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Japan's Shadow Kingmaker Is Bidding For The Spotlight

International Outlook


Ichiro Ozawa has always preferred the role of shadow kingmaker in Japanese politics. Back in 1993, the brash political heavyweight helped lead a mass defection from the then ruling Liberal Democratic Party, snapping its 38-year reign. When his reformist government collapsed in 1994, Ozawa pulled off an improbable merger of nine parties into an opposition bloc called the New Frontier Party but didn't take the top leadership post.

Now, Ozawa, 53, has emerged from the shadows. In mid-December, he announced a surprise bid to challenge longtime colleague Tsutomu Hata to lead New Frontier. And when the results were tallied on Dec. 27, Ozawa won by more than 2 to 1. The stage is now set for an epic battle between Ozawa and LDP President and International Trade & Industry Minister Ryutaro Hashimoto in a general election sometime in 1996. At stake will be control of the Diet's 511-seat lower house and the Prime Minister's chair.

"AS VAGUE AS POSSIBLE." Ozawa's bid for the spotlight is timely. After four years of economic stagnation and a string of bank failures, the Japanese public is fed up with the Socialist-LDP government's dysfunctional management of the economy. Socialist Prime Minister Tomiichi Murayama's coalition is coming under withering attack for a plan to use $6.6 billion in public money to bail out seven insolvent housing-loan corporations, which made reckless real estate loans in the 1980s. "The intent is to be as vague as possible about the assignment of blame," Ozawa told BUSINESS WEEK. "This is the kind of society Japan has become."

Ozawa wants to remake the Japanese system. He champions sweeping deregulation. He also wants to give the now weak Prime Minister's office enough power to set clear policy directions. Japan's glacial consensus-style decision-making threatens to consign the nation to decline, he warns. "No leader has come up with a strong vision of how to go forward," he says.

Ozawa's biggest liability aside from heart problems is his association with the money politics he says he wants to clean up. After all, he was a key LDP fund-raiser and power broker for years. He is taking heat right now for his ties to a Buddhist organization that turned out 6 million votes to support Ozawa candidates in last July's Upper House elections. Ozawa's rise could also bust up New Frontier if he can't keep Hata on board.

Hashimoto, who made a big splash by staring down Washington in last summer's auto talks, is much more popular than Ozawa. Still, there is growing sentiment in Japan that Ozawa may be the only leader who can produce significant change. "He's very determined, and the time left for Japan to pull out of this stagnation is limited," figures Masaya Miyoshi, president of the Japan Federation of Economic Organizations, or Keidanren.

Indeed, Ozawa has won plaudits from some economists for his proposal to halve income and corporate taxes, wipe out special-interest loopholes, and eventually make up some of the difference by hiking Japan's sales tax from 3% to 10%. But with Japan's budget deficit projected to hit 4.2% of gross domestic product in 1996, vs. 2.0% in the U.S., Ozawa has to be careful not to lead Japan into a fiscal mess.

Ozawa could also help heal strained ties with the U.S. He is a pragmatist on trade who is well regarded in Washington. Ozawa says he is worried that Washington has started to lose interest in Japan. He finds it regrettable that there is a tendency in Washington "to treat the U.S.-Japan alliance more lightly than before." If Ozawa becomes Prime Minister, that would certainly command American attention.EDITED BY STANLEY REED By Brian Bremner in TokyoReturn to top


-- Brazil's slow-moving free-market reforms are getting a fresh impetus from the sale of Companhia Vale do Rio Doce, the state-controlled mining giant. In what's likely to be Latin America's biggest privatization, Brazil on Dec. 20 picked a group headed by Merrill Lynch & Co. and Rothschild Inc. from a star-studded field of competitors to manage the sale of the government's 51% share in CVRD. The sale, set for late 1996, should fatten state coffers by at least $5 billion.

Privatization of CVRD will mark "the point of no return" for Brazil's move away from decades of statism, says Amaury Bier, chief economist of Citibank in Sao Paulo. Recently, investors had been growing uneasy over the slow pace of free-market legislation in Brazil's Congress. The naming of the sale managers shows the government "is serious about moving ahead," says Ricardo Gallo, vice-president for capital markets at Bank of Boston in Sao Paulo.

The Merrill Lynch group will earn a 1.9% commission on CVRD's sale price. The lucrative job drew bids from such heavyweights as Citibank, J.P. Morgan, and Salomon Brothers. A key issue is whether to sell the government's shares in a global public offering or auction off operations such as mining, forestry, and transport separately. But the choice of Merrill Lynch, which joined with CS First Boston to manage a $3 billion stock sale of Argentine oil company YPF in 1993, indicates that Brazil favors privatizing CVRD through a similar high-profile public offering.EDITED BY STANLEY REED By Ian Katz in Sao PauloReturn to top

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