Public trust needed to privatize (Japan) postal savings

Bank of Japan Gov. Masaru Hayami may use vague terms when he talks
about financial policy, but he is crystal clear when he refers to
the controversial issue of privatization of postal services. Hayami told a meeting of managers from the central bank's branches
held on Wednesday that from the standpoint of maximizing the
vitality of private-sector financial institutions, it is important
to reevaluate the future direction of public banking services. His remark was apparently a clarification of his support for the
privatization of postal savings, long advocated by Prime Minister
Junichiro Koizumi as part of a comprehensive review of the postal
services. Hayami is seen as identifying himself with Koizumi's
reform initiative, the centerpiece of which is a comprehensive
review of postal services. The postal savings system debuted in 1875 under a government policy
of encouraging people to save money. Initially, only 18 post offices
in Tokyo and one in Yokohama offered the services. The number of
people who deposited money at these post offices in the initial year
totaled 1,834, with the balance of savings deposits standing at a
paltry 15,224 yen, equivalent to about 25.88 million yen by today's
standards. After World War II, postal savings snowballed. Hiroshi Kato, a noted
economist and president of Chiba University of Commerce, explained
the current state of postal savings by using this metaphor: A small
minnow in a pond turned itself into a carp and then developed into a
whale, which ate small fish (small private-sector financial
institutions). The balance of postal savings is now a huge 250 trillion yen, making
Japan's postal service the world's largest financial institution in
terms of funds, accounting for a third of individual savings in the
country. Hayami's support of a review of the postal savings system is based
on his judgment that such a titanic state-run financial institution
is detrimental to the development of sound private-sector financial
institutions. The government's fund management, which is influenced by political
judgment, becomes a market-upsetting factor if the size of the fund
expands excessively. Japan and Britain are the only major industrialized countries still
maintaining state-run postal savings systems . Heated arguments on the advisability of privatizing of postal
savings have taken place many times in the past. In September 1997,
the Administrative Reform Council presented to then Prime Minister
Ryutaro Hashimoto an interim report on the split-up and
privatization of postal savings and postal life insurance. The
privatization of postal savings was postponed due to objections from
the now-defunct Posts and Telecommunications Ministry as well as
legislators with close ties to the postal services. The advisory
panel settled for the establishment of a public corporation managing
postal savings, abandoning the idea of privatization. Public skepticism of privatization of postal savings has also been
behind the slow progress of a review of the postal savings system.
Many people wonder why post offices, more friendly to them and more
convenient than banks, must be privatized. There are as many as
24,700 post offices all over the country and people feel post
offices are as familiar to them as elementary schools. At a time when the financial situation in the country remains
uncertain, with private financial institutions burdened by massive
problem loans, it is not surprising that people feel at ease with
state-run financial institutions which guarantee the principal in
full. Koizumi must fully explain to people that the reform is nevertheless
required. Though the postal savings system is familiar to them on
one hand, it has the downside of supporting public corporations
which manage fund management inefficiently. Koizumi must explain in
simple terms the Jekyll-and-Hyde nature of postal savings. A review of the postal services represents the core of Koizumi's
reform programs. Whether or not the postal reform succeeds holds the
key to the outcome of Koizumi's reform initiative as a whole. Koizumi's private advisory panel on postal affairs is expected to
embark on a full-scale review of the postal services after the House
of Councillors election. Containment of objections from the Public Management Ministry, as
well as legislators with close connections to the postal services is
not the only challenge Koizumi faces in pushing for the postal
reform. He must gain people's understanding of the reform. Whether
or not he can convince the general public holds the key to the
success of the reform. Yoshikuni Sugiyama
(Sugiyama is a deputy business news editor of The Yomiuri Shimbun.)
Copyright 2001 The Daily Yomiuri
Copyright 2001 The Yomiuri Shimbun/Daily Yomiuri.
Source: World Reporter (Trade Mark) – Asia Intelligence Wire.THE YOMIURI SHIMBUN/DAILY YOMIURI, 31st July 2001