Japan's leaders are split over how to revive economy

Japanese Prime Minister Zenko Suzuki thought he had a vote-winning platform last year -- a promise of smaller government and a balanced budget without a tax increase.

But ironically, by clinging single-mindedly to this laudable aim Mr. Suzuki now finds himself in a political storm with the potential to destroy his career.

He pegged his future on a program of ''administrative reform,'' to slim down a bloated bureaucracy and end budget deficits by 1985.

The need to correct inherent weaknesses in the Japanese economy -- whereby massive budgetary deficits each year are covered by government bonds -- remains as acute as ever.

But this long-term goal has run into the short-term demands of a struggling domestic economy. Japanese businesses are in what they regard as a severe and prolonged slump, typified by poor domestic sales, shrinking exports, depressed production, and rising wage bills, plus growing and costly product inventories.

By American or European standards, the situation is not really so bad. But the Japanese often see their economy in terms of a bicycle: stop peddling fast and you immediately fall off.

Hence, in a panic, many business leaders have demanded that government launch an urgent spending program -- which could trigger a rise in inflation.

Mr. Suzuki's hands are virtually tied, however. He cannot revive the economy by stepping up public spending, lowering interest rates, and reducing income taxes to encourage more personal spending. Such moves would sabotage the government's financial reconstruction program.

The prime minister's hard line that cutting the budget and streamlining the bureacracy are the first order of business is supported by an advisory group of influential businessmen. The group is headed by Toshiwo Doko, former chairman of the Federation of Economic Organizations.

Mr. Doko has sufficient prestige to carry along for the moment the cream of the business world -- the leaders of the corporate giants like Mitsubishi and Mitsui, which have sufficient financial muscle to ride out a long recession.

But two-thirds of Japanese businesses are small companies which feel the chill of recession very quickly. And they are adamant that the prime minister's rigid adherence to his balanced-budget pledge is tantamount to a death sentence in today's harsh economic conditions.

According to one such businessman: ''If the government sticks to its guns, it will end up with increasingly fewer policy options. The result will be the opposite of what Suzuki wants: prolonging the recession, producing less tax revenues, and increasing the budget deficits.''

In fact, this is a critical point in the Suzuki campaign to balance the books.

The Finance Ministry, for example, has disclosed that shrinking corporate profits led to an estimated $10.6 billion decline in anticipated tax revenues last fiscal year, and a similar prospect looms in the current year.

As a result, the Treasury is considering a plan to issue additional deficit bonds early next year -- directly counter to a Suzuki pledge.

Even within his Cabinet there are voices calling for the prime minister to ease up. One such voice belongs to Toshio Komoto, director general of the Economic Planning Agency, who argues that steps for a rapid revival of the Japanese economy are vital not only out of domestic considerations but also as part of this country's responsibilities for revitalizing the sluggish world economy.

Many observers expect the 71-year-old Mr. Komoto to resign soon to devote himself full time to opposing Mr. Suzuki's policies.

He is expected to be a leading candidate -- who enjoys wide business support -- when the ruling Liberal Democratic Party votes on its leadership later this year.

Japan's four previous prime ministers have not lasted more than one term for a variety of reasons, and Mr. Suzuki could well become the fifth if the domestic economy remains in difficulties.