Democracy works on the flawed principle that once elected to office, political leaders serve the public interest. It is flawed because, like you and I, politicians are people. And people most often act in their own best interest. So unless a democracy’s checks and balances function appropriately – primarily the Constitution and the Media – elected representatives are certain to stray from their idealistic roots. That reality is emphasised in this superb column by Bloomberg’s William Pesek who chronicles the ugly story of Japan Post, that country’s State-owned version of SA’s Post Office. Reading this I couldn’t help wondering whether similar abuses are perpetrated in SA’s own well funded institutions like the PIC, the IDC, even Eskom. Because much as they would have us believe differently, South African politicians are not a breed apart. – AH
By William Pesek
In 2001, a new prime minister finally moved to privatize Japan Post. Over five years, Junichiro Koizumi methodically wore down the opposition and pulled off modern Japan’s greatest structural change. Now, that perseverance is paying off in ways that may even help the Bank of Japan end deflation.
This year, Japan Post plans an initial public offering, and before that happens, the chief executive, Toru Takahashi, is making some bold bets on expansion. The company is buying Australia’s Toll Holdings for $5.1 billion, for example, to gain a transport network in faster-growing Asian markets. To execute the deal, and others to come, Japan Post will sell huge blocks of government bonds (it holds about $1.3 trillion worth).
Those sales dovetail with plans by the $1.1 trillion Government Pension Investment Fund to reduce its public debt holdings by about half. In short, the two biggest holders of sovereign debt are simultaneously dumping bonds that BOJ Governor Haruhiko Kuroda can scoop up to turbocharge his efforts to boost a flagging economy.
Caveats abound, of course. As 22 months of unprecedented BOJ liquidity prove, a self-sustaining recovery requires more than easy money. The odds of success would improve exponentially if Prime Minister Shinzo Abe, Koizumi’s protégé, would make good on his pro-growth deregulation pledges. Also, nudging the government pension “whale,” as traders call it, to buy more Japanese stocks isn’t a reform — it’s a Band-Aid. A risky one, too, that could roil the $5.2 trillion bond market and lead to heavy pension losses if stocks plunge.
For Kuroda, however, huge blocks of bonds returning to the secondary market is an opportunity to get greater traction. The yen’s 20 percent drop in two years has dented household spending. Even Abe’s economy minister, Akira Amari, says further declines would be out of line with fundamentals. Amid such worries, at a Feb. 18 policy meeting, the BOJ held its fire, sticking with pledges to boost the monetary base at an annual pace of $670 billion.
That means Kuroda’s next monetary maneuvers will be behind the scenes. Chief among them: nationalizing more public debt. To meet its 2 percent inflation, the BOJ is cornering the market. It already buys about $102 billion worth of government bonds each month, more than 90 percent of the amount offered to investors. Japan Post and the government pension fund are allowing the BOJ to add to its shopping cart to boost lending and borrowing activity.
Japan Post’s foray overseas is important in other ways, too. Some big Japanese companies aren’t waiting for Abe, but are moving ahead on their own to make the economy more vibrant. In that regard, Takahashi’s mergers-and-acquisitions push deserves its own mention. This deal and others, he said, “will create a truly global company, and we have plans for significant further investment and growth.”
The world’s third-biggest economy needs more of this thinking. Japan Post’s journey from cautionary tale to growth creator is also a timely reminder for Abe. Big, bold reforms in Tokyo are hard to achieve and take years to gain traction. As Koizumi demonstrated, however, they’re well worth the effort.
