Commentary: Japan: The Mof Won't Loosen Its Strangleholdby
Tokyo's recent string of financial scandals all have the same choreographed feel: Officials express outrage, then talk reform. The men in suits who went astray resign. Sometimes, a few commit suicide even before prosecutors pound on the door. Once the public outcry subsides, it's back to business as usual. The corruption, insider trading, mob payoffs, and illicit asset shuffling go on and on.
But the latest bribes-for-favors scandal rocking Japan's powerful Ministry of Finance (MOF) has left even the most jaded Japanese appalled. Tales of big banks entertaining bank inspectors on golf courses and in red-light districts brought down Finance Minister Hiroshi Mitsuzuka and the Ministry's top bureaucrat, Takeshi Komura. Prime Minister Ryutaro Hashimoto, who himself quit as Finance Minister in a 1991 scandal, appointed Hikaru Matsunaga, a former prosecutor, to replace Mitzusuka. He also created a government ethics commission.
SCANT GROWTH. Has the MOF's day of reckoning finally arrived? Hardly. Even though Japan is flirting with recession, the Ministry is fixated on reducing the budget deficit, now 7% of gross domestic product. Hashimoto's political posturing will probably cause an intransigent Ministry to fight even harder against any efforts to break its grip on the economy. In the end, it could even thwart the Prime Minister's agenda for growth. The MOF is counting on near-zero interest rates, a weak yen, and modest tax relief to bolster the economy. But Hashimoto wants deep tax cuts and a $240 billion bailout program for banks and depositors. Failure to implement such steps could have devastating consequences for Japan and the global economy. It's time for the MOF to look beyond its parochial budget concerns and consider the country's role in refloating Asia and buoying the world.
Sadly, the MOF shows little sign of realizing this. As the Ministry responsible for tax collection in a nation of tax cheats, the MOF can easily scare off hostile legislators, bankers, and brokers with the threat of audits. It also manages the $2 trillion postal savings system and has placed numerous ex-officials in high places at banks and brokerages. It's little wonder that financial institutions pay slavish attention to MOF officials. The Ministry's power also explains why many politicians in the ruling Liberal Democratic Party (LDP) don't want much to change. They're often financed by banks and brokerages with ties to the MOF.
To be sure, Hashimoto has been able to push through his Big Bang financial-reform plan. That will mean more foreign competition in pension-fund management and in equity and bond underwriting. But he has been unable to implement even bigger reforms that could break the MOF's hold on the economy. For example, in 1996, Hashimoto tried to wrest control of the National Tax Administration Agency from the MOF. He also wanted to privatize the postal savings system and scores of publicly run companies. Since such reforms would have undercut the Ministry's key power levers, they went nowhere--thanks to the MOF and its allies in the Diet.
SECRETIVE. The failure weakened Hashimoto within the LDP and in the eyes of the public. The best he could do was to transfer supervision of banks and brokers to a new watchdog agency to be set up by June. But who'll run the show? Ministry officials.
Successive governments have ceded too much of the nation's economic stewardship to a secretive Ministry that's more interested in preserving its clout than in getting Japan growing again. The result is a crippled financial sector, an eight-year bear market, and six years of free-falling property prices and economic stagnation. In all, Japan has seen more than $12 trillion in wealth disappear. That's more than twice the country's GDP.
Nevertheless, with $10 trillion in household savings--even after years of economic travail--Japan isn't broke yet. And even the MOF's mandarins concede that Japan needs better returns on these savings to meet the costs of supporting a rapidly graying populace. But they won't achieve that goal if they continue their traditional ways. Mutual back-scratching, embarrassing scandals, and economic pain are not what Japan needs right now.