[paper] The Bush administration's re-evaluation of the Koizumi reforms

Bruce Storks: Senior Fellow for Economic Studies Council on Foreign Relations UNITED STAES / Contributing Editor, NATIONAL JOURNAL

Senior Fellow for Economic Studies Council on Foreign Relations UNITED STAES / Contributing Editor, NATIONAL JOURNAL

"There are more and more people thinking about Japan as Argentina at the turn of the century," a Bush administration economics official observed recently, "slowly drifting off the economic map."For those readers not students of economic history, the U.S. officials' reference was not to today's Argentina, strapped by foreign debts,uncontrollable government spending and falling prices for its exports. The analogy the official was drawing was between present-day Japan and Argentina in the early 1900s, when that South American country was the fastest growing major economy in the world. Somehow in the years before World War I, Buenos Aires lost its way. It's economy sputtered and died. Argentina became increasingly irrelevant to the rest of the world and never quite lived up to the high expectations of either its citizens or foreign observers. In the last few weeks, Bush administration officials have begun an internal reassessment of the performance of the Koizumi government, prospects for the Japanese economy and Japan's future role as a U.S. ally. These discussions are not complete. And no major new Washington initiative is expected to result from these deliberations. But the administration's rethinking will help shape the White House evaluation of global economic and security conditions and influence how much the United States feels it can rely on the Koizumi government and Japan in dealing with future global problems.

As might be expected, the initial conclusions of those who have participated in these meetings split along security and economic lines. There is general appreciation, satisfaction and even some surprise with Tokyo's proactive support for the U.S. war on terrorism. Judgements of Prime Minister Koizumi's management of the economy are far harsher. "The growing consensus is that he needs to take action in the next few months," said another Bush administration official. "The window is closing." In a sign of the diplomatic sensitivity of Washington's as-yet-incomplete reevaluation of the Koizumi government, Bush administration officials were more than willing to be quoted for this article. They clearly wanted their concerns to be heard in Tokyo. But they would only be quoted anonymously, reflecting a continued Bush White House policy of not engaging in public gaiatsu.

However, the officials did claim that a firm message of U.S. concern, especially about economic management, was already being delivered to the Koizumi government in private. Whatever the inter-governmental dialogue, there is also growing American skepticism about Koizumi outside the administration. "Koizumi has turned out to be a real disappointment," said Steve Clemons, vice-president of the New America Foundation, a Washington think tank. "He has engaged in a kind of selective engagement with issues that will push them along without focus or design. He's floundering."

And long-time observers of U.S.-Japan relations caution that the changing attitude toward the Koizumi government is not simply another example of U.S. frustration with the notoriously slow pace of change in Japan. "Frustration implies that people still expect something can be accomplished," said one private sector economist. "What we are seeing now is cynicism, a rueful acceptance that nothing better can be expected."And such cynicism is a sign that people in Washington are slowly giving up hope for the Koizumi government.

Strategic Concerns In the wake of September 11, Tokyo's quick response to U.S. appeals for aid in the war on terrorism were widely appreciated. The contrast with Japans' foot dragging during the Persian Gulf War a decade earlier impressed everyone. "The Joint Chiefs of Staff are very pleased," said one administration official who deals with military affairs. And the implications for future U.S.-Japan strategic cooperation should not be underestimated. Before September 11, said an administration official, "we had planned a strategic dialogue [with Tokyo].

Now we have to rethink it because much of what we [the United States] had wanted to talk about they [the Japanese] are already doing."s Nevertheless, Tokyo's unprecedented military initiatives have raised expectations that can't necessarily be fulfilled. "The United States never asked for Aegis [the deployment of a Japanese Aegis destroyer in the Indian Ocean]," said an administration official, "so we are not in a position to complain. But people here are disappointed. [Failure to send an Aegis with the Japanese fleet] took an A plus, plus effort [on the part of the Koizumi government] and made it an A."

