Japan's old-guard new leader Obuchi: Next prime minister chosen by bosses resisting needed economic reforms.

July 29, 1998

POLITICAL stability was achieved but the economic crisis ignored when Japan's Liberal Democratic Party (LDP) chose Foreign Minister Keizo Obuchi as its chief. He will be elected prime minister by the lower house of parliament tomorrow.

Mr. Obuchi, who has been foreign minister for a year but has no major economic experience, won because he is the boss of the biggest faction of the party.

That's how things have always been done by the LDP, which has learned nothing during the current crisis.

Mr. Obuchi is not the favorite of foreign economic leaders desperate for Japan to stimulate its economy, prune failed banks and restore capital investments in recession-bound East Asia. Nor was he favored by Japanese voters who made clear to pollsters their preference for either of two opponents.

His selection was followed by more crumbling confidence in Japanese financial circles as he tried to form a cabinet.

News that he persuaded the former prime minister, Kiichi Miyazawa, to return as finance minister promises expertise and good American connections, but no fresh vision.

Japan needs to stimulate consumerism and confidence by reducing taxes. It needs to shore up the falling yen and overhaul its banking industry. Business is paralyzed by insolvent banks that made high-risk loans to political insiders. The LDP, in principle, supports creating a bridge bank to rescue the good loans and debtors while letting bad banks collapse.

Countries of East Asia need a strong Japanese banking industry for their own revival. As Asia's recession drags down demand for U.S. products and services and cheapens Asian labor costs, Japan's morass becomes a threat to U.S. prosperity. This is already raising jitters on Wall Street.

Although Mr. Obuchi endorsed his share of reform suggestions during his run for leadership, he appears as the upholder of the do-nothing consensus of the Liberal Democratic Party.

Certainly he would have the credibility with the ruling party's old guard to put over bold reforms, were that the plan. So far, he has not made clear that it is.

Pub Date: 7/29/98

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