of the main opposition Democratic Party, said on a talk show on NHK.

"There is a chance that [the reforms] will end in nothing but promises."

After laying out his policy planks, Koizumi will be questioned by opposition lawmakers in parliament for three days, beginning Wednesday.

Performance the key

How Koizumi performs will be key amid growing speculation he will call a snap general election this summer.

While Koizumi has denied plans to call for a dual election of the Upper House -- scheduled for July -- and the powerful Lower House, speculation persists that, should the high support levels hold firm, his ruling Liberal Democratic Party (LDP) might seize the chance to boost their standing in the lower chamber.

The LDP lost its majority in a general election last June and has stayed in power by virtue of its two coalition partners.

While echoing Koizumi's denial, LDP Secretary General Taku Yamasaki hinted that an early election could work in the party's favor.

"The mood has somewhat brightened for the LDP," Yamasaki when asked in a television interview about a possible poll.

"There are more candidates saying they want to run on the LDP ticket."

The next Lower House election need not be held until the summer of 2004, but the prime minister has the right to dissolve the chamber at any time.

"There is a 30 percent chance [that a snap election will be held]," said Democratic Party leader Hatoyama. "We are preparing ourselves for a dual election."

Reuters contributed to this report.

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Japanese Prime Minister
Japan Liberal Democratic Party

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