By Rubeena Jyothi shilpa

In

Sept., 2004, Japans Prime Minister JUNICHRO KOIZUMI formally announced his plans to privatize Japan Post, the worlds largest financial institution. the date of his appointment as Postal Minister in 1992, Koizumi had been persistently exploring the viability of the privatization plans through a consensus approach. The opposition and the industry experts were against the move.

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He had to convince the members of his own party, Employees Union as well as consumers. To counter the argument that privatization would result in loss of jobs and lack of access to postal services in remote areas. Apprehension about losing the support of the postmasters as they wielded considerable influence over the rural voters.

In spite of all the above hurdles, it sought to perform a miracle by privatizing the JAPAN POST.

Postal service may not offer any significant economic benefits as the loan market is already overcrowded. It would lead to fiscal crisis for the government as the Japan Post may not fund the national debt which it has been doing till date.

Skeptical about the flow of funds into private sector after privatization.

It was set up in 1875. Having a network of 24,700 Post Offices across the nation, 2,80,504 employees and asset base of 386 trillion yen. In 2004, Postal saving system has about 214 trillion yen in asssets. It acts as an important source to the government providing indirect funding for the national development projects. In terms of deposits, it is on par with the four largest private sector banks of Japan are put together.

The operations of Japan Post were divided into three areas: Yucho ( Postal Savings) Kamp (Postal Life Insurance) Yubin (Mail Delivery) The postal savings and postal insurance accounts for roughly 30% of each in total savings and total life insurance equity ion Japan. With its wide reach, it has been able to access people living in remotest of villages and other regions as against private enterprises.

People are relatively assured about the safety of their investments in the Japan Post as Govt. is providing guarantee on repayment of savings and insurance payments. Govt. borrowed money from the Japan post and invested in the infrastructural projects which were not financially viable. The money was channeled into private persons in collusion with the govt. officials which resulted in illegal funding.

Analysts believed that through privatization some level of accountability could be brought and wasteful costs eliminated. Koizumi believed that postal reforms were the need of the hour to efficiently channelise the trillions of funds deposited in the savings schemes and thereby revive the country after the bubble economy burst in the 1980s.

With the privatization, the monopolistic powers of Japan Post could be contained substantially as it would give other private companies a chance to compete on an equal footing. Privatization of Japan Post is expected to lead to the development of more sophisticated financial and capital market as funds which are channeled into private sector will revitalize the firms and support the needs of small emerging companies.

On April 4th 2005, Koizumi announced his plans for privatizing the Japan Post, worlds largest financial institution The actual privatization would begin on April 2nd 2007 followed by a transition period of 10 years (i.e. 2017) after which full privatization would be achieved.

The Govt. Council on Economic and Fiscal Policy on its part have accepted the proposal of privatization of postal services by 2007.

As per the privatization plan, the Japan Post would be divided into four separate companies handling postal savings (Yucho), Life Insurance (Kampo), Mail Delivery (Yubin) and Managing the over counter services Post Offices. All the above four units would be owned by a holding company which would under Govt. control. Within 10 years from the start of privatization in 2007, the holding company would sell its shares in the savings and insurance business to turn them into private business.

US is keenly observing the privatization process. The US government is not satisfied with the proposals and has raised questions on whether Japan Post would dominate even after privatization. It called for formulation of standard rules applicable to all and withdrawal of privileges to new companies.

As a first step towards addressing the problems within his party, he reshuffled his cabinet and appointed people who shared his vision of postal privatization. First appointment in the process was that of Heizo Tekenaka who earlier held financial services portfolio as the Minister of Postal Reforms and Economic Policy. To remove misconception among the US and other European countries, the Japanese Ministry of Finance organized road shows in New York and London. The Law makers were likely to vote with their personal allegiances rather than on the policy itself. But, Koizumi was persistent.

The Bill was passed in the Lower House of the Diet on July 5th 2005. The matter was to be discussed in the Upper House where the LDP had a thin majority.
Koizumi was determined to get the bill passed before the closure of the assembly session on August 13th 2005.

The Upper House voted against the Bill on August 8th 2005 by 125 to 108 votes.

The above defeat lead Koizumi to dissolve the parliament and call for fresh elections.
He expelled 37 members of his own party and recruited a new team of high profile candidates to contest against them. The election was won by his party with thumping majority by securing 296 out of 480 seats, its biggest win since 1986. On October 14th 2005, the Upper House of Japan Parliament passed the Bill to privatize the Japan Post in phases by 2007. The votes counted in favour of the bill were 134 to 100 which Mr. Koizumi described as a Political Miracle. Many economists in Japan opined that the passage of the bill would lead to sustainable long-term economic recovery of the economy.

Japan Post has to compete against the already established players such as FedEx, DHL etc., in express mail and logistic provider segment. Big Players being already established have economies of scale. As of now, 70% of the market share in international express delivery market is with the Big Four viz., UPS, FedEx, DHL and TNT of Netherlands. With enactment in Oct., 2005, Japan Post was allowed to enter the international distribution market from April, 2006. To counter the competition in the international market, Japan Post formed partnership with ANA.

In another move, Japan Post also tied up with TNT, service provider of international express mail. From April, 2006, the two would offer a co-branded premium international express service to its Japanese customers. In the tie up, Japan post will utilize TNTs logistics and IT systems and both plans to build business by banking Japan Posts large customer base. On banking front, many experts feel that Japan Post will face toughest competition from big player like Mitsubshi UFJ Trust and Banking corporation for corporate services.

As per the survey conducted by a leading Research Firm, Teikoko Data Bank, Postal Privatization would benefit the economy as a whole. Peter J.Morgan feels the benefits of a redeployment of the assets of the postal financial institutions would be limited

The final destination of Japanese postal services money is yet to be decided by the Government of Japan.