Staff writer One of the world's largest institutional investors with pension assets worth 140 trillion yen will come into being if a package of pension reform bills currently under deliberation is approved by the Diet. The main pillar of the pension reforms, being pushed by the ruling coalition in the current Diet session, is a gradual reduction of pension benefits from the financially troubled public pension system for salaried people. But the controversial package also includes a bill that would transfer management of the nation's public pension assets from the Finance Ministry to the Health and Welfare Ministry, starting as early as fiscal 2001. Many experts and the opposition parties are concerned about the shift, saying bureaucrats at the Health Ministry are not qualified to invest a fund of such size, especially since the results could determine the quality of life for millions. They point to the failure of a Health Ministry-affiliated corporation that was entrusted with the management of 25.73 trillion yen of Japan's total 140 trillion yen pension assets. As of March, the Pension Welfare Service Public Corp. had accumulated debts of 1.2 trillion yen, due mainly to poor stock investments. The pension reform package includes a bill to liquidate the public corporation, possibly with premiums paid into the public insurance system. "How can you assure that the Health and Welfare Ministry can do better with the (total) 140 trillion yen, after suffering debts of more than 1 trillion?yen " asked Naoto Kan, policy chief of the Democratic Party of Japan, the largest opposition force, during a Lower House committee session on welfare issues. Health and Welfare Minister Yuya Niwa told the session that the ministry will be more cautious in managing the 140 trillion yen in assets, having learned lessons from the corporation's failures. Stock investments, generally considered more risky than investments in bonds, accounted for 40 percent of the corporation's portfolio. Niwa said the ministry will keep the level of stock investments much lower if it takes over the Finance Ministry's pension responsibility. The transfer of management was originally designed as a part of reforms for the Finance Ministry's "zaito" fiscal investment and loan program, which is often criticized as being too large and too inefficient. All public pension assets have been entrusted with the Finance Ministry, which has invested much of the money through the zaito scheme by such means as providing loans to government-affiliated corporations. The pension reform package, together with another bill now being prepared by the Finance Ministry, would allow the Health Ministry to invest pension assets in bonds and the stock market to seek higher returns. But opponents say that responsibility for possible investment failure is unclear under the government plan. Indeed, no Health Ministry officials were held accountable for the huge losses incurred by the Pension Welfare Service Public Corp. They argue that the same could be true of the ministry's management of the 140 trillion yen fund. "Rules to oblige (the ministry) to be cautious in managing the funds are written in the bills, but they are abstract. It's essential to require (bureaucrats) to take responsibility for the results of their investments," Hideki Kato, a professor at Keio University, told a public hearing session Thursday at the Diet. Other pension experts warn that direct possession of a huge amount of stocks by the government could adversely affect the private sector. Politicians may be inclined to put pressure on the government to arbitrarily prop up stock prices in a bearish market, they said. Corporate governance would be another problem. If the government exercises shareholders' rights, it could be tantamount to state intervention in private business. On the other hand, if the government refrains from doing so, it could be accused of neglecting its role as a shareholder in keeping tabs on company management, according to a recent report by private think tank Koso Nippon. In the United States, President Bill Clinton in January proposed the investment of a portion of public pension reserves into stocks, rather than national bonds, to seek higher returns. But he gave up the idea in the face of criticism that the government should neither intervene in the stock market nor private businesses. At Thursday's public hearing, Noriyuki Takayama, a professor at Hitotsubashi University, argued that the pension fund should be invested as it is in the U.S. -- in safer bonds to avoid the risks of stock investment. Opposition parties are now calling for longer Diet deliberations on pension fund management. Kan, for example, is urging the establishment of a third-party body to maintain neutrality in managing pension fund investment. Following political tug-of-war negotiations over deliberation schedules, the two camps agreed Thursday to hold a public hearing Monday for further discussion.Some Diet watchers now expect the bills to be carried over to the next session, which starts in January, due to prolonged debate.
