Japan to establish a solid foundation for privatizing postal services

The current Diet session will get down to details on formation of a Japan Postal Corp., which would take over postal services, postal savings and postal insurance programs beginning in April 2003. Discussion will focus on the proposals outlined in an interim report prepared at the end of last year by advisers to the Ministry of Public Management, Home Affairs, Posts and Telecommunications.

The report recommends privatizing postal services, including mail delivery, on condition the quality of private service is the same nationwide, eventually permitting private-sector competition in what has been a government monopoly. Since much of the direct mail delivered in urban areas is already handled by home-delivery services, the interim report's recommendation is realistic.

Such changes would be no small credit to Prime Minister Junichiro Koizumi, who has long advocated postal reforms. The focus of attention to come will be on what to do with the postal savings and insurance programs, which were barely addressed in the study group's interim report.

Postal savings and insurance plans have amassed huge sums and injected the money into semi-government institutions. Koizumi wants to privatize these services as soon as possible.

But we should remember that domestic and foreign financial markets are fiercely competitive. Even if the postal system has a lot of money to work with, it can be no match for the competition without the accumulated expertise in asset management. The projected public corporation needs to become competitive as an independent financial institution, anticipating privatization.

The basic law on reforming government ministries, which spells out the principles for turning postal services over to a public corporation, specifies that the corporation's budget and financial report should be based on standard business accounting practices. It has also been determined that the Financial Services Agency will audit the corporation's records. Preparation for postal privatization will involve strict accounting and auditing practices.

Another problem of the postal system is that its equity is far too small for the scale of its business. For a financial institution, credit standing is one of its most important tools, thus sufficient capital is an essential element. For the postal service, however, the total equivalent of equity in a private-sector business is less than 2 trillion yen, even if the special accounts of the three services are combined. That represents less than 1 percent of the total amount in postal savings deposits alone.

One of the conditions established by the Financial Services Agency is that financial institutions, even those that are purely domestic operations, must have equity capital equivalent to at least 4 percent of their asset value. The small capital worth of the postal system might be tolerated as long as it is supported by the government. Once it becomes a private entity, however, its financial base will be obviously inadequate.

At the same time, many government officials see the postal service as the goose that lays golden eggs in the form of taxes and other levies. It is important to have the government lead the postal system to higher profit to increase its reserves, thus becoming a more solid financial institution. To do that will also help thwart any attempts to delay privatization of postal services by claiming its equity is too small.

Yet another question is how long the central government will continue to guarantee deposits in postal savings and insurance. This question must be addressed soon to minimize the difference in the financial burden to insure deposits between the postal corporation and private sector institutions which have to pay premiums on their own.

In the course of discussion on such questions, it will become clear that creation of a postal corporation is half the process. Eventually, full privatization may be inevitable. We hope the foundation will be prepared without delay to establish a private company that will serve the public interest, providing information and basic financial services through a strong nationwide network of post offices. (The Asahi Shimbun, Jan. 22)