Koizumi Loses Key Vote on Post Office

In a dramatic roll-call vote, Japanese lawmakers today rejected Prime Minister Junichiro Koizumi’s long-cherished goal of privatizing state-owned Japan Post, striking a blow to the heart of his ambitious economic overhaul and sending the country to the polls.

Propelled by a significant block of Koizumi’s Liberal Democratic Party, a tense upper house voted 125 to 108 against the prime minister’s bill, throwing Japanese politics into confusion. Koizumi met immediately with party leaders and told them he would make good on his promise to dissolve parliament and call a general election if the measure was defeated, even though his mandate runs until fall 2006. The vote will probably be held Sept. 11.

Japanese voters now will be called upon to resolve the deadlock between their strong-willed prime minister and the array of forces resisting his economic changes. Though there is no consensus on whether Koizumi can prevail in the election, many observers contend that the vote will shatter the ruling LDP, either sending the rebels into the opposition Democratic Party or off to form a new party.

Either way, analysts say, the bedrock of Japan’s postwar political alignment will shift.

“This will be a turning point in Japanese politics,” said Minoru Morita, a noted political commentator. “The existing LDP will definitely break down. It will split.”

The LDP has always been less a Western-style party than a coalition of generally pro-capitalist, pro-U.S. political factions that brokered power-sharing arrangements among themselves, allowing them to govern Japan for all but 30 months since 1948.

Koizumi came into office in 2001 promising to challenge that cozy accommodation and break some of the bonds among the party, bureaucracy and industry that critics blame for the enduring sluggishness of the world’s second-largest economy.

Postal reform was central to Koizumi’s plan; the idea has animated his political career since he was a junior minister in charge of the post office more than a decade ago.

Japan Post does far more than lick stamps: It is the country’s largest savings institution, peddling life insurance and other financial services from an estimated 25,000 outlets across the country.

The post office controls about $3 trillion in assets, giving it enormous clout in the Japanese economy. If privatized, it would become the world’s largest bank.

LDP governments have long dipped into Japan Post’s coffers to fund massive public works projects such as roads and airports, creating a mutual dependency between the party and the construction industry that has proved to be a well of corruption and bid-rigging.

Saying there was a need to use the savings for more productive investment, Koizumi’s bill challenged that relationship. It would have broken the post office into four separate companies for mail delivery, insurance, banking and management. The companies would then be privatized, or have privatization underway, by 2017.

The plan ran into hostility from the beginning. Fearing massive job cuts, Japan Post’s 400,000 unionized employees organized against it, leaning on their long-standing connections to LDP members. Politicians from rural areas warned of post office closings.

But the gravest threat to the bill came from the LDP factions heavily dependent on the post office and its employees for unofficial support and financing. The bill passed the lower house by a five-vote margin, only after Koizumi made similar threats to call an election if the measure was defeated.

But the push to privatize at all costs put Koizumi on a collision course with LDP power brokers, including many onetime allies.

Former Prime Minister Yoshiro Mori, who had been a mentor to Koizumi, told Japanese media Sunday that he had urged Koizumi to drop his election threat, to no avail.

“We must avoid creating a political vacuum,” said Mori, noting the dangers of drift at a time when Japan faces several challenges, including rocky relations with China. “What purpose will it serve to have a general election at this time?”