Where will Japan's postal funds end up? The money trail and the future of reformno title

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[Hara Manabu nicely sums up some of the misconceptions on postal privatization that lay behind LDP victory in the just-completed election. As Hara writes, many voters believe that the Koizumi plan will go a long way towards lifting the economy out of years of sluggish growth and mounting monumental debt. Yet most experts who actually know what's in the privatization plan, as well as how the current system is structured, do not foresee significant economic benefits in the privatization scheme. Indeed, some fear there will be more ill than good if the privatized postal savings actually went out into the already overcrowded market to make loans. Not only would this “weaken private sector financial institutions even further,” according to Richard C. Koo, chief economist of Nomura Research Institute, but it would reduce the pool of funds that currently buys up much of the government's very large floatation of debt. While a hard-core fiscal disciplinarian might regard this as just the sort of shock a profligate state needs, the consequences would almost certainly include escalating interest rates as well as cuts elsewhere in the budget to finance the increasing burden of debt repayment.