[interview] Structural Reform will never be attained without facing risk

Eisuke Sakakibara: Professor , Keio University.

1964, BA in Economics from Univ. of Tokyo; 1965, MA in Theoretical Economics from Univ. of Tokyo; joined Ministry of Finance (MoF); 1994, President, Institute of Fiscal and Monetary Policy; 1995, Director-General, International Finance Bureau; 1997-1999, Vice-Minister of Finance for International Affairs; 1999, Professor of Keio Univ.; Established Global Security Research Center to analyze global market mainly on Asia, Director.

Professor Sakakibara Eisuke, a former financial commissioner who led Japan’s Financial Big Bang, points out that structural reform is always attended with risks so that it can never be attained without facing the risks. This is one of the reasons why he is critical of the Koizumi administration. It should not procrastinate over implementing policies such as the final settlement of bad-loans because it is worried about causing a financial crisis.

Sakakibara thinks that Japan can no longer prevent an economic crisis. Some in the market say that the only way for Japan to prevent a financial crisis is to step up its restructuring efforts, but Sakakibara thinks differently. He considers the current structural reform to be the reorganization of Japanese style capitalism, which supported Japan's post world war || high economic growth. It is a huge shakeup equivalent to the Meiji Restoration [significant political changes around the end of the feudal period in 1867]. He argues that the reform plan should be designed from a long term perspective, such as five or ten years, and that the market that expects a quick business recovery does not appreciate the real nature of structural reform.

Structural reform is systemic reorganization therefore economic reform must be preceded by political reform. The biggest obstacle to political reform is the ruling party's preliminary bill screening system, which allows zokugiin [legislators who work for special interests or industries] to wield their influence upon the development of budget and legislation behind the scenes. Zokugiin and organizations that cling to their vested interests always try to preserve the current system and put off reform efforts. Given this situation, Koizumi will never advance structural reform without removing this preliminary review system and the influence of the anti-reformist. Sakakibara says that since Koizumi won the Liberal Democratic Party's (LDP) presidential election with the policy of Creative Destruction of the LDP, he must change the current zokugiin-dominated policy-making system. Giving encouragement to Koizumi, Sakakibara says that destruction is the very mission history has assigned to Koizumi.

Sakakibara objects to a policy in which the government would inject public funds into ailing banks and nationalize them to prevent a financial crisis. The problem is not the banks but the companies that borrow money from the banks. He argues that injecting public funds is meaningless unless those companies’ problems are dealt with. Citing the restructuring strategy of Nissan Motors Co., Ltd. initiated by Carlos Ghosn, president and CEO, Sakakibara insists that management should exercise strong leadership and carry out restructuring decisively. Once a company recovers its profit through restructuring, its stock price will improve, and that will lead to the improvement of the Japanese economy as a whole. This is the only scenario by which Japan can regain its economic competitiveness. Sakakibara says that Japan still has the strength necessary to carry out the shakeup.