The ruling Liberal Democratic Party and the opposition Liberal Party will probably soon finalize a basic policy accord aimed at the formation of a coalition government, sources from the parties said Tuesday.

Prime Minister and LDP President Keizo Obuchi may sit down with Liberal Party leader Ichiro Ozawa as early as Dec. 18 to decide on the timing of a Cabinet reshuffle, the sources said. Obuchi will return home the same day from meetings in Hanoi with leaders of the Association of Southeast Asian Nations.

Obuchi, however, may have to make a difficult decision on the scale of the Cabinet rearrangement. While LDP executives have demanded that only one or two Cabinet posts be given to Liberal Party members, some LDP lawmakers, including former Construction Minister Shizuka Kamei, are calling for a large-scale reshuffle.

The LDP and the Liberal Party agreed Tuesday to raise the government contribution to the national pension plan to one-half from the current one-third to reduce the burden on individual citizens.

But they failed to agree on timing. The Liberal Party demanded that increased state contributions to the basic pension program be implemented next year, but the LDP refused.

The two parties also agreed that the increased government contribution should be funded by revenue from the consumption tax. Although the two sides agreed to halt a premium increase for pension plans until the economy picks up, the LDP did not agree to a Liberal Party proposal to cut premium payments.

The Liberal Party is said to be ready to drop its demand for reducing the consumption tax rate if the LDP agrees to a cut in premium payments for pension plans. The two parties will have further discussions on the issue.By Japan Times court reporters