And those outside the administration who are not Japan hands tend to judge recent Japanese security cooperation not by how far Tokyo has come given its constitutional constraints, but by how far it still has to go to be considered a full-fledged military ally. To them, said Clemons, "Koizumi just looks pathetic, acting as some pale version of Tony Blair."

Economic Concerns Washington's preoccupation with terrorism in the wake of September 11 took a lot of heat off of Koizumi about the performance of the Japanese economy. Before that fateful autumn morning, American officials were becoming increasingly nervous about Japan's economic trajectory. In the last two and a half months those officials have been otherwise preoccupied. Now their initial concerns are returning. "In the scheme of things," said the administration economics official, "there are so many bad things going in the world economy Japan is the least of our worries." Nevertheless, U.S. officials are increasingly concerned about Japan. One highly placed source likened Japan's situation to an airplane lumbering down a runway.

The plane can't achieve liftoff, because it's too heavily loaded with fuel: pork barrel projects that are ostensibly on board to help with takeoff. So, rather than lightening the plane's load (by allowing failed banks and corporations to be liquidated), the Diet has loaded more fuel onto the plane, so it goes even slower.

"The continued stalemate in Tokyo reinforces Washington's sense that Japan is simply marginalizing itself as a global player," said a Wall Street analyst. "There are serious signs of economic policy constipation," agreed an administration official. "Koizumi has to do something convincing on the non-performing loans, in part to reestablish confidence in the markets." "We have told them repeatedly," complained the administration economics official, "that just because there is a global slowdown doesn't mean you should slow down reform. Every company in the United States is using September 11 as an excuse to expose whatever is bad on their balance sheets. The Japanese are dong none of these things."

These sentiments are increasingly shared by Americans outside the government. "Koizumi and his team are completely flailing," said Richard Katz, a senior editor at the Oriental Economic Report and author of the book Kusariyuku Nihon To Iu System. "I think they are desperate. They are shell shocked. They came in boxing themselves in a corner with their 30 trillion yen [debt ceiling] promise. It was foolhardy in the first place, less excusable than the Hashimoto consumption tax mistake." "The world doesn't give a damn whether Japan can send medics to Afghanistan," said Clemons. "What the world cares about is whether Japan will implode economically."

Koizumi's Burden After initial Bush administration high hopes for Koizumi, much of the responsibility for Japan's failings are now laid at his doorstep. "Koizumi never does the heavy lifting on things," observed Clemons. "He always cuts a leaner, less controversial course." "He's not successful at doing anything," complained a U.S. trade official. "Its what the Japan experts were predicting all along. Its very difficult to be optimistic about Koizumi."

But others in the administration disagree. "I don't think anybody here feels disappointed," the administration economics official said. "He gets an easy time of it. People think he's up against a bureaucratic system that is fighting him every step of the way." The final American assessment of Koizumi's performance may be determined by his handling of the upcoming Diet debate over the budget. "The dinosaurs in the LDP were obstructing him," said Katz. "But now they are openly defying him. The question is, is Koizumi going to fight back? The line he is drawing in the sand is the fight around the public corporations. That is where we will see is he is finally going to pick a fight with the dinosaurs or not."

In that battle, U.S. officials acknowledge that they have only marginal influence. "We realize our leverage is limited," said an administration official. "Japan is a sovereign country and ally."

The upshot is not likely to be more Washington gaiatsu. Bush administration officials are still adverse to such Clinton-style overt pressure on the Japanese government. But U.S. officials predict an intensification of Washington-orchestrated naiatsu on the Koizumi government to try to help Koizumi overcome internal Japanese resistance to reform.

"We're not panicking," an administration official said. "We are much calmer than the Clinton people. But we are worried. There are increasing numbers of people who are questioning `can Koizumi pull this off?' So we have to be a little more cautious on how we embrace the Koizumi government."

In that spirit, look for continued public Bush administration support for Koizumi in the weeks and months ahead. But said an administration official, "the private message will be pretty firm." From Washington's point of view, its time for Koizumi to begin to deliver change.